<PAGE>
Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
--------------------------------
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 1-2297
EASTERN ENTERPRISES
- ---------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-1270730
- --------------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9 RIVERSIDE ROAD, WESTON, MASSACHUSETTS 02493
- ---------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
781-647-2300
- ---------------------------------------------------------------------
(Registrant's telephone number, including area code)
- ---------------------------------------------------------------------
Former name, former address and former
fiscal year, if changed since last report.
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
---- ----
The number of shares of Common Stock outstanding of Eastern Enterprises as of
October 28, 1998 was 22,496,950.
<PAGE>
Form 10-Q
Page 2.
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Company or group of companies for which report is filed:
EASTERN ENTERPRISES AND SUBSIDIARIES ("Eastern")
<TABLE>
Consolidated Statement of Operations
- ------------------------------------
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
(In thousands, except per share amounts) 1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $135,258 $142,184 $707,980 $758,324
Operating costs and expenses:
Operating costs 96,982 98,631 485,009 535,375
Selling, general & adminis-
trative expenses 28,856 26,021 92,194 87,489
Depreciation & amortization 13,953 14,231 56,794 54,615
-------- -------- -------- --------
139,791 138,883 633,997 677,479
-------- -------- -------- --------
Operating earnings (loss) (4,533) 3,301 73,983 80,845
Other income (expense):
Interest income 1,438 2,293 5,548 6,626
Interest expense (7,465) (8,950) (24,495) (27,814)
Equity in loss of AllEnergy - (2,160) - (5,258)
Other, net 3,155 1,139 5,384 1,321
------- -------- -------- -------
Earnings (loss) before
income taxes (7,405) (4,377) 60,420 55,720
Provision (credit) for
income taxes (3,646) (1,561) 22,491 18,405
------- ------- -------- ------
Earnings (loss) before
extraordinary items (3,759) (2,816) 37,929 37,315
Extraordinary items,net of tax:
Credit for coal miners
retiree health care - - 48,425 -
Loss on early
extinguishment of debt - - (1,465) -
-------- -------- ------- --------
Net earnings (loss) $ (3,759) $ (2,816) $ 84,889 $ 37,315
======== ======== ======== ========
Basic earnings (loss) per share
before extraordinary items $ (.17) $ (.13) $ 1.69 $ 1.67
Extraordinary items, net of tax:
Credit for coal miners
retiree health care - - 2.16 -
Loss on early
extinguishment of debt - - (.07) -
-------- -------- -------- --------
Basic earnings (loss) per share $ (.17) $ (.13) $ 3.78 $ 1.67
======== ======== ======== ========
Diluted earnings (loss) per share
before extraordinary items $ (.17) $ (.13) $ 1.67 $ 1.66
Extraordinary items, net of tax:
Credit for coal miners
retiree health care - - 2.13 -
Loss on early
extinguishment of debt - - (.06) -
-------- -------- -------- --------
Diluted earnings (loss) per share $ (.17) $ (.13) $ 3.74 $ 1.66
======== ======== ======== ========
Dividends per share $ .40 $ .40 $ 1.21 $ 1.19
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Form 10-Q
Page 3.
Eastern Enterprises and Subsidiaries
- ------------------------------------
<TABLE>
Consolidated Balance Sheet
- --------------------------
<CAPTION>
September 30, December 31, September 30,
(In thousands) 1998 1997 1997
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and short-term investments $ 167,501 $ 175,709 $ 181,482
Receivables, less reserves 63,675 111,240 54,632
Inventories 56,176 61,336 64,955
Deferred gas costs 48,853 66,916 49,750
Other current assets 9,247 5,867 9,083
---------- --------- ---------
Total current assets 345,452 421,068 359,902
Property and equipment, at cost 1,699,539 1,621,850 1,587,406
Less--accumulated depreciation 735,068 688,169 674,562
--------- --------- ---------
Net property and equipment 964,471 933,681 912,844
Other assets:
Deferred post-retirement health care
costs 82,965 87,188 88,398
Investments 13,894 15,791 21,775
Deferred charges and other costs,
less amortization 69,205 72,637 49,574
---------- ---------- ----------
Total other assets 166,064 175,616 159,747
---------- ---------- ----------
Total assets $1,475,987 $1,530,365 $1,432,493
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Form 10-Q
Page 4.
Eastern Enterprises and Subsidiaries
- ------------------------------------
<TABLE>
Consolidated Balance Sheet
- --------------------------
<CAPTION>
September 30, December 31, September 30,
(In thousands) 1998 1997 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current debt $ 18,488 $ 48,378 $ 12,553
Accounts payable 47,490 70,833 48,607
Accrued expenses 44,156 38,505 44,286
Other current liabilities 40,739 67,649 61,909
--------- --------- ---------
Total current liabilities 150,873 225,365 167,355
Gas inventory financing 43,249 59,310 50,398
Long-term debt 387,311 371,492 372,833
Reserves and other liabilities:
Deferred income taxes 135,899 107,804 104,668
Post-retirement health care 96,710 98,382 99,060
Coal miners retiree health care - 57,000 57,919
Preferred stock of subsidiary 29,351 29,326 29,318
Other reserves 91,671 97,216 75,996
--------- --------- ---------
Total reserves and other
liabilities 353,631 389,728 366,961
Commitments and Contingencies
Shareholders' equity:
Common stock, $1.00 par value
Authorized shares -- 50,000,000
Issued shares -- 22,507,975 at
September 30, 1998 22,438,298 at
December 31, 1997 and 22,426,887
at September 30, 1997 22,508 22,438 22,427
Capital in excess of par value 52,666 50,989 50,692
Retained earnings 467,795 410,756 401,212
Accumulated other comprehensive
earnings (loss) (1,687) 1,867 2,467
Treasury stock at cost - 10,461
shares at September 30, 1998;
54,928 shares at December 31, 1997
and 64,380 shares at
September 30, 1997 (359) (1,580) (1,852)
---------- ---------- ----------
Total shareholders' equity 540,923 484,470 474,946
---------- ---------- ----------
Total liabilities and
shareholders' equity $1,475,987 $1,530,365 $1,432,493
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Form 10-Q
Page 5.
Eastern Enterprises and Subsidiaries
- ------------------------------------
<TABLE>
Consolidated Statement of Cash flows
- ------------------------------------
<CAPTION>
Nine months ended September 30,
(In thousands) 1998 1997
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 84,889 $ 37,315
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 56,794 54,615
Income taxes and tax credits (684) 11,223
Net credit for coal miners retiree
health care (48,425) -
Net loss on early extinguishment of debt 1,465 -
Net gain on sale of investments (4,522) (846)
Other changes in assets and liabilities:
Receivables 47,974 44,107
Inventories 5,372 875
Deferred gas costs 20,832 26,898
Accounts payable (25,255) (29,572)
Other (8,734) 10,903
------- -------
Net cash provided by operating activities 129,706 155,518
Cash flows from investing activities:
Capital expenditures (84,646) (52,189)
Proceeds on sale of investments 13,504 1,023
Investments (3,928) (5,838)
Other 147 (2,370)
------- -------
Net cash used by investing activities (74,923) (59,374)
Cash flows from financing activities:
Dividends paid (27,269) (26,417)
Changes in notes payable (32,933) (61,725)
Proceeds from issuance of long-term debt 68,019 10,000
Repayment of long-term debt (54,116) (4,359)
Changes in gas inventory financing (16,574) (8,554)
Other 5,000 1,949
------- -------
Net cash used by financing activities (57,873) (89,106)
Net increase (decrease) in cash and cash equivalents (3,090) 7,038
Cash and cash equivalents at beginning of year 170,591 160,108
------- -------
Cash and cash equivalents at end of period 167,501 167,146
Short-term investments - 14,336
------- -------
Cash and short-term investments $ 167,501 $ 181,482
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Form 10-Q
Page 6.
EASTERN ENTERPRISES AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
1. Accounting policies
It is Eastern's opinion that the financial information contained in this report
reflects all adjustments necessary to present a fair statement of results for
the periods reported. All of these adjustments are of a normal recurring nature.
Results for the periods are not necessarily indicative of results to be expected
for the year, due to the seasonal nature of Eastern's operations. All accounting
policies have been applied in a manner consistent with prior periods. As
discussed in Note 2, amounts have been restated under the pooling of interests
method of accounting to include the operations of Essex County Gas Company
("Essex Gas"). Such financial information is subject to year-end adjustments and
annual audit by independent public accountants.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure 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 those estimates.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted in this Form 10-Q. Therefore, these interim
financial statements should be read in conjunction with Eastern's 1997 Annual
Report filed on Form 10-K with the Securities and Exchange Commission.
Earnings per share
Basic earnings per share is based on the weighted average number of shares
outstanding, as adjusted to account for the Essex Gas acquisition. Diluted
earnings per share gives effect to the exercise of stock options using the
treasury stock method, as reflected below:
<TABLE>
<CAPTION>
Three months ended Sept. 30, Nine months ended Sept. 30,
(In thousands) 1998 1997 1998 1997
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Weighted average shares 22,486 22,349 22,461 22,314
Dilutive effect of options - - 231 158
------ ------ ------ ------
Adjusted weighted average shares 22,486 22,349 22,692 22,472
====== ====== ====== ======
</TABLE>
2. Essex County Gas Company Merger
On September 30, 1998, Eastern completed a merger with Essex Gas by exchanging
approximately 2,047,000 shares of its common stock for all of the common stock
of Essex Gas. Each share of Essex Gas was exchanged for 1.183985 shares of
Eastern common stock. The merger was accounted for as a pooling of interests.
Accordingly, the accompanying financial statements include the accounts of Essex
Gas for all periods presented.
<PAGE>
Form 10-Q
Page 7.
Essex Gas's fiscal year ends on August 31. Accordingly, the accompanying
financial statements include the three and nine month periods ending September
30, 1998 of Eastern combined with the three and nine month periods ending August
31, 1998 of Essex Gas and the three and nine month periods ending September 30,
1997 of Eastern combined with the three and nine month periods ending May 31,
1997 of Essex Gas.
Financial results for the separate companies and the combined amounts presented
in the consolidated statements of operations were as follows:
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
(In thousands) Sept 30, 1998 Sept 30, 1997 Sept 30, 1998 Sept 30, 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Eastern $130,654 $125,524 $666,194 $710,300
Essex Gas 4,604 16,660 41,786 48,024
-------- -------- -------- --------
Combined $135,258 $142,184 $707,980 $758,324
======== ======== ======== ========
Earnings (loss) before
extraordinary items
Eastern $ (2,817) $ (4,072) $ 35,451 $ 33,189
Essex Gas (942) 1,256 2,478 4,126
-------- -------- -------- --------
Combined $ (3,759) $ (2,816) $ 37,929 $ 37,315
======== ======== ======== ========
</TABLE>
The combined financial statements include adjustments to conform the accounting
policies of Essex Gas with those of Eastern. The primary adjustment conformed
Essex Gas's method of adoption of Statement of Financial Accounting Standards
("SFAS") No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions" with Eastern's adoption by immediately recognizing the transition
obligation of approximately $4.1 million at the date of adoption, September 1,
1994. Since Essex Gas had received regulatory approval to fully recover the SFAS
No. 106 costs in rates, a regulatory asset was recorded for the transition
obligation and there was no adjustment to income.
Transaction fees are expected to total $9,500,000, of which $3,358,000 have been
incurred and expensed for the nine month period ending September 30, 1998. An
additional $300,000 of transaction fees were incurred and expensed in the fourth
quarter of the prior year. The remaining $5,842,000 will be expensed by Essex
Gas in September 1998. Transaction fees primarily include investment banking
fees and other professional fees.
In conjunction with the approval of the merger by the Massachusetts Department
of Telecommunication and Energy (the "DTE"), a rate plan, whereby Essex Gas
customers receive an immediate 5% rate reduction and base rates remain frozen
for ten years, was also approved. Because of the rate freeze, Essex Gas is
unable to continue its application of SFAS No. 71, "Accounting for the Effects
of Certain Types of Regulation" and, effective September 30, 1998 will write-off
net regulatory assets approximating $2,950,000 pretax, $1,200,000 net or $.05
per share. Regulatory assets primarily consisted of deferred post-retirement
health care costs. In addition, Essex Gas will be required to adopt a revenue
method which will reflect full accrual accounting which will result in a minor
non-recurring gain. The impact of these changes is not reflected in the
accompanying consolidated financial statements as a result of differing fiscal
year ends discussed above.
<PAGE>
Form 10-Q
Page 8.
3. Planned Merger with Colonial Gas Company
On October 17, 1998 Eastern signed a definitive agreement that provides for the
merger of Colonial Gas Company ("Colonial Gas") into Eastern for $37.50 per
share, payable in Eastern stock and $150 million in cash. The exchange ratio for
the stock portion of the consideration will be based upon Eastern's average
closing stock price for a ten-day period prior to closing, subject to a collar
mechanism. The transaction is expected to close in mid-1999, subject to receipt
of satisfactory regulatory approvals and the approval of Eastern and Colonial
Gas shareholders. The merger is expected to be tax-free to the extent Colonial
Gas shareholders receive Eastern stock, and will be accounted for using the
purchase method of accounting.
4. Change in Accounting Principles
Effective January 1, 1998, Eastern adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income". This statement requires
presentation of the components of comprehensive earnings, including the changes
in equity from non-owner sources such as unrealized gains on securities and
minimum pension liability adjustments. Eastern's total comprehensive earnings
were are follows:
<TABLE>
<CAPTION>
Three months ended Sept. 30, Nine months ended Sept. 30,
(In thousands) 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------- ------------------------------------
<S> <C> <C> <C> <C>
Net earnings (loss) $(3,759) $(2,816) $84,889 $37,315
Unrealized gains on securities:
Unrealized holding gains (losses)
arising during period (2,185) 470 (1,608) 1,734
Reclassification adjustment
for gains included in net
earnings (296) (201) (1,946) (511)
------- ------- ------- -------
(2,481) 269 (3,554) 1,223
------- ------- ------- -------
Comprehensive earnings $(6,240) $(2,547) $81,335 $38,538
======= ======= ======= =======
</TABLE>
5. Coal Miners Retiree Health Care
On June 25, 1998 the U.S. Supreme Court ruled that the Coal Industry Retiree
Health Benefit Act of 1992 ("the Coal Act") is unconstitutional as applied to
Eastern.
Beginning in 1993, Eastern recorded provisions totaling $80.0 million to fund
its liability under the Coal Act. As a result of the Supreme Court's decision,
Eastern reversed those provisions, less associated expenses, resulting in an
extraordinary gain of $74.5 million pretax, $48.4 million net or $2.13 per share
in the second quarter of 1998.
<PAGE>
Form 10-Q
Page 9.
6. Debt
In March 1998, Midland utilized currently available cash to call $50 million of
9.9% First Preferred Ship Mortgage Bonds, due 2008. In extinguishing this debt,
Midland recognized an extraordinary charge of $2,254,000 pretax, $1,465,000 net,
or $.07 per share.
On September 29, 1998, Midland issued $75.0 million of 6.25% First Preferred
Ship Mortgage Bonds maturing October 1, 2008. Proceeds of $68.5 million were net
of $6.0 million incurred on treasury rate lock agreements entered into in the
second and third quarters in order to hedge the bond interest rate. The debt has
an effective annual interest rate of 7.50%.
7. Inventories
The components of inventories were as follows:
<TABLE>
<CAPTION>
September 30, December 31, September 30,
(In thousands) 1998 1997 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Supplemental gas supplies $ 44,271 $ 48,722 $ 52,192
Other materials, supplies and
marine fuels 11,905 12,614 12,763
-------- -------- --------
$ 56,176 $ 61,336 $ 64,955
======== ======== ========
</TABLE>
8. Supplemental cash flow information
The following are supplemental disclosures of cash flow information:
<TABLE>
<CAPTION>
Nine months ended September 30,
(In thousands) 1998 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash paid during the year for:
Interest, net of amounts capitalized $18,789 $20,884
Income taxes $25,030 $ 8,273
</TABLE>
<PAGE>
Form 10-Q
Page 10.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
On September 30, 1998, Eastern completed the acquisition of Essex County Gas
Company ("Essex Gas") by exchanging 2.0 million shares of Eastern common stock
for all of the common stock of Essex Gas. As described in Note 2 of Notes to
Financial Statements, the transaction was accounted for as a pooling of
interests. All financial statements presented for prior periods have been
restated to combine the financial information of Essex Gas and Boston Gas, which
are reported below as Gas operations. Because Essex Gas has an August 31 year
end, Eastern's consolidated results include Essex Gas operations for the three
and nine month periods ended August 31, 1998 and for the three and nine month
periods ended May 31, 1997.
<TABLE>
<CAPTION>
Three months ended September 30,
Revenues:
(In thousands) 1998 1997 Change
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Natural Gas Distribution $ 67,289 $ 74,534 (10)%
Marine Transportation 66,850 67,650 (1)%
Other Services 1,119 - nm
-------- --------
Total $135,258 $142,184 (5)%
======== ========
</TABLE>
<TABLE>
<CAPTION>
Nine months ended September 30,
1998 1997 Change
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Natural Gas Distribution $511,706 $558,179 (8)%
Marine Transportation 194,671 200,145 (3)%
Other Services 1,603 - nm
-------- --------
Total $707,980 $758,324 (7)%
======== ========
</TABLE>
Natural Gas Distribution
The decrease in gas revenues for the third quarter of 1998 primarily reflects
the inclusion in 1997 figures of a portion of Essex Gas heating season revenues.
Essex Gas revenues for the quarter ended May 31, 1997 were $11.1 million higher
than for the quarter ended August 31, 1997. This decrease was partially offset
by pass through of higher gas costs at Boston Gas ($7 million).
Year-to-date revenues decreased due primarily to warmer weather ($26 million),
the migration of customers from firm sales to transportation-only service ($18
million) and the pass through of lower gas costs ($16 million), partially offset
by throughput growth and higher non-firm sales. Year-to-date weather was 9%
warmer than normal, compared to near normal weather in 1997. Essex Gas revenues
for the quarter ended November 30, 1997 were $4.4 million higher than for the
quarter ended August 31, 1997, which also contributed to the year-to-date
decrease.
Marine Transportation
Overall weak transportation markets experienced during the first half of 1998
generally continued into the third quarter, reflecting the impact of the strong
U.S. dollar and Southeast Asia's economic problems on export demand for coal and
<PAGE>
Form 10-Q
Page 11.
grain. Barge demand strengthened in the middle of the third quarter on increased
orders from electric utilities and industrial coal customers, coupled with
increased imports of steel-related products from the Gulf. Forecasts of a larger
grain harvest than last year helped increase spot rates, although rates
generally remain below 1997 levels. Lower fuel prices throughout 1998 decreased
rates on multi-year contracts containing fuel price adjustment clauses.
Production was disrupted by adverse operating conditions due to low water in the
Ohio Valley in September and multiple tropical storms in the Gulf Coast areas
for the entire quarter. The low water caused prolonged lock delays and
groundings on Midland's main trade routes.
Tonnage transported in the third quarter and year-to-date increased 6% and 7%,
respectively, compared to the same periods in 1997 despite the adverse operating
conditions. Third quarter ton miles were flat with 1997, while year-to-date ton
miles were 3% below the prior year level. The tonnage increases primarily
reflect replacement of reductions in long haul export tonnage with shorter haul
domestic movements. Coal tonnage shipped under multi-year contracts with utility
and industrial customers increased 18% and 24%, respectively, for the quarter
and year-to-date, compared to 1997. Reduced spot domestic and export coal
tonnage was partially offsetting.
Other Services
Revenues reflect the commencement of operations at ServicEdge in April 1998.
<TABLE>
<CAPTION>
Operating Earnings:
Three months ended September 30,
(In thousands) 1998 1997 Change
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Natural Gas Distribution $(7,653) $(4,858) (58)%
Marine Transportation 8,421 10,061 (16)%
Other Services (2,808) - nm
Headquarters (2,493) (1,902) (31)%
------- -------
Total $(4,533) $ 3,301 nm
======= =======
</TABLE>
<TABLE>
<CAPTION>
Nine months ended September 30,
1998 1997 Change
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Natural Gas Distribution $64,409 $61,239 5%
Marine Transportation 22,228 24,592 (10)%
Other Services (7,465) - nm
Headquarters (5,189) (4,986) (4)%
------- -------
Total $73,983 $80,845 (8)%
======= =======
</TABLE>
Natural Gas Distribution
Operating earnings for the third quarter of 1998 decreased by $2.8 million,
primarily reflecting the inclusion in 1997 results of a portion of Essex Gas'
heating season earnings, as discussed above. Essex Gas operating earnings for
the quarter ended May 31, 1997 were $2.3 million higher than for its quarter
ended August 31, 1997. The decrease also reflects $0.8 million of merger
transaction costs expensed in 1998.
<PAGE>
Form 10-Q
Page 12.
Year-to-date operating earnings increased by $3.3 million, primarily reflecting
lower operating costs ($9 million), growth in throughput and higher average
rates, partially offset by the margin impact of warmer weather ($8 million), the
absence of a pension settlement gain reflected in 1997 ($2 million) and $1.6
million of merger transaction costs.
The pass through of higher or lower gas costs and migration to
transportation-only service have no impact on gas operating earnings. Eastern's
natural gas distribution operations earn all of their margins on the local
distribution of gas and none on the resale of the commodity.
Marine Transportation
Operating earnings for the third quarter and year-to-date 1998 decreased by $1.6
million and $2.3 million, respectively, reflecting substantially increased
operating expenses and weaker market conditions, as described above. Additional
owned and chartered equipment was employed to help offset the impact of lock
delays in the Ohio Valley and weather delays in the Gulf. The tropical storms,
flooding and lock delays in the third quarter, following the disruptions from
heavy rains associated with El Nino-related storms earlier in the year, resulted
in substantially higher operating costs than 1997. Weak demand for export grain
and coal throughout 1998 also increased operating costs by disrupting pattern
efficiencies. These higher costs were partially offset by lower fuel prices, as
compared to 1997. New barge purchases increased depreciation expense and taxes.
Other Services
ServicEdge's operating losses of $2.8 million for the second quarter and $7.5
million for the first nine months of 1998, reflect slower than anticipated
customer growth and general and administrative expense associated with starting
this new business.
Other
Interest income and interest expense for the third quarter of 1998 decreased by
$0.9 million and $1.5 million, respectively, primarily reflecting the use of
short-term investments to redeem $50 million of Midland debt in March 1998, as
discussed in Note 7. Year-to-date interest income and interest expense decreased
by $1.0 million and $3.3 million, respectively, primarily reflecting the
redemption of Midland debt. Eastern recognized an extraordinary loss of $2.3
million pretax, $1.5 million net, or $.06 per share on redeeming this debt.
In 1997, other income includes losses for the quarter and first nine months of
$2.2 million and $5.3 million, respectively, representing Eastern's share of
AllEnergy's operating losses. Eastern sold its investment in AllEnergy in
December 1997.
In 1998, other, net includes realized gains on investments of $3.0
million for the quarter and $4.6 million year-to-date.
<PAGE>
Form 10-Q
Page 13.
In June 1998, The U.S. Supreme Court held the Coal Industry Retiree Health
Benefit of 1992 ("Coal Act") to be unconstitutional, as applied to Eastern. As
discussed in Note 5, the reversal of Coal Act provisions resulted in an
extraordinary gain of $74.5 million pre-tax, $48.4 million net, or $2.13 per
share in the second quarter of 1998.
In October 1998 Eastern signed a definitive agreement to acquire Colonial Gas
Company ("Colonial Gas") for $37.50 in Eastern stock and cash. See Note 3 of
Notes. The cash consideration has been fixed at $150.0 million and will be
financed by available funds. Colonial Gas is a gas distribution utility serving
about 150,000 customers in and around Lowell, Massachusetts and on Cape Cod. The
merger is subject to a number of conditions, including approval by regulators
and the shareholders of both Eastern and Colonial Gas.
YEAR 2000 ISSUES
State of Readiness
Eastern has assessed the impact of the year 2000 with respect to its information
technology ("IT") systems and embedded chip systems as well as the Company's
exposure to significant third party risks. In such regard, Eastern has initiated
and completed substantial portions of its plans to replace or modify existing
systems and technology and to assure that major customers and critical vendors
are also addressing these issues. Year 2000 issues for Essex Gas are being
addressed by integration of its systems with those of Boston Gas, which is
scheduled for completion by the first quarter of 1999.
With respect to IT systems, Boston Gas has tested and certified four of its
eleven "mission critical" application systems. A fifth system is scheduled for
certification in the fourth quarter of 1998 and replacement of the remaining six
systems is in process and scheduled to be completed by the second quarter of
1999. All other "less than critical" applications are scheduled to be tested
and/or upgraded by the second quarter of 1999. Conversion and testing of all
mainframe hardware and software has been completed. Replacements are in process
for client server, data/voice communications, e-mail and desktop hardware and
software, with completion scheduled by the second quarter of 1999.
With respect to embedded chip systems, Boston Gas has completed an inventory and
expects to complete its assessment and action plan in the fourth quarter of
1998. All remediation, conversion and testing is scheduled for completion by the
second quarter of 1999.
Boston Gas has identified material third party relationships and expects to
complete its detailed survey and assessment of third party readiness by the
fourth quarter of 1998. Selected testing and implementation of risk mitigation
strategies for high risk vendors are scheduled for completion by the second
quarter of 1999.
Midland has modified and tested all mainframe-based programs and systems, which
were operating on a new mainframe as of September 30, 1998. All non-mainframe
(server) based systems have been tested and all have been modified except for
Accounts Receivable, which is scheduled for completion in the second quarter of
1999. Midland expects its personal computers to be 100% compliant by mid-1999.
<PAGE>
Form 10-Q
Page 14.
With respect to embedded chip systems, Midland's major operating assets and
sub-systems were reviewed for embedded chip technology. Based on this
review and actions taken, management believes year 2000 issues in regards to
internal chip technology will not impair its operating assets.
Midland has assessed third party risk with respect to critical suppliers,
services and customers. Midland is actively seeking written confirmation of
third party readiness. If such readiness is in doubt, Midland expects to locate
backup providers by the second quarter of 1999.
Notwithstanding Eastern's efforts with third parties, there can be no assurance
that the systems of third parties on which Eastern's systems rely will be timely
converted or that any such failure to convert by a third party would not have an
adverse effect on Eastern's operations.
Cost of year 2000 remediation
Boston Gas and Midland expect the cost of their year 2000 compliance to
approximate $13 million and $2 million, respectively, as detailed in the
following chart:
<TABLE>
<CAPTION>
Expected future
(In millions) Cost to date Cost
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Boston Gas - capital $6.0 $2.4
expense $2.3 $2.3
Midland - capital (includes mainframe) $0.9 $0.0
expense $0.7 $0.4
</TABLE>
Risks of year 2000 issues
Boston Gas has assessed the most reasonably likely worst case year 2000
scenario. Given its efforts to minimize the risk of year 2000 failure by its
internal systems and its distribution network control systems, Boston Gas
believes the worst case scenario would occur if its primary telecommunications
vendor and/or its electric supplier experiences a year 2000 failure which
results in an outage. An outage would require Boston Gas to enact disaster
recovery measures to enable the continuation of service to its customers. Such
measures would include utilization of Boston Gas' co-generation capability for
electrical power, relocating the customer inquiry function and use of a wireless
network for communications.
Midland believes its worst case scenario would involve failures by the Army
Corps of Engineers, which operates the various lock and dam systems on the
inland waterways, or by rail services which are essential for bringing
commodities to the rivers for transit in Midland's barges. These failures could
significantly disrupt Midland's operations. The risk of failure by
communications systems or fuel suppliers is expected to be mitigated by the
availability of alternate suppliers.
Contingency plans
Boston Gas and Midland are in the process of developing contingency plans and
anticipate having such plans in place by the second quarter of 1999.
<PAGE>
Form 10-Q
Page 15.
FORWARD-LOOKING INFORMATION:
This report and other company statements and statements issued or made from time
to time contain certain "forward-looking statements" concerning projected future
financial performance, expected plans or future operations. Eastern cautions
that actual results and developments may differ materially from such projections
or expectations.
Investors should be aware of important factors that could cause actual results
to differ materially from the forward-looking projections or expectations. These
factors include, but are not limited to: the effect of the Colonial Gas merger
and other strategic initiatives on earnings and cash flow, difficulties
encountered in integrating Eastern's gas utility operations, temperatures above
or below normal in eastern Massachusetts, changes in market conditions for barge
transportation, adverse weather and operating conditions on the inland
waterways, uncertainties regarding the start-up of ServicEdge, including expense
levels and customer acceptance, the timetable and cost for completion of
Eastern's year 2000 plans, the impact of third parties' year 2000 issues,
changes in economic conditions, including interest rates and the value of the
dollar versus other currencies, regulatory and court decisions and developments
with respect to Eastern's previously-disclosed environmental liabilities. Most
of these factors are difficult to predict accurately and are generally beyond
Eastern's control.
LIQUIDITY AND CAPITAL RESOURCES
Management believes that projected cash flows from operations, in combination
with currently available resources and the borrowing discussed below, are more
than sufficient to meet Eastern's 1998 capital expenditure and working capital
requirements, potential funding of its environmental liabilities, normal debt
repayments, anticipated dividend payments to shareholders and the planned
acquisition of Colonial Gas.
Consolidated capital expenditures are budgeted at approximately
$110 million, with about 55% at gas operations and the balance at Midland.
As discussed in Note 5, in March 1998, Midland utilized currently available cash
to redeem $50 million of 9.9% First Preferred Ship Mortgage Bonds, due 2008. In
September 1998 Midland issued $75 million of 6.25% First Preferred Ship Mortgage
Bonds due October 1, 2008. The $68.5 million net proceeds of the notes will be
used to fund current and future capital expenditures for barges and other
capital equipment.
<PAGE>
Form 10-Q
Page 16.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) List of Exhibits
10.1 Change of Control Agreement, dated as of
July 22, 1998, by and between Eastern
Enterprises and J. Atwood Ives.
10.2 Employment Agreement, dated as of September 1,
1998, by and between Eastern Enterprises and
Fred C. Raskin.
10.3 Change of Control Agreement, dated as of
September 1, 1998 and between Eastern Enterprises
and Fred C. Raskin.
10.4 Change of Control Agreement, dated as of
July 22, 1998, by and between Eastern Enterprises
and Walter J. Flaherty.
10.5 Change of Control Agreement, dated as of
July 22, 1998, by and between Eastern Enterprises
and L. William Law, Jr.
10.6 Change of Control Agreement, dated as of July 22,
1998, by and between Eastern Enterprises, Boston
Gas Company and Chester R. Messer, II.
10.7 Amendment to Eastern's Supplemental Executive
Retirement Plan, dated as of July 22, 1998.
27.1 Financial Data Schedule.
27.2 Restated Financial Data Schedule for the nine
month period ending September 30, 1997.
(b) Report on Form 8-K
On July 28, 1998, Eastern filed Form 8-K which contained a
description of Amendment No. 2 to a Common Stock Rights
Agreement, dated as of July 22, 1998, with BankBoston, N.A.
This Form 8-K also included a description of the declaration
of a common stock purchase right dividend pursuant to a new
Rights Agreement, dated as of July 22, 1998, between Eastern
and BankBoston, N.A.
<PAGE>
Form 10-Q
Page 17.
SIGNATURES
It is Eastern's opinion that the financial information contained in
this report reflects all adjustments necessary to present a fair statement of
results for the period reported. All of these adjustments are of a normal
recurring nature. Results for the period are not necessarily indicative of
results to be expected for the year, due to the seasonal nature of Eastern's
operations. All accounting policies have been applied in a manner consistent
with prior periods other than changes disclosed in Notes to Financial
Statements. Such financial information is subject to year-end adjustments and
annual audit by independent public accountants.
Pursuant to the requirements of the Securities Exchange Act of 1934,
Eastern has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EASTERN ENTERPRISES
By /S/ JAMES J. HARPER
----------------------
James J. Harper
Vice President and Controller
(Chief Accounting Officer)
By /S/ WALTER J. FLAHERTY
-----------------------
Walter J. Flaherty
Senior Vice President and
Chief Financial Officer
October 29, 1998
<PAGE>
EXHIBIT INDEX
10.1 Change of Control Agreement, dated as of
July 22, 1998, by and between Eastern
Enterprises and J. Atwood Ives.
10.2 Employment Agreement, dated as of September 1,
1998, by and between Eastern Enterprises and
Fred C. Raskin.
10.3 Change of Control Agreement, dated as of
September 1, 1998 and between Eastern Enterprises
and Fred C. Raskin.
10.4 Change of Control Agreement, dated as of
July 22, 1998, by and between Eastern Enterprises
and Walter J. Flaherty.
10.5 Change of Control Agreement, dated as of
July 22, 1998, by and between Eastern Enterprises
and L. William Law, Jr.
10.6 Change of Control Agreement, dated as of July 22,
1998, by and between Eastern Enterprises, Boston
Gas Company and Chester R. Messer, II.
10.7 Amendment to Eastern's Supplemental Executive
Retirement Plan, dated as of July 22, 1998.
27.1 Financial Data Schedule.
27.2 Restated Financial Data Schedule for the nine
month period ending September 30, 1997.
Exhibit 10.1
AGREEMENT
This Agreement by and between Eastern Enterprises, a Massachusetts
business trust with its principal offices in Weston, Massachusetts ("Eastern"),
and J. Atwood Ives (the "Executive"), is entered into as of the 22nd day of
July, 1998:
W I T N E S S E T H T H A T:
WHEREAS the Executive is an executive employee of Eastern;
WHEREAS, Eastern has previously entered into an Agreement, dated
November 27, 1991, with Executive (the "Employment Agreement"), under which
Eastern has agreed to pay Executive certain income and benefits in the event of
termination of Executive's employment; and
WHEREAS the Board of Trustees of Eastern (the "Board") has determined
that it is in the best interests of Eastern, its shareholders and the Executive
to assure continuity in the management of Eastern's administration and
operations by entering into an agreement to provide the Executive with certain
assurances pertaining to compensation and benefits in the event that a Change of
Control, as defined below, should be under consideration or should have
occurred.
NOW, THEREFORE, it is hereby agreed by and between the parties hereto
as follows:
1. EMPLOYMENT. Eastern agrees that from and after the Effective Date as
hereinafter defined it shall continue the Executive in its employ and the
Executive agrees that from and after the Effective Date he shall remain in the
employ of Eastern, in each case for the period described in Section 4 hereof and
upon the other terms and conditions herein provided.
2. CERTAIN DEFINITIONS: For purposes of this Agreement, the
following terms shall have the meanings set forth below:
(a) "Cause" shall mean, subject to the provisions of this
definition, (i) conviction of the Executive for (or a plea of nolo
contendere by the Executive with respect to) a felony, or (ii) an act
by the Executive of fraud or dishonesty which has resulted or is likely
to result in material economic damage to Eastern or its subsidiaries.
No purported termination of Executive shall be deemed a termination for
Cause unless the Board, by an affirmative vote of not less than
two-thirds of the entire membership of the Board at a meeting of the
Board, shall have made a determination that Cause exists nor unless, in
the case of Cause asserted under clause (a)(ii) above, the Board shall
have given the Executive the opportunity, upon at least thirty (30)
days' prior written notice, to appear and be heard with counsel before
the Board. In the case of Cause asserted under clause (a)(ii) above,
<PAGE>
the thirty (30) days' prior written notice must be given within 120
days following the Board first becoming aware of the occurrence of the
last event providing a basis or otherwise significantly contributing to
a determination of Cause.
(b) "Change of Control" shall mean the occurrence of any of
the following after January 1, 1998:
(i) any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended) or group of "persons" (as so defined), other than
Eastern, becomes a beneficial owner directly or indirectly of
securities representing twenty-five percent (25%) or more of
the combined voting power of the then outstanding voting
securities of Eastern; or
(ii) there is consummated a merger or consolidation
("merger") involving Eastern and immediately after such merger
the beneficial owners immediately prior to such merger of the
then outstanding voting securities of Eastern do not continue
to own beneficially at least sixty percent (60%) of the voting
securities of the entity or entities resulting from such
merger; or
(iii) there is consummated a sale, lease, exchange,
spin-off or other transfer (any of the foregoing, a
"transfer") of all or substantially all of the assets or
business of Eastern and its subsidiaries, other than any such
transfer resulting in beneficial ownership of not less than
sixty percent (60%) of the assets or business so transferred
or not less than sixty percent (60%) of the voting securities
of the entity or entities to which such assets were
transferred by the owners immediately prior to the transfer of
the then outstanding voting securities of Eastern; or
(iv) within any two-year period, individuals who at
the beginning of such period constituted the Board of Trustees
of Eastern cease for any reason to constitute a majority
thereof; provided, that any trustee who is not in office at
the beginning of such two-year period but whose election or
nomination for election was approved by a vote of at least
two-thirds of the trustees in office at the time of such
approval who were either trustees of Eastern at the beginning
of such period or who were elected to the Board of Trustees
pursuant to an election which was, or for which the nomination
<PAGE>
for election was, previously so approved shall be deemed to
have been in office at the beginning of such two-year period;
provided, however, that there shall be excluded from this
clause (iv) any individual whose initial assumption of office
occurred as a result of an actual or threatened election
contest with respect to the election or removal of Trustees or
other actual or threatened solicitation of proxies or
consents, by or on behalf of a person other than the Board of
Trustees.
(c) "Code" shall mean the federal Internal Revenue Code of
1986, as amended.
(d) "Disability" shall mean the Executive's demonstrated
inability, over a continuous period of at least twelve (12) months, to
perform the Executive's duties and responsibilities by reason of a
disabling injury or condition that would qualify the Executive for
benefits under Eastern's long term disability program.
(e) "Effective Date" shall mean the date specified in
Section 4(a) below.
(f) "Good Reason" means any of the following unless promptly,
fully and retroactively corrected by Eastern or unless waived in
writing by the Executive: (i) any reduction in the annual rate of base
salary payable to the Executive below the higher of the annual rate at
which base salary is then being paid to the Executive or the annual
rate at which base salary was being paid to the Executive immediately
prior to the Effective Date; (ii) the elimination of or any reduction
in the bonus opportunities made available to the Executive under any
bonus or incentive program; (iii) the elimination of or any reduction
in any other employee or executive benefit, benefit program or
perquisite then available to the Executive or the Executive's family or
that was available to the Executive or the Executive's family
immediately prior to the Effective Date, or any change in any such
employee or executive benefit, benefit program or perquisite that would
result in additional cost to the Executive or the Executive's family,
in each case except for changes in broad-based employee benefit
programs (that is, employee benefit programs available to non-officer
employees generally as well as officers) that have a similar effect on
both officer and non-officer participants generally in such programs;
(iv) any material diminution in the nature or scope of Executive's
duties, functions or responsibilities (including without limitation
reporting lines); (v) any action resulting in a relocation of the
Executive's regular place of employment to a location that is more than
thirty-five (35) miles from the place where the Executive was regularly
employed immediately prior thereto or immediately prior to the
Effective Date; and (vi) any other material breach of this Agreement by
Eastern.
<PAGE>
3. POSITION AND RESPONSIBILITIES. During the period of employment
hereunder, the Executive agrees to serve Eastern in an executive capacity,
subject to the terms of this Agreement.
4. TERM AND DUTIES.
(a) The period of the Executive's employment under this
Agreement shall be deemed to have commenced as of the date (the
"Effective Date") which precedes by six (6) months the date of a Change
of Control and shall continue for a period which ends on the last day
of the twenty-four (24) calendar month period which begins on the date
of such Change of Control.
(b) During the period of employment hereunder and except for
illness or incapacity and reasonable vacation periods, the Executive's
business time, attention, skill and efforts shall be exclusively
devoted to the business and affairs of Eastern and its subsidiaries;
provided, however, that nothing in this Agreement shall preclude the
Executive from engaging in the following:
(i) serving as a director, trustee or committee
member in any company or organization,
(ii) delivering lectures and fulfilling speaking
engagements, and
(iii) engaging in charitable and community activities,
provided that such activities do not materially adversely affect or
interfere with the performance of the Executive's obligations to
Eastern.
5. COMPENSATION AND BENEFITS. During the Executive's employment
under this Agreement, Eastern shall pay, provide and make available the
following:
(a) Eastern shall pay the Executive base salary at an annual
rate that is not less than the annual rate at which base salary was
being paid to the Executive by Eastern immediately prior to the
Effective Date.
(b) In addition to the salary payable under subsection (a)
above, Eastern shall provide or make available to the Executive, from
and after the Effective Date and during the term of the Executive's
employment hereunder, bonus opportunities, benefits, equity
compensation, and perquisites not less favorable, and on terms not less
favorable, to the Executive than the bonus opportunities, benefits,
equity compensation, and perquisites provided or made available and on
the terms provided or made available to the Executive immediately prior
to the Effective Date.
<PAGE>
6. BUSINESS EXPENSE. Eastern shall pay or reimburse the Executive for
all reasonable travel or other expenses incurred in connection with the
performance of the Executive's duties under this Agreement in accordance with
such procedures as Eastern may from time to time establish.
7. TERMINATION OF EMPLOYMENT. Notwithstanding any other provision
of this Agreement, the Executive's employment under this Agreement may be
terminated:
(a) by Eastern for Cause (but only if such termination is
accomplished in the manner specified in Section 2(a));
(b) by Eastern other than for Cause pursuant to Section 7(a)
and other than on account of Disability or death;
(c) by the Executive for Good Reason;
(d) by the Executive other than for Good Reason, Disability
or death; or
(e) by Eastern or the Executive by reason of the Executive's
Disability or death.
Except in the case of termination by reason of the Executive's death or
termination for Cause pursuant to Section 7(a), any termination by Eastern of
the Executive's employment under this Agreement shall take effect only after
thirty (30) days' prior written notice by Eastern to the Executive.
8. VESTING OF CERTAIN AWARDS AND BENEFITS. In the event of a Change of
Control, the Executive shall be immediately vested in all shares of restricted
stock of Eastern then held by Executive, and all stock options then held by the
Executive that were awarded under Eastern's 1982 Stock Option Plan or 1995 Stock
Option Plan (or any successor plan or plans) and that were not then exercisable
shall become immediately exercisable. If the Executive's employment under this
Agreement shall have been terminated under Section 7(b) or Section 7(c) above
after the Effective Date but before the Change of Control, all shares of
restricted stock held by the Executive immediately prior to termination of
employment shall be vested and all stock options held by the Executive
immediately prior to termination of employment (including replacement options,
if any, issued in substitution for such stock options in connection with the
Change of Control), whether or not otherwise exercisable, shall be exercisable
for a period ending not earlier than the later of (i) the date such options
would have been exercisable without regard to this Section 8, or (ii) thirty
days following the Change of Control, subject in each case to consummation of
the Change of Control; provided, that if stock options are not assumed (and no
replacement options are issued) in connection with the Change of Control, clause
(ii) shall not apply and Eastern shall provide the Executive the opportunity to
<PAGE>
exercise all of the stock options held by the Executive immediately prior to
termination of employment (whether or not then exercisable) on the same basis as
options held by active employees that become exercisable in connection with the
Change of Control. The provisions of this Section 8 shall be in addition to, and
not in limitation of, any rights that Executive may otherwise have to the
vesting of benefits upon a Change of Control. Without limiting the foregoing,
this Agreement shall be treated as a "COC Agreement" for purposes of the Eastern
Enterprises Supplemental Executive Retirement Plan and the Eastern Enterprises
Supplemental Retirement Plan for Certain Officers, each as from time to time
amended.
9. PAYMENTS UPON TERMINATION OF EMPLOYMENT.
(a) In the event of any termination of the Executive's
employment during the term of this Agreement, if such termination is
(1) by the Executive pursuant to Section 7(c) above, or (2) by Eastern
pursuant to Section 7(b) above, Eastern shall pay to the Executive the
sum of the following amounts within 30 days of such termination
(provided, that if such termination of employment occurs after the
Effective Date but before the Change of Control, the Executive shall be
entitled to the payments described at (i), (ii) and (iii) below only
upon consummation of the Change of Control):
(i) a lump sum cash amount equal to the product of
three (3) times the annual rate at which the Executive was
being paid base salary immediately prior to such termination
or immediately prior to the Effective Date, if greater;
(ii) a lump sum cash amount equal to the product of
three (3) times the Executive's target benefit or benefits
under the annual bonus or incentive plan or plans in which the
Executive was participating for the period including the date
of termination or three (3) times the Executive's target
benefit or benefits under the annual bonus or incentive plan
or plans in which the Executive was participating for the
period including the Effective Date, if higher; and
(iii) a lump sum cash amount equal to the product of
(A) the Executive's target benefit or benefits for the bonus
or incentive period or periods that include the date of
termination (under the annual bonus or incentive plan or plans
in which the Executive was participating at the time of
termination), times a (B) a fraction, the numerator of which
is the number of days elapsed in such bonus or incentive
period or periods prior to the date of termination, and the
denominator of which is three hundred sixty-five (365).
<PAGE>
In addition, upon termination of employment Eastern shall promptly pay
to the Executive any salary, bonuses, or other payments earned by the
Executive but not yet paid as of the date of termination.
(b) For a period of thirty-six (36) months commencing with the
month in which a termination described in (a)(1) or (a)(2) above shall
have occurred, the Executive and the Executive's family shall continue
to be entitled to participate in Eastern's medical, dental,
life-insurance, disability and other welfare benefit plans and programs
at a level of benefits at least as favorable to the Executive and the
Executive's family, and on terms at least as favorable to the Executive
and the Executive's family, as were available to the Executive and the
Executive's family immediately prior to termination or immediately
prior to the Effective Date (whichever is more favorable to the
Executive and the Executive's family). For purposes of any such benefit
that is based on the Executive's length of employment, the Executive
shall be deemed credited with three (3) additional years of employment.
For purposes of any such benefit that is based on the Executive's
average compensation, the average taken into account shall not be less
than the average that would be determined by assuming continued base
salary and bonus or incentive payments for a period of three (3) years
at the rates described at Section 9(a) above, and for purposes of any
such benefit that is based on the Executive's compensation at
termination of employment, there shall be taken into account the higher
of the Executive's compensation at termination or the Executive's
compensation immediately prior to the Effective Date. To the extent the
continuation of benefits described in this paragraph cannot be
accommodated under the plans or programs of Eastern then in effect,
Eastern shall provide for substantially equivalent alternative coverage
and benefits for the Executive and the Executive's family. Nothing in
this paragraph shall be construed as requiring Eastern to pay severance
in addition to the payments and benefits otherwise provided for in this
Agreement.
10. CERTAIN TAX-RELATED PAYMENTS. Notwithstanding any other provision
of this Agreement, the cash payments described at Section 9(a)(i), (ii) and
(iii) hereof shall be reduced, but not below zero, to the extent (and only to
the extent) necessary to avoid having any such payment or portion thereof
treated as a "parachute payment" within the meaning of Section 280G(b)(2) of the
Code.
11. SOURCE OF PAYMENTS. All payments provided for under this Agreement
shall be paid or provided from the general assets of Eastern and its
subsidiaries or affiliates (to the extent not provided by insurance). Eastern
shall not be required to establish a special or separate fund or other
segregation of assets to assure such payments. Nothing in this Section, however,
shall be construed as restricting Eastern's ability to establish or fund a
so-called "rabbi trust" or similar arrangement to help Eastern meet its
liabilities hereunder, provided that the establishment or funding of such a
trust or arrangement does not by its terms or by operation of law limit or
<PAGE>
purport to limit Eastern's liabilities hereunder or otherwise adversely affect
the Executive.
12. LITIGATION EXPENSES. In the event of any litigation or other
proceeding between Eastern and the Executive with respect to the subject matter
of this Agreement and the enforcement of rights asserted in good faith
hereunder, or, in the event of termination of employment pursuant to Section
7(b) or Section 7(c) above, with respect to any other remuneration or benefits
with respect to the Executive (including, without limitation, payments or
benefits with respect to the Executive under any qualified or nonqualified
pension or retirement agreement, plan, policy, program or arrangement), Eastern
shall reimburse the Executive for all costs and expenses relating to such
litigation or other proceeding, including reasonable attorneys fees and
expenses, promptly upon receipt of a written demand therefor and regardless of
whether such litigation results in any settlement or judgment or order in favor
of any party.
Notwithstanding any provision of Massachusetts law to the contrary, in
no event shall the Executive be required to reimburse Eastern for any of the
costs and expenses relating to such litigation or other proceeding.
13. INCOME TAX WITHHOLDING. Eastern may withhold from any payments
made under this Agreement all federal, state, city or other taxes as shall be
required pursuant to any law or governmental regulation or ruling.
14. AGREEMENT NOT TO COMPETE, ETC. The Executive agrees that during the
36-month period beginning on the date the Executive's employment with Eastern
and its subsidiaries is terminated during the term hereof pursuant to Section
7(b) or Section 7(c) above, he will not, within the states in which Eastern
operates its business or in which any of Eastern's subsidiaries operates its
business, engage, either as a principal, employee, partner, consultant or
investor (other than through a 1% or smaller interest in a publicly traded
entity) in a business which competes with any such business of Eastern or its
subsidiaries.
The Executive further agrees that, following any such termination of
his employment, he will continue to comply with Eastern's policies and
procedures regarding confidential information, as that term is hereinafter
defined, and will never directly or indirectly use or disclose, except to the
Executive's attorney or as required by judicial or regulatory process or order,
any confidential information as so defined. For purposes of this paragraph, the
term "confidential information" means any and all information (including without
limitation information related to the development and implementation of business
strategy, financial and operating forecasts, business policies and practices,
and all other information related to the future conduct of business) (i) that
the Executive has acquired in connection with his employment with Eastern and
its subsidiaries, (ii) that is not generally known or available to others with
whom Eastern or its subsidiaries do, or plan to, compete or do business, and
<PAGE>
(iii) that pertains to the business of, or belongs to, Eastern or its
subsidiaries or a person described in clause (ii).
The Executive agrees that if, at any time, pursuant to action of any
court of competent jurisdiction, the operation of any part of this Section 14
shall be determined to be unlawful or otherwise unenforceable, then the coverage
of this Section 14 shall be deemed to be restricted as to duration, geographical
scope or otherwise, to the extent, but only to the extent, necessary to make
this paragraph lawful and enforceable in the particular jurisdiction in which
such determination is made.
The Executive acknowledges and agrees that, were he to breach the
provisions of this Section 14, the harm to Eastern and its subsidiaries would be
irreparable. The Executive therefore agrees that in the event of such a breach
or threatened breach, Eastern or its subsidiaries shall have the right to obtain
preliminary and permanent injunctive relief against any such breach without
having to post bond. Nothing herein shall prohibit Eastern or its subsidiaries
from seeking damages for a breach by the Executive of this Section 14, but
neither Eastern nor any other person shall withhold or offset any payments or
benefits due or owing to the Executive under the terms of this Agreement or
otherwise (including, without limitation, payments or benefits with respect to
the Executive under any qualified or nonqualified pension or retirement
agreement, plan, policy, program or arrangement), and all such payments and
benefits shall be promptly paid or provided to the Executive in accordance with
the terms of this Agreement (or such other agreement, plan, policy, program or
arrangement, as the case may be) without regard to any breach or alleged or
threatened breach by Executive of any provision of this Section 14.
15. ENTIRE UNDERSTANDING. This Agreement contains the entire
understanding between Eastern and the Executive with respect to the subject
matter hereof and supersedes any prior Change of Control or similar severance or
salary continuation agreement, except the Employment Agreement, between Eastern
and the Executive. References in Section 6 of the Employment Agreement to the
"Salary Continuation Agreement" shall be deemed to refer to this Agreement, it
being acknowledged by the parties that to the extent similar benefits are
provided for under this Agreement and the Employment Agreement, Section 6 of the
Employment Agreement shall be construed to provide, subject to the terms
thereof, for a choice of benefits and not for duplication of benefits.
16. SEVERABILITY. If, for any reason, any one or more of the provisions
or part of a provision contained in this Agreement shall be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision or part of a provision of
this Agreement not held so invalid, illegal or unenforceable, and each other
provision or part of a provision shall to the full extent consistent with law
continue in full force and effect.
<PAGE>
17. CONSOLIDATION, MERGER OR SALE OF ASSETS. Nothing in this Agreement
shall preclude Eastern from consolidating or merging into or with, or
transferring all or substantially all of its assets to, another person that
assumes this Agreement and all obligations and undertakings of Eastern
hereunder. Upon such a consolidation, merger or transfer of assets and
assumption, the term "Eastern", as used herein shall mean such other person and
this Agreement shall continue in full force and effect.
18. SURVIVAL OF OBLIGATIONS. The obligations of Eastern under this
Agreement shall survive the termination for any reason of this Agreement
(whether such termination is by Eastern, by the Executive, upon the expiration
of this Agreement or otherwise).
19. NO MITIGATION OR OFFSET. Executive is not required to seek
other employment or to attempt in any way to reduce any amounts payable to
Executive by Eastern under this Agreement.
20. NOTICES. All notices, requests, demands and other communications
required or permitted hereunder shall be given in writing and shall be deemed to
have been duly given if delivered or mailed, registered or certified, postage
prepaid with return receipt requested, as follows:
(a) To Eastern:
Eastern Enterprises
9 Riverside Road
Weston, MA 02493
Attention: Legal Department
(b) To the Executive:
J. Atwood Ives
17 West Cedar Street
Boston, MA 02108
or to such other address as either party shall have previously specified in
writing to the other pursuant to this Section 20.
21. NO ATTACHMENT. Except as required by law, no right to receive
payments under this Agreement shall be subject to anticipation, commutation,
alienation, sale, assignment, encumbrance, charge, pledge or hypothecation or to
execution, attachment, levy or similar process or assignment by operation of
law, and any attempt, voluntary or involuntary, to effect any such action shall
be null, void and of no effect.
<PAGE>
22. BINDING AGREEMENT. This Agreement shall be binding upon and
shall inure to the benefit of the Executive and Eastern and their respective
successors and assigns.
23. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified, amended or terminated
except by an instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to
have been waived, nor shall there be any estoppel against the
enforcement of any provision of this Agreement except by written
instrument signed by the party charged with such waiver or estoppel. No
such written waiver shall be deemed a continuing waiver unless
specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a
waiver of such term or condition for the future or as to any act other
than that specifically waived.
24. HEADINGS OF NO EFFECT. The paragraph headings contained in this
Agreement are included solely for convenience of reference and shall not in any
way affect the meaning or interpretation of any of the provisions of this
Agreement.
25. GOVERNING LAW. This Agreement and its validity, interpretation,
performance and enforcement shall be governed by the laws of the Commonwealth
of Massachusetts, without giving effect to the choice of law provisions in
effect in such State.
26. MISCELLANEOUS. 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 State 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.
IN WITNESS WHEREOF, Eastern has caused this Agreement to be executed by
its officers thereunto duly authorized, and the Executive has signed this
Agreement, all as of the date first above written.
EASTERN ENTERPRISES
By: /s/ L. William Law, Jr.
----------------------
By: /s/ J. Atwood Ives
------------------
J. Atwood Ives
Exhibit 10.2
AGREEMENT
AGREEMENT made as of the 1st day of September 1998, by and
between Eastern Enterprises ("Eastern") and Fred C. Raskin ("Executive"):
WITNESSETH
WHEREAS Executive is President and Chief Operating Officer of Eastern;
and
WHEREAS Eastern is simultaneously entering into a Change of Control
Agreement dated as of September 1, 1998 with Executive (the "Change of Control
Agreement"), under which Eastern has agreed to pay Executive certain income and
benefits in the event of termination of Executive's employment following a
change of control; and
WHEREAS Eastern and Executive believe it to be in their mutual interest
that Executive should be assured of certain additional salary and benefit
amounts following termination of his employment, whether in the context of a
change of control or otherwise, all as hereinafter more fully set forth;
NOW, THEREFORE, in consideration of these presents and other good and
valuable consideration the receipt and sufficiency of which are hereby
acknowledged, Eastern and Executive agree as follows.
1. Definitions. Capitalized terms used in this Agreement and not
otherwise defined herein shall have the meanings set forth in
Appendix A.
2. Salary Continuation. For a period of 24 months following a Qualified
Termination of Employment, Eastern will continue to pay to Executive bi-weekly
an amount equal to the excess of (i) Executive's bi-weekly salary (less legally
required and voluntarily authorized deductions) at the rate in effect
immediately prior to such termination, over (ii) any disability payments
(expressed as a bi-weekly amount) paid to Executive for such period under a plan
or program of Eastern. If Executive is awarded disability payments retroactively
for any period for which he has already received salary continuation payments
under the preceding sentence, he shall reimburse Eastern for the excess of the
salary continuation payments so received over the amount he would have received
had such disability payments been paid in bi-weekly installments over such
period. If Executive should die before the completion of any salary continuation
payments under this paragraph, the remaining installments shall be paid to
Executive's spouse or, if he is not survived by his spouse, for the benefit of
his Dependents, if any; provided, that such remaining installments shall be
determined without the offset described in (ii) above except to the extent
disability payments under a plan or program of Eastern continue to be paid to
Executive's surviving spouse or Dependents, as the case may be. Payments for the
benefit of any Dependent who is incompetent or a minor may be made to his or her
legal representative or custodian. In no event shall payments under this
paragraph 2 continue beyond the first day of the first month coinciding with or
next following Executive's attainment of age 65.
3. Certain Welfare Benefits. During the 24-month period described in
paragraph 2, Eastern will continue to provide Executive and his family coverage
under Eastern's health (medical/dental), disability, and life insurance (or
other death benefit) programs, on the same terms (including cost sharing) and at
the same levels of coverage as apply to other senior executive employees of
Eastern. To the extent such continued coverage cannot be offered under the terms
of Eastern's plans or programs, Eastern will attempt to accomplish the same
result through alternative arrangements. It is expressly understood and agreed
that the benefits of each of the plans shall be subject to such conditions and
limitations as are set forth in the applicable plan, policy, or contract of
insurance, and that any disputes concerning eligibility for or payment of
benefits under any such plan, policy or contract shall be settled in accordance
with its terms.
<PAGE>
4. Pension Benefits. For purposes of determining any benefit under
Eastern's SERP, if Executive should suffer any Qualified Termination of
Employment before he reaches the age of 55, he shall nonetheless be deemed to be
an Eligible Officer, as defined in SERP, and entitled to receive a benefit
thereunder upon reaching age 55. For purposes of SERP, any Qualified Termination
of Employment shall be deemed to have been approved by the Compensation
Committee.
5. No Duplication of Benefits. Salary-continuation benefits provided
under paragraph 2 above shall be subject to reduction for severance or
severance-type benefits provided under any other plan of Eastern or its
affiliates. Payments under paragraph 2 for the period beginning 18 months after
the date of the Qualified Termination of Employment shall also be reduced by the
amount of any remuneration earned by Executive from other employment (including
self-employment) during that period. Benefits provided under paragraphs 3 and 7
shall be provided only to the extent substantially comparable benefits are not
available (on substantially comparable terms) to the Executive and his family.
The provisions of this paragraph shall be construed liberally to avoid the
duplication of benefits.
6. Inconsistency with Change of Control Agreement. Subject to the
following sentence, in the event Executive's employment with Eastern should
terminate under circumstances entitling him (at the time or upon a subsequent
Change of Control, as that term is defined in the Change of Control Agreement)
to benefits under the Change of Control Agreement, no salary continuation or
other benefits shall be provided to Executive under this Agreement nor shall the
other terms and provisions of this Agreement apply, and instead the terms and
provisions of the Change of Control Agreement shall control. If at the time of
termination of Executive's employment with Eastern a Change of Control (as
defined in the Change of Control Agreement) has not yet occurred, Executive
shall be entitled to the salary continuation and benefits described in this
Agreement provided such termination is a Qualified Termination of Employment;
provided, that if, by reason of a subsequent Change of Control, Executive
becomes entitled to remuneration or benefits under the Change of Control
Agreement with respect to such termination of employment, amounts payable and
benefits provided to Executive under the Change of Control Agreement shall be
equitably reduced to the extent necessary to reflect amounts or benefits
previously paid or provided to him under this Agreement.
7. Company Vehicle. During the 24-month period described in paragraph
2, Executive will have the continued use of the company-provided vehicle used by
Executive at the time of his termination of employment. During such period,
Eastern will provide insurance coverage for such vehicle but Executive will be
responsible, at his own expense, for all normal costs of operation and
maintenance. At the end of such period, Eastern will afford Executive the
opportunity to purchase said vehicle at its "blue book" value, determined on the
basis of the most recently issued list of such values.
8. Agreement Not to Compete or to Disclose Confidential Information.
Executive agrees that during the period of 24 months following a Qualified
Termination of Employment, Executive will not, within the states in which
Eastern operates its business or in which any of Eastern's subsidiaries operates
its business, engage, either as a principal, employee, partner, consultant or
investor (other than through a less-than-l% interest in a corporation) in a
business which competes with any such business of Eastern or its subsidiaries.
Executive agrees that if, at any time, pursuant to action of any court of
competent jurisdiction, the operation of any part of this paragraph shall be
determined to be unlawful or otherwise unenforceable, then the coverage of this
paragraph shall be deemed to be restricted as to duration, geographical scope or
otherwise, to the extent, but only to the extent, necessary to make this
paragraph lawful and enforceable in the particular jurisdiction in which such
determination is made.
Executive agrees that, following termination of employment, he will
continue to comply with Eastern's policies and procedures regarding Confidential
Information and will never, directly or indirectly, use or disclose any
Confidential Information.
<PAGE>
9. Reduction for Certain Parachute Payments. Payments hereunder shall
be made without regard to whether the deductibility of such payments (or any
other payments to or for the benefit of Executive) would be limited or precluded
by Internal Revenue Code Section 280G and without regard to whether such
payments (or any other payments) would subject Executive to the federal excise
tax under Internal Revenue Code Section 4999 on certain "excess parachute
payments"; provided, that if the total of all payments to or for the benefit of
Executive, after reduction for all federal taxes (including the tax described in
Internal Revenue Code Section 4999, if applicable) with respect to such payments
("Executive's total after-tax payments"), would be increased by the limitation
or elimination of any payments under this Agreement, amounts so payable shall be
reduced to the extent, but only to the extent, necessary to maximize Executive's
total after-tax payments. The determination as to whether and to what extent
payments hereunder are required to be reduced in accordance with the preceding
sentence shall be made at Eastern's expense by its regular outside accountants.
In the event of any underpayment or overpayment hereunder, as determined by such
accountants, the amount of such underpayment or overpayment shall forthwith be
paid to Executive or refunded to Eastern, as the case may be, with interest at a
rate equal to 120% of the federal rate provided for in Section 7872 (f) (2) of
the Internal Revenue Code.
10. Agreement Binding on Successors. This Agreement shall be binding
on Eastern, its successors and assigns.
11. Amendment. This Agreement may be amended only by an instrument in
writing executed by both parties hereto.
12. Governing Law; Miscellaneous.
(a) The laws of the Commonwealth of Massachusetts
shall govern the construction and administration
of this Agreement.
(b) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or unenforceability of any
other provision of this Agreement.
(c) Executive shall not be obligated to seek other employment
in mitigation of amounts payable or arrangements made under any
provision of this Agreement.
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 of trust 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.
IN WITNESS WHEREOF, Eastern Enterprises has caused this Agreement to be
executed by its duly authorized officer, and Executive has hereunto set his
hand, as of the date first above written.
EASTERN ENTERPRISES
By: /s/ J. Atwood Ives
------------------
/s/ Fred C. Raskin
------------------
Fred C. Raskin
<PAGE>
Appendix A Definitions
1. "Cause" means fraud, misappropriation, embezzlement, or other
malfeasance, misfeasance or other act which in the opinion of the
Compensation Committee casts such discredit on Executive or Eastern as
to justify termination of Executive's employment without the payment
or provision of benefits hereunder.
2. "Confidential Information" means any and all information not generally
known to others with whom Eastern, its subsidiaries and affiliates,
do, or plan to, compete or do business (including without limitation
information related to the development and implementation of business
strategy, financial and operating forecasts, business policies and
practices, and all other information related to the future conduct of
business) and also includes comparable information that Eastern, its
subsidiaries and affiliates, receive or have received, belonging to
others who do business with them.
3. "Dependent" means, in respect of periods after Executive's death,
any dependent child of Executive who is under the age of
nineteen (19) or, if a full-time student, under the age of
twenty-three (23).
4. "Good Reason" means:
(a) The removal of Executive from the position of President and
Chief Operating Officer of Eastern; the assignment to him of
duties inconsistent with his positions, duties,
responsibilities, reporting requirements and status within
Eastern as President and Chief Operating Officer; or any
other action by Eastern which results in a diminishment of
his position, authority, duties, responsibilities, reporting
requirements, or status, other than an insubstantial and
inadvertent action that is remedied by Eastern promptly after
receipt of notice thereof; or
(b) Any diminishment by Eastern in Executive's cash compensation
opportunities, other than in connection with a change
affecting executive officers of Eastern generally; or
(c) Any relocation of Executive by more than 50 miles.
5. "Compensation Committee" means the Compensation Committee of the Board
of Trustees of Eastern Enterprises.
6. "Qualified Termination of Employment" means a termination of
Executive's employment with Eastern either (a) by Eastern other than
for Cause (in which event the burden of proving the existence of Cause
would be on Eastern), or (b) by Executive for Good Reason.
7. "SERP" means Eastern's Supplemental Executive Retirement Plan as from
time to time in effect, or any successor plan.
<PAGE>
Exhibit 10.3
AGREEMENT
This Agreement by and between Eastern Enterprises, a Massachusetts
business trust with its principal offices in Weston, Massachusetts ("Eastern"),
and Fred C. Raskin (the "Executive"), is entered into as of the 1st day of
September, 1998:
WITNESSETH THAT:
WHEREAS the Executive is an executive employee of Eastern;
WHEREAS Eastern is simultaneously entering into an Agreement dated as
of September 1, 1998 with Executive (the "Employment Agreement"), under which
Eastern has assured Executive of certain salary and benefit amounts following
termination of his employment, whether in the context of a change of control or
otherwise; and
WHEREAS the Board of Trustees of Eastern (the "Board") has determined
that it is in the best interests of Eastern, its shareholders and the Executive
to assure continuity in the management of Eastern's administration and
operations by entering into an agreement to provide the Executive with certain
assurances pertaining to compensation and benefits in the event that a Change of
Control, as defined below, should be under consideration or should have
occurred.
NOW, THEREFORE, it is hereby agreed by and between the parties hereto
as follows:
1. EMPLOYMENT. Eastern agrees that from and after the Effective Date as
hereinafter defined it shall continue the Executive in its employ and the
Executive agrees that from and after the Effective Date he shall remain in the
employ of Eastern, in each case for the period described in Section 4 hereof and
upon the other terms and conditions herein provided.
2. CERTAIN DEFINITIONS: For purposes of this Agreement, the
following terms shall have the meanings set forth below:
(a) "Cause" shall mean, subject to the provisions of this
definition, (i) conviction of the Executive for (or a plea of nolo
contendere by the Executive with respect to) a felony, or (ii) an act
by the Executive of fraud or dishonesty which has resulted or is
likely to result in material economic damage to Eastern or its
subsidiaries. No purported termination of Executive shall be deemed a
termination for Cause unless the Board shall have made a determination
that Cause exists nor unless, in the case of Cause asserted under
clause (a)(ii) above, the Board shall have given the Executive the
opportunity, upon at least thirty (30) days' prior written notice, to
appear and be heard with counsel before the Board.
(b) "Change of Control" shall mean the occurrence of
any of the following after January 1, 1998:
(i) any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended) or group of "persons" (as so defined), other than
Eastern, becomes a beneficial owner directly or indirectly of
securities representing twenty-five percent (25%) or more of
the combined voting power of the then outstanding voting
securities of Eastern; or
(ii) there is consummated a merger or consolidation
("merger") involving Eastern and immediately after such
merger the beneficial owners immediately prior to such merger
of the then outstanding voting securities of Eastern do not
continue to own beneficially at least sixty percent (60%) of
the voting securities of the entity or entities resulting
from such merger; or
<PAGE>
(iii) there is consummated a sale, lease, exchange,
spin- off or other transfer (any of the foregoing, a
"transfer") of all or substantially all of the assets or
business of Eastern and its subsidiaries, other than any such
transfer resulting in beneficial ownership of not less than
sixty percent (60%) of the assets or business so transferred
or not less than sixty percent (60%) of the voting securities
of the entity or entities to which such assets were
transferred by the owners immediately prior to the transfer
of the then outstanding voting securities of Eastern; or
(iv) within any two-year period, individuals who at
the beginning of such period constituted the Board of
Trustees of Eastern cease for any reason to constitute a
majority thereof; provided, that any trustee who is not in
office at the beginning of such two-year period but whose
election or nomination for election was approved by a vote of
at least two-thirds of the trustees in office at the time of
such approval who were either trustees of Eastern at the
beginning of such period or who were elected to the Board of
Trustees pursuant to an election which was, or for which the
nomination for election was, previously so approved shall be
deemed to have been in office at the beginning of such
two-year period.
(c) "Code" shall mean the federal Internal Revenue Code
of 1986, as amended.
(d) "Disability" shall mean the Executive's demonstrated
inability, over a continuous period of at least twelve (12) months, to
perform the Executive's duties and responsibilities by reason of a
disabling injury or condition that would qualify the Executive for
benefits under Eastern's long term disability program.
(e) "Effective Date" shall mean the date specified in
Section 4(a) below.
(f) "Good Reason" means any of the following unless promptly,
fully and retroactively corrected by Eastern or unless waived in
writing by the Executive: (i) any reduction in the annual rate of base
salary payable to the Executive below the higher of the annual rate at
which base salary is then being paid to the Executive or the annual
rate at which base salary was being paid to the Executive immediately
prior to the Effective Date; (ii) the elimination of or any reduction
in the bonus opportunities made available to the Executive under any
bonus or incentive program; (iii) the elimination of or any reduction
in any other employee or executive benefit, benefit program or
perquisite then available to the Executive or the Executive's family
or that was available to the Executive or the Executive's family
immediately prior to the Effective Date, or any change in any such
employee or executive benefit, benefit program or perquisite that
would result in additional cost to the Executive or the Executive's
family, in each case except for changes in broad-based employee
benefit programs (that is, employee benefit programs available to
non-officer employees generally as well as officers) that have a
similar effect on both officer and non- officer participants generally
in such programs; (iv) any material change in the Executive's duties,
functions or responsibilities (including without limitation reporting
lines); (v) any action resulting in a relocation of the Executive's
regular place of employment to a location that is more than
thirty-five (35) miles from the place where the Executive was
regularly employed immediately prior thereto or immediately prior to
the Effective Date; and (vi) any other material breach of this
Agreement by Eastern.
3. POSITION AND RESPONSIBILITIES. During the period of employment
hereunder, the Executive agrees to serve Eastern in an executive capacity,
subject to the terms of this Agreement.
4. TERM AND DUTIES.
(a) The period of the Executive's employment under this
Agreement shall be deemed to have commenced as of the date (the
"Effective Date") which precedes by six (6) months the date of a
Change of Control and shall continue for a period which ends on the
last day of the twenty-four (24) calendar month period which begins on
the date of such Change of Control.
<PAGE>
(b) During the period of employment hereunder and except for
illness or incapacity and reasonable vacation periods, the Executive's
business time, attention, skill and efforts shall be exclusively
devoted to the business and affairs of Eastern and its subsidiaries;
provided, however, that nothing in this Agreement shall preclude the
Executive from engaging in the following:
(i) serving as a director, trustee or
committee member in any company or organization,
(ii) delivering lectures and fulfilling speaking
engagements, and
(iii) engaging in charitable and community
activities,
provided that such activities do not materially adversely affect or
interfere with the performance of the Executive's obligations to
Eastern.
5. COMPENSATION AND BENEFITS. During the Executive's employment under
this Agreement, Eastern shall pay, Provide and make available the following:
(a) Eastern shall pay the Executive base salary at an annual
rate that is not less than the annual rate at which base salary was
being paid to the Executive by Eastern immediately prior to the
Effective Date.
(b) In addition to the salary payable under subsection (a)
above, Eastern shall provide or make available to the Executive, from
and after the Effective Date and during the term of the Executive's
employment hereunder, bonus opportunities, benefits, and perquisites
not less favorable, and on terms not less favorable, to the Executive
than the bonus opportunities, benefits and perquisites provided or
made available and on the terms provided or made available to the
Executive immediately prior to the Effective Date.
6. BUSINESS EXPENSE. Eastern shall pay or reimburse the Executive for
all reasonable travel or other expenses incurred in connection with the
performance of the Executive's duties under this Agreement in accordance with
such procedures as Eastern may from time to time establish.
7. TERMINATION OF EMPLOYMENT. Notwithstanding any other provision
of this Agreement, the Executive's employment under this Agreement may be
terminated:
(a) by Eastern for Cause (but only if such
termination is accomplished in the manner specified in Section 2(a));
(b) by Eastern other than for Cause pursuant to
Section 7(a) and other than on account of Disability or death;
(c) by the Executive for Good Reason;
(d) by the Executive other than for Good Reason,
Disability or death; or
(e) by Eastern or the Executive by reason of the
Executive's Disability or death.
Except in the case of termination by reason of the Executive's death or
termination for Cause pursuant to Section 7(a), any termination by Eastern of
the Executive's employment under this Agreement shall take effect only after
thirty (30) days' prior written notice by Eastern to the Executive.
8. VESTING OF CERTAIN AWARDS AND BENEFITS. In the event of a Change of
Control, the Executive shall be immediately vested in all shares of restricted
<PAGE>
stock of Eastern then held by Executive, and all stock options then held by the
Executive that were awarded under Eastern's 1982 Stock Option Plan or 1995 Stock
Option Plan (or any successor plan or plans) and that were not then exercisable
shall become immediately exercisable. If the Executive's employment under this
Agreement shall have been terminated under Section 7(b) or Section 7(c) above
after the Effective Date but before the Change of Control, all shares of
restricted stock held by the Executive immediately prior to termination of
employment shall be vested and all stock options held by the Executive
immediately prior to termination of employment (including replacement options,
if any, issued in substitution for such stock options in connection with the
Change of Control), whether or not otherwise exercisable, shall be exercisable
for a period ending not earlier than the later of (i) the date such options
would have been exercisable without regard to this Section 8, or (ii) thirty
days following the Change of Control, subject in each case to consummation of
the Change of Control; provided, that if stock options are not assumed (and no
replacement options are issued) in connection with the Change of Control, clause
(ii) shall not apply and Eastern shall provide the Executive the opportunity to
exercise all of the stock options held by the Executive immediately prior to
termination of employment (whether or not then exercisable) on the same basis as
options held by active employees that become exercisable in connection with the
Change of Control. The provisions of this Section 8 shall be in addition to, and
not in limitation of, any rights that Executive may otherwise have to the
vesting of benefits upon a Change of Control. Without limiting the foregoing,
this Agreement shall be treated as a "COC Agreement" for purposes of the Eastern
Enterprises Supplemental Executive Retirement Plan and the Eastern Enterprises
Supplemental Retirement Plan for Certain Officers, each as from time to time
amended.
9. PAYMENTS UPON TERMINATION OF EMPLOYMENT.
(a) In the event of any termination of the Executive's
employment during the term of this Agreement, if such termination is
(1) by the Executive pursuant to Section 7(c), above, or (2) by
Eastern pursuant to Section 7(b) above, Eastern shall pay to the
Executive the sum of the following amounts within 30 days of such
termination (provided, that if such termination of employment occurs
after the Effective Date but before the Change of Control, the
Executive shall be entitled to the payments described at (i), (ii) and
(iii) below only upon consummation of the Change of Control):
(i) a lump sum cash amount equal to the product of
three (3) times the annual rate at which the Executive was
being paid base salary immediately prior to such termination
or immediately prior to the Effective Date, if greater;
(ii) a lump sum cash amount equal to the product of
three (3) times the Executive's target benefit or benefits
under the annual bonus or incentive plan or plans in which
the Executive was participating for the period including the
date of termination or times the Executive's target benefit
or benefits under the annual bonus or incentive plan or plans
in which the Executive was participating for the period
including the Effective Date if higher; and
(iii) a lump sum cash amount equal to the product of
(A) the Executive's target benefit or benefits for the bonus
or incentive period or periods that include the date of
termination (under the annual bonus or incentive plan or
plans in which the Executive was participating at the time of
termination), times a (B) a fraction, the numerator of which
is the number of days elapsed in such bonus or incentive
period or periods prior to the date of termination, and the
denominator of which is three hundred sixty-five (365).
In addition, upon termination of employment Eastern shall promptly pay
to the Executive any salary, bonuses, or other payments earned by the
Executive but not yet paid as of the date of termination.
(b) For a period of thirty-six (36) months commencing with
the month in which a termination described in (a)(1) or (a)(2) above
shall have occurred, the Executive and the Executive's family shall
continue to be entitled to participate in Eastern's medical, dental,
life-insurance, disability and other welfare benefit plans and
programs at a level of benefits at least as favorable to the Executive
and the Executive's family, and on terms at least as favorable to the
<PAGE>
Executive and the Executive's family, as were available to the
Executive and the Executive's family immediately prior to termination
or immediately prior to the Effective Date (whichever is more
favorable to the Executive and the Executive's family). For purposes
of any such benefit that is based on the Executive's length of
employment, the Executive shall be deemed credited with three (3)
additional years of employment. For purposes of any such benefit that
is based on the Executive's average compensation, the average taken
into account shall not be less than the average that would be
determined by assuming continued base salary and bonus or incentive
payments for a period of three (3) years at the rates described at
Section 9(a) above, and for purposes of any such benefit that is based
on the Executive's compensation at termination of employment, there
shall be taken into account the higher of the Executive's compensation
at termination or the Executive's compensation immediately prior to
the Effective Date. To the extent the continuation of benefits
described in this paragraph cannot be accommodated under the plans or
programs of Eastern then in effect, Eastern shall provide for
substantially equivalent alternative coverage and benefits for the
Executive and the Executive's family. Notwithstanding the foregoing,
Eastern shall not be obligated to provide a benefit or coverage under
this paragraph to the extent an equivalent or better benefit or
coverage is available to the Executive or the Executive's family, on a
basis that is at least as favorable to the Executive and the
Executive's family, under a plan or program of another employer.
Nothing in this paragraph shall be construed as requiring Eastern to
pay severance in addition to the payments and benefits otherwise
provided for in this Agreement.
For a period of twenty-four (24) months commencing with the
month in which a termination described in (a)(1) or (a)(2) above shall
have occurred, the Executive will have the continued use of the
company provided vehicle used by the Executive at the time of his
termination of employment. During such period, Eastern will provide
insurance coverage for such vehicle but the Executive will be
responsible, at his own expense, for all normal costs of operation and
maintenance. At the end of such period, Eastern will afford the
Executive the opportunity to purchase said vehicle at its "blue book"
value, determined on the basis of the most recently issued list of
such values.
10. CERTAIN TAX-RELATED PAYMENTS.
(a) In the event it shall be determined that any "payment in
the nature of compensation" (as that term is used in Section 280G of
the Code) to or for the benefit of the Executive, whether paid or
payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise (a "Payment"), would be subject to the excise
tax imposed by Section 4999 of the Code or comparable state or local
tax or amy interest or penalties with respect to such excise tax or
comparable state or local tax (such excise tax, together with any such
interest and penalties, are hereinafter collectively referred to as
the "Excise Tax"), then, subject to the following sentence, the cash
payments described at Section 9(a)(i), (ii) and (iii) hereof (but
excluding, for the avoidance of doubt, any payments referred to in the
last sentence of Section 9(a)) shall be reduced, but not below zero,
to the extent (and only to the extent) necessary to avoid the
imposition of an Excise Tax. Notwithstanding the foregoing, if the
preceding sentence would result in a reduction of more than ten
percent (10%) in the Executive's total "parachute payments" (as that
term is defined in Section 280G(b)(2) of the Code), or if the
reduction described in the preceding sentence would not eliminate the
Excise Tax, no reduction shall be made in the payments or benefits due
to the Executive under this Agreement or otherwise and instead the
Executive shall be entitled to receive an additional payment (a
"Gross-Up Payment"). The Gross-Up Payment shall be equal to the sum of
the Excise Tax and all taxes (including any interest or penalties
imposed with respect to such taxes) imposed upon the Gross-Up Payment.
(b) If the Executive determines that a Gross-Up Payment is
required, the Executive shall so notify Eastern in writing, specifying
the amount of Gross-Up Payment required and details as to the
calculation thereof. Eastern shall, within 30 days, either pay such
Gross-Up Payment (net of applicable wage withholding) to the Executive
or furnish an unqualified opinion from Independent Tax Counsel (as
defined below), addressed to the Executive and Eastern, that there is
substantial authority (within the meaning of Section 6661 of the Code)
for the position that no Gross-Up Payment is required. "Independent
Tax Counsel" means a lawyer with expertise in the area of executive
<PAGE>
compensation tax law, who shall be selected by the Executive and shall
be reasonably acceptable to Eastern, and whose fees and disbursements
shall be paid by Eastern.
(c) If the Internal Revenue Service or other tax authority
proposes in writing an adjustment to the income tax of the Executive
which would result in a Gross-Up Payment, the Executive shall promptly
notify Eastern in writing and shall refrain for at least thirty days
after giving such notice, if so permitted by law, from paying any tax
(including interest, penalties and additions to tax) asserted to be
payable as a result of such proposed adjustment. Before the expiration
of such period, Eastern shall either pay the Gross-Up Payment or
provide an opinion from Independent Tax Counsel to the Executive and
Eastern as to whether it is more likely than not that the proposed
adjustment would be successfully challenged if the matter were to be
litigated. If the opinion provides that a challenge would be more
likely than not to be successful if the issue were litigated, and
Eastern requests in writing that the Executive contest such proposed
adjustment, then the Executive shall contest the proposed adjustment
and shall consult in good faith with Eastern with respect to the
nature of all action to be taken in furtherance of the contest of such
proposed adjustment; provided that the Executive, after such
consultation with Eastern, shall determine in his sole discretion the
nature of all action to be taken to contest such proposed adjustment,
including (A) whether any such action shall initially be by way of
judicial or administrative proceedings, or both (B) whether any such
proposed adjustment shall be contested by resisting payment thereof or
by paying the same and seeking a refund thereof, and (C) if the
Executive shall undertake judicial action with respect to such
proposed adjustment, the court or other judicial body before which
such action shall be commenced and the court or other judicial body to
which any appeals should be taken. The Executive agrees to take
appropriate appeals of any judicial decision that would require
Eastern to pay a Gross-Up Payment, provided Eastern requests in
writing that the Executive do so and provides an opinion from
Independent Tax Counsel to the Executive and Eastern that it is more
likely than not that the appeal would be successful. The Executive
further agrees to settle, compromise or otherwise terminate a contest
with the Internal Revenue Service or other tax authority with respect
to all or a portion of the proposed adjustment giving rise to the
Gross-Up Payment, if requested by Eastern in writing to do so at any
time, in which case the Executive shall be entitled to receive from
Eastern the Gross-Up Payment. In no event shall the Executive
compromise or settle all or any portion of a proposed adjustment which
would result in a Gross- Up Payment without the written consent of
Eastern, which consent shall not be unreasonably withheld.
The Executive shall not be required to take or continue any action
pursuant to this Section 10 unless Eastern acknowledges its liability
under this Agreement in the event that the Internal Revenue Service or
other tax authority prevails in the contest. Eastern hereby agrees to
indemnify the Executive in a manner reasonably satisfactory to the
Executive for any fees, expenses, penalties, interest or additions to
tax which the Executive may incur as a result of contesting the
validity of any Excise Tax and to reimburse the Executive promptly
upon receipt of a written demand of the Executive for all costs and
expenses which the Executive may incur in connection with contesting
such proposed adjustment (including reasonable fees and disbursements
of Independent Tax Counsel).
If the Executive shall have contested any proposed adjustment as above
provided, and for so long as the Executive shall be required under the
terms of this Section 10(c) to continue such contest, Eastern shall
not be required to pay a Gross-Up Payment until there occurs a Final
Determination (as defined below) of the liability of the Executive for
the tax and any interest, penalties and additions to tax asserted to
be payable as a result of such proposed adjustment. A "Final
Determination" shall mean (A) a decision, judgment, decree or other
order by any court of competent jurisdiction, which decision,
judgment, decree or other order has become final after all allowable
appeals by either party to the action have been exhausted, the time
for filing such appeal has expired or the Executive has no right under
the terms hereof to request an appeal, (B) a closing agreement entered
into under Section 7121 of the Code or any other settlement agreement
entered into in connection with an administrative or judicial
proceeding and with the consent of the Executive, or (C) the
expiration of the time for instituting a claim for refund, or if such
a claim was filed, the expiration of the time for instituting suit
with respect thereto.
<PAGE>
(d) In the event the Executive receives any refund from the
Internal Revenue Service or other tax authority on account of an
overpayment of Excise Tax, such amount, together with that part of any
Gross-Up Payment attributable to such amount, shall be promptly paid
by the Executive to Eastern.
11. SOURCE OF PAYMENTS. All payments provided for under this Agreement
shall be paid or provided from the general assets of Eastern and its
subsidiaries or affiliates (to the extent not provided by insurance). Eastern
shall not be required to establish a special or separate fund or other
segregation of assets to assure such payments. Nothing in this Section, however,
shall be construed as restricting Eastern's ability to establish or fund a
so-called "rabbi trust" or similar arrangement to help Eastern meet its
liabilities hereunder, provided that the establishment or funding of such a
trust or arrangement does not by its terms or by operation of law limit or
purport to limit Eastern's liabilities hereunder or otherwise adversely affect
the Executive.
12. LITIGATION EXPENSES. In the event of any litigation or other
proceeding between Eastern and the Executive with respect to the subject matter
of this Agreement and the enforcement of rights asserted in good faith
hereunder, or, in the event of termination of employment pursuant to Section
7(b) or Section 7(c) above, with respect to any other remuneration or benefits
with respect to the Executive (including, without limitation, payments or
benefits with respect to the Executive under any qualified or nonqualified
pension or retirement agreement, plan, policy, program or arrangement), Eastern
shall reimburse the Executive for all costs and expenses relating to such
litigation or other proceeding, including reasonable attorneys fees and
expenses, promptly upon receipt of a written demand therefor and regardless of
whether such litigation results in any settlement or judgment or order in favor
of any party.
Notwithstanding any provision of Massachusetts law to the contrary, in
no event shall the Executive be required to reimburse Eastern for any of the
costs and expenses relating to such litigation or other proceeding.
13. INCOME TAX WITHHOLDING. Eastern may withhold from any
payments made under this Agreement all federal, state, city or other taxes
as shall be required pursuant to any law or governmental regulation or ruling.
14. AGREEMENT NOT TO COMPETE, ETC. The Executive agrees that during the
36-month period beginning on the date the Executive's employment with Eastern
and its subsidiaries is terminated during the term hereof pursuant to Section
7(b) or Section 7(e) above, he will not, within the states in which Eastern
operates its business or in which any of Eastern's subsidiaries operates its
business, engage, either as a principal, employee, partner, consultant or
investor (other than through a 1% or smaller interest in a publicly traded
entity) in a business which competes with any such business of Eastern or its
subsidiaries.
The Executive further agrees that, following any such termination of
his employment, he will continue to comply with Eastern's policies and
procedures regarding confidential information, as that term is hereinafter
defined, and will never directly or indirectly use or disclose, except to the
Executive's attorney or as requited by judicial or regulatory process or order,
any confidential information as so defined. For purposes of this paragraph, the
term "confidential information" means any and all information (including without
limitation information related to the development and implementation of business
strategy, financial and operating forecasts, business policies and practices,
and all other information related to the future conduct of business) (i) that
the Executive has acquired in connection with his employment with Eastern and
its subsidiaries, (ii) that is not generally known or available to others with
whom Eastern or its subsidiaries do, or plan to, compete or do business, and
(iii) that pertains to the business of, or belongs to, Eastern or its
subsidiaries or a person described in clause (ii).
The Executive agrees that if, at any time, pursuant to action of any
court of competent jurisdiction, the operation of any part of this Section 14
shall be determined to be unlawful or otherwise unenforceable, then the coverage
of this Section 14 shall be deemed to be restricted as to duration, geographical
scope or otherwise, to the extent, but only to the extent, necessary to make
this paragraph lawful and enforceable in the particular jurisdiction in which
such determination is made.
<PAGE>
The Executive acknowledges and agrees that, were he to breach the
provisions of this Section 14, the harm to Eastern and its subsidiaries would be
irreparable. The Executive therefore agrees that in the event of such a breach
or threatened breach, Eastern or its subsidiaries shall have the right to obtain
preliminary and permanent injunctive relief against any such breach without
having to post bond. Nothing herein shall prohibit Eastern or its subsidiaries
from seeking damages for a breach by the Executive of this Section 14, but
neither Eastern nor any other person shall withhold or offset any payments or
benefits due or owing to the Executive under the terms of this Agreement or
otherwise (including, without limitation, payments or benefits with respect to
the Executive under any qualified or nonqualified pension or retirement
agreement, plan, policy, program or arrangement), and all such payments and
benefits shall be promptly paid or provided to the Executive in accordance with
the terms of this Agreement (or such other agreement, plan, policy, program or
arrangement, as the case may be) without regard to any breach or alleged or
threatened breach by Executive of any provision of this Section 14.
15. ENTIRE UNDERSTANDING. This Agreement contains the entire
understanding between Eastern and the Executive with respect to the subject
matter hereof and supersedes any prior Change of Control or similar severance or
salary continuation agreement, other than the Employment Agreement, between
Eastern and the Executive.
16. SEVERABILITY. If, for any reason, any one or more of the provisions
or part of a provision contained in this Agreement shall be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision or part of a provision of
this Agreement not held so invalid, illegal or unenforceable, and each other
provision or part of a provision shall to the full extent consistent with law
continue in full force and effect.
17. CONSOLIDATION, MERGER OR SALE OF ASSETS. Nothing in this Agreement
shall preclude Eastern from consolidating or merging into or with, or
transferring all or substantially all of its assets to, another person that
assumes this Agreement and all obligations and undertakings of Eastern
hereunder. Upon such a consolidation, merger or transfer of assets and
assumption, the term "Eastern", as used herein shall mean such other person and
this Agreement shall continue in full force and effect.
18. SURVIVAL OF OBLIGATIONS. The obligations of Eastern under
this Agreement shall survive the termination for any reason of this
Agreement (whether such termination is by Eastern, by the Executive, upon the
expiration of this Agreement or otherwise).
19. NOTICES. All notices, requests, demands and other communications
required or permitted hereunder shall be given in writing and shall be deemed to
have been duly given if delivered or mailed, registered or certified, postage
prepaid with return receipt requested, as follows:
(a) To Eastern:
Eastern Enterprises
9 Riverside Road
Weston, MA 02493
Attention: Legal Department
(b) To the Executive:
Fred C. Raskin
9866 Bennington Drive
Sharonville, OH 45241
or to such other address as either party shall have previously specified in
writing to the other pursuant to this Section 19.
<PAGE>
20. NO ATTACHMENT. Except as required by law, no right to receive
payments under this Agreement shall be subject to anticipation, commutation,
alienation, sale, assignment, encumbrance, charge, pledge or hypothecation or to
execution, attachment, levy or similar process or assignment by operation of
law, and any attempt, voluntary or involuntary, to effect any such action shall
be null, void and of no effect.
21. BINDING AGREEMENT. This Agreement shall be binding upon and
shall inure to the benefit of the Executive and Eastern and their respective
successors and assigns.
22. MODIFICATION AND WAIVER.
(a) Prior to the Effective Date this Agreement may be
modified, amended or terminated by the Board of Trustees of Eastern.
From and after the Effective Date this Agreement may not be modified,
amended or terminated except by an instrument in writing signed by the
parties hereto.
(b) No term or condition of this Agreement shall be deemed to
have been waived, nor shall there be any estoppel against the
enforcement of any provision of this Agreement except by written
instrument signed by the party charged with such waiver or estoppel.
No such written waiver shall be deemed a continuing waiver unless
specifically stated therein, and each such waiver shall operate only
as to the specific term or condition waived and shall not constitute a
waiver of such term or condition for the future or as to any act other
than that specifically waived.
23. HEADINGS OF NO EFFECT. The paragraph headings contained in
this Agreement are included solely for convenience of reference and shall not
in any way affect the meaning or interpretation of any of the provisions
of this Agreement.
24. GOVERNING LAW. This Agreement and its validity, interpretation,
performance and enforcement shall be governed by the laws of the Commonwealth
of Massachusetts, without giving effect to the choice of law provisions in
effect in such State.
25. MISCELLANEOUS. 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 State 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.
IN WITNESS WHEREOF, Eastern has caused this Agreement to be executed by
its officers thereunto duly authorized, and the Executive has signed this
Agreement, all as of the date first above written.
EASTERN ENTERPRISES
By: /s/ J. Atwood Ives
------------------
By: /s/ Fred C. Raskin
------------------
Fred C. Raskin
<PAGE>
Exhibit 10.4
AGREEMENT
This Agreement by and between Eastern Enterprises, a Massachusetts business
trust with its principal offices in Weston, Massachusetts ("Eastern"), and
Walter J. Flaherty (the "Executive"), is entered into as of the 22nd day of
July, 1998:
WITNESSETH THAT:
WHEREAS the Executive is an executive employee of Eastern; and
WHEREAS the Board of Trustees of Eastern (the "Board") has determined that
it is in the best interests of Eastern, its shareholders and the Executive to
assure continuity in the management of Eastern's administration and operations
by entering into an agreement to provide the Executive with certain assurances
pertaining to compensation and benefits in the event that a Change of Control,
as defined below, should be under consideration or should have occurred.
NOW, THEREFORE, it is hereby agreed by and between the parties hereto as
follows:
1. EMPLOYMENT. Eastern agrees that from and after the Effective Date as
hereinafter defined it shall continue the Executive in its employ and the
Executive agrees that from and after the Effective Date he shall remain in the
employ of Eastern, in each case for the period described in Section 4 hereof and
upon the other terms and conditions herein provided.
2. CERTAIN DEFINITIONS: For purposes of this Agreement, the following
terms shall have the meanings set forth below:
(a) "Cause" shall mean, subject to the provisions of this definition,
(i) conviction of the Executive for (or a plea of nolo contendere by
the Executive with respect to) a felony, or (ii) an act by the
Executive of fraud or dishonesty which has resulted or is likely to
result in material economic damage to Eastern or its subsidiaries. No
purported termination of Executive shall be deemed a termination for
Cause unless the Board shall have made a determination that Cause
exists nor unless, in the case of Cause asserted under clause (a)(ii)
above, the Board shall have given the Executive the opportunity, upon
at least thirty (30) days' prior written notice, to appear and be heard
with counsel before the Board.
(b) "Change of Control" shall mean the occurrence of any of the
following after January 1, 1998:
(i) any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended) or
group of "persons" (as so defined), other than Eastern,
becomes a beneficial owner directly or indirectly of
securities representing twenty-five percent (25%) or more of
the combined voting power of the then outstanding voting
securities of Eastern; or
(ii) there is consummated a merger or consolidation ("merger")
involving Eastern and immediately after such merger the
beneficial owners immediately prior to such merger of the then
outstanding voting securities of Eastern do not continue to
own beneficially at least sixty percent (60%) of the voting
securities of the entity or entities resulting from such
merger; or
(iii) there is consummated a sale, lease, exchange, spin-off
or other transfer (any of the foregoing, a "transfer") of all
or substantially all of the assets or business of Eastern and
its subsidiaries, other than any such transfer resulting in
beneficial ownership of not less than sixty percent (60%) of
<PAGE>
the assets or business so transferred or not less than sixty
percent (60%) of the voting securities of the entity or
entities to which such assets were transferred by the owners
immediately prior to the transfer of the then outstanding
voting securities of Eastern; or
(iv) within any two-year period, individuals who at the
beginning of such period constituted the Board of Trustees of
Eastern cease for any reason to constitute a majority thereof;
provided, that any trustee who is not in office at the
beginning of such two-year period but whose election or
nomination for election was approved by a vote of at least
two-thirds of the trustees in office at the time of such
approval who were either trustees of Eastern at the beginning
of such period or who were elected to the Board of Trustees
pursuant to an election which was, or for which the nomination
for election was, previously so approved shall be deemed to
have been in office at the beginning of such two-year period.
(c) "Code" shall mean the federal Internal Revenue Code of 1986, as
amended.
(d) "Disability" shall mean the Executive's demonstrated inability,
over a continuous period of at least twelve (12) months, to perform the
Executive's duties and responsibilities by reason of a disabling injury
or condition that would qualify the Executive for benefits under
Eastern's long term disability program.
(e) "Effective Date" shall mean the date specified in Section 4(a)
below.
(f) "Good Reason" means any of the following unless promptly, fully and
retroactively corrected by Eastern or unless waived in writing by the
Executive: (i) any reduction in the annual rate of base salary payable
to the Executive below the higher of the annual rate at which base
salary is then being paid to the Executive or the annual rate at which
base salary was being paid to the Executive immediately prior to the
Effective Date; (ii) the elimination of or any reduction in the bonus
opportunities made available to the Executive under any bonus or
incentive program; (iii) the elimination of or any reduction in any
other employee or executive benefit, benefit program or perquisite then
available to the Executive or the Executive's family or that was
available to the Executive or the Executive's family immediately prior
to the Effective Date, or any change in any such employee or executive
benefit, benefit program or perquisite that would result in additional
cost to the Executive or the Executive's family, in each case except
for changes in broad-based employee benefit programs (that is, employee
benefit programs available to non-officer employees generally as well
as officers) that have a similar effect on both officer and non-officer
participants generally in such programs; (iv) any material change in
the Executive's duties, functions or responsibilities (including
without limitation reporting lines); (v) any action resulting in a
relocation of the Executive's regular place of employment to a location
that is more than thirty-five (35) miles from the place where the
Executive was regularly employed immediately prior thereto or
immediately prior to the Effective Date; and (vi) any other material
breach of this Agreement by Eastern.
3. POSITION AND RESPONSIBILITIES. During the period of employment
hereunder, the Executive agrees to serve Eastern in an executive capacity,
subject to the terms of this Agreement.
4. TERM AND DUTIES.
(a) The period of the Executive's employment under this Agreement shall
be deemed to have commenced as of the date (the "Effective Date") which
precedes by six (6) months the date of a Change of Control and shall
continue for a period which ends on the last day of the twenty-four
(24) calendar month period which begins on the date of such Change of
Control.
(b) During the period of employment hereunder and except for illness or
incapacity and reasonable vacation periods, the Executive's business
time, attention, skill and efforts shall be exclusively devoted to the
business and affairs of Eastern and its subsidiaries; provided,
however, that nothing in this Agreement shall preclude the Executive
from engaging in the following:
<PAGE>
(i) serving as a director, trustee or committee member in any
company or organization,
(ii) delivering lectures and fulfilling speaking engagements,
and
(iii) engaging in charitable and community activities.
provided that such activities do not materially adversely affect or interfere
with the performance of the Executive's obligations to Eastern.
5. COMPENSATION AND BENEFITS. During the Executive's employment
under this Agreement, Eastern shall pay, Provide and make available the
following:
(a) Eastern shall pay the Executive base salary at an annual rate that
is not less than the annual rate at which base salary was being paid to
the Executive by Eastern immediately prior to the Effective Date.
(b) In addition to the salary payable under subsection (a) above,
Eastern shall provide or make available to the Executive, from and
after the Effective Date and during the term of the Executive's
employment hereunder, bonus opportunities, benefits, and perquisites
not less favorable, and on terms not less favorable, to the Executive
than the bonus opportunities, benefits and perquisites provided or made
available and on the terms provided or made available to the Executive
immediately prior to the Effective Date.
6. BUSINESS EXPENSE. Eastern shall pay or reimburse the Executive for all
reasonable travel or other expenses incurred in connection with the performance
of the Executive's duties under this Agreement in accordance with such
procedures as Eastern may from time to time establish.
7. TERMINATION OF EMPLOYMENT. Notwithstanding any other provision
of this Agreement, the Executive's employment under this Agreement may be
terminated:
(a) by Eastern for Cause (but only if such termination is
accomplished in the manner specified in Section 2(a));
(b) by Eastern other than for Cause pursuant to Section 7(a) and
other than on account of Disability or death;
(c) by the Executive for Good Reason;
(d) by the Executive other than for Good Reason, Disability or death;
or
(e) by Eastern or the Executive by reason of the Executive's
Disability or death.
Except in the case of termination by reason of the Executive's death or
termination for Cause pursuant to Section 7(a), any termination by Eastern of
the Executive's employment under this Agreement shall take effect only after
thirty (30) days' prior written notice by Eastern to the Executive.
8. VESTING OF CERTAIN AWARDS AND BENEFITS. In the event of a Change of
Control, the Executive shall be immediately vested in all shares of restricted
stock of Eastern then held by Executive, and all stock options then held by the
Executive that were awarded under Eastern's 1982 Stock Option Plan or 1995 Stock
Option Plan (or any successor plan or plans) and that were not then exercisable
shall become immediately exercisable. If the Executive's employment under this
Agreement shall have been terminated under Section 7(b) or Section 7(c) above
after the Effective Date but before the Change of Control, all shares of
restricted stock held by the Executive immediately prior to termination of
employment shall be vested and all stock options held by the Executive
immediately prior to termination of employment (including replacement options,
if any, issued in substitution for such stock options in connection with the
<PAGE>
Change of Control), whether or not otherwise exercisable, shall be exercisable
for a period ending not earlier than the later of (i) the date such options
would have been exercisable without regard to this Section 8, or (ii) thirty
days following the Change of Control, subject in each case to consummation of
the Change of Control; provided, that if stock options are not assumed (and no
replacement options are issued) in connection with the Change of Control, clause
(ii) shall not apply and Eastern shall provide the Executive the opportunity to
exercise all of the stock options held by the Executive immediately prior to
termination of employment (whether or not then exercisable) on the same basis as
options held by active employees that become exercisable in connection with the
Change of Control. The provisions of this Section 8 shall be in addition to, and
not in limitation of, any rights that Executive may otherwise have to the
vesting of benefits upon a Change of Control. Without limiting the foregoing,
this Agreement shall be treated as a "COC Agreement" for purposes of the Eastern
Enterprises Supplemental Executive Retirement Plan and the Eastern Enterprises
Supplemental Retirement Plan for Certain Officers, each as from time to time
amended.
9. PAYMENTS UPON TERMINATION OF EMPLOYMENT.
(a) In the event of any termination of the Executive's employment
during the term of this Agreement, if such termination is (1) by the
Executive pursuant to Section 7(c), above, or (2) by Eastern pursuant
to Section 7(b) above, Eastern shall pay to the Executive the sum of
the following amounts within 30 days of such termination (provided,
that if such termination of employment occurs after the Effective Date
but before the Change of Control, the Executive shall be entitled to
the payments described at (i), (ii) and (iii) below only upon
consummation of the Change of Control):
(i) a lump sum cash amount equal to the product of three (3)
times the annual rate at which the Executive was being paid
base salary immediately prior to such termination or
immediately prior to the Effective Date, if greater;
(ii) a lump sum cash amount equal to the product of three (3)
times the Executive's target benefit or benefits under the
annual bonus or incentive plan or plans in which the Executive
was participating for the period including the date of
termination or times the Executive's target benefit or
benefits under the annual bonus or incentive plan or plans in
which the Executive was participating for the period including
the Effective Date if higher; and
(iii) a lump sum cash amount equal to the product of (A) the
Executive's target benefit or benefits for the bonus or
incentive period or periods that include the date of
termination (under the annual bonus or incentive plan or plans
in which the Executive was participating at the time of
termination), times a (B) a fraction, the numerator of which
is the number of days elapsed in such bonus or incentive
period or periods prior to the date of termination, and the
denominator of which is three hundred sixty-five (365).
In addition, upon termination of employment Eastern shall promptly pay
to the Executive any salary, bonuses, or other payments earned by the
Executive but not yet paid as of the date of termination.
(b) For a period of thirty-six (36) months commencing with the month in
which a termination described in (a)(1) or (a)(2) above shall have
occurred, the Executive and the Executive's family shall continue to be
entitled to participate in Eastern's medical, dental, life-insurance,
disability and other welfare benefit plans and programs at a level of
benefits at least as favorable to the Executive and the Executive's
family, and on terms at least as favorable to the Executive and the
Executive's family, as were available to the Executive and the
Executive's family immediately prior to termination or immediately
prior to the Effective Date (whichever is more favorable to the
Executive and the Executive's family). For purposes of any such benefit
that is based on the Executive's length of employment, the Executive
shall be deemed credited with three (3) additional years of employment.
For purposes of any such benefit that is based on the Executive's
average compensation, the average taken into account shall not be less
than the average that would be determined by assuming continued base
salary and bonus or incentive payments for a period of three (3) years
at the rates described at Section 9(a) above, and for purposes of any
such benefit that is based on the Executive's compensation at
<PAGE>
termination of employment, there shall be taken into account the higher
of the Executive's compensation at termination or the Executive's
compensation immediately prior to the Effective Date. To the extent the
continuation of benefits described in this paragraph cannot be
accommodated under the plans or programs of Eastern then in effect,
Eastern shall provide for substantially equivalent alternative coverage
and benefits for the Executive and the Executive's family.
Notwithstanding the foregoing, Eastern shall not be obligated to
provide a benefit or coverage under this paragraph to the extent an
equivalent or better benefit or coverage is available to the Executive
or the Executive's family, on a basis that is at least as favorable to
the Executive and the Executive's family, under a plan or program of
another employer. Nothing in this paragraph shall be construed as
requiring Eastern to pay severance in addition to the payments and
benefits otherwise provided for in this Agreement.
10. CERTAIN TAX-RELATED PAYMENTS.
(a) In the event it shall be determined that any "payment in the nature
of compensation" (as that term is used in Section 280G of the Code) to
or for the benefit of the Executive, whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise (a "Payment"), would be subject to the excise tax imposed by
Section 4999 of the Code or comparable state or local tax or any
interest or penalties with respect to such excise tax or comparable
state or local tax (such excise tax, together with any such interest
and penalties, are hereinafter collectively referred to as the "Excise
Tax"), then, subject to the following sentence, the cash payments
described at Section 9(a)(i), (ii) and (iii) hereof (but excluding, for
the avoidance of doubt, any payments referred to in the last sentence
of Section 9(a)) shall be reduced, but not below zero, to the extent
(and only to the extent) necessary to avoid the imposition of an Excise
Tax. Notwithstanding the foregoing, if the preceding sentence would
result in a reduction of more than ten percent (10%) in the Executive's
total "parachute payments" (as that term is defined in Section
280G(b)(2) of the Code), or if the reduction described in the preceding
sentence would not eliminate the Excise Tax, no reduction shall be made
in the payments or benefits due to the Executive under this Agreement
or otherwise and instead the Executive shall be entitled to receive an
additional payment (a "Gross-Up Payment"). The Gross-Up Payment shall
be equal to the sum of the Excise Tax and all taxes (including any
interest or penalties imposed with respect to such taxes) imposed upon
the Gross-Up Payment.
(b) If the Executive determines that a Gross-Up Payment is required,
the Executive shall so notify Eastern in writing, specifying the amount
of Gross-Up Payment required and details as to the calculation thereof.
Eastern shall, within 30 days, either pay such Gross-Up Payment (net of
applicable wage withholding) to the Executive or furnish an unqualified
opinion from Independent Tax Counsel (as defined below), addressed to
the Executive and Eastern, that there is substantial authority (within
the meaning of Section 6661 of the Code) for the position that no
Gross-Up Payment is required. "Independent Tax Counsel" means a lawyer
with expertise in the area of executive compensation tax law, who shall
be selected by the Executive and shall be reasonably acceptable to
Eastern, and whose fees and disbursements shall be paid by Eastern.
(c) If the Internal Revenue Service or other tax authority proposes in
writing an adjustment to the income tax of the Executive which would
result in a Gross-Up Payment, the Executive shall promptly notify
Eastern in writing and shall refrain for at least thirty days after
giving such notice, if so permitted by law, from paying any tax
(including interest, penalties and additions to tax) asserted to be
payable as a result of such proposed adjustment. Before the expiration
of such period, Eastern shall either pay the Gross-Up Payment or
provide an opinion from Independent Tax Counsel to the Executive and
Eastern as to whether it is more likely than not that the proposed
adjustment would be successfully challenged if the matter were to be
litigated. If the opinion provides that a challenge would be more
likely than not to be successful if the issue were litigated, and
<PAGE>
Eastern requests in writing that the Executive contest such proposed
adjustment, then the Executive shall contest the proposed adjustment
and shall consult in good faith with Eastern with respect to the nature
of all action to be taken in furtherance of the contest of such
proposed adjustment; provided that the Executive, after such
consultation with Eastern, shall determine in his sole discretion the
nature of all action to be taken to contest such proposed adjustment,
including (A) whether any such action shall initially be by way of
judicial or administrative proceedings, or both (B) whether any such
proposed adjustment shall be contested by resisting payment thereof or
by paying the same and seeking a refund thereof, and (C) if the
Executive shall undertake judicial action with respect to such proposed
adjustment, the court or other judicial body before which such action
shall be commenced and the court or other judicial body to which any
appeals should be taken. The Executive agrees to take appropriate
appeals of any judicial decision that would require Eastern to pay a
Gross-Up Payment, provided Eastern requests in writing that the
Executive do so and provides an opinion from Independent Tax Counsel to
the Executive and Eastern that it is more likely than not that the
appeal would be successful. The Executive further agrees to settle,
compromise or otherwise terminate a contest with the Internal Revenue
Service or other tax authority with respect to all or a portion of the
proposed adjustment giving rise to the Gross-Up Payment, if requested
by Eastern in writing to do so at any time, in which case the Executive
shall be entitled to receive from Eastern the Gross-Up Payment. In no
event shall the Executive compromise or settle all or any portion of a
proposed adjustment which would result in a Gross-Up Payment without
the written consent of Eastern, which consent shall not be unreasonably
withheld.
The Executive shall not be required to take or continue any action
pursuant to this Section 10 unless Eastern acknowledges its liability
under this Agreement in the event that the Internal Revenue Service or
other tax authority prevails in the contest. Eastern hereby agrees to
indemnify the Executive in a manner reasonably satisfactory to the
Executive for any fees, expenses, penalties, interest or additions to
tax which the Executive may incur as a result of contesting the
validity of any Excise Tax and to reimburse the Executive promptly upon
receipt of a written demand of the Executive for all costs and expenses
which the Executive may incur in connection with contesting such
proposed adjustment (including reasonable fees and disbursements of
Independent Tax Counsel).
If the Executive shall have contested any proposed adjustment as above
provided, and for so long as the Executive shall be required under the
terms of this Section 10(c) to continue such contest, Eastern shall not
be required to pay a Gross-Up Payment until there occurs a Final
Determination (as defined below) of the liability of the Executive for
the tax and any interest, penalties and additions to tax asserted to be
payable as a result of such proposed adjustment. A "Final
Determination" shall mean (A) a decision, judgment, decree or other
order by any court of competent jurisdiction, which decision, judgment,
decree or other order has become final after all allowable appeals by
either party to the action have been exhausted, the time for filing
such appeal has expired or the Executive has no right under the terms
hereof to request an appeal, (B) a closing agreement entered into under
Section 7121 of the Code or any other settlement agreement entered into
in connection with an administrative or judicial proceeding and with
the consent of the Executive, or (C) the expiration of the time for
instituting a claim for refund, or if such a claim was filed, the
expiration of the time for instituting suit with respect thereto.
(d) In the event the Executive receives any refund from the Internal
Revenue Service or other tax authority on account of an overpayment of
Excise Tax, such amount, together with that part of any Gross-Up
Payment attributable to such amount, shall be promptly paid by the
Executive to Eastern.
11. SOURCE OF PAYMENTS. All payments provided for under this Agreement
shall be paid or provided from the general assets of Eastern and its
subsidiaries or affiliates (to the extent not provided by insurance). Eastern
shall not be required to establish a special or separate fund or other
segregation of assets to assure such payments. Nothing in this Section, however,
shall be construed as restricting Eastern's ability to establish or fund a
so-called "rabbi trust" or similar arrangement to help Eastern meet its
liabilities hereunder, provided that the establishment or funding of such a
trust or arrangement does not by its terms or by operation of law limit or
purport to limit Eastern's liabilities hereunder or otherwise adversely affect
the Executive.
<PAGE>
12. LITIGATION EXPENSES. In the event of any litigation or other proceeding
between Eastern and the Executive with respect to the subject matter of this
Agreement and the enforcement of rights asserted in good faith hereunder, or, in
the event of termination of employment pursuant to Section 7(b) or Section 7(c)
above, with respect to any other remuneration or benefits with respect to the
Executive (including, without limitation, payments or benefits with respect to
the Executive under any qualified or nonqualified pension or retirement
agreement, plan, policy, program or arrangement), Eastern shall reimburse the
Executive for all costs and expenses relating to such litigation or other
proceeding, including reasonable attorneys fees and expenses, promptly upon
receipt of a written demand therefor and regardless of whether such litigation
results in any settlement or judgment or order in favor of any party.
Notwithstanding any provision of Massachusetts law to the contrary, in no
event shall the Executive be required to reimburse Eastern for any of the costs
and expenses relating to such litigation or other proceeding.
13. INCOME TAX WITHHOLDING. Eastern may withhold from any payments
made under this Agreement all federal, state, city or other taxes as shall be
required pursuant to any law or governmental regulation or ruling.
14. AGREEMENT NOT TO COMPETE, ETC. The Executive agrees that during the
36-month period beginning on the date the Executive's employment with Eastern
and its subsidiaries is terminated during the term hereof pursuant to Section
7(b) or Section 7(c) above, he will not, within the states in which Eastern
operates its business or in which any of Eastern's subsidiaries operates its
business, engage, either as a principal, employee, partner, consultant or
investor (other than through a 1% or smaller interest in a publicly traded
entity) in a business which competes with any such business of Eastern or its
subsidiaries.
The Executive further agrees that, following any such termination of his
employment, he will continue to comply with Eastern's policies and procedures
regarding confidential information, as that term is hereinafter defined, and
will never directly or indirectly use or disclose, except to the Executive's
attorney or as required by judicial or regulatory process or order, any
confidential information as so defined. For purposes of this paragraph, the term
"confidential information" means any and all information (including without
limitation information related to the development and implementation of business
strategy, financial and operating forecasts, business policies and practices,
and all other information related to the future conduct of business) (i) that
the Executive has acquired in connection with his employment with Eastern and
its subsidiaries, (ii) that is not generally known or available to others with
whom Eastern or its subsidiaries do, or plan to, compete or do business, and
(iii) that pertains to the business of, or belongs to, Eastern or its
subsidiaries or a person described in clause (ii).
The Executive agrees that if, at any time, pursuant to action of any court
of competent jurisdiction, the operation of any part of this Section 14 shall be
determined to be unlawful or otherwise unenforceable, then the coverage of this
Section 14 shall be deemed to be restricted as to duration, geographical scope
or otherwise, to the extent, but only to the extent, necessary to make this
paragraph lawful and enforceable in the particular jurisdiction in which such
determination is made.
The Executive acknowledges and agrees that, were he to breach the
provisions of this Section 14, the harm to Eastern and its subsidiaries would be
irreparable. The Executive therefore agrees that in the event of such a breach
or threatened breach, Eastern or its subsidiaries shall have the right to obtain
preliminary and permanent injunctive relief against any such breach without
having to post bond. Nothing herein shall prohibit Eastern or its subsidiaries
from seeking damages for a breach by the Executive of this Section 14, but
neither Eastern nor any other person shall withhold or offset any payments or
benefits due or owing to the Executive under the terms of this Agreement or
otherwise (including, without limitation, payments or benefits with respect to
the Executive under any qualified or nonqualified pension or retirement
agreement, plan, policy, program or arrangement), and all such payments and
benefits shall he promptly paid or provided to the Executive in accordance with
the terms of this Agreement (or such other agreement, plan, policy, program or
arrangement, as the case may be) without regard to any breach or alleged or
threatened breach by Executive of any provision of this Section 14.
<PAGE>
15. ENTIRE UNDERSTANDING. This Agreement contains the entire understanding
between Eastern and the Executive with respect to the subject matter hereof and
supersedes any prior Change of Control or similar severance or salary
continuation agreement between Eastern and the Executive.
16. SEVERABILITY. If, for any reason, any one or more of the provisions or
part of a provision contained in this Agreement shall be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision or part of a provision of
this Agreement not held so invalid, illegal or unenforceable, and each other
provision or part of a provision shall to the full extent consistent with law
continue in full force and effect.
17. CONSOLIDATION, MERGER OR SALE OF ASSETS. Nothing in this Agreement
shall preclude Eastern from consolidating or merging into or with, or
transferring all or substantially all of its assets to, another person that
assumes this Agreement and all obligations and undertakings of Eastern
hereunder. Upon such a consolidation, merger or transfer of assets and
assumption, the term "Eastern", as used herein shall mean such other person and
this Agreement shall continue in full force and effect.
18. SURVIVAL OF OBLIGATIONS. The obligations of Eastern under this
Agreement shall survive the termination for any reason of this Agreement
(whether such termination is by Eastern, by the Executive, upon the
expiration of this Agreement or otherwise).
19. NOTICES. All notices, requests, demands and other communications
required or permitted hereunder shall be given in writing and shall be deemed to
have been duly given if delivered or mailed, registered or certified, postage
prepaid with return receipt requested, as follows:
(a) To Eastern:
Eastern Enterprises
9 Riverside Road
Weston, MA 02493
Attention: Legal Department
(b) To the Executive:
Walter J. Flaherty
76 Old Post Road
East Walpole, MA 02032
or to such other address as either party shall have previously specified in
writing to the other pursuant to this Section 19.
20. NO ATTACHMENT. Except as required by law, no right to receive payments
under this Agreement shall be subject to anticipation, commutation, alienation,
sale, assignment, encumbrance, charge, pledge or hypothecation or to execution,
attachment, levy or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to effect any such action shall be null, void
and of no effect.
21. BINDING AGREEMENT. This Agreement shall be binding upon and shall
inure to the benefit of the Executive and Eastern and their respective
successors and assigns.
22. MODIFICATION AND WAIVER.
(a) Prior to the Effective Date this Agreement may be modified, amended
or terminated by the Board of Trustees of Eastern. From and after the
Effective Date this Agreement may not be modified, amended or
terminated except by an instrument in writing signed by the parties
hereto.
<PAGE>
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any
provision of this Agreement except by written instrument signed by the
party charged with such waiver or estoppel. No such written waiver
shall be deemed a continuing waiver unless specifically stated therein,
and each such waiver shall operate only as to the specific term or
condition waived and shall not constitute a waiver of such term or
condition for the future or as to any act other than that specifically
waived.
23. HEADINGS OF NO EFFECT. The paragraph headings contained in this
Agreement are included solely for convenience of reference and shall not in
any way affect the meaning or interpretation of any of the provisions
of this Agreement.
24. GOVERNING LAW. This Agreement and its validity, interpretation,
performance and enforcement shall be governed by the laws of the
Commonwealth of Massachusetts, without giving effect to the choice of law
provisions in effect in such State.
25. MISCELLANEOUS. 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 State 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.
IN WITNESS WHEREOF, Eastern has caused this Agreement to be executed by its
officers thereunto duly authorized, and the Executive has signed this Agreement,
all as of the date first above written.
EASTERN ENTERPRISES
By: /s/ J. Atwood Ives CEO
----------------------
By: /s/ Walter J. Flaherty
----------------------
Walter J. Flaherty
<PAGE>
Exhibit 10.5
AGREEMENT
This Agreement by and between Eastern Enterprises, a
Massachusetts business trust with its principal offices in Weston,
Massachusetts ("Eastern"), and L. William Law, Jr. (the "Executive"), is
entered into as of the 22nd day of July, 1998:
WITNESSETH THAT:
WHEREAS the Executive is an executive employee of Eastern; and
WHEREAS the Board of Trustees of Eastern (the "Board") has determined
that it is in the best interests of Eastern, its shareholders and the Executive
to assure continuity in the management of Eastern's administration and
operations by entering into an agreement to provide the Executive with certain
assurances pertaining to compensation and benefits in the event that a Change of
Control, as defined below, should be under consideration or should have
occurred.
NOW, THEREFORE, it is hereby agreed by and between the parties hereto
as follows:
1. EMPLOYMENT. Eastern agrees that from and after the Effective Date as
hereinafter defined it shall continue the Executive in its employ and the
Executive agrees that from and after the Effective Date he shall remain in the
employ of Eastern. in each case for the period described in Section 4 hereof and
upon the other terms and conditions herein provided.
2. CERTAIN DEFINITIONS: For purposes of this Agreement, the
following terms shall have the meanings set forth below:
(a) "Cause" shall mean, subject to the provisions of this
definition, (i) conviction of the Executive for (or a plea of nolo
contendere by the Executive with respect to) a felony, or (ii) an act
by the Executive of fraud or dishonesty which has resulted or is likely
to result in material economic damage to Eastern or its subsidiaries.
No purported termination of Executive shall be deemed a termination for
Cause unless the Board shall have made a determination that Cause
exists nor unless, in the case of Cause asserted under clause (a)(ii)
above, the Board shall have given the Executive the opportunity, upon
at least thirty (30) days' prior written notice, to appear and be heard
with counsel before the Board.
(b) "Change of Control" shall mean the occurrence of any of
the following after January 1, 1998:
(i) any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended) or group of "persons" (as so defined), other than
Eastern, becomes a beneficial owner directly or indirectly of
securities representing twenty-five percent (25%) or more of
the combined voting power of the then outstanding voting
securities of Eastern; or
(ii) there is consummated a merger or consolidation
("merger") involving Eastern and immediately after such
merger the beneficial owners immediately prior to such merger
of the then outstanding voting securities of Eastern do not
continue to own beneficially at least sixty percent (60%) of
the voting securities of the entity or entities resulting
from such merger; or
(iii) there is consummated a sale, lease, exchange,
spin-off or other transfer (any of the foregoing, a
"transfer") of all or substantially all of the assets or
business of Eastern and its subsidiaries, other than any such
transfer resulting in beneficial ownership of not less than
sixty percent (60%) of the assets or business so transferred
or not less than sixty percent (60%) of the voting securities
<PAGE>
of the entity or entities to which such assets were
transferred by the owners immediately prior to the transfer
of the then outstanding voting securities of Eastern; or
(iv) within any two-year period, individuals who at
the beginning of such period constituted the Board of
Trustees of Eastern cease for any reason to constitute a
majority thereof; provided, that any trustee who is not in
office at the beginning of such two-year period but whose
election or nomination for election was approved by a vote of
at least two-thirds of the trustees in office at the time of
such approval who were either trustees of Eastern at the
beginning of such period or who were elected to the Board of
Trustees pursuant to an election which was, or for which the
nomination for election was, previously so approved shall be
deemed to have been in office at the beginning of such
two-year period.
(c) "Code" shall mean the federal Internal Revenue Code of
1986, as amended .
(d) "Disability" shall mean the Executive's demonstrated
inability, over a continuous period of at least twelve (12) months, to
perform the Executive's duties and responsibilities by reason of a
disabling injury or condition that would qualify the Executive for
benefits under Eastern's long term disability program .
(e) "Effective Date" shall mean the date specified in
Section 4(a) below.
(f) "Good Reason" means any of the following unless promptly,
fully and retroactively corrected by Eastern or unless waived in
writing by the Executive: (i) any reduction in the annual rate of base
salary payable to the Executive below the higher of the annual rate at
which base salary is then being paid to the Executive or the annual
rate at which base salary was being paid to the Executive immediately
prior to the Effective Date; (ii) the elimination of or any reduction
in the bonus opportunities made available to the Executive under any
bonus or incentive program; (iii) the elimination of or any reduction
in any other employee or executive benefit, benefit program or
perquisite then available to the Executive or the Executive's family or
that was available to the Executive or the Executive's family
immediately prior to the Effective Date, or any change in any such
employee or executive benefit, benefit program or perquisite that would
result in additional cost to the Executive or the Executive's family,
in each case except for changes in broad-based employee benefit
programs (that is, employee benefit programs available to non-officer
employees generally as well as officers) that have a similar effect on
both officer and non- officer participants generally in such programs;
(iv) any material change in the Executive's duties, functions or
responsibilities (including without limitation reporting lines); (v)
any action resulting in a relocation of the Executive's regular place
of employment to a location that is more than thirty-five (35) miles
from the place where the Executive was regularly employed immediately
prior thereto or immediately prior to the Effective Date; and (vi) any
other material breach of this Agreement by Eastern.
3. POSITION AND RESPONSIBILITIES. During the period of employment
hereunder, the Executive agrees to serve Eastern in an executive capacity,
subject to the terms of this Agreement.
4. TERM AND DUTIES.
(a) The period of the Executive's employment under this
Agreement shall be deemed to have commenced as of the date (the
"Effective Date") which precedes by six (6) months the date of a Change
of Control and shall continue for a period which ends on the last day
of the twenty-four (24) calendar month period which begins on the date
of such Change of Control.
(b) During the period of employment hereunder and except for
illness or incapacity and reasonable vacation periods, the Executive's
business time, attention, skill and efforts shall be exclusively
devoted to the business and affairs of Eastern and its subsidiaries;
provided, however, that nothing in this Agreement shall preclude the
Executive from engaging in the following:
<PAGE>
(i) serving as a director, trustee or committee
member in any company or organization,
(ii) delivering lectures and fulfilling speaking
engagements, and
(iii) engaging in charitable and community
activities,
provided that such activities do not materially adversely affect or
interfere with the performance of the Executive's obligations to
Eastern.
5. COMPENSATION AND BENEFITS. During the Executive's employment
under this Agreement, Eastern shall pay, provide and make available the
following:
(a) Eastern shall pay the Executive base salary at an annual
rate that is not less than the annual rate at which base salary was
being paid to the Executive by Eastern immediately prior to the
Effective Date.
(b) In addition to the salary payable under subsection (a)
above, Eastern shall provide or make available to the Executive, from
and after the Effective Date and during the term of the Executive's
employment hereunder, bonus opportunities, benefits, and perquisites
not less favorable, and on terms not less favorable, to the Executive
than the bonus opportunities, benefits and perquisites provided or made
available and on the terms provided or made available to the Executive
immediately prior to the Effective Date.
6. BUSINESS EXPENSE. Eastern shall pay or reimburse the Executive for
all reasonable travel or other expenses incurred in connection with the
performance of the Executive's duties under this Agreement in accordance with
such procedures as Eastern may from time to time establish.
7. TERMINATION OF EMPLOYMENT. Notwithstanding any other provision
of this Agreement, the Executive's employment under this Agreement may be
terminated:
(a) by Eastern for Cause (but only if such termination is
accomplished in the manner specified in Section 2(a));
(b) by Eastern other than for Cause pursuant to
Section 7(a) and other than on account of Disability or death;
(c) by the Executive for Good Reason;
(d) by the Executive other than for Good Reason, Disability
or death; or
(e) by Eastern or the Executive by reason of the
Executive's Disability or death.
Except in the case of termination by reason of the Executive's death or
termination for Cause pursuant to Section 7(a), any termination by Eastern of
the Executive's employment under this Agreement shall take effect only after
thirty (30) days' prior written notice by Eastern to the Executive.
8. VESTING OF CERTAIN AWARDS AND BENEFITS. In the event of a Change of
Control, the Executive shall be immediately vested in all shares of restricted
stock of Eastern then held by Executive, and all stock options then held by the
Executive that were awarded under Eastern's 1982 Stock Option Plan or 1995 Stock
Option Plan (or any successor plan or plans) and that were not then exercisable
shall become immediately exercisable. If the Executive's employment under this
Agreement shall have been terminated under Section 7(b) or Section 7(c) above
after the Effective Date but before the Change of Control, all shares of
<PAGE>
restricted stock held by the Executive immediately prior to termination of
employment shall be vested and all stock options held by the Executive
immediately prior to termination of employment (including replacement options,
if any, issued in substitution for such stock options in connection with the
Change of Control), whether or not otherwise exercisable, shall be exercisable
for a period ending not earlier than the later of (i) the date such options
would have been exercisable without regard to this Section 8, or (ii) thirty
days following the Change of Control, subject in each case to consummation of
the Change of Control; provided, that if stock options are not assumed (and no
replacement options are issued) in connection with the Change of Control, clause
(ii) shall not apply and Eastern shall provide the Executive the opportunity to
exercise all of the stock options held by the Executive immediately prior to
termination of employment (whether or not then exercisable) on the same basis as
options held by active employees that become exercisable in connection with the
Change of Control. The provisions of this Section 8 shall be in addition to, and
not in limitation of, any rights that Executive may otherwise have to the
vesting of benefits upon a Change of Control. Without limiting the foregoing,
this Agreement shall be treated as a "COC Agreement" for purposes of the Eastern
Enterprises Supplemental Executive Retirement Plan and the Eastern Enterprises
Supplemental Retirement Plan for Certain Officers, each as from time to time
amended.
9. PAYMENTS UPON TERMINATION OF EMPLOYMENT.
(a) In the event of any termination of the Executive's
employment during the term of this Agreement, if such termination is
(1) by the Executive pursuant to Section 7(c), above, or (2) by Eastern
pursuant to Section 7(b) above, Eastern shall pay to the Executive the
sum of the following amounts within 30 days of such termination
(provided, that if such termination of employment occurs after the
Effective Date but before the Change of Control, the Executive shall be
entitled to the payments described at (i), (ii) and (iii) below only
upon consummation of the Change of Control):
(i) a lump sum cash amount equal to the product of
three (3) times the annual rate at which the Executive was
being paid base salary immediately prior to such termination
or immediately prior to the Effective Date, if greater;
(ii) a lump sum cash amount equal to the product of
three (3) times the Executive's target benefit or benefits
under the annual bonus or incentive plan or plans in which
the Executive was participating for the period including the
date of termination or times the Executive's target benefit
or benefits under the annual bonus or incentive plan or plans
in which the Executive was participating for the period
including the Effective Date if higher; and
(iii) a lump sum cash amount equal to the product of
(A) the Executive's target benefit or benefits for the bonus
or incentive period or periods that include the date of
termination (under the annual bonus or incentive plan or
plans in which the Executive was participating at the time of
termination), times a (B) a fraction, the numerator of which
is the number of days elapsed in such bonus or incentive
period or periods prior to the date of termination, and the
denominator of which is three hundred sixty-five (365).
In addition, upon termination of employment Eastern shall promptly pay
to the Executive any salary, bonuses, or other payments earned by the
Executive but not yet paid as of the date of termination.
(b) For a period of thirty-six (36) months commencing with
the month in which a termination described in (a)(1) or (a)(2) above
shall have occurred, the Executive and the Executive's family shall
continue to be entitled to participate in Eastern's medical, dental,
life-insurance, disability and other welfare benefit plans and programs
at a level of benefits at least as favorable to the Executive and the
Executive's family, and on terms at least as favorable to the Executive
and the Executive's family, as were available to the Executive and the
Executive's family immediately prior to termination or immediately
prior to the Effective Date (whichever is more favorable to the
Executive and the Executive's family). For purposes of any such benefit
<PAGE>
that is based on the Executive's length of employment, the Executive
shall be deemed credited with three (3) additional years of employment.
For purposes of any such benefit that is based on the Executive's
average compensation, the average taken into account shall not be less
than the average that would be determined by assuming continued base
salary and bonus or incentive payments for a period of three (3) years
at the rates described at Section 9(a) above, and for purposes of any
such benefit that is based on the Executive's compensation at
termination of employment, there shall be taken into account the higher
of the Executive's compensation at termination or the Executive's
compensation immediately prior to the Effective Date. To the extent the
continuation of benefits described in this paragraph cannot be
accommodated under the plans or programs of Eastern then in effect,
Eastern shall provide for substantially equivalent alternative coverage
and benefits for the Executive and the Executive's family.
Notwithstanding the foregoing, Eastern shall not be obligated to
provide a benefit or coverage under this paragraph to the extent an
equivalent or better benefit or coverage is available to the Executive
or the Executive's family, on a basis that is at least as favorable to
the Executive and the Executive's family, under a plan or program of
another employer. Nothing in this paragraph shall be construed as
requiring Eastern to pay severance in addition to the payments and
benefits otherwise provided for in this Agreement.
10. CERTAIN TAX-RELATED PAYMENTS.
(a) In the event it shall be determined that any "payment in
the nature of compensation" (as that term is used in Section 280G of
the Code) to or for the benefit of the Executive, whether paid or
payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise (a "Payment"), would be subject to the excise
tax imposed by Section 4999 of the Code or comparable state or local
tax or any interest or penalties with respect to such excise tax or
comparable state or local tax (such excise tax, together with any such
interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then, subject to the following sentence, the cash
payments described at Section 9(a)(i), (ii) and (iii) hereof (but
excluding, for the avoidance of doubt, any payments referred to in the
last sentence of Section 9(a)) shall be reduced, but not below zero, to
the extent (and only to the extent) necessary to avoid the imposition
of an Excise Tax. Notwithstanding the foregoing, if the preceding
sentence would result in a reduction of more than ten percent (10%) in
the Executive's total "parachute payments" (as that term is defined in
Section 280G(b)(2) of the Code), or if the reduction described in the
preceding sentence would not eliminate the Excise Tax, no reduction
shall be made in the payments or benefits due to the Executive under
this Agreement or otherwise and instead the Executive shall be entitled
to receive an additional payment (a "Gross-Up Payment"). The Gross-Up
Payment shall be equal to the sum of the Excise Tax and all taxes
(including any interest or penalties imposed with respect to such
taxes) imposed upon the Gross-Up Payment.
(b) If the Executive determines that a Gross-Up Payment is
required, the Executive shall so notify Eastern in writing, specifying
the amount of Gross-Up Payment required and details as to the
calculation thereof. Eastern shall, within 30 days, either pay such
Gross-Up Payment (net of applicable wage withholding) to the Executive
or furnish an unqualified opinion from Independent Tax Counsel (as
defined below), addressed to the Executive and Eastern, that there is
substantial authority (within the meaning of Section 6661 of the Code)
for the position that no Gross-Up Payment is required. "Independent Tax
Counsel" means a lawyer with expertise in the area of executive
compensation tax law, who shall be selected by the Executive and shall
be reasonably acceptable to Eastern, and whose fees and disbursements
shall be paid by Eastern.
(c) If the Internal Revenue Service or other tax authority
proposes in writing an adjustment to the income tax of the Executive
which would result in a Gross-Up Payment, the Executive shall promptly
notify Eastern in writing and shall refrain for at least thirty days
after giving such notice, if so permitted by law, from paying any tax
(including interest, penalties and additions to tax) asserted to be
payable as a result of such proposed adjustment. Before the expiration
of such period, Eastern shall either pay the Gross-Up Payment or
provide an opinion from Independent Tax Counsel to the Executive and
Eastern as to whether it is more likely than not that the proposed
adjustment would be successfully challenged if the matter were to be
litigated. If the opinion provides that a challenge would be more
<PAGE>
likely than not to be successful if the issue were litigated, and
Eastern requests in writing that the Executive contest such proposed
adjustment, then the Executive shall contest the proposed adjustment
and shall consult in good faith with Eastern with respect to the nature
of all action to be taken in furtherance of the contest of such
proposed adjustment; provided that the Executive, after such
consultation with Eastern, shall determine in his sole discretion the
nature of all action to be taken to contest such proposed adjustment,
including (A) whether any such action shall initially be by way of
judicial or administrative proceedings, or both (B) whether any such
proposed adjustment shall be contested by resisting payment thereof or
by paying the same and seeking a refund thereof, and (C) if the
Executive shall undertake judicial action with respect to such proposed
adjustment, the court or other judicial body before which such action
shall be commenced and the court or other judicial body to which any
appeals should be taken. The Executive agrees to take appropriate
appeals of any judicial decision that would require Eastern to pay a
Gross-Up Payment, provided Eastern requests in writing that the
Executive do so and provides an opinion from Independent Tax Counsel to
the Executive and Eastern that it is more likely than not that the
appeal would be successful. The Executive further agrees to settle,
compromise or otherwise terminate a contest with the Internal Revenue
Service or other tax authority with respect to all or a portion of the
proposed adjustment giving rise to the Gross-Up Payment, if requested
by Eastern in writing to do so at any time, in which case the Executive
shall be entitled to receive from Eastern the Gross-Up Payment. In no
event shall the Executive compromise or settle all or any portion of a
proposed adjustment which would result in a Gross-Up Payment without
the written consent of Eastern, which consent shall not be unreasonably
withheld.
The Executive shall not be required to take or continue any action
pursuant to this Section 10 unless Eastern acknowledges its liability
under this Agreement in the event that the Internal Revenue Service or
other tax authority prevails in the contest. Eastern hereby agrees to
indemnify the Executive in a manner reasonably satisfactory to the
Executive for any fees, expenses, penalties, interest or additions to
tax which the Executive may incur as a result of contesting the
validity of any Excise Tax and to reimburse the Executive promptly upon
receipt of a written demand of the Executive for all costs and expenses
which the Executive may incur in connection with contesting such
proposed adjustment (including reasonable fees and disbursements of
Independent Tax Counsel).
If the Executive shall have contested any proposed adjustment as above
provided, and for so long as the Executive shall be required under the
terms of this Section 10(c) to continue such contest, Eastern shall not
be required to pay a Gross-Up Payment until there occurs a Final
Determination (as defined below) of the liability of the Executive for
the tax and any interest, penalties and additions to tax asserted to be
payable as a result of such proposed adjustment. A "Final
Determination" shall mean (A) a decision, judgment, decree or other
order by any court of competent jurisdiction, which decision, judgment,
decree or other order has become final after all allowable appeals by
either party to the action have been exhausted, the time for filing
such appeal has expired or the Executive has no right under the terms
hereof to request an appeal, (B) a closing agreement entered into under
Section 7121 of the Code or any other settlement agreement entered into
in connection with an administrative or judicial proceeding and with
the consent of the Executive, or (C) the expiration of the time for
instituting a claim for refund, or if such a claim was filed, the
expiration of the time for instituting suit with respect thereto.
(d) In the event the Executive receives any refund from the
Internal Revenue Service or other tax authority on account of an
overpayment of Excise Tax, such amount, together with that part of any
Gross-Up Payment attributable to such amount, shall be promptly paid by
the Executive to Eastern.
11. SOURCE OF PAYMENTS. All payments provided for under this Agreement
shall be paid or provided from the general assets of Eastern and its
subsidiaries or affiliates (to the extent not provided by insurance). Eastern
shall not be required to establish a special or separate fund or other
segregation of assets to assure such payments. Nothing in this Section, however,
shall be construed as restricting Eastern's ability to establish or fund a
so-called "rabbi trust" or similar arrangement to help Eastern meet its <PAGE>
liabilities hereunder, provided that the establishment or funding of such a
trust or arrangement does not by its terms or by operation of law limit or
purport to limit Eastern's liabilities hereunder or otherwise adversely affect
the Executive.
12. LITIGATION EXPENSES. In the event of any litigation or other
proceeding between Eastern and the Executive with respect to the subject matter
of this Agreement and the enforcement of rights asserted in good faith
hereunder, or, in the event of termination of employment pursuant to Section
7(b) or Section 7(c) above, with respect to any other remuneration or benefits
with respect to the Executive (including, without limitation, payments or
benefits with respect to the Executive under any qualified or nonqualified
pension or retirement agreement, plan, policy, program or arrangement), Eastern
shall reimburse the Executive for all costs and expenses relating to such
litigation or other proceeding, including reasonable attorneys fees and
expenses, promptly upon receipt of a written demand therefor and regardless of
whether such litigation results in any settlement or judgment or order in favor
of any party.
Notwithstanding any provision of Massachusetts law to the contrary, in
no event shall the Executive be required to reimburse Eastern for any of the
costs and expenses relating to such litigation or other proceeding.
13. INCOME TAX WITHHOLDING. Eastern may withhold from any
payments made under this Agreement all federal, state, city or other taxes
as shall be required pursuant to any law or governmental regulation or ruling.
14. AGREEMENT NOT TO COMPETE, ETC. The Executive agrees that during the
36-month period beginning on the date the Executive's employment with Eastern
and its subsidiaries is terminated during the term hereof pursuant to Section
7(b) or Section 7(c) above, he will not, within the states in which Eastern
operates its business or in which any of Eastern's subsidiaries operates its
business, engage, either as a principal, employee, partner, consultant or
investor (other than through a 1 % or smaller interest in a publicly traded
entity) in a business which competes with any such business of Eastern or its
subsidiaries.
The Executive further agrees that, following any such termination of
his employment, he will continue to comply with Eastern's policies and
procedures regarding confidential information, as that term is hereinafter
defined, and will never directly or indirectly use or disclose, except to the
Executive's attorney or as required by judicial or regulatory process or order,
any confidential information as so defined. For purposes of this paragraph, the
term "confidential information" means any and all information (including without
limitation information related to the development and implementation of business
strategy, financial and operating forecasts, business policies and practices,
and all other information related to the future conduct of business) (i) that
the Executive has acquired in connection with his employment with Eastern and
its subsidiaries, (ii) that is not generally known or available to others with
whom Eastern or its subsidiaries do, or plan to, compete or do business, and
(iii) that pertains to the business of, or belongs to, Eastern or its
subsidiaries or a person described in clause (ii).
The Executive agrees that if, at any time, pursuant to action of any
court of competent jurisdiction, the operation of any part of this Section 14
shall be determined to be unlawful or otherwise unenforceable, then the coverage
of this Section 14 shall be deemed to be restricted as to duration, geographical
scope or otherwise, to the extent, but only to the extent, necessary to make
this paragraph lawful and enforceable in the particular jurisdiction in which
such determination is made.
The Executive acknowledges and agrees that, were he to breach the
provisions of this Section 14, the harm to Eastern and its subsidiaries would be
irreparable. The Executive therefore agrees that in the event of such a breach
or threatened breach, Eastern or its subsidiaries shall have the right to obtain
preliminary and permanent injunctive relief against any such breach without
having to post bond. Nothing herein shall prohibit Eastern or its subsidiaries
from seeking damages for a breach by the Executive of this Section 14, but
neither Eastern nor any other person shall withhold or offset any payments or
benefits due or owing to the Executive under the terms of this Agreement or
otherwise (including, without limitation, payments or benefits with respect to
the Executive under any qualified or nonqualified pension or retirement
<PAGE>
agreement, plan, policy, program or arrangement), and all such payments and
benefits shall be promptly paid or provided to the Executive in accordance with
the terms of this Agreement (or such other agreement, plan, policy, program or
arrangement, as the case may be) without regard to any breach or alleged or
threatened breach by Executive of any provision of this Section 14.
15. ENTIRE UNDERSTANDING. This Agreement contains the entire
understanding between Eastern and the Executive with respect to the subject
matter hereof and supersedes any prior Change of Control or similar severance or
salary continuation agreement between Eastern and the Executive.
16. SEVERABILITY. If, for any reason, any one or more of the provisions
or part of a provision contained in this Agreement shall be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision or part of a provision of
this Agreement not held so invalid, illegal or unenforceable, and each other
provision or part of a provision shall to the full extent consistent with law
continue in full force and effect.
17. CONSOLIDATION, MERGER OR SALE OF ASSETS. Nothing in this Agreement
shall preclude Eastern from consolidating or merging into or with, or
transferring all or substantially all of its assets to, another person that
assumes this Agreement and all obligations and undertakings of Eastern
hereunder. Upon such a consolidation, merger or transfer of assets and
assumption, the term "Eastern", as used herein shall mean such other person and
this Agreement shall continue in full force and effect.
18. SURVIVAL OF OBLIGATIONS. The obligations of Eastern under
this Agreement shall survive the termination for any reason of this
Agreement (whether such termination is by Eastern, by the Executive, upon the
expiration of this Agreement or otherwise).
19. NOTICES. All notices, requests, demands and other communications
required or permitted hereunder shall be given in writing and shall be deemed to
have been duly given if delivered or mailed, registered or certified, postage
prepaid with return receipt requested, as follows:
(a) To Eastern:
Eastern Enterprises
9 Riverside Road
Weston, MA 02493
Attention: Legal Department
(b) To the Executive:
L. William Law, Jr.
75 Bacon Street
Winchester, MA 01890
or to such other address as either party shall have previously specified in
writing to the other pursuant to this Section 19.
20. NO ATTACHMENT. Except as required by law, no right to receive
payments under this Agreement shall be subject to anticipation, commutation,
alienation, sale, assignment, encumbrance, charge, pledge or hypothecation or to
execution, attachment, levy or similar process or assignment by operation of
law, and any attempt, voluntary or involuntary, to effect any such action shall
be null, void and of no effect.
21. BINDING AGREEMENT. This Agreement shall be binding upon and
shall inure to the benefit of the Executive and Eastern and their respective
successors and assigns.
22. MODIFICATION AND WAIVER.
<PAGE>
(a) Prior to the Effective Date this Agreement may be
modified, amended or terminated by the Board of Trustees of Eastern.
From and after the Effective Date this Agreement may not be modified,
amended or terminated except by an instrument in writing signed by the
parties hereto.
(b) No term or condition of this Agreement shall be deemed to
have been waived, nor shall there be any estoppel against the
enforcement of any provision of this Agreement except by written
instrument signed by the party charged with such waiver or estoppel. No
such written waiver shall be deemed a continuing waiver unless
specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a
waiver of such term or condition for the future or as to any act other
than that specifically waived.
23. HEADINGS OF NO EFFECT. The paragraph headings contained in
this Agreement are included solely for convenience of reference and shall not
in any way affect the meaning or interpretation of any of the provisions
of this Agreement.
24. GOVERNING LAW. This Agreement and its validity, interpretation,
performance and enforcement shall be governed by the laws of the
Commonwealth of Massachusetts, without giving effect to the choice of
law provisions in effect in such State.
25. MISCELLANEOUS. 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 State 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.
IN WITNESS WHEREOF, Eastern has caused this Agreement to be executed by
its officers thereunto duly authorized, and the Executive has signed this
Agreement, all as of the date first above written.
EASTERN ENTERPRISES
By: /s/ J. Atwood Ives CEO
----------------------
By: /s/ L. William Law, Jr.
----------------------
L. William Law, Jr.
<PAGE>
Exhibit 10.6
AGREEMENT
This Agreement by and between Eastern Enterprises, a Massachusetts
business trust with its principal offices in Weston, Massachusetts ("Eastern"),
Boston Gas Company, a corporation with its principal offices in Boston,
Massachusetts ("Boston Gas") and Chester R. Messer (the "Executive"), is entered
into as of the 22nd day of July, 1998:
WITNESSETH THAT:
WHEREAS the Executive is an executive employee of Boston Gas; and
WHEREAS the Board of Trustees of Eastern (the "Board") and the Board of
Directors of Boston Gas (the "Boston Gas Board") have determined that it is in
the best interests of Eastern, Boston Gas, Eastern's shareholders and the
Executive to assure continuity in the management of Boston Gas's administration
and operations by entering into an agreement to provide the Executive with
certain assurances pertaining to compensation and benefits in the event that a
Change of Control, as defined below, should be under consideration or should
have occurred.
NOW, THEREFORE, it is hereby agreed by and between the parties hereto
as follows:
1. EMPLOYMENT. Boston Gas agrees that from and after the Effective Date
as hereinafter defined it shall continue the Executive in its employ and the
Executive agrees that from and after the Effective Date he shall remain in the
employ of Boston Gas, in each case for the period described in Section 4 hereof
and upon the other terms and conditions herein provided.
2. CERTAIN DEFINITIONS. For purposes of this Agreement, the
following terms shall have the meanings set forth below:
(a) "Cause" shall mean, subject to the provisions of this
definition, (i) conviction of the Executive for (or a plea of nolo
contendere by the Executive with respect to) a felony, or (ii) an act
by the Executive of fraud or dishonesty which has resulted or is likely
to result in material economic damage to Boston Gas, Eastern or
Eastern's subsidiaries. No purported termination of Executive shall be
deemed a termination for Cause unless the Boston Gas Board shall have
made a determination that Cause exists nor unless, in the case of Cause
asserted under clause (a)(ii) above, the Boston Gas Board shall have
given the Executive the opportunity, upon at least thirty (30) days'
prior written notice, to appear and be heard with counsel before the
Boston Gas Board.
(b) "Change of Control" shall mean the occurrence of any of
the following after January 1, 1998:
(i) any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended) or group of "persons" (as so defined), other than
Eastern, becomes a beneficial owner directly or indirectly of
securities representing twenty-five percent (25%) or more of
the combined voting power of the then outstanding voting
securities of Eastern; or
(ii) there is consummated a merger or consolidation
("merger") involving Eastern and immediately after such
merger the beneficial owners immediately prior to such merger
of the then outstanding voting securities of Eastern do not
continue to own beneficially at least sixty percent (60%) of
the voting securities of the entity or entities resulting
from such merger; or
<PAGE>
(iii) there is consummated a sale, lease, exchange,
spin- off or other transfer (any of the foregoing, a
"transfer") of all or substantially all of the assets or
business of Eastern and its subsidiaries, other than any such
transfer resulting in beneficial ownership of not less than
sixty percent (60%) of the assets or business so transferred
or not less than sixty percent (60%) of the voting securities
of the entity or entities to which such assets were
transferred by the owners immediately prior to the transfer
of the then outstanding voting securities of Eastern; or
(iv) within any two-year period, individuals who at
the beginning of such period constituted the Board of
Trustees of Eastern cease for any reason to constitute a
majority thereof; provided, that any trustee who is not in
office at the beginning of such two-year period but whose
election or nomination for election was approved by a vote of
at least two-thirds of the trustees in office at the time of
such approval who were either trustees of Eastern at the
beginning of such period or who were elected to the Board of
Trustees pursuant to an election which was, or for which the
nomination for election was, previously so approved shall be
deemed to have been in office at the beginning of such
two-year period; or
(v) Eastern sells or otherwise disposes of all or
substantially all of its stock of Boston Gas or Boston Gas
sells or otherwise disposes of all or substantially all of
its assets, excluding in either case any transaction
resulting in beneficial ownership of not less than fifty
percent (50%) of the assets or business so transferred or not
less than fifty percent (50%) of the voting securities of the
entity or entities to which such assets were transferred by
the owners immediately prior to the transfer of the then
outstanding voting securities of Eastern.
(c) "Code" shall mean the federal Internal Revenue Code of
1986, as amended.
(d) "Disability" shall mean the Executive's demonstrated
inability, over a continuous period of at least twelve (12) months, to
perform the Executive's duties and responsibilities by reason of a
disabling injury or condition that would qualify the Executive for
benefits under the long term disability program maintained for
employees of Boston Gas.
(e) "Effective Date" shall mean the date specified in
Section 4(a) below.
(f) "Good Reason" means any of the following unless promptly,
fully and retroactively corrected by Boston Gas (or by Eastern, in the
case of any employee or executive benefit, benefit program, incentive
program, or perquisite maintained by Eastern) or unless waived in
writing by the Executive: (i) any reduction in the annual rate of base
salary payable to the Executive below the higher of the annual rate at
which base salary is then being paid to the Executive or the annual
rate at which base salary was being paid to the Executive immediately
prior to the Effective Date; (ii) the elimination of or any reduction
in the bonus opportunities made available to the Executive under any
bonus or incentive program; (iii) the elimination of or any reduction
in any other employee or executive benefit, benefit program or
perquisite then available to the Executive or the Executive's family or
that was available to the Executive or the Executive's family
immediately prior to the Effective Date, or any change in any such
employee or executive benefit, benefit program or perquisite that would
result in additional cost to the Executive or the Executive's family,
in each case except for changes in broad-based employee benefit
programs (that is, employee benefit programs available to non-officer
employees generally as well as officers) that have a similar effect on
both officer and non-officer participants generally in such programs;
(iv) any material change in the Executive's duties, functions or
responsibilities (including without limitation reporting lines); (v)
any action resulting in a relocation of the Executive's regular place
of employment to a location that is more than thirty-five (35) miles
from the place where the Executive was regularly employed immediately
prior thereto or immediately prior to the Effective Date; and (vi) any
other material breach of this Agreement by Boston Gas or Eastern.
3. POSITION AND RESPONSIBILITIES. During the period of employment
hereunder, the Executive agrees to serve Boston Gas in an executive capacity,
subject to the terms of this Agreement.
<PAGE>
4. TERM AND DUTIES.
(a) The period of the Executive's employment under this
Agreement shall be deemed to have commenced as of the date (the
"Effective Date") which precedes by six (6) months the date of a Change
of Control and shall continue for a period which ends on the last day
of the twenty-four (24) calendar month period which begins on the date
of such Change of Control.
(b) During the period of employment hereunder and except for
illness or incapacity and reasonable vacation periods, the Executive's
business time, attention, skill and efforts shall be exclusively
devoted to the business and affairs of Boston Gas and its subsidiaries;
provided, however, that nothing in this Agreement shall preclude the
Executive from engaging in the following:
(i) serving as a director, trustee or committee
member in any company or organization,
(ii) delivering lectures and fulfilling speaking
engagements, and
(iii) engaging in charitable and community
activities,
provided that such activities do not materially adversely affect or
interfere with the performance of the Executive's obligations under
this Agreement.
5. COMPENSATION AND BENEFITS. During the Executive's employment
under this Agreement, Boston Gas (or, to the extent provided below, Eastern)
shall pay, provide and make available the following:
(a) Boston Gas shall pay the Executive base salary at an
annual rate that is not less than the annual rate at which base salary
was being paid to the Executive by Boston Gas immediately prior to the
Effective Date.
(b) In addition to the salary payable under subsection (a)
above, Boston Gas and Eastern shall provide or make available to the
Executive, from and after the Effective Date and during the term of the
Executive's employment hereunder, bonus opportunities, benefits, and
perquisites not less favorable, and on terms not less favorable, to the
Executive than the bonus opportunities, benefits and perquisites
provided or made available and on the terms provided or made available
to the Executive immediately prior to the Effective Date.
6. BUSINESS EXPENSE. Boston Gas shall pay or reimburse the Executive
for all reasonable travel or other expenses incurred in connection with the
performance of the Executive's duties under this Agreement in accordance with
such procedures as Boston Gas may from time to time establish.
7. TERMINATION OF EMPLOYMENT. Notwithstanding any other provision
of this Agreement, the Executive's employment under this Agreement may be
terminated:
(a) by Boston Gas for Cause (but only if such
termination is accomplished in the manner specified in Section 2(a));
(b) by Boston Gas other than for Cause pursuant to
Section 7(a) and other than on account of Disability or death;
(c) by the Executive for Good Reason;
(d) by the Executive other than for Good Reason,
Disability or death; or
(e) by Boston Gas or the Executive by reason of the
Executive's Disability or death.
<PAGE>
Except in the case of termination by reason of the Executive's death or
termination for Cause pursuant to Section 7(a), any termination by Boston Gas of
the Executive's employment under this Agreement shall take effect only after
thirty (30) days' prior written notice by Boston Gas to the Executive.
8. VESTING OF CERTAIN AWARDS AND BENEFITS. In the event of a Change of
Control, the Executive shall be immediately vested in all shares of restricted
stock of Eastern then held by Executive, and all stock options then held by the
Executive that were awarded under Eastern's 1982 Stock Option Plan or 1995 Stock
Option Plan (or any successor plan or plans) and that were not then exercisable
shall become immediately exercisable. If the Executive's employment under this
Agreement shall have been terminated under Section 7(b) or Section 7(c) above
after the Effective Date but before the Change of Control, all shares of
restricted stock held by the Executive immediately prior to termination of
employment shall be vested and all stock options held by the Executive
immediately prior to termination of employment (including replacement options,
if any, issued in substitution for such stock options in connection with the
Change of Control), whether or not otherwise exercisable, shall be exercisable
for a period ending not earlier than the later of (i) the date such options
would have been exercisable without regard to this Section 8, or (ii) thirty
days following the Change of Control, subject in each case to consummation of
the Change of Control; provided, that if stock options are not assumed (and no
replacement options are issued) in connection with the Change of Control, clause
(ii) shall not apply and Eastern shall provide the Executive the opportunity to
exercise all of the stock options held by the Executive immediately prior to
termination of employment (whether or not then exercisable) on the same basis as
options held by active employees that become exercisable in connection with the
Change of Control. The provisions of this Section 8 shall be in addition to, and
not in limitation of, any rights that Executive may otherwise have to the
vesting of benefits upon a Change of Control. Without limiting the foregoing,
this Agreement shall be treated as a "COC Agreement" for purposes of the Eastern
Enterprises Supplemental Executive Retirement Plan and the Eastern Enterprises
Supplemental Retirement Plan for Certain Officers, each as from time to time
amended.
9. PAYMENTS UPON TERMINATION OF EMPLOYMENT.
(a) In the event of any termination of the Executive's
employment during the term of this Agreement, if such termination is
(1) by the Executive pursuant to Section 7(c), above, or (2) by Boston
Gas pursuant to Section 7(b) above, Boston Gas shall pay to the
Executive the sum of the following amounts within 30 days of such
termination (provided, that if such termination of employment occurs
after the Effective Date but before the Change of Control, the
Executive shall be entitled to the payments described at (i), (ii) and
(iii) below only upon consummation of the Change of Control):
(i) a lump sum cash amount equal to the product of
three (3) times the annual rate at which the Executive was
being paid base salary immediately prior to such termination
or immediately prior to the Effective Date, if greater;
(ii) a lump sum cash amount equal to the product of
three (3) times the target benefit or benefits under the
Executive's annual bonus or incentive plan or plans in which
the Executive was participating for the period including the
date of termination or times the Executive's target benefit
or benefits under the annual bonus or incentive plan or plans
in which the Executive was participating for the period
including the Effective Date if higher; and
(iii) a lump sum cash amount equal to the product of
(A) the Executive's target benefit or benefits for the bonus
or incentive period or periods that include the date of
termination (under the annual bonus or incentive plan or
plans in which the Executive was participating at the time of
termination), times a (B) a fraction, the numerator of which
is the number of days elapsed in such bonus or incentive
period or periods prior to the date of termination, and the
denominator of which is three hundred sixty-five (365).
In addition, upon termination of employment Boston Gas shall promptly
pay to the Executive any salary, bonuses, or other payments earned by
the Executive but not yet paid as of the date of termination.
<PAGE>
(b) For a period of thirty-six (36) months commencing with
the month in which a termination described in (a)(1) or (a)(2) above
shall have occurred, the Executive and the Executive's family shall
continue to be entitled to participate in Boston Gas's or Eastern's
medical, dental, life-insurance, disability and other welfare benefit
plans and programs at a level of benefits at least as favorable to the
Executive and the Executive's family, and on terms at least as
favorable to the Executive and the Executive's family, as were
available to the Executive and the Executive's family immediately prior
to termination or immediately prior to the Effective Date (whichever is
more favorable to the Executive and the Executive's family). For
purposes of any such benefit that is based on the Executive's length of
employment, the Executive shall be deemed credited with three (3)
additional years of employment. For purposes of any such benefit that
is based on the Executive's average compensation, the average taken
into account shall not be less than the average that would be
determined by assuming continued base salary and bonus or incentive
payments for a period of three (3) years at the rates described at
Section 9(a) above, and for purposes of any such benefit that is based
on the Executive's compensation at termination of employment, there
shall be taken into account the higher of the Executive's compensation
at termination or the Executive's compensation immediately prior to the
Effective Date. To the extent the continuation of benefits described in
this paragraph cannot be accommodated under the plans or programs of
Boston Gas or Eastern then in effect, Boston Gas shall provide for
substantially equivalent alternative coverage and benefits for the
Executive and the Executive's family. Notwithstanding the foregoing,
Boston Gas shall not be obligated to provide a benefit or coverage
under this paragraph to the extent an equivalent or better benefit or
coverage is available to the Executive or the Executive's family, on a
basis that is at least as favorable to the Executive and the
Executive's family, under a plan or program of another employer.
Nothing in this paragraph shall be construed as requiring Boston Gas or
Eastern to pay severance in addition to the payments and benefits
otherwise provided for in this Agreement.
10. CERTAIN TAX-RELATED PAYMENTS.
(a) In the event it shall be determined that any "payment in
the nature of compensation" (as that term is used in Section 280G of
the Code) to or for the benefit of the Executive, whether paid or
payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise (a "Payment"), would be subject to the excise
tax imposed by Section 4999 of the Code or comparable state or local
tax or any interest or penalties with respect to such excise tax or
comparable state or local tax (such excise tax, together with any such
interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then, subject to the following sentence, the cash
payments described at Section 9(a)(i), (ii) and (iii) hereof (but
excluding, for the avoidance of doubt, any payments referred to in the
last sentence of Section 9(a)) shall be reduced, but not below zero, to
the extent (and only to the extent) necessary to avoid the imposition
of an Excise Tax. Notwithstanding the foregoing, if the preceding
sentence would result in a reduction of more than ten percent (10%) in
the Executive's total"parachute payments" (as that term is defined in
Section 280G(b)(2) of the Code), or if the reduction described in the
preceding sentence would not eliminate the Excise Tax, no reduction
shall be made in the payments or benefits due to the Executive under
this Agreement or otherwise and instead the Executive shall be entitled
to receive an additional payment (a "Gross-Up Payment"). The Gross-Up
Payment shall be equal to the sum of the Excise Tax and all taxes
(including any interest or penalties imposed with respect to such
taxes) imposed upon the Gross-Up Payment.
(b) If the Executive determines that a Gross-Up Payment is
required, the Executive shall so notify Boston Gas in writing,
specifying the amount of Gross-Up Payment required and details as to
the calculation thereof. Boston Gas shall, within 30 days, either pay
such Gross-Up Payment (net of applicable wage withholding) to the
Executive or furnish an unqualified opinion from Independent Tax
Counsel (as defined below), addressed to the Executive and Boston Gas,
<PAGE>
that there is substantial authority (within the meaning of Section 6661
of the Code) for the position that no Gross-Up Payment is required.
"Independent Tax Counsel" means a lawyer with expertise in the area of
executive compensation tax law, who shall be selected by the Executive
and shall be reasonably acceptable to Boston Gas, and whose fees and
disbursements shall be paid by Boston Gas.
(c) If the Internal Revenue Service or other tax authority
proposes in writing an adjustment to the income tax of the Executive
which would result in a Gross-Up Payment, the Executive shall promptly
notify Boston Gas in writing and shall refrain for at least thirty days
after giving such notice, if so permitted by law, from paying any tax
(including interest, penalties and additions to tax) asserted to be
payable as a result of such proposed adjustment. Before the expiration
of such period, Boston Gas shall either pay the Gross-Up Payment or
provide an opinion from Independent Tax Counsel to the Executive and
Boston Gas as to whether it is more likely than not that the proposed
adjustment would be successfully challenged if the matter were to be
litigated. If the opinion provides that a challenge would be more
likely than not to be successful if the issue were litigated, and
Boston Gas requests in writing that the Executive contest such proposed
adjustment, then the Executive shall contest the proposed adjustment
and shall consult in good faith with Boston Gas with respect to the
nature of all action to be taken in furtherance of the contest of such
proposed adjustment; provided that the Executive, after such
consultation with Boston Gas, shall determine in his sole discretion
the nature of all action to be taken to contest such proposed
adjustment, including (A) whether any such action shall initially be by
way of judicial or administrative proceedings, or both (B) whether any
such proposed adjustment shall be contested by resisting payment
thereof or by paying the same and seeking a refund thereof, and (C) if
the Executive shall undertake judicial action with respect to such
proposed adjustment, the court or other judicial body before which such
action shall be commenced and the court or other judicial body to which
any appeals should be taken. The Executive agrees to take appropriate
appeals of any judicial decision that would require Boston Gas to pay a
Gross-Up Payment, provided Boston Gas requests in writing that the
Executive do so and provides an opinion from Independent Tax Counsel to
the Executive and Boston Gas that it is more likely than not that the
appeal would be successful. The Executive further agrees to settle,
compromise or otherwise terminate a contest with the Internal Revenue
Service or other tax authority with respect to all or a portion of the
proposed adjustment giving rise to the Gross-Up Payment, if requested
by Boston Gas in writing to do so at any time, in which case the
Executive shall be entitled to receive from Boston Gas the Gross-Up
Payment. In no event shall the Executive compromise or settle all or
any portion of a proposed adjustment which would result in a Gross-Up
Payment without the written consent of Boston Gas, which consent shall
not be unreasonably withheld.
The Executive shall not be required to take or continue any action
pursuant to this Section 10 unless Boston Gas acknowledges its
liability under this Agreement in the event that the Internal Revenue
Service or other tax authority prevails in the contest. Boston Gas
hereby agrees to indemnify the Executive in a manner reasonably
satisfactory to the Executive for any fees, expenses, penalties,
interest or additions to tax which the Executive may incur as a result
of contesting the validity of any Excise Tax and to reimburse the
Executive promptly upon receipt of a written demand of the Executive
for all costs and expenses which the Executive may incur in connection
with contesting such proposed adjustment (including reasonable fees and
disbursements of Independent Tax Counsel).
If the Executive shall have contested any proposed adjustment as above
provided, and for so long as the Executive shall be required under the
terms of this Section 10(c) to continue such contest, Boston Gas shall
not be required to pay a Gross-Up Payment until there occurs a Final
Determination (as defined below) of the liability of the Executive for
the tax and any interest, penalties and additions to tax asserted to be
payable as a result of such proposed adjustment. A "Final
Determination" shall mean (A) a decision, judgment, decree or other
order by any court of competent jurisdiction, which decision, judgment,
decree or other order has become final after all allowable appeals by
either party to the action have been exhausted, the time for filing
such appeal has expired or the Executive has no right under the terms
hereof to request an appeal, (B) a closing agreement entered into under
Section 7121 of the Code or any other settlement agreement entered into
<PAGE>
in connection with an administrative or judicial proceeding and with
the consent of the Executive, or (C) the expiration of the time for
instituting a claim for refund, or if such a claim was filed, the
expiration of the time for instituting suit with respect thereto.
(d) In the event the Executive receives any refund from the
Internal Revenue Service or other tax authority on account of an
overpayment of Excise Tax, such amount, together with that part of any
Gross-Up Payment attributable to such amount, shall be promptly paid by
the Executive to Boston Gas.
11. SOURCE OF PAYMENTS. Except as provided at Section 8 above, all
payments provided for under this Agreement shall be paid or provided from the
general assets of Boston Gas and its subsidiaries or affiliates (to the extent
not provided by insurance). Boston Gas shall not be required to establish a
special or separate fund or other segregation of assets to assure such payments.
Nothing in this Section, however, shall be construed as restricting Boston Gas's
ability to establish or fund a so-called "rabbi trust" or similar arrangement to
help Boston Gas meet its liabilities hereunder, provided that the establishment
or funding of such a trust or arrangement does not by its terms or by operation
of law limit or purport to limit Boston Gas's liabilities hereunder or otherwise
adversely affect the Executive.
12. LITIGATION EXPENSES. In the event of any litigation or other
proceeding between Boston Gas or Eastern and the Executive with respect to the
subject matter of this Agreement and the enforcement of rights asserted in good
faith hereunder, or, in the event of termination of employment pursuant to
Section 7(b) or Section 7(c) above, with respect to any other remuneration or
benefits with respect to the Executive (including, without limitation, payments
or benefits with respect to the Executive under any qualified or nonqualified
pension or retirement agreement, plan, policy, program or arrangement), Boston
Gas shall reimburse the Executive for all costs and expenses relating to such
litigation or other proceeding, including reasonable attorneys fees and
expenses, promptly upon receipt of a written demand therefor and regardless of
whether such litigation results in any settlement or judgment or order in favor
of any party.
Notwithstanding any provision of Massachusetts law to the contrary, in
no event shall the Executive be required to reimburse Boston Gas or Eastern for
any of the costs and expenses relating to such litigation or other proceeding.
13. INCOME TAX WITHHOLDING. Boston Gas and Eastern may withhold
from any payments made under this Agreement all federal, state, city or
other taxes as shall be required pursuant to any law or governmental
regulation or ruling.
14. AGREEMENT NOT TO COMPETE, ETC. The Executive agrees that during the
36-month period beginning on the date the Executive's employment with Eastern
and its subsidiaries, including Boston Gas, is terminated during the term hereof
pursuant to Section 7(b) or Section 7(c) above, he will not, within the states
in which Eastern operates its business or in which any of Eastern's subsidiaries
operates its business, engage, either as a principal, employee, partner,
consultant or investor (other than through a 1 % or smaller interest in a
publicly traded entity) in a business which competes with any such business of
Eastern or its subsidiaries.
The Executive further agrees that, following any such termination of
his employment, he will continue to comply with Eastern's policies and
procedures regarding confidential information, as that term is hereinafter
defined, and will never directly or indirectly use or disclose, except to the
Executive's attorney or as required by judicial or regulatory process or order,
any confidential information as so defined. For purposes of this paragraph, the
term "confidential information" means any and all information (including without
limitation information related to the development and implementation of business
strategy, financial and operating forecasts, business policies and practices,
and all other information related to the future conduct of business) (i) that
the Executive has acquired in connection with his employment with Eastern and
its subsidiaries, (ii) that is not generally known or available to others with
whom Eastern or its subsidiaries do, or plan to, compete or do business, and
(iii) that pertains to the business of, or belongs to, Eastern or its
subsidiaries or a person described in clause (ii).
The Executive agrees that if, at any time, pursuant to action of any
court of competent jurisdiction, the operation of any part of this Section 14
shall be determined to be unlawful or otherwise unenforceable, then the coverage
<PAGE>
of this Section 14 shall be deemed to be restricted as to duration, geographical
scope or otherwise, to the extent, but only to the extent, necessary to make
this paragraph lawful and enforceable in the particular jurisdiction in which
such determination is made.
The Executive acknowledges and agrees that, were he to breach the
provisions of this Section 14, the harm to Eastern and its subsidiaries would be
irreparable. The Executive therefore agrees that in the event of such a breach
or threatened breach, Eastern or its subsidiaries shall have the right to obtain
preliminary and permanent injunctive relief against any such breach without
having to post bond. Nothing herein shall prohibit Eastern or its subsidiaries
from seeking damages for a breach by the Executive of this Section 14, but
neither Eastern nor any other person shall withhold or offset any payments or
benefits due or owing to the Executive under the terms of this Agreement or
otherwise (including, without limitation, payments or benefits with respect to
the Executive under any qualified or nonqualified pension or retirement
agreement, plan, policy, program or arrangement), and all such payments and
benefits shall be promptly paid or provided to the Executive in accordance with
the terms of this Agreement (or such other agreement, plan, policy, program or
arrangement, as the case may be) without regard to any breach or alleged or
threatened breach by Executive of any provision of this Section 14.
15. ENTIRE UNDERSTANDING. This Agreement contains the entire
understanding between Eastern, Boston Gas and the Executive with respect to the
subject matter hereof and supersedes any prior Change of Control or similar
severance or salary continuation agreement between Boston Gas or Eastern
(including any of Eastern's subsidiaries other than Boston Gas) and the
Executive.
16. SEVERABILITY. If, for any reason, any one or more of the provisions
or part of a provision contained in this Agreement shall be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision or part of a provision of
this Agreement not held so invalid, illegal or unenforceable, and each other
provision or part of a provision shall to the full extent consistent with law
continue in full force and effect.
17. CONSOLIDATION, MERGER OR SALE OF ASSETS. Nothing in this Agreement
shall preclude Eastern or Boston Gas from consolidating or merging into or with,
or transferring all or substantially all of its assets to, another person that
assumes this Agreement and all obligations and undertakings of Eastern or Boston
Gas, respectfully, hereunder. Upon such a consolidation, merger or transfer of
assets and assumption, involving Eastern or Boston Gas, the terms "Eastern" and
"Boston Gas", respectfully, as used herein shall mean such other person and this
Agreement shall continue in full force and effect.
18. SURVIVAL OF OBLIGATIONS. The obligations of Eastern and Boston Gas
under this Agreement shall survive the termination for any reason of this
Agreement (whether such termination is by Eastern, by Boston Gas, by the
Executive, upon the expiration of this Agreement or otherwise).
19. NOTICES. All notices, requests, demands and other communications
required or permitted hereunder shall be given in writing and shall be deemed to
have been duly given if delivered or mailed, registered or certified, postage
prepaid with return receipt requested, as follows:
(a) To Eastern:
Eastern Enterprises
9 Riverside Road
Weston, MA 02493
Attention: Legal Department
(b) To Boston Gas:
Boston Gas Company
One Beacon Street
Boston, MA 02108
Attention: Legal Department (with a copy to Eastern)
<PAGE>
(c) To the Executive:
Chester R. Messer
60 Selwyn Road
Belmont, MA 02478
or to such other address as either party shall have previously specified in
writing to the other pursuant to this Section 19.
20. NO ATTACHMENT. Except as required by law, no right to receive payments
under this Agreement shall be subject to anticipation, commutation, alienation,
sale, assignment, encumbrance, charge, pledge or hypothecation or to execution,
attachment, levy or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to effect any such action shall be null, void
and of no effect.
21. BINDING AGREEMENT. This Agreement shall be binding upon (subject
to Section 25(a)) and shall inure to the benefit of the Executive, Eastern and
Boston Gas and their respective successors and assigns .
22. MODIFICATION AND WAIVER.
(a) Prior to the Effective Date this Agreement may be modified, amended
or terminated by the Board of Trustees of Eastern. From and after the
Effective Date this Agreement may not be modified, amended or
terminated except by an instrument in writing signed by the parties
hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any
provision of this Agreement except by written instrument signed by the
party charged with such waiver or estoppel. No such written waiver
shall be deemed a continuing waiver unless specifically stated therein,
and each such waiver shall operate only as to the specific term or
condition waived and shall not constitute a waiver of such term or
condition for the future or as to any act other than that specifically
waived.
23. HEADINGS OF NO EFFECT. The paragraph headings contained in this
Agreement are included solely for convenience of reference and shall not in
any way affect the meaning or interpretation of any of the provisions of
this Agreement.
24. GOVERNING LAW. This Agreement and its validity, interpretation,
performance and enforcement shall be governed by the laws of The
Commonwealth of Massachusetts, without giving effect to the choice of law
provisions in effect in such State .
25. MISCELLANEOUS.
(a) Eastern shall be liable under this Agreement solely with respect to
its obligations under Sections 5, 8, 9 and 21 hereof.
(b) 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 State 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.
IN WITNESS WHEREOF, Eastern and Boston Gas have caused this Agreement to be
executed by their respective officers thereunto duly authorized, and the
Executive has signed this Agreement, all as of the date first above written.
<PAGE>
EASTERN ENTERPRISES
By: /s/ J. Atwood Ives CEO
------------------
BOSTON COMPANY
By: /s/ Joseph F. Bodanza SVP & Treasurer
---------------------
By: /s/ Chester R. Messer
---------------------
Chester R. Messer
<PAGE>
Exhibit 10.7
EASTERN ENTERPRISES
Supplemental Executive Retirement Plan
Amendment
Pursuant to Section 14 of the Eastern Enterprises Supplemental
Executive Retirement Plan (as amended, the "Plan"), the Plan is hereby amended
as follows, effective immediately:
1. Section 2(a) (definition of "Eastern") is amended to read
as follows: "The word "Eastern" will mean Eastern Enterprises and any
successor, including without limitation any successor to or acquiror of the
stock or assets of Eastern in a transaction constituting a Change of Control.'4
2. Section 2(m) (definition of "Change of Control") is amended
to read as follows:
"A Change of Control will be deemed to have occurred if, after January
1, 1998, any of the following occurs:
(i) any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended) or
group of "persons" (as so defined), other than Eastern,
becomes a beneficial owner directly or indirectly of
securities representing twenty-five percent (25%) or more of
the combined voting power of the then outstanding voting
securities of Eastern; or
(ii)there is consummated a merger or consolidation ("merger")
involving Eastern and immediately after such merger the
beneficial owners immediately prior to such merger of the then
outstanding voting securities of Eastern do not continue to
own beneficially at least sixty percent (60%) of the voting
securities of the entity or entities resulting from such
merger; or
(iii) there is consummated a sale, lease, exchange, spin- off
or other transfer (any of the foregoing, a "transfer") of all
or substantially all of the assets or business of Eastern and
its subsidiaries, other than any such transfer resulting in
beneficial ownership of not less than sixty percent (60%) of
the assets or business so transferred or not less than sixty
percent (60%) of the voting securities of the entity or
entities to which such assets were transferred by the owners
immediately prior to the transfer of the then outstanding
voting securities of Eastern; or
(iv) within any two-year period, individuals who at the
beginning of such period constituted the Board of Trustees of
Eastern cease for any reason to constitute a majority thereof;
provided, that any trustee who is not in office at the
beginning of such two-year period but whose election or
nomination for election was approved by a vote of at least
two-thirds of the trustees in office at the time of such
approval who were either trustees of Eastern at the beginning
of such period or who were elected to the Board of Trustees
pursuant to an election which was, or for which the nomination
for election was, previously so approved shall be deemed to
have been in office at the beginning of such two-year period;
or
(v) in the case of an Eligible Officer employed by Boston Gas
Company, Eastern sells or otherwise disposes of all or
substantially all of its stock of Boston Gas Company or Boston
<PAGE>
Gas Company sells or otherwise disposes of all or
substantially all of its assets, excluding in either case any
transaction resulting in beneficial ownership of not less than
fifty percent (50%) of the assets or business so transferred
or not less than fifty percent (50%) of the voting securities
of the entity or entities to which such assets were
transferred by the owners immediately prior to the transfer of
the then outstanding voting securities of Eastern; or
(vi) in the case of an Eligible Officer employed by Midland
Enterprises Inc., Eastern sells or otherwise disposes of all
or substantially all of its stock of Midland Enterprises Inc.
or Midland Enterprises Inc. sells or otherwise disposes of all
or substantially all of its assets, excluding in either case
any transaction resulting in beneficial ownership of not less
than fifty percent (50%) of the assets or business so
transferred or not less than fifty percent (50%) of the voting
securities of the entity or entities to which such assets were
transferred by the owners immediately prior to the transfer of
the then outstanding voting securities of Eastern."
3. A new subsection 2(n) is added to read as follows:
"(n) The words "COC Agreement" mean an agreement between an Officer
and Eastern or one or more subsidiaries of Eastern providing
for severance pay or other benefits to the Officer in the
event of a Change of Control or similar change in the control
of Eastern and its subsidiaries or upon termination of the
Officer's employment in connection with or during a specified
period that includes such Change of Control or similar
change."
4. Section 4 is amended by adding at the end the following text:
"An Officer who, at any time during the period commencing six
months before and ending two years after a Change of Control,
satisfies the requirements of (i), (ii) and (iii) of this Section
4 will also be an Eligible Officer covered by the Plan, whether or
not he has attained age fifty-five (55), if the employment of such
Officer with Eastern and its subsidiaries terminates under
circumstances which at the time or upon a subsequent Change of
Control entitle such officer to a severance payment or payments
under a COC Agreement (but if the employment of such Officer so
terminates, he shall be deemed to have been an Eligible Officer
from the beginning of the period commencing six months before and
ending two years after the Change of Control)."
5. Section 5(a)(i) is amended by adding the words "or Section 5(c)
below" after the words "in Section 5(a)(ii) below" in the first sentence.
6. Section 5(a)(ii) is amended by deleting the first word
("Every") and inserting in its place the words: "Subject to Section 5(c)
below, every".
7. Section 5(b)(i) is amended by adding the words "or Section
5(c) below" after the words "in Section 5(b)(ii) below" in the first sentence.
8. Section 5(b)(ii) is amended by deleting the first word
("Every") and inserting in its place the words: "Subject to Section 5(c)
below, every".
9. Sections 5(c) and 5(d) are redesignated Sections 5(d) and 5(e),
respectively, and a new Section 5(c) is added immediately following Section
5(b)(ii), to read in its entirety as follows:
"(c) Benefits Following a Change of Control. Every Eligible Officer
whose employment by Eastern and its subsidiaries terminates
(other than by death) under circumstances which at the time or
upon a subsequent Change of Control entitle him to a severance
<PAGE>
payment or payments under a COG Agreement will be eligible to
receive an annual amount determined under this paragraph (c).
The annual amount determined under this paragraph (c) is the
product of
(i) the Eligible Officer's average annual
Compensation for those five (5) calendar years,
selected from among the last ten (10) calendar
years of his Executive Service, in
which his aggregate Compensation was highest;
provided, that the computation of such
Eligible Officer's average annual Compensation
for purposes of this paragraph (i)
shall include the period by reference to which the
severance payment or payments under
the COG Agreement are determined (for example,
three years in the case of a severance
payment equal to three years of compensation) and
the amount of such severance payment
or payments, if the inclusion of such factors in
the computation would result in a
higher amount of average annual Compensation
than would result from a determination
under this paragraph (i) without regard to such
factors; and
(ii) a percentage determined according to the following
table:
Non-Calendar
Years of Executive Service Percentage
Less than 10 None
10 35
11 36.5
12 38
13 39.5
14 41
15 42.5
16 44
17 45.5
18 47
19 48.5
20 or more 50
In determining "non-calendar years of Executive
Service" for purposes of this paragraph (c)(ii), the
rules described in Section 5(a)(ii) shall apply
except that an Eligible Officer described in this
subsection (c) shall be credited with a number of
additional non-calendar years of Executive Service
equal to the number of years with respect to which
the severance payment or payments under his COG
Agreement are determined (for example, three years
in the case of a severance payment equal to three
years of compensation); and
(iii) in the case of an Eligible Officer whose age at
commencement of benefits is less than sixty (60), a
percentage determined according to the following
table:
Age at
at Commencement
of Benefit Percentage
59 95
58 90
57 85
56 80
55 75"
<PAGE>
10. Section 5(d), as hereinabove redesignated, is amended to
read in its entirety as follows:
"Death Benefits. If an Eligible Officer dies while serving (or deemed
to be serving under Section 6 below) as an Eligible Officer, or after
termination of employment in accordance with Section 5(e)(i), (ii),
(iii) or (iv) but before commencement of benefits, and leaves a
surviving spouse, the spouse, if he or she survives to the date
benefits commence, will be eligible to receive an annual amount equal
to the amount, if any, the Eligible Officer would have been entitled
to receive under (a),(b) or (c) above, whichever is applicable, had
his employment terminated in accordance with Section 5(e)(i), (ii),
(iii) or (iv) on the earlier of the day before the Eligible Officer's
death or the date of actual termination of employment."
11. Section 5(e), as hereinabove redesignated, is amended by deleting
the words "upon or after his attaining age fifty-five (55), but" and the comma
after the word "(65)" in the first sentence thereof; by replacing the period at
the end of clause (iii) with the words "; or"; and by adding immediately after
clause (iii) as so amended and before the sentence which begins "No benefit with
respect. . ."the following new clause (iv):
"(iv) in the case of an Eligible Officer described at Section 5(c)
above, the Eligible Officer's employment terminates under
circumstances which at the time or upon a subsequent Change
of Control entitle him to a severance payment or payments
under a COC Agreement."
12. Section 7 is amended by deleting the reference to "Section 5(c)"
and replacing it with a reference to "Section 5(d)" . 13. Section 9 is amended
by deleting the words "Section 5(a) or Section 5(b) above" in the second line
and replacing them with the words "Section 5(a), Section 5(b) or Section 5(c)
above".
13. Section 9 is amended by deleting the words "Section 5(a) or Section
5(b) above" in the second line and replacing them with the words "Section 5(a),
Section 5(b) or Section 5(c) above".
14. The paragraph of Section 9 that begins "If an Eligible Officer dies
while employed . . ."is amended by adding the words "or after termination of
employment in accordance with Section 5(e)(i), (ii), (iii) or (iv) but before
commencement of benefits," after the words "Eligible Officer," in the second
line and by deleting the words "Section 5(c)" and replacing them with the words
"Section 5(d)".
15. Section 10 as in effect prior to the amendments described herein is
amended by deleting the words "Section 5(c)" each time they appear and replacing
them with the words "Section 5(d)"; by deleting the words "Eligible Officer
retired with the written permission of the Compensation Committee on the day
before his death" and replacing them with the words "Eligible Officer's
employment terminated in accordance with Section 5(e)(i), (ii), (iii) or (iv);
and by adding the following proviso immediately before the period at the end of
the section; "; provided, that in the case of an Eligible Officer described in
Section 5(c), benefits shall not commence prior to the first day of the month
next following the date the Eligible Officer attains or would have attained age
55".
16. Section 11 is amended by adding the following sentence at
the end thereof: "The provisions of this Section 11 shall not apply in the
case of an Eligible Officer receiving benefits pursuant to Section 5(c)."
17. The second subparagraph of Section 12 (begins:
"Notwithstanding the foregoing ...") is amended to read as follows:
"Notwithstanding the foregoing, Eastern in its sole discretion may
establish a so-called "rabbi" trust or similar trust, whether or not
conforming to Rev. Proc. 92-64, or may avail itself of any such trust
<PAGE>
which it has previously established, to provide for the payment of
benefits hereunder, subject to such terms as the Board of Trustees may
determine (a "trust"). In the event Eastern established a trust in
respect of the Plan or causes a pre-existing trust to cover the Plan,
and at the time of a Change of Control such trust (i) has not been
terminated or revoked and (ii) is not "fully funded" (as hereinafter
defined), Eastern shall promptly deposit in such trust cash sufficient
to cause the trust to be "fully funded" as of the date of the deposit.
For purposes of this subparagraph, any such trust shall be deemed
"fully funded" as of any date if, as of that date, the fair market
value of the assets held in trust is not less than (1) the aggregate
present value as of that date of all benefits then in pay status under
the Plan (including benefits not yet commenced but in respect of
Eligible Officers whose employment has terminated in accordance with
Section 5(e)(i), (ii), (iii) or (iv)) plus (2) the aggregate present
value as of that date of all benefits that would be payable under the
Plan if all other persons who are (or, but for not yet having attained
age 55, would be) Eligible OfficErs were deemed to have terminated
employment on that date in accordance with Section 5(e)(i), (ii),
(iii) or (iv) plus (3) the aggregate present value as of that date of
all benefits payable (as determined under rules similar to the rules
described in (1) and (2)) under all other defined-benefit type plans
and arrangements provided for through the trust, plus (4) the
aggregate of the account balances, determined as of such date, under
all individual-account type plans and arrangements provided for
through the trust. In applying clauses (1), (2) and (3) of the
previous sentence, present value shall be determined by using the
interest and mortality assumptions used in determining lump sum
present values under the qualified defined benefit pension plan
maintained by Eastern, of if no such qualified plan is then maintained
by Eastern, by applying the assumptions used prior to the Change of
Control in determining Eastern's pension expense under FAS 87 or any
successor pronouncement with respect to such plan or arrangement."
18. Section 14 is amended to provide as follows:
"Termination: Amendment: Other. Eastern reserves the right at any time
by action of its Board of Trustees to terminate the Plan or to amend
its provisions in any way, except that following the date which
precedes by six months a Change of Control no such amendment or
termination shall reduce the amount of Eastern's obligations under
Section 12 or extend the period within which Eastern may satisfy such
obligations. In addition, the Plan will automatically terminate if at
any time (and as of the date that) the Retirement Plan is terminated.
Notwithstanding the foregoing, no termination or amendment of the Plan
(a "Plan Change") will reduce the benefit payable under the Plan to
any person with respect to an Eligible Officer whose employment with
Eastern and its subsidiaries was terminated prior to such Plan Change,
nor shall any Plan Change reduce the benefit, if any, to be paid with
respect to a person who is (or, but for not yet having attained age
55, would be) an Eligible Officer on the date of such Plan Change
below the amount which such person would have received if his
employment had terminated in accordance with Section 5(e)(i), (ii),
(iii) or (iv) on the day before such Plan Change; provided, however,
that benefits otherwise payable hereunder with respect to an
individual may be reduced or otherwise modified by separate agreement
between Eastern and such individual."
IN WITNESS WHEREOF, Eastern Enterprises has caused this instrument of
amendment to be executed by its duly authorized officer as of the 22nd day of
July, 1998.
EASTERN ENTERPRISES
By: /s/ J. Atwood Ives
------------------
As approved by the Board of Trustees of Eastern Enterprises on July 22, 1998.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated statement of earnings and the consolidated balance sheets and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 167,501
<SECURITIES> 0
<RECEIVABLES> 81,578
<ALLOWANCES> 17,903
<INVENTORY> 56,176
<CURRENT-ASSETS> 345,452
<PP&E> 1,669,539
<DEPRECIATION> 735,068
<TOTAL-ASSETS> 1,475,987
<CURRENT-LIABILITIES> 150,873
<BONDS> 387,311
<COMMON> 22,508
29,351
0
<OTHER-SE> 518,415
<TOTAL-LIABILITY-AND-EQUITY> 1,475,987
<SALES> 511,706
<TOTAL-REVENUES> 707,980
<CGS> 377,661
<TOTAL-COSTS> 541,277
<OTHER-EXPENSES> 71,064
<LOSS-PROVISION> 10,724
<INTEREST-EXPENSE> 24,495
<INCOME-PRETAX> 60,420
<INCOME-TAX> 22,491
<INCOME-CONTINUING> 37,929
<DISCONTINUED> 0
<EXTRAORDINARY> 46,960
<CHANGES> 0
<NET-INCOME> 84,889
<EPS-PRIMARY> 3.78<F1>
<EPS-DILUTED> 3.74<F2>
<FN>
<F1> EPS - Primary is EPS Basic per SFAS 128
<F2> EPS - Fully Diluted is EPS - Diluted per SFAS 128
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated statement of earnings and the consolidated balance sheets and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 181,482
<SECURITIES> 0
<RECEIVABLES> 73,633
<ALLOWANCES> 19,001
<INVENTORY> 64,955
<CURRENT-ASSETS> 359,902
<PP&E> 1,587,406
<DEPRECIATION> 674,562
<TOTAL-ASSETS> 1,432,493
<CURRENT-LIABILITIES> 167,355
<BONDS> 343,469
<COMMON> 22,427
29,318
0
<OTHER-SE> 452,519
<TOTAL-LIABILITY-AND-EQUITY> 1,432,493
<SALES> 558,179
<TOTAL-REVENUES> 758,324
<CGS> 376,504
<TOTAL-COSTS> 589,341
<OTHER-EXPENSES> 74,096
<LOSS-PROVISION> 11,353
<INTEREST-EXPENSE> 27,814
<INCOME-PRETAX> 55,720
<INCOME-TAX> 18,405
<INCOME-CONTINUING> 37,315
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37,315
<EPS-PRIMARY> 1.67<F1>
<EPS-DILUTED> 1.66<F2>
<FN>
<F1> EPS - Primary is EPS Basic per SFAS 128
<F2> EPS - Fully Diluted is EPS - Diluted per SFAS 128
</FN>
</TABLE>
