<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
FILED BY THE REGISTRANT [X]
FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]
- --------------------------------------------------------------------------------
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[X] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
Eastern Enterprises
(Name of Registrant as Specified In Its Charter)
Eastern Enterprises
(Name of Person(s) Filing Proxy Statement)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No fee required.
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or Item
22(a)(2) of Schedule 14A.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
[EASTERN ENTERPRISES LOGO]
March 18, 1998
Dear Shareholder:
The Board of Trustees joins me in inviting you to attend Eastern's Annual
Meeting at 10:00 a.m. on WEDNESDAY, APRIL 22, 1998 in the AUDITORIUM OF
BANKBOSTON, 100 FEDERAL STREET, BOSTON, MASSACHUSETTS.
The accompanying Annual Report to Shareholders reports on the Company's
operations and outlook. The Notice of Annual Meeting and Proxy Statement contain
a description of the formal business to be acted upon by the shareholders. At
the meeting, we intend to continue our practice of discussing Eastern's
operating businesses and their prospects. Trustees, officers and other
executives, as well as representatives of Eastern's independent accountants,
will be available to answer any questions you may have.
A proxy card and a postage-paid envelope are enclosed. Your vote,
regardless of the number of shares you own, is important. Whether or not you
plan to attend the meeting, I urge you to register your vote now by signing,
dating and returning the enclosed proxy card as soon as possible in the envelope
provided.
I look forward to greeting personally as many shareholders as possible at
the meeting.
Sincerely,
/s/ J. Atwood Ives
--------------------------
J. Atwood Ives
Chairman and
Chief Executive Officer
<PAGE> 3
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
APRIL 22, 1998
To the Holders of Common Stock of
Eastern Enterprises:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Eastern
Enterprises (the "Association") will be held in the AUDITORIUM OF BANKBOSTON,
100 FEDERAL STREET, BOSTON, MASSACHUSETTS, at 10 o'clock in the morning on
WEDNESDAY, APRIL 22, 1998 for the following purposes:
(1) To elect three Trustees to serve until the 2001 Annual Meeting of
Shareholders and until their successors are elected and qualified; and
(2) To consider and act upon any other matters that may properly come
before the meeting or any adjournment thereof.
Shareholders of record at the close of business on March 9, 1998 are the
shareholders entitled to receive notice of and to vote at such meeting.
Shareholders who wish their stock to be voted by proxy are requested to
date and sign the enclosed form of proxy and to return it in the enclosed
envelope. A resolution adopted by the Board of Trustees of the Association
provides that shares voted by proxy shall be counted only if the proxy form has
been presented for validation to the Secretary prior to the meeting or, if the
meeting is adjourned to another day, prior to such adjourned session.
By order of the Board of Trustees
/s/ L. William Law, Jr.
-------------------------
L. William Law, Jr.
Secretary
March 18, 1998
<PAGE> 4
PROXY STATEMENT
The enclosed form of proxy has been prepared at the direction of the Board
of Trustees of the Association, 9 Riverside Road, Weston, Massachusetts 02193.
Such proxy is solicited on behalf of, and the proxies named therein have been
designated by, the Board of Trustees. Giving the proxy will not affect your
right to revoke the proxy prior to voting and vote in person should you decide
to attend the meeting. Written notice of any such revocation may be addressed to
the Secretary of the Association. Shares represented by the enclosed form of
proxy, when properly executed and presented, will be voted as directed therein.
This Proxy Statement, the enclosed form of proxy and the Annual Report to
Shareholders, including financial statements, were mailed together to
shareholders on or about March 18, 1998.
OUTSTANDING SHARES AND VOTING POWER
At the close of business on March 9, 1998, the record date fixed by the
Board of Trustees for determining shareholders entitled to notice of and to vote
at the 1998 Annual Meeting of Shareholders, the Association had outstanding
20,421,904 shares of Common Stock. Under Article 11 of the Declaration of Trust
of the Association, a quorum for the consideration of questions to be presented
to the 1998 Annual Meeting of Shareholders shall consist of the holders of a
majority of shares of Common Stock issued and outstanding, provided that less
than a quorum may adjourn the meeting from time to time. Votes cast by proxy or
in person at the 1998 Annual Meeting of Shareholders will be counted by persons
appointed by the Association to act as election inspectors for the meeting.
Article 24 of the Declaration of Trust of the Association provides that:
"Shares of this trust which by the provisions of this Declaration are
entitled to vote upon any question shall be entitled to one vote per share
in person or by proxy, except that the election of Trustees by the Common
Stock shall be by cumulative voting, namely, each holder of Common Stock
will be entitled to as many votes as will equal the number of his shares
multiplied by the number of Trustees to be elected, and he may cast all of
such votes for a single candidate or distribute them among any two or more
candidates as he shall elect."
The three nominees for election as Trustees at the 1998 Annual Meeting of
Shareholders who receive the greatest number of votes properly cast will be
elected as Trustees. Proxies withholding authority to vote for one or more
nominees will thus have no effect on the outcome of the election.
<PAGE> 5
INFORMATION WITH RESPECT TO CERTAIN SHAREHOLDERS
The following table shows, as of December 31, 1997, any person who is known
by the Association to be the beneficial owner of more than five percent of any
class of voting securities of the Association. See "Stock Ownership of Trustees
and Executive Officers" for information concerning the beneficial ownership of
voting securities of the Association by Trustees and executive officers of the
Association. For purposes of this Proxy Statement, beneficial ownership is
defined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934
(the "1934 Act"), and means generally the power to vote or dispose of the
securities, regardless of any economic interest therein.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT
NAME AND ADDRESS OF BENEFICIAL OF
BENEFICIAL OWNER OWNERSHIP(a) CLASS(a)
- ------------------- ------------ --------
<S> <C> <C>
Sasco Capital, Inc................................... 1,461,700(b) 7.2%
10 Sasco Hill Road
Fairfield, Connecticut 06430
</TABLE>
- ---------------
(a) According to Schedule 13G filed with the Securities and Exchange Commission
on or before February 17, 1998.
(b) Sasco Capital, Inc. has the sole power to vote 874,300 of these shares, no
shared voting power with regard to any of these shares and sole dispositive
power for all of these shares.
ELECTION OF TRUSTEES
The Board of Trustees is divided into three classes having staggered terms
of three years each. The Declaration of Trust of the Association provides that
the number of Trustees shall be fixed from time to time by the Trustees but
shall not be less than three or more than twenty. The total number of Trustees
to serve following the 1998 Annual Meeting is currently fixed at nine. Three of
the Trustees now in office have terms expiring at the 2000 Annual Meeting, three
have terms expiring at the 1999 Annual Meeting and three have terms expiring at
the 1998 Annual Meeting. The three Trustees now in office having terms expiring
at the 1998 Annual Meeting have been nominated by the Board of Trustees for
reelection at such meeting. Each Trustee elected at the 1998 Annual Meeting of
Shareholders will be elected to hold office until the 2001 Annual Meeting of
Shareholders, and until such Trustee's successor is elected and qualified.
2
<PAGE> 6
INFORMATION WITH RESPECT TO BOARD OF TRUSTEES
The Board of Trustees, which held 11 regularly scheduled and special
meetings in 1997, maintains a standing Audit Committee, Compensation Committee
and Nominating Committee, each of which is comprised of Trustees who are not
officers or employees of the Association or any of its subsidiaries. The Board
of Trustees also maintains an Executive Committee which has substantially all of
the powers and discretion of the full Board of Trustees and is available to act
when the Board is not in session. The Executive Committee took action twice by
written consent in 1997. Membership on the various committees is indicated in
the biographical information which follows.
It is the Association's policy that a majority of the members of the Board
of Trustees be independent, non-management Trustees.
The Audit Committee, which met five times in 1997, is responsible for
reviewing the performance and recommending the engagement of the Association's
independent auditors, reviewing the scope of the audit and approving all fees
paid to such auditors. The Audit Committee also reviews the Association's audit
and accounting procedures, internal controls, financial reporting practices and
annual and quarterly reports, and meets with, and reviews the audit plans of,
the Association's internal audit department.
The Compensation Committee, which met five times in 1997, is responsible
for approving officer compensation arrangements, recommending Trustee
compensation arrangements, administering stock option and other compensation and
benefit plans, and reviewing major personnel policies and benefit programs of
the Association and its subsidiaries.
The Nominating Committee, which met twice in 1997, is responsible for
nominating Trustees, members of committees of the Board of Trustees and officers
of the Association, reviewing management development and succession programs,
and reviewing and making recommendations concerning the Association's corporate
governance policies. It will consider nominees for the Board of Trustees
recommended by shareholders of the Association. Written recommendations together
with supporting information should be directed to Eastern Enterprises, Attn: The
Nominating Committee, 9 Riverside Road, Weston, Massachusetts 02193. NOMINATIONS
FOR THE ELECTION OF TRUSTEES AT AN ANNUAL MEETING MAY BE MADE BY A SHAREHOLDER
ONLY IF WRITTEN NOTICE OF SUCH SHAREHOLDER'S INTENT TO MAKE SUCH NOMINATION HAS
BEEN GIVEN TO THE SECRETARY NOT LATER THAN FORTY-FIVE DAYS PRIOR TO THE
ANNIVERSARY OF THE DATE OF THE IMMEDIATELY PRECEDING ANNUAL MEETING. SUCH NOTICE
SHALL SET FORTH THE INFORMATION REQUIRED BY ARTICLE 6 OF THE ASSOCIATION'S
DECLARATION OF TRUST.
During 1997, each Trustee attended at least 75% of the aggregate of
meetings of the Board of Trustees and each committee on which he or she served.
3
<PAGE> 7
INFORMATION WITH RESPECT TO NOMINEES AND TRUSTEES
It is the intention of the management proxies to vote for the election of
the three nominees listed below. The management proxies will distribute the
total number of votes to which the shareholder executing the proxy is entitled
among the three nominees in such manner as such proxies in their discretion
shall determine unless other instructions are given in the proxy by the
shareholder executing it. If any nominee is not available as a candidate when
the election occurs, discretionary authority is reserved to vote for a
substitute. Management has no reason to believe that any nominee will not be
available.
THE NOMINEES FOR TERMS OF OFFICE EXPIRING AT THE 2001 ANNUAL MEETING OF
SHAREHOLDERS ARE AS FOLLOWS:
[PHOTO JAMES R. BARKER]
JAMES R. BARKER, CHAIRMAN AND PRESIDENT OF INTERLAKE STEAMSHIP
COMPANY, VICE CHAIRMAN OF MORMAC MARINE GROUP, INC. AND MORAN
TOWING COMPANY. Mr. Barker is also a principal owner and Director
of Meridian Aggregates Company. Mr. Barker is 62 years old and is
a graduate of Columbia University and Harvard Business School. He
was formerly Chairman and Chief Executive Officer of Moore
McCormack Resources, Inc. Mr. Barker co-founded Temple, Barker &
Sloane, Inc., a management consulting firm. He is a Director of
GTE Corporation, Chairman (nonexecutive) of the Board of
Directors of The Pittston Company, and President of the Committee
of SKULD, a Norwegian marine insurance company; and Chairman and
a member of the Board of Trustees of Stamford (Connecticut)
Hospital.
Trustee since 1995;
member, Compensation Committee
[PHOTO SAMUEL FRANKENHEIM]
SAMUEL FRANKENHEIM, COUNSEL, ROPES & GRAY. Mr. Frankenheim is 65
years old and is a graduate of Cornell University and Cornell
University Law School. Prior to joining Ropes & Gray in 1992, Mr.
Frankenheim was Senior Vice President, General Counsel, Secretary
and a member of the Office of the Chairman of General Cinema
Corporation (now Harcourt General, Inc.) and of The Neiman Marcus
Group, Inc. He is a Trustee of the Huntington Theatre Company,
Boston; Chairman of the Board of the International Alliance of
First Night Celebrations; and an Honorary Trustee of
Newton-Wellesley Hospital.
Trustee since 1993;
Chairman, Nominating Committee;
member, Audit and Executive Committees
[PHOTO J. ATWOOD IVES]
J. ATWOOD IVES, CHAIRMAN AND CHIEF EXECUTIVE OFFICER OF THE
ASSOCIATION. Mr. Ives is 61 years old, is a graduate of Yale
College and Stanford University Graduate School of Business, and
is a certified public accountant. Prior to joining the
Association as Chairman and Chief Executive Officer in 1991, he
was Vice Chairman, Chief Financial Officer and a member of the
Office of the Chairman of General Cinema Corporation (now
Harcourt General, Inc.) and of The Neiman Marcus Group, Inc. He
is a Director or Trustee of several mutual funds advised by
Massachusetts Financial Services Company; a Trustee of the Museum
of Fine Arts, Boston; a Director of United Way of Massachusetts
Bay and the Massachusetts Business Roundtable; and a member of
the Corporate Advisory Board of the Stanford University Graduate
School of Business and the Boston College Carroll School of
Management.
Trustee since 1989;
Chairman, Executive Committee
4
<PAGE> 8
THE MEMBERS OF THE BOARD OF TRUSTEES HAVING TERMS OF OFFICE EXPIRING AT THE
2000 ANNUAL MEETING OF SHAREHOLDERS ARE AS FOLLOWS:
[PHOTO RICHARD R. CLAYTON]
RICHARD R. CLAYTON, PRESIDENT AND CHIEF OPERATING OFFICER OF THE
ASSOCIATION. Mr. Clayton is 59 years old and is a graduate of
Purdue University. Prior to joining Eastern in 1987 as its
Executive Vice President and Chief Administrative Officer, Mr.
Clayton was Chairman and Chief Executive Officer of Vermont
Castings, Inc. He is a Trustee of the Concord Museum.
Trustee since 1993;
member, Executive Committee
[PHOTO LEONARD R. JASKOL]
LEONARD R. JASKOL, CHAIRMAN AND CHIEF EXECUTIVE OFFICER OF
LYDALL, INC., A MANUFACTURING COMPANY. Mr. Jaskol is 61 years old
and is a graduate of American University and City University of
New York Graduate School of Business. He is a Director of Rogers
Corporation, the Connecticut Business and Industry Association;
and a Trustee of American University.
Trustee since 1994;
member, Compensation Committee
[PHOTO DAVID B. STONE]
DAVID B. STONE, CHAIRMAN OF NORTH AMERICAN MANAGEMENT CORP., AN
INVESTMENT MANAGEMENT FIRM. Mr. Stone is 70 years old and is a
graduate of Harvard University and Harvard Business School. Mr.
Stone serves as Chairman and Trustee of Memorial Drive Trust; a
Director or Trustee of several mutual funds advised by
Massachusetts Financial Services Company; a Director of Boston
Municipal Research Bureau; President of Stonetex Oil Corp.; and a
Trustee of the New England Aquarium and the Massachusetts
Horticultural Society.
Trustee since 1995;
Chairman, Audit Committee;
member, Nominating Committee
THE MEMBERS OF THE BOARD OF TRUSTEES HAVING TERMS OF OFFICE EXPIRING AT THE
1999 ANNUAL MEETING OF SHAREHOLDERS ARE AS FOLLOWS:
[PHOTO JOHN D. CURTIN]
JOHN D. CURTIN, JR., DIRECTOR OF AEARO CORPORATION (FORMERLY,
CABOT SAFETY CORPORATION), A MANUFACTURING COMPANY. Mr. Curtin is
65 years old and is a graduate of Yale College and Harvard
Business School. From 1995 to 1998 Mr. Curtin served as Chairman
and Chief Executive Officer of Aearo Corporation. From 1989 to
1995 he was Executive Vice President, from 1992 to 1995 he was a
Director, and from 1989 to 1992 he was Chief Financial Officer,
of Cabot Corporation. Mr. Curtin is a Director of Imperial Holly
Corporation, Houston.
Trustee since 1997;
member, Audit Committee
5
<PAGE> 9
[PHOTO WENDELL J. KNOX]
WENDELL J. KNOX, PRESIDENT AND CHIEF EXECUTIVE OFFICER OF ABT
ASSOCIATES INC., A GLOBAL RESEARCH AND CONSULTING FIRM. Mr. Knox
is 50 years old and is a graduate of Harvard University. Mr. Knox
is a Trustee of Brigham and Women's Hospital, the Greater Boston
Chamber of Commerce, The Biomedical Sciences Career Project and
the Corporation for Business Work and Learning. Mr. Knox also
serves as Vice Chairman of the Board of Directors of The
Partnership, Inc. and as a Director of United Way of
Massachusetts Bay and Eastern Bank and serves on the Advisory
Board to Commonwealth Capital Ventures.
Elected to Board of Trustees, September, 1997;
member, Audit Committee
[PHOTO RINA K. SPENCE]
RINA K. SPENCE, Founder and former President and Chief Executive
Officer of RKS Health Ventures Corporation and Spence Centers for
Women's Health, women's health services companies. Ms. Spence is
49 years old and is a graduate of Boston University and Harvard
University, Kennedy School of Government. From 1994 to 1998 Ms.
Spence served as President and Chief Executive Officer of RKS
Health Ventures Corporation and Spence Centers for Women's
Health. From 1984 to 1994 Ms. Spence was President and Chief
Executive Officer of Emerson Health System, Inc. and Emerson
Hospital. Ms. Spence is a Trustee of the Wang Center for the
Performing Arts, Boston and the Massachusetts Health and
Education Facilities Authority and a Director of United Way of
Massachusetts Bay. She is a Director of Berkshire Mutual Life
Insurance Co. and PNC Bank, New England.
Trustee since 1989;
Chairperson, Compensation Committee;
member, Nominating Committee
6
<PAGE> 10
STOCK OWNERSHIP OF TRUSTEES AND EXECUTIVE OFFICERS
The following information is furnished as to the Common Stock of the
Association owned beneficially (as defined by Rule 13d-3 under the 1934 Act) as
of February 26, 1998 by each Trustee and nominee, each executive officer named
in the Summary Compensation Table on page 8, and the Trustees and executive
officers of the Association as a group. The information concerning beneficial
ownership has been furnished by the persons listed below.
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT
NAME OF BENEFICIAL OWNERSHIP(A) OF CLASS(A)
---- -------------------------- -----------
<S> <C> <C>
J.R. Barker.................................. 3,450(c)(f) *
R. R. Clayton................................ 83,944(b)(e) .4
J. D. Curtin, Jr............................. 2,225(c)(d)(g) *
W. J. Flaherty............................... 43,840(b) .2
S. Frankenheim............................... 5,730(c)(d)(f) *
J. A. Ives................................... 363,446(b)(e) 1.8
L. R. Jaskol................................. 4,250(c)(d)(f) *
W. J. Knox................................... 100(d) *
C. R. Messer................................. 54,542(b)(e) .3
F. C. Raskin................................. 44,187(b) .2
R. K. Spence................................. 3,950(c)(f) *
D.B. Stone................................... 2,850(c)(d)(f) *
Trustees and Executive Officers as a Group
(13 persons)............................... 641,014(b)(c)(d)(e)(f)(g) 3.1%
</TABLE>
- ---------------
* Less than 0.1%.
(a) Except as noted, each Trustee, nominee and executive officer has sole voting
and investment power over the shares owned.
(b) Figures include the following shares which executive officers have the right
to acquire as of April 27, 1998 through the exercise of employee stock
options: Mr. Ives, 285,800; Mr. Clayton, 27,700; Mr. Messer, 32,100; Mr.
Raskin, 23,600; Mr. Flaherty, 19,200; and Trustees and executive officers as
a group, 412,175.
(c) Figures for Mr. Frankenheim and Ms. Spence each include 2,000 shares awarded
under Restricted Stock Plan for Non-Employee Trustees; figure for Mr. Jaskol
includes 1,600 such shares; figure for Mr. Stone includes 1,200 such shares;
figure for Mr. Barker includes 800 such shares; figure for Mr. Curtin
includes 400 such shares; and figure for Trustees and executive officers as
a group includes 8,000 such shares.
(d) Figures do not include the following Share Units held under the Deferred
Compensation Plan for Trustees: Mr. Curtin, 656; Mr. Frankenheim, 5,748; Mr.
Jaskol, 1,540; Mr. Knox, 215 and Mr. Stone, 967.
(e) Figures include the following shares owned by spouse or held by spouse as
custodian for children: Mr. Ives, 5,000, Mr. Clayton, 51,433 and Mr. Messer,
7,400.
(f) Figures include 1,650 shares which may be acquired as of April 27, 1998
through the exercise of stock options for each of Messrs. Barker,
Frankenheim, Jaskol and Stone and Ms. Spence.
(g) Figure includes 825 shares which may be acquired as of April 27, 1998
through exercise of stock options.
7
<PAGE> 11
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth certain information concerning the
compensation of the Association's chief executive officer and its four most
highly compensated other executive officers (the "Named Executive Officers")
with respect to the Association's last three completed fiscal years:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
--------------------------- UNDERLYING ALL OTHER
SALARY BONUS(A) OPTIONS/SARS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) (#) ($)
--------------------------- ---- ------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
J. Atwood Ives.................... 1997 720,627 98,377 20,000 13,468(b)
Chairman and Chief 1996 693,138 356,383 17,000 13,284
Executive Officer 1995 666,109 386,919 15,000 12,355
Richard R. Clayton................ 1997 495,364 80,099 13,000 9,266(b)
President and Chief 1996 476,473 244,663 10,000 9,123
Operating Officer 1995 458,202 263,408 10,000 6,873
Chester R. Messer................. 1997 323,558 160,063 7,500 5,578(b)
Senior Vice President; 1996 308,523 146,630 7,000 4,960
President of Boston 1995 292,031 92,038 7,000 3,714
Gas Company
Fred C. Raskin.................... 1997 308,309 34,796 7,500 2,055(c)
Senior Vice President; 1996 296,450 95,912 8,500 2,037
President of Midland 1995 285,069 143,000 7,000 2,150
Enterprises Inc.
Walter J. Flaherty................ 1997 265,619 59,040 7,500 2,375(c)
Senior Vice President 1996 255,524 109,161 7,500 2,250
and Chief Financial 1995 245,315 115,116 7,000 1,711
Officer
</TABLE>
- ---------------
(a) Amounts shown represent awards under the Association's Executive Incentive
Compensation Plan, which in each case were paid 50% in cash and 50% in
shares of the Association's Common Stock. Such amounts were earned in the
fiscal year shown but paid in the subsequent fiscal year.
(b) Amounts shown represent employer contributions in the amount of $2,075,
$2,073 and $2,375 under the Association's Retirement Savings 401(k) Plan and
$11,393, $7,193 and $3,203 under the Association's Deferred Compensation
Plan for Messrs. Ives, Clayton and Messer, respectively.
(c) Amounts shown represent employer contributions under the Association's
Retirement Savings 401(k) Plan.
8
<PAGE> 12
The following table sets forth certain information concerning non-qualified
stock options granted to the Named Executive Officers during 1997 under the
Association's 1995 Stock Option Plan:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF % OF TOTAL AT ASSUMED ANNUAL RATES
SECURITIES OPTIONS EXERCISE OF STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO OR BASE FOR OPTION TERM(b)
OPTIONS EMPLOYEES IN PRICE EXPIRATION ---------------------------
NAME GRANTED(#)(a) FISCAL YEAR ($/SHARE) DATE 0%($) 5%($) 10%($)
- ---- ------------- ------------ --------- ---------- ----- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
J. Atwood Ives........... 20,000 12.5% 33.75 2/26/07 0 424,504 1,075,776
Richard R. Clayton....... 13,000 8.1 33.75 2/26/07 0 275,928 699,255
Chester R. Messer........ 7,500 4.7 33.75 2/26/07 0 159,189 403,416
Fred C. Raskin........... 7,500 4.7 33.75 2/26/07 0 159,189 403,416
Walter J. Flaherty....... 7,500 4.7 33.75 2/26/07 0 159,189 403,416
</TABLE>
- ---------------
(a) Figures represent options without SARs. Each such option becomes exercisable
at the rate of 20% per year, commencing February 26, 1998.
(b) The potential realizable values presented in this table use the hypothetical
rates of appreciation prescribed by regulations of the Securities and
Exchange Commission, and are not intended to project rates of future
appreciation in the value of the Association's Common Stock. The assumed 5%
and 10% annual rates of appreciation would result in prices for the
Association's Common Stock increasing to $54.98 and $87.54 per share,
respectively, by February 26, 2007.
The following table sets forth certain information regarding the options
exercised during fiscal year 1997, and the number and value of outstanding
options and SARs in tandem with options held as of December 31, 1997, by Named
Executive Officers under the Association's Stock Option Plans (no SARs in tandem
with options have been granted since 1991):
YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS/SARS IN-THE-MONEY OPTIONS/SARS
SHARES AT 12/31/97(#) AT 12/31/97($)(b)
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE(#) REALIZED($)(a) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ----------- -------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
J. Atwood Ives............ -- -- 271,400/50,600(c) 4,868,142/677,711(c)
Richard R. Clayton........ 30,000 300,239 43,600/32,000 904,655/431,862
Chester R. Messer......... 3,000 42,086 26,400/20,100 540,044/269,850
Fred C. Raskin............ 1,600 21,296 17,700/21,100 304,366/276,169
Walter J. Flaherty........ 1,500 21,231 13,600/20,100 236,119/265,050
</TABLE>
- ---------------
(a) The amount "realized" reflects the appreciation on the date of exercise
(based on the excess of the fair market value of the shares on the date of
exercise over the exercise price).
(b) All values are based on closing price as of December 31, 1997.
(c) Figures represent options without SARs. No SARs have been granted to J. A.
Ives.
9
<PAGE> 13
The following table sets forth estimated annual benefits payable upon
retirement in specified compensation and years of service categories under
qualified retirement plans maintained for salaried employees of the Association
and certain subsidiaries (the "Retirement Plans") and the Association's
non-qualified Supplemental Executive Retirement Plan (the "SERP") maintained for
all executive officers and certain other officers of the Association and its
subsidiaries:
PENSION PLAN TABLE
<TABLE>
<CAPTION>
ESTIMATED ANNUAL RETIREMENT BENEFITS
BASED ON YEARS OF SERVICE(b)
------------------------------------------------
REMUNERATION(a) 15 20 25 30 35
- --------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 100,000 $ 42,500 $ 50,000 $ 50,000 $ 50,000 $ 50,000
200,000 85,000 100,000 100,000 100,000 100,000
300,000 127,500 150,000 150,000 150,000 150,000
400,000 170,000 200,000 200,000 200,000 200,000
500,000 212,500 250,000 250,000 250,000 250,000
600,000 255,000 300,000 300,000 300,000 300,000
700,000 297,500 350,000 350,000 350,000 350,000
800,000 340,000 400,000 400,000 400,000 400,000
900,000 382,500 401,000 401,000 401,000 401,000
1,000,000 401,000 401,000 401,000 401,000 401,000
</TABLE>
- ---------------
(a) The compensation covered by the Retirement Plans and the SERP is the average
annual compensation (whether or not deferred under deferred compensation or
savings plan) for the highest five years in the ten years preceding
retirement, based on the annual salary rate plus 100% of bonuses and
incentive awards earned (whether payable in cash or stock), not including
any amounts with respect to options, SARs or restricted stock awards.
(b) The benefits set forth in these columns assume that the participant elects a
straight life annuity with five years certain. Such benefits are shown
before deductions for 50% of Social Security benefits and other applicable
offsets. In general, Federal law limits the annual benefit payable under the
Retirement Plans to a participant at age 65, calculated in the form of a
life annuity (with no period certain), to a specified amount ($130,000,
adjusted as of January 1, 1998). Not being subject to limitations imposed on
the Retirement Plans by Federal law, the SERP provides for annual benefits
equal to up to one-half of covered compensation, provided that annual
benefits under the SERP, before offset for annual benefits received under
the Retirement Plans, may not exceed three times the $130,000 limit, as such
limit may from time to time be increased. Years of service credited under
the Retirement Plans and years of service as an officer credited under the
SERP through 1997 for the Named Executive Officers were as follows: J.A.
Ives, 13 and 13; R.R. Clayton, 19 and 19; C.R. Messer, 34 and 21; F.C.
Raskin, 20 and 19; W.J. Flaherty, 26 and 14. Years of service for J.A. Ives
and R. R. Clayton are determined in accordance with their employment
agreements described on page 12 hereof. Years of service under the SERP for
C.R. Messer, F.C. Raskin and W.J. Flaherty equal years of service as an
officer of the Association or a subsidiary.
COMPENSATION OF TRUSTEES
During 1997, each Trustee of the Association who was not an officer of the
Association received cash retainer fees at an annual rate of $10,000. Each such
Trustee who was a member of the Executive, Audit, Compensation or Nominating
Committee received an additional annual retainer fee of $1,200 for each
10
<PAGE> 14
committee of which he or she was a member. The Chairman of each of the Audit,
Compensation and Nominating Committees, in addition to the committee membership
retainer fee, received an annual retainer fee of $4,000. In addition, each such
non-officer Trustee received $1,000 for each meeting session of the Board of
Trustees and each standing committee meeting session he or she attended. The
Association also reimburses Trustees' travel expenses for attendance at
meetings. The Association's intent in recent years has been to increase the
proportion of compensation to Trustees for their services in the form of Common
Stock of the Association.
The Association's Restricted Stock Plan for Non-Employee Trustees, adopted
in 1993 (the "1993 Restricted Stock Plan"), provided for supplemental retainer
fees in the form of five annual grants of restricted shares of the Association's
Common Stock, each in the amount of 400 shares, to each Trustee who at the time
of grant served as a Trustee but was not an employee of the Association or any
of its subsidiaries. Final grants were made pursuant to the 1993 Restricted
Stock Plan to each Trustee on June 1, 1997, other than J. A. Ives, R. R. Clayton
and W. J. Knox. All shares granted under the 1993 Restricted Stock Plan are
nontransferable and subject to forfeiture while the recipient serves on the
Board of Trustees. In the event that he or she resigns or declines to stand for
re-election to the Board, not due to disability and not in accordance with a
retirement policy of the Board then in effect, all shares granted to him or her
under the 1993 Restricted Stock Plan shall be forfeited. Dividends on restricted
shares granted under the 1993 Restricted Stock Plan are paid directly to the
Trustee. The Association is considering the adoption of a new stock-based plan
to replace the 1993 Restricted Stock Plan.
The Association's 1996 Non-Employee Trustees' Stock Option Plan provides
for five annual grants of options to purchase 1100 shares of the Association's
Common Stock to each Trustee who at the time of grant serves as a Trustee but is
not and has not been an employee of the Association or any of its subsidiaries
for five years . Options are granted on the day following the Annual Meeting of
Shareholders, commencing with the 1996 Annual Meeting and will continue through
the day following the 2000 Annual Meeting; provided that any eligible Trustee
who joins the Board of Trustees of the Association at a time between regular
option grant dates will receive an option for 550 shares upon joining the Board.
The exercise price of all options granted under such Plan will be the fair
market value of the Association's Common Stock on the date of grant. All options
issued under the Plan become exercisable as to one-half of the shares subject to
the option on each of the first and second anniversaries of the grant date. The
latest date on which an option may be exercised is the tenth anniversary of its
grant date. Pursuant to such Plan, options to purchase 1,100 shares of the
Association's Common Stock were granted on April 25, 1997 to each Trustee other
than J. A. Ives, R. R. Clayton, and W. J. Knox. In addition, options to purchase
550 shares of the Association's Common stock were granted to J. D. Curtin, Jr.
on February 27, 1997 and W. J. Knox on September 18, 1997 (when each was elected
to the Board).
The Association maintains a Deferred Compensation Plan for Trustees under
which Trustees' cash fees may be deferred at the election of participants.
Participants may elect to credit amounts deferred to a Cash Account or to a
Share Unit Account. Interest based on the prime rate plus 1% (determined on the
first day of each calendar quarter) is credited to Cash Accounts at the end of
each calendar year. Amounts credited to Share Unit Accounts are converted to
Share Units based on the fair market value of the Association's Common Stock on
the deferral date. Additional Share Units are credited to reflect dividends on
shares of such stock. The balance in a participant's Cash Account and Share Unit
Account will be paid to him or her, or to his or her beneficiary, in cash only,
in a lump sum or installments when he or she ceases to be a Trustee, or if he or
she experiences serious financial hardship.
The Association provides term life insurance to each non-employee Trustee
in the amount of $50,000.
11
<PAGE> 15
Samuel Frankenheim, a Trustee of the Association, is counsel to Ropes &
Gray, a Boston law firm which provided legal services to the Association and its
subsidiaries during 1997, and which is expected to continue providing legal
services to them during 1998. Fees paid for such services during 1997 were less
than 5% of such law firm's 1997 gross revenues.
TERMINATION OF EMPLOYMENT
AND CHANGE OF CONTROL ARRANGEMENTS
The Association has entered into Salary Continuation Agreements with
officers of the Association and its subsidiaries under which, if the employment
of any such officer is terminated by the Association otherwise than for Cause
(as defined in such agreements, generally including malfeasance or misfeasance),
or by the officer for Good Reason (as defined in such agreements, generally
including diminishment of authority, responsibility or cash compensation
opportunities), following a Change of Control, the officer would be entitled to
receive income equal to the salary rate in effect at the time of the Change of
Control together with continuation of certain of the Association's medical and
other benefits. Subject to certain limitations, such income and benefits for the
Association's executive officers would continue for eighteen months, but not
beyond the date which follows by 30 months, the Change of Control. For purposes
of the Agreements, a "Change of Control" is deemed to occur if (i) a person or
entity or a group acting together becomes a beneficial owner of securities
representing 25 percent or more of the outstanding voting securities of the
Association or (ii) within two years after the commencement of a tender offer or
exchange offer for the voting securities of the Association, or as a result of a
merger, consolidation, sale of assets or contested election, the individuals who
were Trustees of the Association immediately prior thereto shall cease to
constitute a majority of the Board of Trustees of the Association or of the
board of trustees or directors of its successor.
The Association has also entered into an employment agreement with Mr. Ives
dated November 27, 1991, and an employment agreement with Mr. Clayton dated
October 25, 1991, under which, if the employment of either such officer is
terminated by the Association otherwise than for Cause (as defined in such
agreements, generally including malfeasance or misfeasance), or by the officer
for Good Reason (as defined in such agreements, generally including diminishment
of authority, responsibility, or cash compensation opportunities), whether or
not following a Change of Control, he will be entitled to receive income equal
to the salary rate in effect at the time of such termination, together with
continuation of certain medical and other benefits. Subject to certain
limitations, such income and benefits would continue for thirty-six months in
the case of Mr. Ives and twenty-four months in the case of Mr. Clayton. If such
termination occurs after a Change of Control and the Salary Continuation
Agreements also apply, the officer may elect the salary continuation or other
benefit provisions contained in his Salary Continuation Agreement or the
employment agreement referred to in this paragraph, but shall not be entitled to
a duplication of any such benefit under both agreements. Mr. Ives' employment
agreement established his initial salary rate at $600,000 per year, subject to
review and adjustment by the Compensation Committee. In addition, under such
employment agreements, Mr. Ives will be credited with five years of service
under the Association's Retirement Plan and SERP for his first year of
employment and one and one-half years of service for each year of employment
thereafter, and Mr. Clayton will be credited with one and one-half years of
service for each year of employment, plus four years, under such Plans.
Messrs. Ives and Clayton entered into letter agreements with the
Association dated April 28, 1994 under which each agreed that he will not be
entitled to the benefit of certain April, 1994, amendments to the Association's
SERP which (i) increased the portion of bonuses and incentive awards taken into
account in determining compensation covered by such Plan from 50% to 100%, and
(ii) increased the level of benefits payable upon early retirement prior to age
62. The Board of Trustees determined to rescind these letter agreements on
February 25, 1998.
12
<PAGE> 16
The Association has established a trust to make payments to certain
officers of the Association and its subsidiaries under the Association's SERP,
its 1994 Deferred Compensation Plan for officers and its Supplemental Retirement
Plan for Certain Officers and payments to Trustees under the Association's
Retirement Plan for Non-Employee Trustees and its Deferred Compensation Plan for
Non-Employee Trustees, and makes contributions to such trust from time to time.
Such Plans provide that upon a Change of Control (as defined above), the
Association is obligated to fund such trust fully by depositing therein
sufficient funds to pay the present value of all benefits to those who have
retired prior to the Change of Control, plus the present value of all retirement
benefits that would be payable if all eligible officers and Trustees had retired
prior thereto, plus the aggregate of the account balances under such deferred
compensation plans. As of February 27, 1998, the balance held in such trust was
approximately $15 million.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Ownership of and certain transactions in the Association's Common Stock by
executive officers, Trustees and certain other persons are required to be
reported to the Securities and Exchange Commission pursuant to Section 16 of the
Exchange Act. Based upon a review of the information provided to the
Association, all persons subject to these reporting requirements filed the
required reports on a timely basis during 1997.
COMPENSATION COMMITTEE REPORT
The duties of the Compensation Committee include approval of salary and
other compensation arrangements for the Association's officers, and
administration of the Association's incentive and stock plans, including the
Executive Incentive Compensation Plan and the Stock Option Plans.
EXECUTIVE OFFICER COMPENSATION
The Committee's policy with respect to approving 1997 executive officer
compensation was to establish base salaries and annual incentive compensation
opportunities and to grant stock options which, in the judgment of the
Committee, were appropriate to provide fair compensation, to enable the
Association to attract and retain executives with abilities and experience
necessary to implement the Association's objectives, and to create incentives
for high levels of individual performance, consistent with attainment of the
financial goals and the best interests of the Association. The Committee's
judgments were based on an assessment of each executive officer's current and
past performance, his business experience and level of responsibilities,
information concerning compensation paid to executive officers at
similarly-sized companies, annual compensation increases at such companies and
recommendations and advice from the Association's chief executive officer
concerning compensation levels for other officers. The Committee's decisions
were not based on any established formulas with respect to weighting of the
foregoing factors or the effect of any particular factor on any component of an
executive officer's compensation, except to the extent that annual bonuses are
determined in accordance with the factors described below. Information
concerning compensation levels at similarly-sized companies reviewed by the
Committee consisted of data provided in previous years by Hewitt Associates, a
management consulting firm, concerning total compensation and the components
thereof (salary, annual bonus and long-term compensation), and year-to-year
compensation increases for officers of companies having levels of total revenues
approximately the same as that of the Association and for overall industry
practice. The comparator data provided by Hewitt Associates was based on a
number of surveys covering companies representing a broad cross-section of U.S.
industries. For 1997, base salaries for executive officers of the Association as
a group (including for the CEO) were targeted at levels which would average
above the median base salaries for the comparator group data, while
opportunities for variable incentive compensation were set at levels which would
cause total annual compensation (i.e., base salary and bonus) of
13
<PAGE> 17
executive officers to average at about the median for such group. Actual total
compensation would fall below or exceed the comparator group median to the
extent the Association's financial performance either fell substantially below
or substantially exceeded the financial performance targets established in the
1997 annual bonus program. The comparator group data previously provided by
Hewitt Associates also suggested that annual long-term compensation grants would
be appropriate so that levels of total compensation (including long-term
compensation) of the Association's executive officers would approximate average
total compensation levels for similar positions at companies in the survey
group. With this information in mind, the Committee granted non-qualified stock
options in February, 1997 to the Association's executive officers. Such options
were granted without stock appreciation rights, and at an exercise price equal
to the fair market value of the Association's Common Stock on the date of grant.
In determining the size of option grants, the Committee considered
recommendations of management and Hewitt Associates.
It was the Committee's judgment in establishing 1997 annual incentive
opportunities for executive officers that (i) more senior executive officers
should receive a larger portion of their potential total compensation in the
form of variable incentive awards than less senior executive officers; (ii)
appropriate maximum potential incentive awards for executive officers, expressed
as a percentage of salary, are 60% (for the chief executive officer and chief
operating officer), and 50% (for other executive officers), reflecting the
Committee's judgment as to an appropriate mix of base and incentive compensation
for executive officers at each level; (iii) a higher percentage of incentive
compensation opportunities for more senior executive officers should be based on
financial performance of the Association and a lesser percentage of such
incentive opportunities should be based on individual performance, than for less
senior executive officers and other officers of the Association and its
subsidiaries; and (iv) 50% of any annual incentive payment should be made in
shares of the Association's Common Stock. In accordance with such policy, the
Committee approved 1997 award opportunities under the Association's Executive
Incentive Compensation Plan equal to up to 60% (in the case of Messrs. Ives and
Clayton) or 50% (in the case of other executive officers) of individual
salaries. No portion of the bonus opportunity relating to financial performance
(i.e., 75% of the potential annual bonus amount in the case of Mr. Ives, 70% in
the case of Messrs. Clayton, Messer and Raskin and 67% for the other executive
officers) could be earned unless minimum pre-tax income performance goals were
met by the Association or, in the case of executive officers who are subsidiary
presidents, by the subsidiary. The minimum pre-tax income level was 85% of the
targeted goal, and at such minimum level, the financial performance award would
equal 20% of the potential financial performance opportunity. Upon achievement
of the targeted pre-tax income goals, which were set at levels at which there
was a 50% chance of achievement, the bonus award would equal 66 2/3% of the
potential financial performance bonus opportunity, with additional bonus amounts
being earned to the extent that pre-tax income levels exceeded the target level
up to an established maximum pre-tax income level, at which point the full
financial performance bonus opportunity would be earned. The portion of the
annual bonus opportunity based on achievement of individual management
objectives could be earned by an executive officer independent of the
achievement of the financial goals, so long as minimum financial results equal
to 50% of the targeted levels were achieved. The Committee's intent in
establishing these management objectives was that only outstanding performance
by an executive officer would qualify such officer to earn in excess of 75% of
his or her management performance bonus. Finally, the award opportunities
provided that the Committee be given authority in its judgment to approve
discretionary awards in the event that equity should so require. A discretionary
award could not exceed the maximum potential award for any officer.
Neither the Association nor its subsidiary, Midland Enterprises, Inc., was
successful in reaching the minimum pre-tax income goals established for 1997.
However, the Association's subsidiary, Boston Gas Company, exceeded its maximum
pre-tax income goal. As a result, none of the Association's executive officers,
other than Mr. Messer, President of Boston Gas Company, earned an annual bonus
for 1997 based on achievement of financial performance goals. Each of the
Association's executive officers did receive a bonus
14
<PAGE> 18
based on achievement of individual management objectives for 1997. In addition,
Mr. Flaherty received a discretionary award.
As in previous years, the bonus payments to executive officers were made
50% in shares of the Association's Common Stock (valued as of the time that the
awards are approved by the Committee based on the average of the high and low
trading prices for the previous five business days) and 50% in cash. In this
regard, cash is withheld by the Association from the cash portion of the bonus
to cover state and federal tax withholding requirements relating to an
individual's total bonus award. As a result, after-tax bonus awards received by
executive officers in the incentive plan are primarily in the form of shares of
the Association's stock.
Section 162(m) of the Internal Revenue Code disallows tax deductions for
certain compensation paid by a public company to its chief executive officer or
any other executive officer named in its proxy statement compensation tables, to
the extent such compensation exceeds $1 million in any year in which such
persons held such positions at year end. None of such officers received taxable
compensation subject to Section 162(m) from the Association in excess of $1
million in 1997, and the Committee does not anticipate that such limitation will
affect deductibility of any compensation paid to the Association's executive
officers for 1998. With respect to Mr. Ives, in particular, the salary component
of his total compensation would appear to be exempt from such $1 million
limitation because it is paid pursuant to a written binding agreement executed
prior to February 17, 1993. Moreover, taxable income resulting from the exercise
of outstanding stock options issued under the Association's 1982 and 1995 Stock
Option Plans would also be exempt from the $1 million limitation under
applicable rules. Finally, the Committee has adopted a policy under which any
executive officer whose compensation subject to Section 162(m) would exceed $1
million in any year shall be expected to defer, if reasonably possible, all or a
portion of his or her annual incentive compensation for such year to the extent
necessary to avoid loss of the Association's tax deduction for such executive's
compensation.
CEO COMPENSATION
During 1997, Mr. Ives was paid a base salary, effective from February 1,
1997, at an annual rate equal to $722,300. Prior to February 1, 1997, Mr. Ives'
base salary had been set at $694,500 since February 1, 1996. Mr. Ives' base
salary is provided for in his employment agreement with the Association,
described elsewhere in this proxy statement.
In addition to his base salary, Mr. Ives was granted an incentive bonus
opportunity in 1997, as described above, under the Association's Executive
Incentive Compensation Plan. Of Mr. Ives' potential award under such plan, 75%
was based on the achievement by the Association of specific pre-tax income
levels for 1997, and 25% of such bonus opportunity was based on the achievement
by Mr. Ives of management objectives approved for him by the Compensation
Committee. Mr. Ives' objectives were to evaluate and assess the impact on the
Association's future operations caused by energy industry deregulation and other
related matters; to advise the Board with respect thereto and to recommend, and
after approval begin implementation of, specific business strategies to optimize
shareholder value; to pursue specific business goals and opportunities for the
Association's existing businesses; to develop and implement a management
succession plan; and to actively promote legislative solutions which would
reduce the financial impact on the Association of the federal Coal Industry
Retiree Health Benefit Act of 1992.
Because the Association's pre-tax income performance for 1997 failed to
meet the minimum pre-tax financial performance goal, Mr. Ives was not entitled
to a payment under the financial performance portion of his award opportunity.
However, the Committee, after consultation with the other non-management members
of the Board of Trustees, determined that Mr. Ives' overall achievement of his
1997 management objectives equaled 90.8% of the maximum potential achievement,
and that Mr. Ives was therefore entitled to a payment
15
<PAGE> 19
of $98,377 under the portion of his award opportunity based on management
objectives. Under the terms of the 1997 incentive program, 50% of Mr. Ives'
total incentive award was paid in shares of the Association's Common Stock and
50% was paid in cash.
As described above, during 1997, Mr. Ives was granted a non-qualified stock
option to purchase 20,000 shares of the Association's Common Stock at a price of
$33.75 per share, equal to the fair market value of such stock on the date of
grant.
No member of the Compensation Committee is a current or former officer or
employee of the Association or any of its subsidiaries.
Respectfully submitted,
COMPENSATION COMMITTEE MEMBERS
Rina K. Spence, Chairperson
James R. Barker
Leonard R. Jaskol
16
<PAGE> 20
PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder return on the
Association's Common Stock to the cumulative total return of the S&P 500 Index
and the Edward D. Jones ("EDJ") Diversified Gas Index over a five year period
ending December 31, 1997:
COMPARISON OF FIVE YEAR
CUMULATIVE TOTAL RETURNS(a)
[PERFORMANCE CHART OMITTED]
<TABLE>
<CAPTION>
MEASUREMENT PERIOD EASTERN EDJ DIVERSIFIED
(FISCAL YEAR COVERED) ENTERPRISES GAS INDEX (b) S&P 500 INDEX
<S> <C> <C> <C>
1992 $ 100 $ 100 $ 100
1993 97.92 115.35 110.03
1994 106.47 102.35 111.53
1995 149.53 135.17 153.29
1996 156.44 170.14 188.39
1997 207.92 213.31 251.16
</TABLE>
- ---------------
(a) Based on an initial investment of $100 with dividends reinvested quarterly.
(b) The EDJ Diversified Gas Index is comprised of companies with at least 30
percent, but less than 90 percent, of their operating revenues derived from
natural gas distribution.
17
<PAGE> 21
CERTAIN TRANSACTIONS AND OTHER DISCLOSURES
The following table sets forth information with respect to indebtedness of
executive officers of the Association to the Association in excess of $60,000
since January 1, 1997.
<TABLE>
<CAPTION>
LARGEST AGGREGATE AMOUNT OF AMOUNT OF INDEBTEDNESS
NAME AND RELATIONSHIP INDEBTEDNESS OUTSTANDING AT ANY OUTSTANDING AS OF RATE OF INTEREST
TO THE ASSOCIATION TIME SINCE JANUARY 1, 1997(a) FEBRUARY 11, 1998 BEING CHARGED(b)
- -------------------------- ------------------------------- ---------------------- ----------------
<S> <C> <C> <C>
J. Atwood Ives............ $337,684 $337,684 5.51%
Chairman and Chief
Executive Officer
Richard R. Clayton........ 284,621 284,621 5.64%(c)
President and Chief
Operating Officer
Walter J. Flaherty........ 176,267 176,267 5.59%(c)
Senior Vice President
and Chief Financial
Officer
L. William Law, Jr........ 115,977 115,977 5.54%(c)
Senior Vice President
General Counsel and
Secretary
</TABLE>
- ---------------
(a) Indebtedness was incurred by the indicated executive officers under the
Association's executive stock purchase loan program pursuant to which
officers of the Association and its subsidiaries may borrow up to the amount
of their individual base salaries solely to purchase shares of the
Association's Common Stock. Such purchases may be either open market or
private purchases, in which case borrowings may include the purchase price
for such shares plus the amount of brokerage fees and similar expenses
incurred in connection with such purchases, or stock option exercises, in
which case borrowings may include the option exercise price plus federal
income tax withholding amounts due upon such exercise. Each of the stock
purchase loans described in the table was made on an unsecured basis and is
payable seven months after demand.
(b) The interest rate on stock purchase loans, as determined by the Compensation
Committee of the Board of Trustees, is the Applicable Federal Rate for
short-term obligations under Section 1274 of the Internal Revenue Code, as
published in the Internal Revenue Bulletin at the time the loan is made.
Interest is payable quarterly on such loans.
(c) The interest rate shown in the table is the weighted average interest rate
for such loans.
Spence Centers for Women's Health, which were owned by RKS Health Ventures
Corporation, were acquired by Brigham and Women's Hospital. Subsequent to the
tenure of Rina K. Spence (a Trustee of the Association) as an executive officer,
RKS Health Ventures Corporation made an assignment of its remaining assets for
the benefit of creditors under Massachusetts law on February 11, 1998.
INDEPENDENT AUDITORS
The firm of Arthur Andersen LLP has been selected by the Board of Trustees
to act as independent auditors of the Association and its subsidiaries for the
year 1998. The Association has been advised by such firm that neither it nor any
member thereof has any financial interest in or financial relationship with the
Association or its subsidiaries. Representatives of Arthur Andersen LLP are
expected to be present at the 1998 Annual Meeting and will have the opportunity
to make a statement if they desire to do so and be available to respond to
appropriate questions.
18
<PAGE> 22
EXPENSES OF SOLICITATION
The expenses of making this solicitation will be paid by the Association,
which may solicit proxies by mail, telephone, telegraph or personal interview.
The Association will reimburse banks, brokerage firms and other custodians,
nominees and fiduciaries for reasonable expenses incurred in sending proxy
materials to beneficial owners.
SHAREHOLDER PROPOSALS
Shareholder proposals intended to be presented at the 1999 Annual Meeting
of Shareholders must be received at the Association's principal executive
offices no later than November 18, 1998.
OTHER MATTERS
If sufficient votes in favor of any of the proposals set forth in the
attached Notice of Annual Meeting of Shareholders are not received by the time
scheduled for the meeting, the persons named as proxies may propose one or more
adjournments of the meeting for a period or periods of not more than 30 days in
the aggregate to permit further solicitation of proxies with respect to any of
such proposals. Any adjournment will require the affirmative vote of a majority
of the votes cast on the question in person or by proxy at the session of the
meeting to be adjourned. The persons named as proxies will vote in favor of
adjournment with respect to any proposal, those proxies which they are entitled
to vote in favor of such proposal. They will vote against adjournment with
respect to any proposal those proxies required to be voted against such
proposal. The Association will pay the costs of any additional solicitation and
of any adjourned session.
The Board of Trustees does not know of any business to be presented for
action by the shareholders in addition to those items appearing in the notice of
the meeting. However, if any additional matters properly come before the
meeting, or any adjournment thereof, it is the intention of the persons named in
the enclosed form of proxy to vote said proxy in accordance with their judgment
in such matters unless instructed to the contrary.
Reference is hereby made to the Declaration of Trust establishing Eastern
Enterprises dated July 18, 1929, as amended, a copy of which is on file in the
office of the Secretary of The Commonwealth of Massachusetts. The name "Eastern
Enterprises" refers to the Trustees under said declaration as Trustees and not
personally; and no Trustee, shareholder, officer or agent of Eastern Enterprises
shall be held to any personal liability in connection with the affairs of said
Eastern Enterprises, but the trust estate only is liable.
EASTERN ENTERPRISES
March 18, 1998
19
<PAGE> 23
3690-PS-98
<PAGE> 24
[EASTERN ENTERPRISES LOGO]
Proxy Solicited on Behalf of the Board of Trustees
for Annual Meeting, Wednesday, April 22, 1998
I (We) hereby appoint J.A. Ives and R. R. Clayton and each of them as
proxies, with full power of substitution to each, to act and vote in the name of
the undersigned with all the powers that the undersigned would possess if
personally present, on all matters, including the election of Trustees, which
may come before the April 22, 1998 Annual Meeting of the Shareholders of
Eastern Enterprises and any adjournment of such meeting.
You are encouraged to specify your choice by marking the appropriate box,
SEE REVERSE SIDE, but you need not mark any box if you wish to vote in
accordance with the Board of Trustees' recommendation. This proxy when
properly executed and presented will be voted in the manner directed herein by
the undersigned shareholder. If no direction is made, this proxy will be voted
FOR election of the Trustee nominees.
SEE REVERSE SIDE Continued and to be signed and dated on the reverse side.
- ----------------
SEE REVERSE SIDE
----------------
<PAGE> 25
[Logo] Eastern Enterprises
HIGHLIGHTS OF EASTERN'S 1997 RESULTS
* Eastern reported earnings of $2.50 per share versus $2.96 per share in
the prior year, after adjusting for non-recurring items. Boston Gas
reported record operating earnings, while Midland's earnings declined
significantly.
* Successfully re-positioned Boston Gas and Midland to take advantage of
changing market conditions.
* Began consolidation of natural gas distribution business with an
agreement to acquire Essex County Gas Company.
* Stock price closed at $45, generating a 33% total return to
shareholders.
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THIS IS YOUR PROXY.
YOUR VOTE IS IMPORTANT.
Regardless of whether you plan to attend the Annual Meeting of
Shareholders, you can be sure your shares are represented at the
Meeting by promptly returning your proxy (attached below) in the
enclosed envelope. Thank you for your attention to this important
matter.
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ESE62 4 DETACH HERE
PLEASE MARK
[X] VOTES AS IN
THIS EXAMPLE.
THE BOARD OF TRUSTEES RECOMMENDS THAT YOU VOTE "FOR" ELECTION OF THE NOMINEES
LISTED BELOW.
<TABLE>
<S> <C>
1. Election of Trustees: 2. In their discretion, the Proxies are authorized to vote upon
Nominees: James R. Barker, Samuel Frankenheim and such other business as may properly come before the
J. Atwood Ives meeting or any adjournment thereof.
FOR ALL WITHHELD FROM
NOMINEES ALL NOMINEES
[ ] [ ]
You may direct the
manner of distributing
your votes for the
election of Trustees by
affixing instructions to
[ ] this proxy.
----------------------------------
For all nominees except as noted above
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]
SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
Please sign exactly as name or names appear on this proxy. If
stock is held jointly, each holder should sign. If signing as
attorney, trustee, executor, administrator, custodian, guardian or
corporate officer, please give full title.
Signature: Date: Signature: Date:
------------------------- -------------- ------------------------- --------------
</TABLE>
