<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 16, 1998
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
EASTERN ENTERPRISES
(EXACT NAMEL OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
MASSACHUSETTS 4924 04-1270730
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
EASTERN ENTERPRISES
9 RIVERSIDE ROAD
WESTON, MASSACHUSETTS 02493
(781) 647-2300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
L. WILLIAM LAW, JR., ESQ.
EASTERN ENTERPRISES
9 RIVERSIDE ROAD
WESTON, MASSACHUSETTS 02493
(781) 647-2300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES OF ALL CORRESPONDENCE TO:
<TABLE>
<S> <C>
DAVID B. WALEK, ESQ. STANLEY KELLER, ESQ.
ROPES & GRAY PALMER & DODGE LLP
ONE INTERNATIONAL PLACE ONE BEACON STREET
BOSTON, MASSACHUSETTS 02110 BOSTON, MASSACHUSETTS 02108
(617) 951-7000 (617) 573-0100
</TABLE>
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
(Continued on next page)
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
(Continued from previous page)
CALCULATION OF REGISTRATION FEE
<TABLE>
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT AGGREGATE AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PER UNIT(2) PRICE(2) FEE(3)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$1.00 per share
(including attached
stock purchase rights)
..................... 5,000,522 $33.014 $165,089,678 $45,894.93
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
</TABLE>
(1) Represents the maximum number of shares of Common Stock of the Registrant,
$1.00 par value per share, estimated to be issuable upon the consummation
of the merger (the "Merger") of Colonial Gas Company ("Colonial") with and
into Merger Sub (as defined herein) based on the issuance of approximately
0.998 shares of Common Stock of the Registrant in exchange for each share
of Common Stock of Colonial, $3.33 par value per share, exchanged for
Common Stock of the Registrant (based on 8,908,543 shares of Colonial
Common Stock outstanding as of December 15, 1998 plus up to an additional
102,000 shares which may be issued prior to the merger, less 4,000,000
shares of Colonial Common Stock to be exchanged for cash in the Merger).
(2) Pursuant to Rules 457(f)(1) and 457(c) under the Securities Act of 1933,
as amended (the "Securities Act"), and estimated solely for the purpose of
calculating the registration fee, the proposed maximum aggregate offering
price is equal to the aggregate market value of the Colonial Common Stock
to be cancelled in the Merger assuming that 9,010,543 shares of Colonial
Common Stock are outstanding at the time of the Merger and is based upon
$34.969, the average of the high and low prices of Colonial Common Stock
as reported in the New York Stock Exchange Composite Transactions on
December 14, 1998 less $150,000,000, the aggregate amount of cash to be
received by Colonial stockholders in the Merger.
(3) A fee of $66,400.12 was paid in connection with the filing of the
preliminary Joint Proxy Statement/Prospectus on November 25, 1998 pursuant
to Rule 14a-6(i) promulgated under the Securities Exchange Act of 1934, as
amended. Accordingly, pursuant to Rule 457(b) under the Securities Act,
such fee is being credited against the registration fee.
<PAGE>
[EASTERN ENTERPRISES LOGO]
December , 1998
Dear Shareholder:
I am pleased to invite you to the special meeting of shareholders of Eastern
Enterprises at which you will be asked to approve the issuance of shares of
Eastern common stock (the "Stock Issuance") in connection with the proposed
merger of Colonial Gas Company with and into a subsidiary of Eastern, as a
result of which Colonial will become a subsidiary of Eastern. Eastern believes
that the proposed transaction will allow Eastern to provide enhanced, cost-
effective customer service and enable it to compete more effectively in an
increasingly deregulated energy marketplace building value for our shareholders
over the long-term. Upon completion of the merger, Eastern's combined gas
distribution companies will serve approximately 725,000 customers in
Massachusetts, an increase of 26% from today's levels.
Your Board of Trustees has determined that the merger is fair to shareholders
and is in their best interests and has received an opinion from its financial
advisor, Merrill Lynch, Pierce, Fenner & Smith Incorporated, as to the fairness
of the merger from a financial point of view to Eastern. The Board of Trustees
recommends that the shareholders vote to approve the Stock Issuance. Such
approval may be required in accordance with the rules of the New York Stock
Exchange depending upon the number of Eastern shares to be issued in relation
to those previously outstanding. The New York Stock Exchange rules require
approval by a majority of the votes cast on the Stock Issuance at the Eastern
special meeting, provided that the total vote cast on the Stock Issuance
represents a majority of the shares of Eastern common stock outstanding and
entitled to vote. In addition, if the New York Stock Exchange rules require
approval of the Stock Issuance, approval by a majority of the shares present at
the Eastern special meeting will be required in order to comply with Eastern's
Declaration of Trust. Approval of the merger agreement by a vote of two-thirds
of the votes entitled to be cast by the outstanding shares of Colonial is a
condition to consummation of the merger. The merger is expected to be completed
in mid-1999, subject to the receipt of required regulatory approvals.
In the merger, holders of Colonial common stock will receive cash and Eastern
common stock. The total amount of cash consideration is fixed at $150 million.
Each share of Colonial common stock exchanged for cash will entitle the holder
to receive $37.50. Each share which is not exchanged for cash will entitle the
holder to receive a number of shares of Eastern common stock valued at $37.50,
based on the average closing price of the Eastern common stock on the New York
Stock Exchange over the ten trading day period ending on the third trading day
prior to the effective date of the merger, so long as such average closing
price is not less than $37.56 or higher than $47.80. If the average closing
price is less than $37.56, each share of Colonial common stock will entitle the
holder to approximately 0.998 shares of Eastern common stock. If the average
closing price is higher than $47.80, each share of Colonial common stock will
entitle the holder to approximately 0.785 shares of Eastern common stock.
Accordingly, the actual value of the number of Eastern shares received for a
Colonial share could be less than or more than $37.50. The closing price of the
Eastern shares on December , 1998 was $ .
<PAGE>
If the average closing price of Eastern common stock over the specified ten
trading day period before the merger was less than $37.56 (so that the highest
exchange ratio of approximately 0.998 would apply) a maximum of approximately
shares of Eastern common stock would be issued in the merger, based
on the number of shares of Eastern common stock and Colonial common stock
outstanding as of December , 1998 (the most recent practicable date before the
printing of the accompanying Joint Proxy Statement/Prospectus). These shares
would represent approximately % of the shares of Eastern common stock
outstanding after the merger.
The date, time and place of the special meeting:
February , 1999
10:00 a.m.
Ropes & Gray
One International Place
36th Floor
Boston, Massachusetts
THE ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS PROVIDES YOU WITH DETAILED
INFORMATION ABOUT THE PROPOSED MERGER. WE ENCOURAGE YOU TO READ THIS ENTIRE
DOCUMENT CAREFULLY. IN ADDITION, YOU MAY OBTAIN OTHER INFORMATION ABOUT EASTERN
AND COLONIAL FROM DOCUMENTS FILED WITH THE SEC.
Whether or not you plan to attend the special meeting, please take the time
to vote by completing and mailing the enclosed proxy card to us. The Eastern
Board of Trustees has adopted a resolution which provides that shares voted by
proxy will be counted only if the proxy card has been presented for validation
to the Secretary of Eastern prior to the special meeting. If you sign, date and
mail your proxy card without indicating how you wish to vote, your proxy will
be counted as a vote in favor of approving the issuance of the Eastern shares
in the merger. If your shares are held by a broker as nominee, your broker will
not be able to vote your shares without instructions from you. IF YOU FAIL TO
PROVIDE YOUR BROKER WITH INSTRUCTIONS OR ABSTAIN FROM VOTING, THIS WILL HAVE
THE SAME EFFECT AS A VOTE "AGAINST" THE STOCK ISSUANCE. YOUR VOTE IS VERY
IMPORTANT, REGARDLESS OF HOW MANY SHARES YOU OWN.
On behalf of the Board of Trustees of Eastern, we urge you to vote "FOR" the
approval of the proposal.
Sincerely,
J. Atwood Ives
Chairman and Chief Executive Officer
----------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS
JOINT PROXY STATEMENT/PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
Joint Proxy Statement/Prospectus dated December , 1998, and first mailed to
Eastern shareholders on or about December , 1998 .
----------------
2
<PAGE>
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY , 1999
----------------
TO THE SHAREHOLDERS OF EASTERN ENTERPRISES:
I am pleased to give you notice of and cordially invite you to attend in
person or by proxy the special meeting of shareholders (the "Special Meeting")
of Eastern Enterprises ("Eastern") which will be held at Ropes & Gray, One
International Place, 36th Floor, Boston, Massachusetts,
February , 1999
10:00 a.m.
At our Special Meeting, common shareholders will take action on the
following:
1. To consider and vote on a proposal to issue shares (the "Stock Issuance")
of Eastern common stock, $1.00 par value ("Eastern Common Stock"), in
connection with the merger of Colonial Gas Company ("Colonial") with and into a
wholly-owned subsidiary of Eastern ("Merger Sub") pursuant to the Agreement and
Plan of Reorganization dated as of October 17, 1998 (the "Merger Agreement"), a
copy of which is attached as Annex A to the accompanying Joint Proxy
Statement/Prospectus. Such approval may be required in accordance with the
rules of the New York Stock Exchange depending on the number of Eastern shares
to be issued in relation to those previously outstanding. The Merger Agreement
provides for the outstanding shares of common stock of Colonial, $3.33 par
value ("Colonial Common Stock"), to be converted in the merger into the right
to receive cash and Eastern Common Stock. The total amount of cash
consideration will be fixed at $150 million. The number of shares of Eastern
Common Stock to be issued in the merger will be determined based on the average
closing price of Eastern Common Stock on the New York Stock Exchange over the
ten trading day period ending on the third trading day before the effective
date of the merger.
2. To transact such other business as may properly come before the Special
Meeting or any adjournment(s) thereof.
Holders of record of Eastern Common Stock outstanding on December 22, 1998,
the record date fixed by the Board of Trustees for this purpose (the "Record
Date"), are entitled to receive notice of the Special Meeting. Only holders of
record of shares of Eastern Common Stock on the Record Date are entitled to
vote at the Special Meeting. As of the Record Date, there were
shares of Eastern Common Stock outstanding, each of which is entitled to one
vote in person or by proxy at the Special Meeting.
A quorum, consisting of the holders of at least a majority of the outstanding
shares of Eastern Common Stock entitled to vote on the Stock Issuance is
required to act upon the Stock Issuance. If applicable, the New York Stock
Exchange rules require approval by a majority of the votes cast on the Stock
Issuance at the Eastern Special Meeting, provided that the total vote cast on
the Stock Issuance represents a majority of the shares of Eastern Common Stock
outstanding and entitled to vote. In addition, if the New York Stock Exchange
rules require approval of the Stock Issuance, approval by a majority of the
shares present at the Eastern Special Meeting will be required in order to
comply with Eastern's Declaration of Trust. UNDER THESE REQUIREMENTS,
ABSTENTIONS AND BROKER NON-VOTES WILL HAVE NO EFFECT ON THE OUTCOME OF THE
VOTING ON THE STOCK ISSUANCE FOR PURPOSES OF THE NEW YORK STOCK EXCHANGE RULES
BUT WILL HAVE THE EFFECT OF A VOTE "AGAINST" THE STOCK ISSUANCE FOR PURPOSES OF
THE EASTERN DECLARATION OF TRUST.
<PAGE>
If your shares are held through a bank or brokerage firm and you plan to vote
your shares in person at the Special Meeting, please request a letter or some
other evidence of ownership from your bank or brokerage firm as well as proper
authorization.
ALL HOLDERS OF EASTERN COMMON STOCK ARE CORDIALLY INVITED TO ATTEND THE
SPECIAL MEETING. HOWEVER, TO ENSURE YOUR REPRESENTATION AT THE SPECIAL MEETING,
YOU ARE URGED TO COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY
AS POSSIBLE. A PRE-ADDRESSED ENVELOPE IS ENCLOSED FOR THAT PURPOSE. THE EASTERN
BOARD OF TRUSTEES HAS ADOPTED A RESOLUTION WHICH PROVIDES THAT SHARES VOTED BY
PROXY WILL BE COUNTED ONLY IF THE PROXY CARD HAS BEEN PRESENTED FOR VALIDATION
TO THE SECRETARY OF EASTERN PRIOR TO THE SPECIAL MEETING. IF NO INSTRUCTIONS
ARE INDICATED WHEN YOU RETURN YOUR PROXY CARD, YOUR SHARES OF EASTERN COMMON
STOCK WILL BE VOTED "FOR" APPROVAL OF THE STOCK ISSUANCE. EXECUTION OF A PROXY
WILL NOT IN ANY WAY AFFECT A SHAREHOLDER'S RIGHT TO ATTEND THE SPECIAL MEETING
AND VOTE IN PERSON. ANY SHAREHOLDER GIVING A PROXY HAS A RIGHT TO REVOKE IT AT
ANY TIME BEFORE THE SPECIAL MEETING BY PRESENTING SUCH REVOCATION IN WRITING OR
PRESENTING A NEW PROXY CARD FOR VALIDATION TO THE SECRETARY OF EASTERN. IN
ADDITION, SHAREHOLDERS ATTENDING THE SPECIAL MEETING IN PERSON MAY REVOKE THEIR
PROXIES AT ANY TIME BEFORE THEY ARE EXERCISED.
December , 1998
By Order of the Board of Trustees,
L. William Law, Jr.
Secretary
2
<PAGE>
[COLONIAL GAS COMPANY LOGO]
40 Market Street
Lowell, Massachusetts 01852
December , 1998
Dear Stockholder:
I am pleased to invite you to the special meeting of stockholders at which
you will be asked to approve the proposed merger of Colonial Gas Company with
and into a subsidiary of Eastern Enterprises, as a result of which Colonial
will become a subsidiary of Eastern. Eastern is a holding company whose
subsidiaries include Boston Gas Company and Essex Gas Company, together New
England's largest natural gas distributor. Colonial believes that the proposed
merger with Eastern will allow Colonial to obtain the benefits of Eastern's
financial strength and resources to grow and compete more effectively in an
increasingly deregulated energy marketplace. The proposed merger will also
allow Colonial's stockholders to receive a premium for their shares over the
market price immediately prior to announcement of the merger and will provide
you with an opportunity to participate in the future growth of the energy
industry.
After comparing the proposed merger to various strategic alternatives,
including the formation of a holding company, the Colonial Board of Directors
has concluded that the proposed merger presents the best available course for
Colonial in responding to the competitive changes occurring in the natural gas
industry. Upon completion of the merger, Colonial, along with Boston Gas and
Essex Gas, will serve approximately 725,000 customers in Massachusetts. The
Board of Directors believes that the proposed merger is fair to Colonial's
stockholders and is in their best interests and has received an opinion from
its financial advisor, Salomon Smith Barney Inc., as to the fairness of the
merger from a financial point of view to the Colonial stockholders. On behalf
of the Board of Directors, we urge you to sign, date and return the enclosed
proxy today.
In the merger, holders of Colonial common stock will receive cash and Eastern
common stock. The total amount of cash consideration will be fixed at $150
million. Each share of Colonial common stock exchanged for cash will entitle
the holder to receive $37.50. Each share which is not exchanged for cash will
entitle the holder to receive that number of shares of Eastern common stock
valued at $37.50, based on the average closing price of the Eastern common
stock on the New York Stock Exchange over the ten trading day period ending on
the third trading day before the effective date of the merger, so long as such
average closing price is not less than $37.56 or higher than $47.80. If the
average closing price is less than $37.56, each share of Colonial common stock
will entitle the holder to approximately 0.998 shares of Eastern common stock.
On the other hand, if the average closing price is higher than $47.80, each
share of Colonial common stock will entitle the holder to approximately 0.785
shares of Eastern common stock. Accordingly, the actual value of the number of
Eastern shares received for a Colonial share could be less than or more than
$37.50. The closing price of the Eastern shares on December , 1998 was $ .
<PAGE>
You will be able to indicate closer to the expected effective date of the
merger whether you would like to receive cash or Eastern common stock in
exchange for each share of Colonial common stock held by you, or to indicate
that you have no preference. The cash and Eastern common stock consideration
will be allocated among the holders of Colonial common stock based on the
preferences indicated in the elections that they submit, subject to the amount
of cash and Eastern common stock available.
The date, time and place of the special meeting:
February , 1999
11:00 a.m.
BankBoston
100 Federal Street
Boston, Massachusetts
The accompanying Joint Proxy Statement/Prospectus provides you with detailed
information about the proposed merger. We encourage you to read this entire
document carefully. In addition, you may obtain other information about Eastern
and Colonial from documents filed with the SEC.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE TAKE THE TIME
TO VOTE BY COMPLETING AND MAILING THE ENCLOSED PROXY CARD TO US. IF YOU SIGN,
DATE AND MAIL YOUR PROXY CARD WITHOUT INDICATING HOW YOU WISH TO VOTE, YOUR
PROXY WILL BE COUNTED AS A VOTE IN FAVOR OF THE APPROVAL OF THE MERGER
AGREEMENT.
The affirmative vote of the holders of two-thirds of the outstanding shares
of Colonial common stock is required to approve the merger agreement. A
majority of the outstanding shares of Colonial common stock entitled to vote,
represented in person or by proxy, constitutes a quorum for consideration of
the merger agreement at the special meeting. Your failure to vote or your
abstention will have the effect of a vote against approval of the merger
agreement. If your shares are held by a broker as nominee, your broker will not
be able to vote your shares without instructions from you. ACCORDINGLY, IF YOU
FAIL TO RETURN YOUR CARD, ABSTAIN FROM VOTING OR FAIL TO PROVIDE YOUR BROKER
WITH INSTRUCTIONS, THE EFFECT WILL BE THE SAME AS A VOTE "AGAINST" THE APPROVAL
OF THE MERGER AGREEMENT. YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER
OF SHARES THAT YOU OWN.
YOUR BOARD OF DIRECTORS BELIEVES THAT THE TRANSACTION WITH EASTERN IS IN THE
BEST INTERESTS OF COLONIAL AND ITS STOCKHOLDERS AND HAS UNANIMOUSLY APPROVED
IT. YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR
THE APPROVAL OF THE MERGER AGREEMENT.
2
<PAGE>
We appreciate your support in this important transaction. We are very
enthusiastic about the merger with Eastern, and are confident that the combined
company will grow and prosper in a competitive marketplace.
Sincerely,
<TABLE>
<CAPTION>
- ---------------------------------------- -------------------------------------
<S> <C>
F.L. Putnam, Jr. F.L. Putnam, III
Chairman and Senior Executive Officer President and Chief Executive Officer
</TABLE>
----------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS
JOINT PROXY STATEMENT/PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
Joint Proxy Statement/Prospectus dated December , 1998, and first mailed to
Colonial stockholders on or about December , 1998.
----------------
3
<PAGE>
[COLONIAL GAS COMPANY LOGO]
40 Market Street
Lowell, Massachusetts 01852
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD FEBRUARY , 1999
----------------
TO THE STOCKHOLDERS OF COLONIAL GAS COMPANY:
I am pleased to give you notice of and cordially invite you to attend the
Special Meeting of Stockholders (the "Special Meeting") of Colonial Gas Company
("Colonial") which will be held at BankBoston, 100 Federal Street, Boston,
Massachusetts,
February , 1999
11:00 a.m.
At our Special Meeting, common stockholders will take action on the
following:
1. To consider and vote on a proposal to merge Colonial with and into a
wholly-owned subsidiary of Eastern Enterprises ("Eastern") by approving the
Agreement and Plan of Reorganization dated as of October 17, 1998 (the "Merger
Agreement"), a copy of which is attached as Annex A to the accompanying Joint
Proxy Statement/Prospectus. The Merger Agreement provides that the outstanding
shares of common stock of Colonial, $3.33 par value ("Colonial Common Stock"),
will be converted into the right to receive cash and Eastern common stock,
$1.00 par value ("Eastern Common Stock"). The total amount of cash
consideration will be fixed at $150 million. The number of shares of Eastern
Common Stock to be issued in the merger will be determined based on the average
of the closing prices for Eastern Common Stock on the New York Stock Exchange
over a ten trading day period ending on the third trading day before the
effective date of the merger.
2. To transact such other business as may properly come before the Special
Meeting or any adjournment(s) thereof.
Holders of record of Colonial Common Stock outstanding on December 22, 1998,
the record date fixed by the Board of Directors for this purpose (the "Record
Date"), are entitled to receive notice of the Special Meeting. Only holders of
record of shares of Colonial Common Stock on the Record Date are entitled to
vote at the Special Meeting. As of the Record Date, there were
shares of Colonial Common Stock outstanding, each of which is entitled to one
vote in person or by proxy at the Special Meeting.
Approval of the Merger Agreement requires the affirmative vote of the holders
of two-thirds of the outstanding shares of Colonial Common Stock, thus
abstentions and broker non-votes will have the effect of a vote "AGAINST" the
Merger Agreement. A majority of the outstanding shares of Colonial Common Stock
entitled to vote, represented in person or by proxy, constitutes a quorum for
consideration of the Merger Agreement.
1
<PAGE>
If your shares are held through a bank or brokerage firm and you plan to vote
your shares in person at the Special Meeting, please request a letter or some
other evidence of ownership from your bank or brokerage firm as well as proper
authorization.
Under Massachusetts law, holders of Colonial Common Stock who object to the
approval of the Merger Agreement do not have the right to demand separate
payment for or an appraisal of their shares in connection with the Merger
Agreement.
ALL HOLDERS OF COLONIAL COMMON STOCK ARE CORDIALLY INVITED TO ATTEND THE
SPECIAL MEETING. HOWEVER, TO ENSURE YOUR REPRESENTATION AT THE SPECIAL MEETING,
YOU ARE URGED TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AS PROMPTLY AS
POSSIBLE. A PRE-ADDRESSED ENVELOPE IS ENCLOSED FOR THAT PURPOSE. IF NO
INSTRUCTIONS ARE INDICATED ON YOUR PROXY CARD, YOUR SHARES OF COLONIAL COMMON
STOCK WILL BE VOTED "FOR" APPROVAL OF THE MERGER AGREEMENT. EXECUTION OF A
PROXY WILL NOT IN ANY WAY AFFECT A STOCKHOLDER'S RIGHT TO ATTEND THE SPECIAL
MEETING AND VOTE IN PERSON. ANY STOCKHOLDER GIVING A PROXY HAS A RIGHT TO
REVOKE IT AT ANY TIME BEFORE IT IS EXERCISED BY WRITTEN NOTICE TO THE CLERK OF
COLONIAL. IN ADDITION, STOCKHOLDERS ATTENDING THE SPECIAL MEETING MAY REVOKE
THEIR PROXIES AT ANY TIME BEFORE THEY ARE EXERCISED.
December , 1998
By order of the Board of Directors
Carol E. Elden
Clerk
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
QUESTIONS & ANSWERS ABOUT THE MERGER...................................... 1
SUMMARY................................................................... 6
COMPARATIVE PER SHARE DATA................................................ 17
COMPARATIVE DIVIDENDS AND MARKET PRICES................................... 19
RISK FACTORS.............................................................. 21
Fixed Merger Consideration Despite Potential Changes in Stock Prices.... 21
Integration of Operations............................................... 22
Stock Ownership in Eastern.............................................. 22
Need for Government Approvals........................................... 22
FORWARD-LOOKING STATEMENTS................................................ 24
MEETINGS, VOTING AND PROXIES.............................................. 26
The Eastern Special Meeting............................................. 26
The Colonial Special Meeting............................................ 28
THE MERGER................................................................ 31
General Description of the Merger....................................... 31
Background of the Merger................................................ 31
Common Reasons for the Merger........................................... 33
Eastern's Reasons for the Merger; Recommendations of the Eastern Board.. 34
Opinion of Eastern's Financial Advisor.................................. 35
Colonial's Reasons for the Merger; Recommendation of the Colonial
Board.................................................................. 40
Opinion of Colonial's Financial Advisor................................. 42
Accounting Treatment.................................................... 47
Certain Federal Income Tax Consequences................................. 47
No Appraisal Rights..................................................... 51
Stock Exchange Listing of Eastern Common Stock.......................... 51
Federal Securities Law Consequences..................................... 51
Regulatory Matters...................................................... 52
Potential Conflicts and Interests of Certain Persons in the Merger...... 53
Management and Other Information........................................ 58
MERGER AGREEMENT.......................................................... 59
Structure of the Merger................................................. 59
Merger Consideration.................................................... 59
Procedure for Filing Elections and Converting Colonial Common Stock into
Merger Consideration................................................... 61
Representations and Warranties.......................................... 63
Certain Covenants....................................................... 63
Certain Employee Benefits Matters....................................... 66
Conditions to the Merger................................................ 67
Amendments; Waivers..................................................... 68
No Solicitation by Colonial............................................. 68
Termination of the Merger Agreement..................................... 69
Termination Fees and Expenses........................................... 71
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION........................ 74
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION............... 78
PRINCIPAL STOCKHOLDERS.................................................... 81
Beneficial Owners of More Than 5% of Eastern's Outstanding Securities... 81
Eastern Management Ownership............................................ 81
Beneficial Owners Of More Than 5% Of Colonial's Outstanding Securities.. 82
Colonial Management Ownership........................................... 83
</TABLE>
i
<PAGE>
TABLE OF CONTENTS--(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DESCRIPTION OF EASTERN CAPITAL STOCK...................................... 84
General................................................................. 84
Authorized and Outstanding Capital Stock................................ 84
Common Stock Purchase Rights............................................ 84
Massachusetts Law and Certain Charter and By-Law Provisions; Anti-
Takeover Effects....................................................... 87
Transfer Agent and Registrar............................................ 90
COMPARATIVE RIGHTS OF HOLDERS OF COLONIAL AND EASTERN COMMON STOCK........ 90
Authorized Capital Stock................................................ 90
Boards of Directors/Trustees............................................ 90
Removal of Directors/Trustees........................................... 91
Special Meetings of Stockholders; Stockholder Action Without Meeting.... 91
Stockholder Proposals and Nominations................................... 91
Dissenters' Rights...................................................... 92
Charter Amendments...................................................... 92
Dividends and Stock Repurchases......................................... 93
Fair Price Charter Provisions........................................... 93
Shareholder Rights Plans................................................ 95
Business Combination Statutes........................................... 97
Control Share Statute................................................... 97
Proper Factors for Consideration in Evaluating Business Combinations.... 97
Form of Consideration for Capital Stock................................. 98
Limitation of Director Liability........................................ 98
Indemnification......................................................... 99
LEGAL MATTERS............................................................. 100
EXPERTS................................................................... 100
FUTURE EASTERN SHAREHOLDER PROPOSALS...................................... 101
FUTURE COLONIAL STOCKHOLDER PROPOSALS..................................... 101
OTHER MATTERS............................................................. 101
WHERE YOU CAN FIND MORE INFORMATION....................................... 102
INDEX OF DEFINED TERMS.................................................... 105
</TABLE>
<TABLE>
<C> <S> <C>
Annex A Agreement and Plan of Reorganization............................. A-1
Annex B Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated.... B-1
Annex C Opinion of Salomon Smith Barney Inc. ............................ C-1
</TABLE>
ii
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QUESTIONS & ANSWERS ABOUT THE MERGER
1. HOW WILL THESE TWO COMPANIES MERGE?
Eastern and Colonial will combine under a merger agreement that provides
that Colonial will merge with and into a wholly-owned subsidiary of
Eastern and, as a result, will become a wholly-owned subsidiary of
Eastern.
2. WHAT WILL COLONIAL STOCKHOLDERS RECEIVE?
In the merger, holders of Colonial common stock will receive cash and
Eastern common stock. The total amount of cash consideration to be paid
to Colonial stockholders will equal $150 million. Each share of
Colonial's common stock exchanged for cash will entitle the holder to
receive $37.50. Each share which is not exchanged for cash will entitle
the holder to receive that number of Eastern shares having a value of
$37.50 based on the average closing price of the Eastern common stock on
the New York Stock Exchange over the ten trading day period ending on the
third trading day before the effective date of the merger, so long as
such average closing price is not less than $37.56 or higher than $47.80.
If the average closing price during that ten trading day period is less
than $37.56, each share of Colonial common stock would entitle the holder
to receive approximately 0.998 shares of Eastern common stock. On the
other hand, if the average closing price during the ten trading day
period is higher than $47.80, each share of Colonial common stock would
entitle the holder to receive approximately 0.785 shares of Eastern
common stock. Accordingly, the actual value of the number of Eastern
shares received for a Colonial share could be less than or more than
$37.50.
Please read the more detailed description of the consideration to be
received in the merger on pages 59 to 61.
Eastern will not issue any fractional shares of Eastern common stock in
the merger. Instead, you will receive cash for any fractional share that
you would otherwise receive.
On October 16, 1998 (the last full trading day before the public
announcement of the merger), the closing price of Eastern common stock
reported in the New York Stock Exchange Composite Transactions was
$43.375 and on December , 1998 (the most recent practicable date prior
to the printing of this Joint Proxy Statement/Prospectus), the closing
price of Eastern common stock reported in the New York Stock Exchange
Composite Transactions was $ .
3. HOW DO I INDICATE WHETHER I WOULD PREFER TO RECEIVE CASH OR SHARES OF
EASTERN COMMON STOCK?
Colonial stockholders will be able to indicate whether they would prefer
to receive cash or Eastern common stock in exchange for each share of
Colonial common stock, or to indicate that they have no preference. Forms
will be mailed to the Colonial stockholders for this purpose closer to
the anticipated effective date of merger. The cash and Eastern common
stock consideration will be allocated among the holders of Colonial
common stock based on the
<PAGE>
preferences indicated in the elections that they submit, subject to the
amount of cash and Eastern common stock available. Accordingly, the
consideration actually received by a Colonial stockholder may differ from
the preference indicated in such stockholder's election.
The procedures that you need to follow once you have received your
election form are described in this Joint Proxy Statement/Prospectus on
pages 61 to 63.
4. WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER?
No gain or loss will be recognized by Colonial, Eastern or the merger
subsidiary by reason of the merger. Additionally, no gain or loss will be
recognized by Colonial stockholders on their receipt of shares of Eastern
common stock in the merger. In general, however, Colonial stockholders
will recognize taxable gain to the extent they receive cash in the
merger. Colonial stockholders should consult their tax advisors for a
full understanding of the tax consequences of the merger.
5. WHO MUST APPROVE THE MERGER?
In addition to the approvals by the Colonial Board of Directors and the
Eastern Board of Trustees, each of which has already been obtained, the
merger must be approved by the holders of Colonial common stock, and the
issuance of Eastern common stock in the merger must be approved by the
holders of Eastern common stock (if required under the rules of the New
York Stock Exchange). Moreover, regulatory approvals must be obtained
from the Massachusetts Department of Telecommunications and Energy and
the United States Securities and Exchange Commission, and certain
notifications and forms must be filed with the Antitrust Division of the
United States Department of Justice and the Federal Trade Commission.
6. WHY IS EASTERN'S BOARD OF TRUSTEES RECOMMENDING APPROVAL OF THE
TRANSACTION?
Eastern's Board of Trustees believes that the proposed transaction will
allow Eastern to build shareholder value by providing enhanced, cost-
effective customer service and enabling it to compete more effectively in
an increasingly deregulated energy marketplace. The Eastern Board of
Trustees also believes that the terms of the merger are fair to, and in
the best interests of, Eastern and its shareholders.
7. WHY IS COLONIAL'S BOARD OF DIRECTORS RECOMMENDING APPROVAL OF THE
TRANSACTION?
Colonial's Board of Directors believes that the merger will allow
Colonial to obtain the benefits of Eastern's financial strength and
resources and will provide Colonial's stockholders with an opportunity to
participate in the future growth of the energy industry. The Colonial
Board of Directors also believes that the terms of the merger are fair
to, and in the best interests of, Colonial and its stockholders.
8. WHEN AND WHERE IS THE EASTERN SPECIAL MEETING?
The Eastern special meeting will take place on February , 1999, at 10:00
a.m. at Ropes & Gray, One International Place, 36th Floor, Boston,
Massachusetts.
9. WHAT PROPOSALS ARE EASTERN SHAREHOLDERS VOTING ON?
Eastern shareholders are being asked to approve the issuance of the
shares of Eastern common stock in the merger.
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10.WHEN AND WHERE IS THE COLONIAL SPECIAL MEETING?
The Colonial special meeting will take place on February , 1999, at
11:00 a.m. at BankBoston, 100 Federal Street, Boston, Massachusetts.
11.WHAT PROPOSALS ARE COLONIAL STOCKHOLDERS VOTING ON?
Colonial stockholders are being asked to approve the merger agreement.
12.WHAT EFFECT DOES THE PROPOSED MERGER HAVE ON THE HOLDING COMPANY
RESTRUCTURING APPROVED BY COLONIAL STOCKHOLDERS AT THEIR 1998 ANNUAL
MEETING?
In response to the evolution of the utility industry toward greater
competition, Colonial previously adopted a plan to restructure into a
holding company, subject to regulatory approval. At this time, the
Colonial Board has determined that becoming one of Eastern's operating
businesses through the merger represents a preferable strategic
alternative to restructuring Colonial as a holding company. Eastern is a
holding company and the advantages that Colonial would have realized if
it had formed a holding company will be available to Colonial as a
subsidiary of Eastern. Accordingly, in light of the pending merger,
Colonial has suspended the process of restructuring as a holding company.
13.WHAT STOCKHOLDER VOTE IS REQUIRED TO APPROVE THE MERGER?
For both Colonial and Eastern, a majority of the outstanding common stock
entitled to vote constitutes a quorum for each respective meeting.
Under the rules of the New York Stock Exchange, approval of the stock
issuance proposal by Eastern shareholders may be required depending upon
the number of shares of Eastern common stock to be issued in the merger
in relation to those previously outstanding. If applicable, the New York
Stock Exchange rules require approval by a majority of the votes cast on
the stock issuance proposal at the Eastern special meeting, provided that
the total vote cast on the stock issuance proposal represents a majority
of the shares of Eastern common stock outstanding and entitled to vote.
In addition, if the New York Stock Exchange rules require approval of the
stock issuance proposal, approval by a majority of the shares present at
the Eastern special meeting will be required in order to comply with
Eastern's Declaration of Trust.
The holders of at least two-thirds of the outstanding shares of Colonial
common stock must vote in favor of the merger agreement for it to be
approved.
14.WHO IS ENTITLED TO VOTE?
Holders of record of Eastern common stock on December 22, 1998, the
Eastern record date, are entitled to vote at the Eastern special meeting.
As of December 22, 1998, shares of Eastern common stock were
outstanding.
Holders of record of Colonial common stock on December 22, 1998, the
Colonial record date, are entitled to vote at the Colonial special
meeting. As of December 22, 1998, shares of Colonial common stock
were outstanding.
15.WHEN IS THE MERGER EXPECTED TO BE COMPLETED?
We are working to complete all aspects of the merger transaction as
quickly as possible. We currently expect the merger to be completed by
the middle of 1999.
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<PAGE>
16.WHAT HAPPENS IF I DO NOT INSTRUCT A BROKER HOLDING MY SHARES AS TO HOW TO
VOTE THEM OR I ABSTAIN FROM VOTING?
If your shares are held by a broker as nominee, your broker will not be
able to vote your shares without instructions from you. If you fail to
provide your broker with instructions or if you mark your proxy
"ABSTAIN," it will have the same effect as a vote "AGAINST" the Stock
Issuance if you are an Eastern shareholder or a vote "AGAINST" the merger
agreement if you are a Colonial stockholder.
17.WHAT DO I NEED TO DO NOW?
After you have carefully read this Joint Proxy Statement/Prospectus, just
complete, sign and mail your proxy card in the enclosed return envelope
as soon as possible. That way, your shares can be represented at the
Eastern or Colonial stockholders meeting. If your shares are held by a
broker as nominee, you will receive a proxy card from your broker.
Eastern shareholders must return their proxy cards before the special
meeting in order for those votes to be counted at the Eastern special
meeting.
In the case of the Colonial special meeting, failure to return a proxy
card will have the same effect as a vote against the merger agreement.
18.CAN I CHANGE MY VOTE AFTER I HAVE MAILED IN MY SIGNED PROXY CARD?
Eastern
If you are an Eastern shareholder, you may revoke your proxy at any time
before the vote takes place at the Eastern special meeting if you attend
the special meeting in person and vote at the special meeting.
If you would like to revoke your proxy in writing or by completing a new
proxy card, you must do so before the Eastern special meeting by sending
your written revocation notice or new proxy card to Eastern's Secretary
for validation.
These should be sent to: Eastern Enterprises, 9 Riverside Road, Weston,
Massachusetts 02493, Attention: Corporate Secretary.
Colonial
If you are a Colonial stockholder, you may change your vote at any time
before the vote takes place at the Colonial special meeting. To do so,
you can attend the special meeting and vote in person.
Or, you can complete a new proxy card or send a written notice stating
you would like to revoke your proxy. These should be sent to: Colonial
Gas Company, 40 Market Street, Lowell, Massachusetts 01852, Attention:
Clerk.
19.SHOULD I SEND IN MY COLONIAL STOCK CERTIFICATES NOW?
No. You should continue to hold your certificates for Colonial common
stock until you receive a form of election that you can use to indicate
your preference as to the type of payment you
4
<PAGE>
would like to receive in the merger. You should send in your certificates
along with your completed form of election, which will be mailed to you
closer to the expected effective date of the merger.
After the effective date, a second set of materials will be sent to you
with instructions on how to exchange your shares of Colonial common stock
for cash and Eastern common stock, if any. If you have not already
submitted your certificates with your form of election, you should use
these materials to submit your certificates.
20.WHERE WILL MY SHARES OF COMMON STOCK OF EASTERN BE TRADED?
Like Colonial common stock, Eastern common stock is listed and traded on
the New York Stock Exchange. It is also traded on the Pacific Exchange
and the Boston Stock Exchange. Eastern Common Stock is listed under the
symbol "EFU." The Eastern common stock to be issued in the merger will
also be listed on the New York Stock Exchange, the Pacific Exchange and
the Boston Stock Exchange.
21.WILL THE COLONIAL BONDS BE EXCHANGED IN THE MERGER?
No. Colonial's bonds will remain outstanding and become the obligations
of the new Eastern subsidiary which will continue to operate as "Colonial
Gas Company" following the merger.
22.WHAT WILL HAPPEN TO COLONIAL'S DIVIDEND REINVESTMENT AND STOCK PURCHASE
PLANS?
Some holders of Colonial common stock also hold shares under Colonial's
Dividend Reinvestment and Stock Purchase Plan. The Colonial Dividend
Reinvestment and Stock Purchase Plan will be terminated upon the
completion of the Merger. Colonial common stockholders who hold shares
under this plan will have the option to receive cash or Eastern common
stock in exchange for shares held under such plan. To the extent that
such Colonial stockholders receive shares of Eastern common stock, they
will also have the option of holding such shares under the Eastern
Dividend Reinvestment and Stock Purchase Plan. The Eastern Dividend
Reinvestment and Common Stock Purchase Plan is similar to Colonial's plan
but does not provide a 5% market price discount on reinvestments and
differs in certain other respects.
23.WHO SHOULD I CALL IF I HAVE ANY ADDITIONAL QUESTIONS?
Eastern shareholders may call Eastern Investor Relations at (781) 647-
2300.
Colonial stockholders may call Colonial Investor Relations at (978) 322-
3155.
24.ARE THERE ANY RISKS ASSOCIATED WITH THE MERGER?
The merger does involve some risks. For a discussion of certain risks
factors that should be considered in evaluating the merger, see "Risk
Factors" beginning on page 21.
5
<PAGE>
SUMMARY
This summary highlights selected information from this Joint Proxy
Statement/Prospectus and may not contain all of the information that is
important to you. To understand the merger fully and for a more complete
description of the legal terms of the merger, you should read carefully this
entire document and the other documents that we have referred you to. See
"Where You Can Find More Information" on page 102. We have included page
references in parentheses to direct you to a more complete description of the
topics presented in this summary.
THE COMPANIES
EASTERN
Eastern is a Massachusetts business trust established and existing under the
Eastern Declaration of Trust. Eastern conducts its business through its
operating subsidiaries.
Eastern's principal subsidiaries are Boston Gas Company, Essex Gas Company and
Midland Enterprises Inc. Boston Gas and Essex Gas are regulated utilities that
distribute natural gas in eastern and central Massachusetts. Midland is engaged
in barge transportation, principally on the Ohio River and Mississippi River
systems. Eastern provides management and staff services to Boston Gas, Essex
Gas and Midland.
Together, Boston Gas and Essex Gas are engaged in the transportation and sale
of natural gas to approximately 575,000 residential, commercial and industrial
customers in Boston and 90 other communities in eastern and central
Massachusetts. Boston Gas also sells natural gas for resale in Massachusetts.
Boston Gas has been in business for 175 years and is the second oldest gas
company in the United States. Since 1929, all of the common stock of Boston Gas
has been owned by Eastern. Essex Gas has been in business for 145 years and was
purchased by Eastern in September 1998.
Midland, through its wholly-owned subsidiaries, is engaged in the operation of
a fleet of tow boats and barges, principally on the Ohio River and Mississippi
River and their tributaries, the Gulf Intracoastal Waterway and the Gulf of
Mexico. Midland transports dry bulk commodities, a major portion of which is
coal. Through its subsidiaries, Midland also performs repair work on marine
equipment and operates two coal dumping terminals, a phosphate rock and
phosphate chemical fertilizer terminal and a marine fuel supply facility.
Eastern's mailing address is 9 Riverside Road, Weston, Massachusetts 02493 and
its general telephone number is (781) 647-2300.
COLONIAL
Colonial, a Massachusetts corporation formed in 1849, is primarily a regulated
natural gas distribution utility that serves approximately 151,000 utility
customers in 24 municipalities located northwest of Boston and on Cape Cod,
Massachusetts. Through its wholly-owned energy trucking subsidiary, Transgas
Inc., Colonial also provides over-the-road transportation of liquefied natural
gas, propane and other commodities.
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<PAGE>
Transgas is the nation's largest over-the-road transporter of liquefied natural
gas and operates a fleet of approximately 55 specialized tanker trailers.
Colonial's mailing address is 40 Market Street, Lowell, Massachusetts 01852 and
its general telephone number is (978) 322-3000.
MERGER SUBSIDIARY
The merger subsidiary will be organized as a gas utility under the laws of
Massachusetts, and will be a wholly-owned subsidiary of Eastern formed solely
for the purpose of the merger. In the proposed merger, Colonial will be merged
into the merger subsidiary and, as a result, will become a wholly-owned
subsidiary of Eastern.
THE MERGER
SUMMARY OF THE TRANSACTION (SEE PAGE 31)
The merger agreement (Annex A) is attached at the back of this Joint Proxy
Statement/Prospectus. We encourage you to read the merger agreement as it is
the legal document that governs the merger. In the proposed merger, Colonial
will be merged into Eastern's merger subsidiary and, as a result, will become a
wholly-owned subsidiary of Eastern.
The merger will become effective following the approval of the merger agreement
by the stockholders of Colonial and, if required, the stock issuance by
shareholders of Eastern. In addition, all other conditions to the merger must
be satisfied or waived. These include approval of the Massachusetts Department
of Telecommunications and Energy and other regulatory approvals, and the filing
of the Articles of Merger with the Secretary of The Commonwealth of
Massachusetts.
WHAT HOLDERS OF COLONIAL COMMON STOCK WILL RECEIVE IN THE MERGER (SEE PAGE 59)
In the merger, holders of Colonial common stock will receive cash and common
stock of Eastern having an expected aggregate value of $332 million based on
the number of shares of Colonial common stock outstanding as of September 30,
1998. The actual value will depend on the market price of the Eastern common
stock and the number of shares of Colonial common stock outstanding on the date
the merger is completed. The total amount of cash consideration to be paid to
the Colonial stockholders will equal $150 million (subject to adjustment for
tax purposes as described below). Each share of Colonial common stock exchanged
for cash will entitle the holder to receive $37.50. Each share which is not
exchanged for cash will entitle the holder to receive that number of shares of
Eastern common stock having a value of $37.50 based on the average closing
price of the Eastern common stock reported in the New York Stock Exchange
Composite Transactions over the ten trading day period ending on the third
trading day before the effective date of the merger, so long as that average
closing price is not less than $37.56 or higher than $47.80. If the average
closing price is less than $37.56, each share of Colonial common stock not
exchanged for cash will entitle the holder to receive approximately 0.998
shares of Eastern common stock. On the other hand, if the average closing price
is higher than $47.80, each share of Colonial common stock not exchanged for
7
<PAGE>
cash will entitle the holder to receive approximately 0.785 shares of Eastern
common stock. Accordingly, the actual value of the number of Eastern shares
received for a Colonial share could be less than or more than $37.50. At
December , 1998, the closing market price of an Eastern share was $ .
The following charts graphically depict the effects of variations of the
average closing price of Eastern common stock used to determined the stock
portion of the merger consideration on the number and value of the shares of
Eastern common stock to be received in the merger for each share of Colonial
common stock.
[CHART DEPICTING NUMBER OF EASTERN [CHART DEPICTING VALUE OF EASTERN
SHARES TO BE RECEIVED APPEARS HERE. SHARES TO BE RECEIVED APPEARS HERE.
THE CHART SHOWS THAT THE NUMBER OF THE CHART SHOWS THAT THE VALUE OF
EASTERN SHARES TO BE RECEIVED FOR EASTERN SHARES TO BE RECEIVED
EACH COLONIAL SHARE WILL RANGE FROM FOR EACH COLONIAL SHARE WILL BE
0.998 TO 0.785 IF THE AVERAGE FIXED AT $37.50 AS LONG AS THE
EASTERN SHARE PRICE RANGES BETWEEN AVERAGE EASTERN SHARE PRICE IS
$37.56 AND $47.80, AND WILL BE BETWEEN $37.56 AND $47.80, AND WILL
FIXED AT 0.998 IF THE AVERAGE DECLINE AS THE AVERAGE EASTERN SHARE
EASTERN SHARE PRICE IS AT OR BELOW PRICE FALLS BELOW $37.56 AND WILL
$37.56, AND AT 0.785 IF THE AVERAGE INCREASE AS THE AVERAGE EASTERN
EASTERN SHARE PRICE IS AT OR ABOVE SHARE PRICE RISES ABOVE $47.80.]
$47.80.]
In order to permit the merger to qualify as a tax-free reorganization, the mix
of cash and Eastern common stock consideration will be adjusted to the extent
necessary to ensure that at least 45% of the value of the total consideration
paid (including all cash paid in lieu of fractional shares and other payments
required to be considered for tax purposes) consists of Eastern common stock.
To the extent necessary to maintain this percentage, the aggregate amount of
cash to be issued in the merger could be reduced to less than $150 million.
Eastern will not issue any fractional shares of common stock in the merger.
Instead, holders of Colonial common stock will receive cash for any fractional
share.
The Colonial stockholders will be able to indicate closer to the expected
effective date of the merger whether they would like to receive cash or Eastern
common stock in exchange for each share of Colonial common stock, or to
indicate that they have no preference. If the elections for a particular form
of consideration in the aggregate exceed the available amount of that
consideration, these elections will be subject to adjustment on a pro rata
basis. Accordingly, the consideration actually received by a Colonial
stockholder may differ from the preference indicated by that stockholder.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES (SEE PAGE 47)
The merger is intended to qualify as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended. Accordingly,
no gain or loss will be recognized by Colonial, Eastern or the merger
subsidiary by reason of the merger, and no gain or loss will be recognized by
the stockholders of Colonial on the exchange of their shares of Colonial common
stock solely for shares of Eastern common stock. A Colonial stockholder who
receives a combination
8
<PAGE>
of cash and Eastern common stock in the merger in exchange for shares of
Colonial common stock will recognize gain in an amount equal to the lesser of
the amount of cash received and the total gain realized by such stockholder in
the merger. The total gain realized by a Colonial stockholder in the merger
will be the difference between such stockholder's tax basis in the Colonial
common stock surrendered in the merger and the sum of the cash and the fair
market value of Eastern common stock received in exchange. A Colonial
stockholder who receives solely cash in the merger generally will recognize
gain or loss equal to the difference between such stockholder's tax basis in
the Colonial common stock surrendered and the cash received in the merger.
Under certain circumstances described on page 50, Colonial stockholders who
receive consideration in the merger consisting of cash or a combination of cash
and Eastern common stock may be treated as receiving ordinary dividend income.
Additionally, Colonial stockholders who receive cash in lieu of a fractional
share of Eastern common stock will recognize gain or loss as if such fractional
share were received in the merger and then immediately redeemed by Eastern.
BECAUSE CERTAIN TAX CONSEQUENCES OF THE MERGER MAY VARY DEPENDING UPON THE
PARTICULAR CIRCUMSTANCES OF EACH COLONIAL STOCKHOLDER, COLONIAL
STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE FEDERAL (AND
ANY STATE, LOCAL OR FOREIGN) TAX CONSEQUENCES OF THE MERGER IN LIGHT OF
THEIR PARTICULAR CIRCUMSTANCES.
THE EASTERN SPECIAL MEETING
DATE AND PURPOSE (SEE PAGE 26)
The Eastern special meeting will be held at 10:00 a.m. on February , 1999 at
Ropes & Gray, One International Place, 36th Floor, Boston, Massachusetts. At
the Eastern special meeting, holders of Eastern common stock will be asked to
approve the issuance of Eastern common stock in the merger.
EASTERN RECORD DATE; VOTING RIGHTS (SEE PAGE 26)
If you owned shares of Eastern common stock as of the close of business on
December 22, 1998, the Eastern record date, you are entitled to vote on the
issuance of Eastern common stock in the merger.
On the Eastern record date there were shares of Eastern common
stock outstanding. Holders of Eastern common stock will have one vote at the
Eastern special meeting for each share of Eastern common stock they own on the
Eastern record date.
QUORUM; REQUIRED VOTE (SEE PAGE 26)
The presence, in person or by proxy, at the Eastern special meeting of the
holders of a majority of the shares of Eastern common stock outstanding and
entitled to vote is necessary to constitute a quorum at the Eastern special
meeting. Under the rules of the New York Stock Exchange, approval of the stock
issuance proposal by Eastern shareholders may be required depending upon the
number of shares of Eastern common stock to be issued in the merger in relation
to those previously outstanding. If applicable, the New York Stock Exchange
rules require approval by a majority of the
9
<PAGE>
votes cast on the stock issuance proposal at the Eastern special meeting,
provided that the total vote cast on the stock issuance proposal represents a
majority of the shares of Eastern common stock outstanding and entitled to
vote. In addition, Eastern's Declaration of Trust requires that for any action
to be taken at a meeting a majority of the shares present at the meeting must
vote to approve the action. Accordingly, if the New York Stock Exchange rules
require approval of the stock issuance proposal, approval by a majority of the
shares present at the Eastern special meeting will be required in order to
comply with Eastern's Declaration of Trust.
If you hold your shares of Eastern common stock through a broker as nominee,
you must instruct your broker on how you would like to vote or these shares
will not be voted, although they will be counted as present. Similarly, a
properly executed proxy marked "ABSTAIN" will be counted as present but will
not be counted as a vote cast. ACCORDINGLY, ABSTENTIONS AND BROKER NON-VOTES
WILL HAVE NO EFFECT ON THE VOTING ON THE STOCK ISSUANCE PROPOSAL FOR PURPOSES
OF THE NEW YORK STOCK EXCHANGE RULES BUT WILL HAVE THE EFFECT OF A VOTE
"AGAINST" THE STOCK ISSUANCE PROPOSAL FOR PURPOSES OF THE EASTERN DECLARATION
OF TRUST.
RECOMMENDATION TO EASTERN COMMON SHAREHOLDERS (SEE PAGE 34)
The Eastern Board of Trustees believes that the merger is in the best interests
of Eastern shareholders and recommends that holders of Eastern common stock
vote "FOR" the stock issuance.
FAIRNESS OPINION OF EASTERN'S FINANCIAL ADVISOR (SEE PAGE 35)
In deciding to approve the merger, the Eastern Board of Trustees considered an
opinion from its financial advisor, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, to the effect that, as of the date of the merger agreement, the
consideration to be paid by Eastern pursuant to the merger was fair from a
financial point of view to Eastern. This opinion is attached as Annex B to this
Joint Proxy Statement/Prospectus. We encourage you to read this opinion.
THE COLONIAL SPECIAL MEETING
DATE AND PURPOSE (SEE PAGE 28)
The Colonial special meeting will be held at 11:00 a.m. on February , 1999 at
BankBoston, 100 Federal Street, Boston, Massachusetts. At the Colonial special
meeting, holders of Colonial common stock will be asked to approve the Merger
Agreement.
COLONIAL RECORD DATE; VOTING RIGHTS (SEE PAGE 28)
If you owned shares of Colonial common stock as of the close of business on
December 22, 1998, the Colonial record date, you are entitled to vote on the
approval of the merger agreement.
On the Colonial record date, there were shares of Colonial common
stock outstanding. Holders of Colonial common stock will have one vote at the
Colonial special meeting for each share of Colonial common stock they own on
the Colonial record date.
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QUORUM; REQUIRED VOTE (SEE PAGE 28)
The presence, in person or by proxy, at the Colonial special meeting of the
holders of a majority of the shares of Colonial common stock outstanding and
entitled to vote is necessary to constitute a quorum at the Colonial special
meeting. The affirmative vote of the holders of two-thirds of the outstanding
shares of Colonial common stock is required to approve the merger agreement.
YOUR FAILURE TO VOTE OR YOUR ABSTENTION WILL HAVE THE EFFECT OF A VOTE
"AGAINST" APPROVAL OF THE MERGER AGREEMENT. BROKERS WHO HOLD SHARES OF COLONIAL
COMMON STOCK AS NOMINEES WILL NOT HAVE DISCRETIONARY AUTHORITY TO VOTE SUCH
SHARES UNLESS YOU PROVIDE THEM WITH VOTING INSTRUCTIONS.
RECOMMENDATION TO COLONIAL STOCKHOLDERS (SEE PAGE 40)
The Colonial Board of Directors believes that the merger is in the best
interests of Colonial stockholders and unanimously recommends that holders of
Colonial common stock vote "FOR" approval of the merger agreement.
FAIRNESS OPINION OF COLONIAL'S FINANCIAL ADVISOR (SEE PAGE 42)
In deciding to approve the merger, the Colonial Board of Directors considered
an opinion from its financial advisor, Salomon Smith Barney, as to the
fairness, from a financial point of view, of the merger to the Colonial
stockholders. This opinion is attached as Annex C to this Joint Proxy
Statement/Prospectus. We encourage you to read this opinion.
SUMMARY OF OTHER SELECTED INFORMATION
POTENTIAL CONFLICTS AND INTERESTS OF OFFICERS AND DIRECTORS IN THE MERGER (SEE
PAGE 53)
The officers and directors of Colonial may have interests in the transaction
that are different from, or in addition to, those of Colonial stockholders. For
example, pursuant to employment agreements and severance plans, the merger will
constitute a change in control of Colonial, entitling certain officers of
Colonial to receive severance benefits under certain circumstances. In
addition, certain officers of Colonial are expected to enter into new
employment agreements with Eastern.
The Board of Directors of Colonial was aware of these and other interests and
considered them in approving the merger agreement.
As of the record date, directors and executive officers of Colonial and its
affiliates as a group owned approximately % of the issued and outstanding
shares of Colonial common stock. They have each indicated that they intend to
vote in favor of approval of the merger agreement.
REGULATORY APPROVALS (SEE PAGE 52)
The approvals of the Massachusetts Department of Telecommunications and Energy
under Chapter 164 of the Massachusetts General Laws, the Securities and
Exchange Commission under the
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Public Utility Holding Company Act of 1935, as well as the expiration or
earlier termination of the applicable waiting period under the Hart-Scott-
Rodino Anti-Trust Improvements Act of 1976, are required in order to complete
the merger. As of the date of this Joint Proxy Statement/Prospectus, none of
the required regulatory approvals have been obtained.
CONDITIONS TO THE MERGER (SEE PAGE 67)
Completion of the merger depends on the satisfaction of certain conditions,
including but not limited to:
. Approval of the holders of Colonial's common stock and, if required,
Eastern's common stock.
. All required approvals of regulatory and governmental agencies.
. Effectiveness of the Registration Statement in which this Joint Proxy
Statement/Prospectus is included.
. All required third-party consents and approvals.
AMENDMENT OF THE MERGER AGREEMENT (SEE PAGE 68)
The Eastern Board of Trustees and the Colonial Board of Directors may amend any
of the terms of the merger agreement at any time before or after stockholder
approval. No amendment which would materially and adversely affect the rights
of such stockholders may be made after the stockholders have approved the
merger without further stockholder approval.
TERMINATION OF THE MERGER AGREEMENT (SEE PAGE 69)
Eastern and Colonial may mutually terminate the merger agreement without
completing the merger. The merger agreement may also be terminated by either
Eastern or Colonial if the merger is not completed by December 31, 1999 (which
may be extended to June 30, 2000 in certain circumstances) or in certain other
circumstances, including failure of Colonial's stockholders to approve the
merger agreement at the Colonial special meeting or by June 30, 1999 and
Eastern's shareholders to approve the stock issuance proposal, to the extent
required, at the Eastern special meeting or by June 30, 1999.
TERMINATION FEES AND EXPENSES (SEE PAGE 71)
If the merger agreement is terminated under certain circumstances, Colonial or
Eastern may be required to pay the other's out-of-pocket expenses in an amount
up to $2 million. If the termination involves an alternative acquisition
proposal or a failure of the Colonial Board of Directors to recommend approval
of the merger agreement to the Colonial stockholders, Colonial may be required
to pay to Eastern a termination fee of $15 million (less any amount paid on
account of out-of-pocket expenses). If the termination involves an alternative
acquisition proposal or a failure by the Eastern Board of Trustees to recommend
approval of the stock issuance proposal, Eastern may be required to pay to
Colonial a termination fee of $15 million (less any amount paid on account of
out-of-pocket expenses).
12
<PAGE>
COMPARATIVE STOCKHOLDER RIGHTS (SEE PAGE 90)
When the merger is completed, holders of Colonial common stock who receive
Eastern common stock in the merger will be shareholders of Eastern, and their
rights will be governed by the Eastern Declaration of Trust and By-laws.
Certain differences between the rights of holders of the Colonial common stock
and those of holders of Eastern common stock are summarized on pages 90 to 100.
ACCOUNTING TREATMENT (SEE PAGE 47)
Eastern will account for the merger as a purchase of a business, which means
that the assets and liabilities of Colonial, including intangible assets, will
be recorded at their fair value.
NO STATUTORY APPRAISAL RIGHTS (SEE PAGE 51)
Holders of Colonial common stock who do not vote for the merger will not be
entitled to appraisal rights.
COMPARATIVE PER COMMON STOCK MARKET PRICE INFORMATION (SEE PAGE 19)
Eastern and Colonial common stock are both listed on the New York Stock
Exchange. On October 16, 1998, the last full trading day prior to the public
announcement of the proposed merger, Eastern common stock closed at $43.375 and
Colonial common stock closed at $29.563. On December , 1998, Eastern common
stock closed at $ and Colonial common stock closed at $ .
LISTING OF EASTERN COMMON STOCK (SEE PAGE 51)
Eastern will list the shares of its common stock to be issued in the merger on
the New York Stock Exchange, the Pacific Exchange and the Boston Stock
Exchange.
13
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION OF EASTERN
The annual financial information set forth below has been derived from the
audited consolidated financial statements of Eastern. The data for the nine-
month periods ending September 30, 1998 and 1997 have been derived from the
unaudited consolidated financial statements of Eastern. Except for cash
dividends, the table below reflects Eastern's historical results restated for
its merger on September 30, 1998 with Essex Gas, which was accounted for as a
pooling of interests. The information should be read in connection with, and is
qualified in its entirety by reference to, Eastern's financial statements and
notes thereto incorporated by reference herein. See "Where You Can Find More
Information." The interim data reflects all adjustments that, in the opinion of
management of Eastern, are necessary to present fairly such information for the
interim periods. The results of operations for the nine-month periods are not
necessarily indicative of the results expected for a full year or any other
interim period.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED DECEMBER 31, SEPTEMBER 30,(3)
------------------------------------------------------ ---------------------
1997 1996 1995 1994 1993 1998 1997
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Operating revenues...... $1,023,740 $1,057,271 $ 994,462 $ 973,386 $ 914,231 $ 707,980 $ 758,324
Operating earnings...... $ 115,317 $ 130,234 $ 121,336 $ 105,022 $ 84,747 $ 73,983 $ 80,845
Earnings from continuing
operations before
extraordinary items.... $ 55,916 $ 64,501 $ 63,561 $ 42,209 $ 28,902 $ 37,929 $ 37,315
Shares of common stock
outstanding, weighted
average diluted........ 22,498 22,414 22,171 22,668 24,294 22,692 22,472
Basic earnings per share
from continuing
operations before
extraordinary items.... $ 2.50 $ 2.90 $ 2.88 $ 1.87 $ 1.19 $ 1.69 $ 1.67
Diluted earnings per
share from continuing
operations before
extraordinary items.... $ 2.49 $ 2.88 $ 2.87 $ 1.86 $ 1.19 $ 1.67 $ 1.66
Cash dividends declared
per common share (1)... $ 1.61 $ 1.51 $ 1.42 $ 1.40 $ 1.40 $ 1.23 $ 1.20
Ratio of earnings to
fixed charges(2)....... 2.9 3.3 2.8 2.4 2.1 3.0 2.7
BALANCE SHEET DATA:
Total assets............ $1,530,365 $1,514,853 $1,467,594 $1,426,703 $1,443,803 $1,475,987 $1,432,493
========== ========== ========== ========== ========== ========== ==========
Long term debt
(excluding current
portion)............... $ 371,492 $ 367,683 $ 379,018 $ 387,901 $ 351,829 $ 387,311 $ 372,833
Common stock equity..... 484,470 461,013 426,473 403,004 390,723 540,923 474,946
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total capitalization.... $ 855,962 $ 828,696 $ 805,491 $ 790,905 $ 742,552 $ 928,234 $ 847,779
========== ========== ========== ========== ========== ========== ==========
</TABLE>
- --------
(1) Cash dividends declared per common share represent the historical dividends
of Eastern for all periods presented.
(2) In computing the ratio of earnings to fixed charges, "earnings" are defined
as income before income taxes and fixed charges. "Fixed charges" consist of
interest, including the amount capitalized, interest on the obligation
under the supplemental fuel inventory, amortization of debt expense and the
estimated interest portion (one third) of rental payments.
(3) Due to the significant impact of gas used for space heating during the
heating season (November-April) and the seasonal rate structures of Boston
Gas and Essex Gas, the results of operations for the nine-month periods
ending September 30, 1998 and 1997 are not necessarily indicative of the
results to be expected for the full year.
See accompanying Notes to Selected Historical Financial Information and
Unaudited Pro Forma Combined Financial Information.
14
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION OF COLONIAL
The annual financial information set forth below has been derived from the
audited financial statements of Colonial. The data for the nine-month periods
ended September 30, 1998 and 1997 have been derived from the unaudited
financial statements of Colonial. The information should be read in connection
with, and is qualified in its entirety by reference to, Colonial's financial
statements and notes thereto incorporated by reference herein. See "Where You
Can Find More Information." The interim data reflects all adjustments that, in
the opinion of management of Colonial, are necessary to present fairly such
information for the interim periods. The results of operations for the nine-
month periods are not necessarily indicative of the results expected for a full
year or any other interim period.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED DECEMBER 31, SEPTEMBER 30,(7)
----------------------------------------------- -----------------
1997 1996 1995 1994 1993 1998 1997
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Operating revenues...... $187,140 $169,878 $163,668 $165,327 $165,366 $115,854 $124,866
Operating margin(1)..... $ 84,685 $ 82,690 $ 80,037 $ 77,869 $ 74,451 $ 55,077 $ 56,245
Utility operating
income(2).............. $ 22,856 $ 22,154 $ 21,525 $ 17,538 $ 18,715 $ 13,084 $ 13,375
Other operating
income(3).............. $ 645 $ 2,276 $ 645 $ 1,315 $ 384 $ 19 $ 483
Net income.............. $ 16,040 $ 16,478 $ 13,764 $ 11,009 $ 12,022 $ 7,226 $ 8,226
Average shares of common
stock outstanding...... 8,598 8,432 8,294 8,119 7,931 8,750 8,576
Basic earnings per
share(4)............... $ 1.87 $ 1.95 $ 1.66 $ 1.36(5) $ 1.52 $ .83 $ .96
Cash dividends declared
per common stock....... $ 1.33 $ 1.295 $ 1.275 $ 1.255 $ 1.235 $ 1.025 $ 1.005
Ratio of earnings to
fixed charges(6)....... 3.9 3.9 3.2 2.9 3.2 2.7 3.0
BALANCE SHEET DATA:
Total assets............ $388,991 $364,412 $342,421 $331,348 $312,118 $383,486 $356,422
======== ======== ======== ======== ======== ======== ========
Long-term debt
(excluding current
portion)............... $101,719 $ 96,196 $ 76,777 $ 80,160 $ 90,581 $111,041 $101,615
Common stock equity..... 122,132 113,906 105,070 99,175 94,283 124,795 116,322
-------- -------- -------- -------- -------- -------- --------
Total capitalization.... $223,851 $210,102 $181,847 $179,335 $184,864 $235,836 $217,937
======== ======== ======== ======== ======== ======== ========
</TABLE>
- --------
(1) Operating margin is operating revenues less cost of gas sold.
(2) Utility operating income includes the provision (benefit) for federal and
state income taxes related thereto in all periods presented.
(3) Other operating income includes the results of Transgas Inc., Colonial's
energy trucking subsidiary, the results of Colonial's merchandising
operations and the results of Colonial's rental program, all on an after
tax basis.
(4) Colonial has no potentially dilutive securities outstanding for the periods
presented.
(5) After a restructuring charge of $.24 per share.
(6) In computing the ratio of earnings to fixed charges, "earnings" are defined
as income before income taxes and fixed charges. "Fixed charges" consist of
interest, including the amount capitalized, interest on the obligation
under the supplemental fuel inventory, amortization of debt expense and the
estimated interest portion of rental payments.
(7) Due to the significant impact of gas used for space heating during the
heating season (November-April) and Colonial's seasonal rate structure, the
results of operations for the nine-month periods ending September 30, 1998
and 1997 are not necessarily indicative of the results to be expected for
the full year.
See accompanying Notes to Selected Historical Financial Information and
Unaudited Pro Forma Combined Financial Information.
15
<PAGE>
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following selected unaudited pro forma combined financial data present the
combined financial data of Eastern and Colonial, including their respective
subsidiaries, after giving effect to the merger, assuming the merger had been
effective for the periods indicated. The selected unaudited pro forma combined
financial data as of December 31, 1997 and for the year then ended and as of
September 30, 1998 and for the nine months then ended were derived from and
should be read in conjunction with the unaudited pro forma combined balance
sheet and unaudited pro forma combined statements of operations, including the
notes thereto, which are included in this Joint Proxy Statement/Prospectus on
pages 74 to 80. The selected unaudited pro forma combined financial data should
also be read in conjunction with the historical financial statements of both
Eastern and Colonial which are incorporated herein by reference. See "Where You
Can Find More Information." The selected unaudited pro forma combined financial
data are presented for illustration purposes only in accordance with the
assumptions set forth below, and are not necessarily indicative of the
operating results or financial position that would have occurred if the merger
had been consummated for the periods presented nor is it necessarily indicative
of future operating results or financial position of the combined enterprise.
The selected unaudited pro forma combined financial data do not contain any
adjustments to reflect any cost savings or other synergies anticipated as a
result of the merger.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, 1997 1998
----------------- -----------------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C>
STATEMENTS OF OPERATIONS
Revenues................................... $1,223,953 $ 830,451
Operating earnings......................... 143,751 87,231
Net earnings before extraordinary items.. 60,965 36,912
Earnings per common share before
extraordinary items:
Basic.................................. $ 2.28 $ 1.37
Diluted................................ $ 2.26 $ 1.36
Cash dividends declared per share........ $ 1.61 $ 1.23
BALANCE SHEET DATA
Total assets............................... $1,973,034 $1,916,377
========== ==========
Capitalization:
Long-term debt (excluding current
portion)................................ $ 473,210 $ 498,352
Shareholders' equity..................... 660,280 722,622
========== ==========
Total capitalization (excluding short-term
debt)..................................... $1,133,490 $1,220,974
========== ==========
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Information.
16
<PAGE>
COMPARATIVE PER SHARE DATA
The following tables set forth certain unaudited historical per share data of
Eastern and Colonial and the combined per share data on an unaudited pro forma
basis after giving effect to the merger using the purchase method of accounting
for business combinations (and assuming the issuance of approximately 0.913
shares of Eastern common stock in the merger in exchange for shares of Colonial
common stock (other than shares of Colonial common stock to be exchanged for an
aggregate $150 million of cash consideration in the merger)). This data should
be read in conjunction with the selected financial data and the unaudited pro
forma combined financial statements included elsewhere in this Joint
Prospectus/Proxy Statement and the separate historical financial statements of
Eastern and Colonial incorporated by reference herein. The pro forma combined
financial data are not necessarily indicative of the operating results or
financial position that would have been achieved if the merger had been
consummated as of the beginning of the periods presented, nor are they
necessarily indicative of the future operating results or financial position of
Eastern or Colonial.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1997 SEPTEMBER 30, 1998
----------------- ------------------
<S> <C> <C>
EASTERN--HISTORICAL
Earnings per common share before
extraordinary items:
Basic.................................. $ 2.50 $ 1.69
Diluted................................ 2.49 1.67
Cash dividends declared per share........ 1.61 1.23
Book value per share at period end....... 21.64 24.04
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1997 SEPTEMBER 30, 1998
----------------- ------------------
<S> <C> <C>
COLONIAL--HISTORICAL
Earnings per common share:
Basic.................................. $ 1.87 $ .83
Diluted................................ 1.87 .83
Cash dividends declared per share........ 1.33 1.025
Book value per share at period end....... 14.06 14.11
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1997 SEPTEMBER 30, 1998
----------------- ------------------
<S> <C> <C>
EASTERN/COLONIAL--PRO FORMA
COMBINED(1)(4)
Earnings per common share before
extraordinary items:
Basic.................................. $ 2.28 $ 1.37
Diluted................................ 2.26 1.36
Cash dividends declared per share........ 1.61 1.23
Book value per share at period end(2).... 24.76 26.84
COLONIAL--EQUIVALENT PRO FORMA
Per share data imputed to existing
stockholders(1)(3)(4)
Earnings per common share before
extraordinary items:
Basic.................................. $ 2.08 $ 1.25
Diluted................................ 2.06 1.24
Cash dividends declared per share........ 1.47 1.12
Book value per share at period end....... 22.61 24.50
</TABLE>
- --------
(1) See "Selected Unaudited Pro Forma Combined Condensed Financial Data."
17
<PAGE>
(2) The book value per share information as of December 31, 1997 and September
30, 1998 is calculated based on the Eastern balance sheet as of December
31, 1997 (restated to give effect to Eastern's merger on September 30, 1998
with Essex Gas, which was accounted for as a pooling of interests) and
September 30, 1998 and the Colonial balance sheet as of December 31, 1997
and September 30, 1998, respectively.
(3) Equivalent pro forma share data are calculated by multiplying the
respective unaudited pro forma combined data by an assumed exchange ratio
of 0.913 shares of Eastern common stock for each share of Colonial common
stock. The assumed exchange ratio is derived from the average closing price
per share of Eastern common stock on the New York Stock Exchange for the
ten trading day period ended on December 11, 1998 (which is calculated as
if the effective date of the merger were December 16, 1998), which was
$41.08. If Eastern's average closing share price per share for the ten
trading day period ending on the third trading day prior to the effective
date of the merger is at either end of the collar ($47.80 or $37.56), then
the recalculated combined pro forma earnings per share in the latest fiscal
year and interim period would be as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1997 SEPTEMBER 30, 1998
----------------- ------------------
<S> <C> <C> <C> <C>
Eastern stock price................. $ 47.80 $ 37.56 $ 47.80 $ 37.56
-------- -------- --------- ---------
Basic earnings per share............ $ 2.33 $ 2.24 $ 1.41 $ 1.35
Diluted earnings per share.......... $ 2.32 $ 2.23 $ 1.39 $ 1.34
</TABLE>
No pro forma equivalent per share data are provided with respect to Colonial
shares exchanged for cash.
(4) Pro forma combined cash dividends declared per share represents the
historical dividends of Eastern for all periods presented. Eastern's
current cash dividends declared per share is $0.42 per common share per
quarter. After giving effect to the number of shares to be outstanding
after the merger, assuming an exchange ratio of 0.913 (see Note 3 above),
the pro forma payout ratio of the combined company is approximately 70%.
Additionally, the equivalent cash dividend per share of Colonial common
stock based upon Eastern's current annual dividend policy is $1.53.
18
<PAGE>
COMPARATIVE DIVIDENDS AND MARKET PRICES
EASTERN
Eastern common stock is listed and principally traded on the New York Stock
Exchange, the Pacific Exchange and the Boston Stock Exchange under the symbol
"EFU." The table below sets forth the dividends declared and the high and low
sales prices of Eastern common stock for the fiscal periods indicated as
reported in The Wall Street Journal as New York Stock Exchange Composite
Transactions.
<TABLE>
<CAPTION>
PRICE RANGE
DIVIDENDS ---------------
DECLARED HIGH LOW
--------- ------- -------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996
First Quarter.................................... $.37 $37.125 $33.125
Second Quarter................................... .37 36.875 32.375
Third Quarter.................................... .37 38.625 30.500
Fourth Quarter................................... .40 40.375 34.875
YEAR ENDED DECEMBER 31, 1997
First Quarter.................................... .40 36.375 30.500
Second Quarter................................... .40 35.875 30.500
Third Quarter.................................... .40 38.188 34.750
Fourth Quarter................................... .41 45.375 36.750
YEAR ENDED DECEMBER 31, 1998
First Quarter.................................... .41 45.625 40.375
Second Quarter................................... .41 44.750 37.625
Third Quarter.................................... .41 43.500 38.250
Fourth Quarter (through December 14, 1998)....... .42 44.250 40.000
</TABLE>
19
<PAGE>
COLONIAL
Colonial common stock is listed and principally traded on the New York Stock
Exchange under the symbol "CLG." Prior to September 18, 1997, the Colonial
common stock was traded on the Nasdaq National Market. The table below sets
forth the dividends declared and the high and low sales price of Colonial
common stock for the fiscal periods indicated as reported in The Wall Street
Journal as New York Stock Exchange Composite Transactions and, prior to
September 18, 1997, the high and low sales prices as reported by the Nasdaq
National Market.
<TABLE>
<CAPTION>
PRICE RANGE
DIVIDENDS ---------------
DECLARED HIGH LOW
--------- ------- -------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996
First Quarter.................................... $.320 $24.000 $20.250
Second Quarter................................... .325 24.250 20.000
Third Quarter.................................... .325 24.250 20.250
Fourth Quarter................................... .325 24.000 21.250
YEAR ENDED DECEMBER 31, 1997
First Quarter.................................... .325 24.000 20.000
Second Quarter................................... .335 22.750 19.250
Third Quarter.................................... .335 25.250 20.500
Fourth Quarter................................... .335 30.063 23.688
YEAR ENDED DECEMBER 31, 1998
First Quarter.................................... .335 29.500 26.500
Second Quarter................................... .345 29.250 26.500
Third Quarter.................................... .345 30.000 27.125
Fourth Quarter (through December 14, 1998)....... .345 35.438 28.000
</TABLE>
The following table sets forth the market value of Colonial common stock (on a
historical and equivalent per share basis) and the market value of Eastern
common stock (on a historical basis) as of October 16, 1998, the last business
day preceding the day that the merger agreement was entered into. The
equivalent per share value assumes that Eastern's average closing price per
share for the ten trading day period ending on the third trading day before the
effective date of the merger is not less than $37.56 or greater than $47.80.
<TABLE>
<CAPTION>
EASTERN COLONIAL EQUIVALENT
----------------------- ----------------------- PER SHARE
DATE HIGH LOW CLOSING HIGH LOW CLOSING VALUE
- ---- ------- ------- ------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
October 16, 1998.... $43.625 $43.063 $43.375 $29.625 $29.375 $29.563 $37.500
</TABLE>
Eastern shareholders and Colonial stockholders are encouraged to obtain current
market quotations for Eastern common stock and Colonial common stock.
20
<PAGE>
RISK FACTORS
In addition to the other information included in the Joint Proxy
Statement/Prospectus (including the other matters addressed in "Forward-Looking
Statements" on page 24), the risk factors described below should be considered
carefully by the holders of Eastern common stock in determining whether to vote
to approve the stock issuance proposal and by the holders of Colonial common
stock in determining whether to vote to approve the merger agreement.
FIXED MERGER CONSIDERATION DESPITE POTENTIAL CHANGES IN STOCK PRICES
Upon completion of the merger, all outstanding shares of Colonial common stock
will be converted into a combination of cash and Eastern common stock.
The cash portion of the merger consideration is a fixed dollar amount and will
not be adjusted in the event of any increase or decrease in the price of either
Eastern common stock or Colonial common stock, except to the extent necessary
to permit the merger to satisfy one of the requirements for qualification as a
tax-free reorganization. Such an adjustment may be necessary if the market
price of Eastern common stock on the effective date of the merger is
significantly less than the value used to determine the exchange ratio. If such
an adjustment is required, the amount of cash consideration would be adjusted
to the extent necessary to ensure that at least 45% of the total consideration
paid (including all cash paid in lieu of fractional shares and other payments
required to be considered for tax purposes) consists of Eastern common stock.
If an adjustment occurs, the aggregate amount of cash to be paid in the merger
could be less than $150 million.
The exchange ratio used to determine the stock portion of the merger
consideration will be determined based on the average of the closing prices of
Eastern common stock on the New York Stock Exchange for a ten trading day
period ending on the third trading day before the effective date. Unless this
average is lower than $37.56 or higher than $47.80, the value of the stock
portion of the merger consideration will remain fixed at $37.50 per share.
Accordingly, within this range the Colonial stockholders will not participate
in any appreciation in value of the Eastern common stock and correspondingly,
will not have the risk of any decline in value of the Eastern common stock.
Eastern shareholders, on the other hand, will experience dilution if the value
of Eastern common stock declines within that range. Should the average of the
closing prices of the Eastern common stock used to determine the stock portion
of the merger consideration fall below $37.56 per share, the Colonial
stockholders who receive Eastern shares will receive a lower value in exchange
for their Colonial shares. Correspondingly, if this average exceeds $47.80, the
Colonial stockholders who receive Eastern common stock will receive a higher
value in exchange for their Colonial shares. The effect of the change in
average closing price of the Eastern common stock is depicted graphically on
page 8.
The prices of Eastern common stock and Colonial common stock when the merger
takes place may vary from their prices at the date of this Joint Proxy
Statement/Prospectus and at the date of the special meetings. For example,
during the twelve month period ending on December , 1998, (the most recent
practicable date prior to the printing of this
21
<PAGE>
Joint Proxy Statement/Prospectus), the closing price of Eastern common stock
varied from a low of $ to a high of $ and ended that period at
$ , and the closing price of Colonial common stock varied from a low of
$ to a high of $ and ended that period at $ (see "Comparative
Per Share Data" and "Comparative Dividends and Market Prices" for further
information). Such variations may be the result of changes in the business,
operations and prospects of Eastern, Colonial or the combined company, market
assessments of the likelihood that the merger will be completed and the timing
of completion, regulatory considerations, general market and economic
conditions and other factors. Because the completion of the merger will occur
after the Eastern and Colonial special meetings, the prices of Eastern common
stock and Colonial common stock on the date of the special meetings may not be
indicative of their respective prices at the completion of the merger. At the
time of the Colonial special meeting, Colonial common stockholders will not
know the exact value of the Eastern common stock that they will receive when
the merger is completed.
In addition, the exchange ratio used to determine the stock portion of the
consideration is a fixed value determined based on the closing price of Eastern
common stock over the ten trading day period ending the third trading day
before the effective date of the merger. The actual market value of the shares
of Eastern common stock will be based on the market value of the shares when
received, which may be less than the value used to determine the exchange
ratio.
Holders of Colonial and Eastern common stock should obtain current market
quotations for Eastern common stock and Colonial common stock.
INTEGRATION OF OPERATIONS
The merger involves the integration of two different companies that have
previously operated independently. No assurance can be given that Eastern will
be able to integrate the operations of Colonial without encountering
difficulties or experiencing the loss of key Colonial employees, customers or
suppliers, or that the benefits expected from such integration will be
realized. Eastern recently completed the acquisition of Essex Gas and
additional issues may also arise in connection with the integration of both
Colonial and Essex Gas into Eastern's business.
STOCK OWNERSHIP IN EASTERN
Upon completion of the merger, some holders of Colonial common stock will
become holders of Eastern common stock. Eastern's business and strategy are
somewhat different from that of Colonial, and Eastern's results of operations,
as well as the price of Eastern common stock, will be affected by various
factors different from those affecting Colonial's results of operations and the
price of Colonial common stock. In particular, a significant portion of
Eastern's operations relate to its Midland barge business, a business in which
Colonial is not engaged. See "Forward-Looking Statements" for a summary of many
of the key factors that might affect Eastern and the price at which the Eastern
common stock may trade from time to time. See "Comparative Per Share Data" and
"Comparative Dividends and Market Prices."
NEED FOR GOVERNMENT APPROVALS
The consummation of the merger is conditioned upon receiving approval from
various governmental regulatory authorities. These include:
. approval of the merger and related rate plan by the Massachusetts Department
of Telecommunications and Energy.
22
<PAGE>
. approval by the Securities and Exchange Commission under the Public
Utilities Holding Company Act of 1935.
. expiration or termination of the applicable waiting period under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976.
In addition, other filings with, notifications to and authorizations and
approvals of various governmental agencies and third-party consents with
respect to the merger must be made or received before the completion of the
merger. Eastern and Colonial are seeking to obtain all required approvals and
consents, some of which will not be obtained prior to the special meetings. It
is possible that some required approvals and consents will not be obtained or
that they will be obtainable only with restrictions on the combined company
that will not be acceptable or would adversely affect the value of the combined
company. See "The Merger--Regulatory Matters."
23
<PAGE>
FORWARD-LOOKING STATEMENTS
This Joint Proxy Statement/Prospectus, and documents which are incorporated
by reference, include various forward-looking statements about Eastern,
Colonial and the combined company that are subject to risks and uncertainties.
Forward-looking statements include the information concerning future financial
performance, business strategy, projected costs and plans and objectives of
Eastern, Colonial and the combined company set forth under "Questions and
Answers About the Merger," "Summary," "--Background of the Merger," "--Common
Reasons for the Merger" "--Eastern's Reasons for the Merger; Recommendation of
the Eastern Board," "--Opinion of Eastern's Financial Advisor," "--Colonial's
Reasons for the Merger; Recommendation of the Colonial Board," "--Opinion of
Colonial's Financial Advisor," and those preceded by, followed by or that
otherwise include the words "believes," "expects," "anticipates," "intends,"
"estimates" or similar expressions.
Eastern and Colonial participate in an industry that is characterized by
increasing consolidation, growing deregulation and heightened competition. You
should understand that the following important factors, among others, in
addition to those discussed elsewhere in this Joint Proxy Statement/Prospectus
and the documents which are incorporated by reference (see "Where You Can Find
More Information"), could affect the future results of Eastern, Colonial and
the combined company and could cause actual results to differ materially from
those expressed in forward-looking statements contained or incorporated by
reference in this Joint Proxy Statement/Prospectus:
. The effect of the merger and Eastern's other possible strategic initiatives
on earnings and cash flow.
. Eastern's ability to successfully integrate its new gas distribution
operations.
. Temperatures deviating significantly from 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 Partners, Inc.,
(Eastern's recently-formed subsidiary which provides heating and air-
conditioning equipment installation and service to customers in eastern
Massachusetts) including expense levels and customer acceptance.
. The timetable and cost for completion of, and risks associated with,
Eastern's and Colonial's Year 2000 plans for their computer software,
hardware and embedded chips and 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.
. Developments with respect to Eastern's and Colonial's previously disclosed
environmental liabilities.
. Anticipating customer demand accurately and estimating the gas distribution
needed to meet such demand.
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. Changes in customer preferences on energy sources.
. The fact that financial results in any particular fiscal period are not
necessarily indicative of results for future periods.
. A significant delay in the expected completion of the merger.
Most of these factors are difficult to accurately predict and are generally
beyond the control of Eastern and Colonial.
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MEETINGS, VOTING AND PROXIES
This Joint Proxy Statement/Prospectus is furnished to (i) the holders of the
outstanding shares of Eastern common stock, $1.00 par value ("Eastern Common
Stock"), in connection with the solicitation of proxies by the Eastern Board of
Trustees (the "Eastern Board") from the holders of Eastern Common Stock for use
at the Eastern special meeting (the "Eastern Special Meeting"), and (ii) the
holders of the outstanding shares of Colonial common stock, $3.33 par value
("Colonial Common Stock"), in connection with the solicitation of proxies by
the Colonial Board of Directors (the "Colonial Board") from the holders of
Colonial Common Stock for use at the Colonial special meeting (the "Colonial
Special Meeting"). Eastern and Colonial anticipate that the mailing of proxy
materials to their stockholders entitled to notice of and to vote at the
Special Meetings will begin on or about December , 1998.
THE EASTERN SPECIAL MEETING
GENERAL. The purpose of the Eastern Special Meeting is to consider and vote
upon a proposal to approve the issuance of Eastern Common Stock (the "Stock
Issuance") pursuant to the Agreement and Plan of Reorganization dated October
17, 1998 (the "Merger Agreement") providing for the merger (the "Merger") of
Colonial into a subsidiary of Eastern ("Merger Sub"), and such other matters,
if any, as may properly be presented for consideration. The Eastern Board does
not know, as of the date of mailing of this Joint Proxy Statement/Prospectus,
of any other business to be brought before the Eastern Special Meeting. The
enclosed proxy card authorizes the voting of shares represented by the proxy on
all other matters that may properly come before the Eastern Special Meeting,
and any adjournment or postponement thereof and the proxy holders intend to
take such action in accordance with their best judgment.
THE EASTERN BOARD HAS APPROVED THE STOCK ISSUANCE AND RECOMMENDS THAT
EASTERN SHAREHOLDERS VOTE "FOR" THE STOCK ISSUANCE.
DATE, PLACE AND TIME; RECORD DATE. The Eastern Special Meeting is scheduled
to be held on February , 1999 at 10:00 a.m. at Ropes & Gray, One International
Place, 36th Floor, Boston, Massachusetts. Holders of record of shares of
Eastern Common Stock at the close of business on December 22, 1998 (the
"Eastern Record Date") will be entitled to receive notice of and vote at the
Eastern Special Meeting.
VOTING RIGHTS; REQUIRED VOTE. At the close of business on December 22, 1998,
shares of Eastern Common Stock were issued and outstanding. Each share of
Eastern Common Stock outstanding as of the Eastern Record Date is entitled to
one vote upon each matter properly submitted at the Eastern Special Meeting.
The presence in person or by proxy at the Eastern Special Meeting of the
holders of at least a majority of the outstanding shares of Eastern Common
Stock entitled to vote is necessary to constitute a quorum for the transaction
of business at the Eastern Special Meeting. The rules of the New York Stock
Exchange will require Eastern to obtain shareholder approval of the Stock
Issuance if the aggregate number of shares to be issued will be equal to or
greater than 20% of the total number of shares of Eastern Common Stock issued
and outstanding immediately prior to the Merger. If applicable, the New York
Stock Exchange rules require approval by a majority of the votes cast on the
Stock Issuance at the Eastern Special Meeting, provided that the total vote
cast on the Stock
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Issuance represents a majority of the shares of Eastern Common Stock
outstanding and entitled to vote. In addition, the Eastern Declaration of Trust
requires that for any action to be taken at a meeting a majority of the shares
present at the meeting must vote to approve the action. Accordingly, if the New
York Stock Exchange rules require approval of the Stock Issuance, approval by a
majority of the shares present at the Eastern Special Meeting will be required
in order to comply with Eastern's Declaration of Trust.
Abstentions and broker non-votes (i.e., proxies from brokers or nominees
indicating that such persons have not received instructions from the beneficial
owners or other persons entitled to vote shares as to a matter with respect to
which brokers or nominees do not have discretionary power to vote) will be
considered as present for the purposes of establishing a quorum. In accordance
with New York Stock Exchange rules, brokers and nominees are precluded from
exercising their voting discretion with respect to the approval of the Stock
Issuance. Without specific instructions from the beneficial owner of such
shares, brokers and nominees do not have the power to vote such shares on the
Stock Issuance. AS A RESULT, ABSTENTIONS AND BROKER NON-VOTES WILL BE COUNTED
AS PRESENT BUT WILL NOT COUNT AS VOTES CAST. ACCORDINGLY, ABSTENTIONS AND
BROKER NON-VOTES WILL HAVE NO EFFECT ON THE VOTING ON THE STOCK ISSUANCE FOR
PURPOSES OF THE NEW YORK STOCK EXCHANGE RULES BUT WILL HAVE THE EFFECT OF A
VOTE "AGAINST" THE STOCK ISSUANCE FOR PURPOSES OF EASTERN'S DECLARATION OF
TRUST.
As of October 31, 1998, trustees and executive officers of Eastern and their
affiliates owned beneficially an aggregate of 637,588 shares of Eastern Common
Stock (including shares which may be acquired upon exercise of employee stock
options), or 2.8% of the shares of Eastern Common Stock outstanding on such
date.
VOTING AND REVOCATION OF PROXIES. Shares of Eastern Common Stock represented
by a proxy properly signed and received before the Eastern Special Meeting,
unless later revoked, will be voted in accordance with the instructions
thereon. The Eastern Board of Trustees has adopted a resolution which provides
that shares voted by proxy will be counted only if the proxy card has been
submitted for validation to the Secretary of Eastern before the Eastern Special
Meeting, or if the meeting is adjourned to another day, before that adjourned
session.
IF A PROXY IS SIGNED AND RETURNED WITHOUT INDICATING ANY VOTING
INSTRUCTIONS, THE SHARES OF EASTERN COMMON STOCK REPRESENTED BY THE PROXY
WILL BE VOTED IN FAVOR OF THE STOCK ISSUANCE.
Eastern proxy holders may in their discretion vote shares voted in favor of
the Stock Issuance to adjourn the Eastern Special Meeting to solicit additional
proxies in favor of this proposal. Any proxy given pursuant to this
solicitation may be revoked by the person giving it at any time before the
Eastern Special Meeting by the filing of an instrument revoking it or filing a
properly executed proxy bearing a later date for validation with the Secretary
of Eastern before the Eastern Special Meeting, or at any time before the proxy
is voted by voting in person at the Eastern Special Meeting. All written
notices of revocation and other communications with respect to revocation of
proxies should be addressed as follows: Eastern Enterprises, 9 Riverside Road,
Weston, Massachusetts 02493, Attention: Corporate Secretary. Attendance at the
Eastern Special Meeting will not in and of itself constitute revocation of a
proxy.
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The Eastern Special Meeting may be adjourned to another date and/or place for
any proper purpose (including, without limitation, for the purpose of
soliciting additional proxies).
SOLICITATION OF PROXIES. In addition to solicitation by mail, trustees,
officers and employees of Eastern may solicit proxies from the shareholders of
Eastern, personally or by telephone, telecopy or telegram or other forms of
communication. Officers, trustees and employees of Eastern will not be
specifically compensated for such services. Brokerage houses, nominees,
fiduciaries and other custodians will be requested to forward soliciting
materials to beneficial owners and will be reimbursed for their reasonable
expenses incurred in sending proxy materials to beneficial owners. Eastern and
Colonial will share equally the costs of filing and printing this Joint Proxy
Statement/Prospectus other than fees of accountants and attorneys.
THE COLONIAL SPECIAL MEETING
GENERAL. The purpose of the Colonial Special Meeting is to consider and vote
upon a proposal to approve the Merger Agreement and such other matters, if any,
as may properly be presented for consideration. The Colonial Board does not
know, as of the date of mailing of this Joint Proxy Statement/Prospectus, of
any other business to be brought before the Colonial Special Meeting. The
enclosed proxy card authorizes the voting of shares represented by the proxy on
all other matters that may properly come before the Colonial Special Meeting,
and any adjournment or postponement thereof, and the proxy holders intend to
take such action in accordance with their best judgment.
THE COLONIAL BOARD, BY A UNANIMOUS VOTE, HAS APPROVED THE MERGER AGREEMENT
AND RECOMMENDS THAT COLONIAL STOCKHOLDERS VOTE "FOR" APPROVAL OF THE MERGER
AGREEMENT.
DATE, PLACE AND TIME; RECORD DATE. The Colonial Special Meeting is scheduled
to be held on February , 1999 at 11:00 a.m. at BankBoston, 100 Federal Street,
Boston, Massachusetts. Holders of record of shares of Colonial Common Stock at
the close of business on December 22, 1998, (the "Colonial Record Date") will
be entitled to receive notice of and vote at the Colonial Special Meeting.
VOTING RIGHTS; REQUIRED VOTE. At the close of business on December 22, 1998,
shares of Colonial Common Stock were issued and outstanding. Each share of
Colonial Common Stock outstanding as of the Record Date is entitled to one vote
upon each matter properly submitted at the Colonial Special Meeting. The
affirmative vote of the holders of at least two-thirds of the outstanding
shares of Colonial Common Stock is required to approve the Merger Agreement at
the Colonial Special Meeting.
The presence in person or by proxy at the Colonial Special Meeting of the
holders of at least a majority of the outstanding shares of Colonial Common
Stock is necessary to constitute a quorum for the transaction of business at
the Colonial Special Meeting. Abstentions and broker non-votes (i.e., proxies
from brokers or nominees indicating that such persons have not received
instructions from the beneficial owners or other persons entitled to vote
shares as to a matter with respect to which brokers or nominees do not have
discretionary power to vote) will be considered present for the purpose of
establishing a quorum. In accordance with New York Stock Exchange rules,
brokers and nominees are precluded from exercising their voting discretion with
respect to the approval of the Merger Agreement. Accordingly, without specific
instructions from the beneficial owner of such shares, brokers and nominees do
not have the power to vote such shares with respect to the approval of the
Merger Agreement.
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THEREFORE, SINCE THE AFFIRMATIVE VOTE IN PERSON OR BY PROXY OF THE HOLDERS
OF TWO-THIRDS OF THE OUTSTANDING SHARES OF COLONIAL COMMON STOCK ON THE
COLONIAL RECORD DATE IS REQUIRED TO APPROVE THE MERGER AGREEMENT, THE
FAILURE TO VOTE, ABSTENTIONS AND BROKER NON-VOTES WILL HAVE THE EFFECT OF A
VOTE "AGAINST" THE MERGER AGREEMENT.
As of October 31, 1998, directors and executive officers of Colonial and
their affiliates owned beneficially an aggregate of 306,487 shares of Colonial
Common Stock, or 3.47% of the shares of Colonial Common Stock outstanding on
such date. Directors and executive officers of Colonial have indicated that
they intend to vote their shares of Colonial Common Stock in favor of approval
of the Merger Agreement.
VOTING AND REVOCATION OF PROXIES. Shares of Colonial Common Stock represented
by a proxy properly signed and received at or before the Colonial Special
Meeting, unless later revoked, will be voted in accordance with the
instructions thereon.
IF A PROXY IS SIGNED AND RETURNED WITHOUT INDICATING ANY VOTING
INSTRUCTIONS, SHARES OF COLONIAL COMMON STOCK REPRESENTED BY THE PROXY WILL
BE VOTED "FOR" APPROVAL OF THE MERGER AGREEMENT.
Colonial proxy holders may in their discretion vote shares voted in favor of
approval of the Merger Agreement to adjourn the Colonial Special Meeting to
solicit additional proxies in favor of such proposal. Any proxy given pursuant
to this solicitation may be revoked by the person giving it at any time before
the proxy is voted by the filing of an instrument revoking it or filing of a
properly executed proxy bearing a later date with the Clerk of Colonial before
or at the Colonial Special Meeting, or by voting in person at the Colonial
Special Meeting. All written notices of revocation and other communications
with respect to revocation of proxies should be addressed as follows: Colonial
Gas Company, 40 Market Street, Lowell, Massachusetts 01852, Attention: Clerk.
Attendance at the Colonial Special Meeting will not in and of itself constitute
a revocation of a proxy.
Shares of Colonial Common Stock held in the names of the trustees under
Colonial's Employee Savings Plan may be voted by such trustees upon the
instructions of participants in such plan. With respect to shares for which
instructions are not received, the trustees will vote such shares in accordance
with the vote of the majority. Participants in the plan will receive individual
proxies relating to the shares allocated to their accounts.
The Colonial Special Meeting may be adjourned to another date and/or place
for any proper purpose (including, without limitation, for the purpose of
soliciting additional proxies).
SOLICITATION OF PROXIES. In addition to solicitation by mail, directors,
officers and employees of Colonial may solicit proxies from the stockholders of
Colonial, personally or by telephone, telecopy or telegram or other forms of
communication. Officers, directors and employees of Colonial will not be
specifically compensated for such services. Brokerage houses, nominees,
fiduciaries and other custodians will be requested to forward soliciting
materials to beneficial owners and will be reimbursed for their reasonable
expenses incurred in sending proxy materials to beneficial owners.
In addition, Colonial has retained Morrow & Company to assist in the
solicitation of proxies from its stockholders. The fees to be paid to such firm
for such services by Colonial are not expected
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to exceed $12,500, plus reasonable out-of-pocket costs and expenses. Colonial
will bear its own expenses in connection with the solicitation of proxies for
the Colonial Special Meeting, except that Colonial and Eastern will share
equally costs of filing and printing this Joint Proxy Statement/Prospectus
other than fees of accountants and attorneys.
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THE MERGER
GENERAL DESCRIPTION OF THE MERGER
Colonial will merge with and into Merger Sub in accordance with the laws of
the Commonwealth of Massachusetts. Merger Sub will be the surviving company
(the "Surviving Company") in the Merger and will continue as a Massachusetts
corporation but will change its name to "Colonial Gas Company." On the date on
which the Merger is consummated (the "Effective Date"), at the time the Merger
occurs (the "Effective Time"): (i) the Articles of Organization of Merger Sub,
as in effect immediately before the Effective Time, will be the Articles of
Organization of the Surviving Company; and (ii) the Merger Sub By-laws, as in
effect immediately before the Effective Time, will be the By-laws of the
Surviving Company.
It is not anticipated that the Eastern Board or management of Eastern will
change as a result of the Merger, except that a member of the Colonial Board
will be elected to serve on the Eastern Board.
BACKGROUND OF THE MERGER
During the past several years, the Colonial Board had periodically evaluated
Colonial's long-term position and strategic alternatives in view of the trend
toward deregulation and consolidation in the gas distribution industry. The
Colonial Board had consistently supported a strategy to remain independent and
continue to build shareholder value. During the same period, Eastern had been
continually considering and pursuing strategic initiatives that would help
enable it to take advantage of the increasing deregulation and consolidation in
the gas distribution industry. As part of this strategy, Eastern from time to
time indicated to Colonial its interest in discussing a business combination
transaction and, in 1998, Eastern acquired Essex Gas.
Following the announcement in December 1997 of the proposed acquisition of
Essex Gas by Eastern and of Bay State Gas Company by NIPSCO Industries, Inc.,
the Colonial Board decided to reassess Colonial's strategic options and to
consider a possible business combination transaction. In January 1998, as part
of retaining the option of remaining independent, the Colonial Board approved
the creation of a holding company structure and the submission of the holding
company restructuring to Colonial's stockholders for approval.
The Colonial Board retained Salomon Smith Barney in March 1998 to assist it
in exploring its strategic options. Throughout the Spring of 1998, Colonial
considered several strategic options, including (i) continuing its independent
course, (ii) merging with a larger regional gas distribution company or
electric company, (iii) merging with an out-of-region energy company and
(iv) combining with a similarly sized New England gas distribution company. The
Colonial Board met on April 15, 1998 to hear a report from Salomon Smith Barney
on these strategic options. In evaluating any potential business combination
alternative, Colonial set an objective of achieving the greatest benefits for
stockholders, customers and employees.
In May 1998, Colonial's stockholders approved the formation of a holding
company, subject to the approval of the Massachusetts Department of
Telecommunications and Energy (the "DTE").
In its assessment of strategic options, Colonial, with the assistance of
Salomon Smith Barney, identified six companies, including Eastern, that fit one
or more of its strategic combination
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objectives. Preliminary discussions with these six companies took place in June
and July 1998. From these discussions, Colonial identified three companies,
including Eastern, with which it might have an interest in pursuing a business
combination transaction, depending on whether the terms of such a transaction
would meet the objectives of achieving benefits for stockholders, customers and
employees.
Following a meeting of the Colonial Board on July 15, 1998, Colonial invited
the three companies to engage in a diligence investigation after signing
confidentiality agreements with Colonial. One of the companies subsequently
indicated that it was not interested in pursuing the transaction at this time
because of strategic considerations, while Eastern and the other company
indicated a strong interest in submitting a proposal.
On August 11, 1998, Colonial requested that the two remaining companies each
submit a definitive proposal by August 28, 1998 for a merger with Colonial.
That date was chosen because Colonial's management anticipated that the DTE
orders on the gas distribution company merger transactions referred to above
would be issued by then and would provide necessary guidance as to the
regulatory treatment that could be expected for a merger transaction. The
potential bidders were requested to address in their proposal the expected
benefits of the proposed transaction to Colonial's stockholders, customers and
employees and were provided a form of merger agreement, on which Colonial
requested the bidders to provide comments. When it became apparent that the DTE
orders would not be issued by the date for submission of proposals, Colonial
suspended the solicitation process pending issuance of the orders.
In early September 1998, the other interested company asked Colonial to delay
the proposal process for an extended period of time. Colonial's management met
with the other company's management to discuss the request but gave no
commitment. On September 9, 1998, the Colonial Board met to review the status
of the merger proposal process and instructed management to continue to monitor
developments. On September 17, 1998, the DTE issued its order approving
Eastern's acquisition of Essex Gas.
On September 23, 1998, the Eastern Board met and authorized Eastern's
management to proceed with an offer to acquire Colonial based upon the terms
and conditions as presented at the meeting. Representatives of Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Eastern's financial advisor, were present
at the meeting and gave a preliminary presentation to the Eastern Board
regarding the proposed offer price and the terms and conditions of the proposed
acquisition.
On September 28, 1998, senior management of Eastern asked Colonial's senior
management if it would entertain a proposal from Eastern. The Colonial Board
met on October 5, 1998 to evaluate Eastern's request and, after considering
alternatives, authorized Colonial's management to inform Eastern that it would
entertain a proposal. In reaching this decision, the Colonial Board took into
account the uncertainties and risks associated with continuing to delay the
proposal process and the likelihood that Eastern, because of the operating
synergies that it could achieve, would be in a good position to make a proposal
that would maximize value for shareholders, provide benefits for customers and
enhance opportunities for employees.
On October 7, 1998, Eastern submitted a written proposal to acquire Colonial
at a price of $37.00 a share in cash and Eastern Common Stock, with a 15%
collar on the share exchange ratios.
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On October 9, 1998, after discussions with Colonial's management, Salomon
Smith Barney informed Merrill Lynch that Eastern's proposal was not adequate.
Merrill Lynch responded that Eastern was not prepared to increase its proposal
above $37.00 per share at that time. Over the next few days, Eastern's Chairman
contacted Colonial's Chairman to inform him that Eastern would raise its offer
to $37.50 but could not go higher. Colonial's Chairman indicated that this
might be acceptable assuming all other terms were satisfactory.
Colonial's management, together with its financial advisor and legal counsel,
met with Eastern's management and its financial advisor and legal counsel on
October 14, 1998 to negotiate the open issues on the merger transaction and the
terms of the Merger Agreement. Eastern continued to seek a 15% collar on the
share exchange ratio, while Colonial sought a narrower collar. The parties
agreed on a 12% collar and reached agreement in principle on the terms of a
transaction subject to the approval of the Colonial Board.
Over the next several days, legal counsel for both parties negotiated the
final terms of the Merger Agreement.
On October 17, 1998, the Colonial Board met to consider the Merger Agreement.
At the meeting, Colonial's legal counsel described the provisions of the Merger
Agreement and the responsibilities of the directors, and Salomon Smith Barney
rendered its oral opinion as to the fairness of the transaction from a
financial point of view to the stockholders of Colonial and the nature of the
analysis they performed to arrive at such a conclusion. The Colonial Board
discussed and then unanimously approved the Merger Agreement and voted to
recommend its approval to Colonial's stockholders. The parties then executed
and delivered the Merger Agreement and the transaction was publicly announced
the next business day, Monday, October 19, 1998, prior to the opening of
the New York Stock Exchange.
At the Eastern Board meeting on October 28, 1998, Eastern's management
reported that it had received an opinion dated as of October 17, 1998 from
Merrill Lynch as to the fairness of the transaction from a financial point of
view to Eastern, and the Eastern Board without dissent ratified and approved
the execution and delivery of the Merger Agreement and approved the Stock
Issuance.
COMMON REASONS FOR THE MERGER
Eastern and Colonial believe that the combined company, its stockholders and
customers can benefit significantly from the strategic advantages which they
expect to result from the Merger, which include the following:
. Customers of Boston Gas, Essex Gas and Colonial should realize long-term
benefits as a result of the economies of scale of the combined organization
that will enable improved customer service and lower costs.
. The greater financial and operational resources available to the combined
company should strengthen its competitive position in the increasingly
deregulated and competitive energy marketplace.
. Stockholders of both companies will have the opportunity to participate in
the upside potential of the consolidation of gas companies and the future
growth of the energy industry.
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EASTERN'S REASONS FOR THE MERGER; RECOMMENDATIONS OF THE EASTERN BOARD
The Eastern Board believes that the terms of the Merger are fair to, and in
the best interests of, Eastern and its shareholders. Accordingly, the Eastern
Board has approved the Merger Agreement, and recommends that the Eastern
shareholders approve the Stock Issuance. The Eastern Board believes that the
Merger represents a significant strategic opportunity for Eastern.
The terms of the Merger Agreement, including the consideration consisting of
a combination of cash and Eastern Common Stock (the "Merger Consideration"),
were the result of arm's-length negotiations between Eastern and Colonial. In
fixing the Merger Consideration in the negotiation process, Eastern management
considered the financial analyses of Merrill Lynch. The Merrill Lynch fairness
opinion addressed to the Eastern Board, dated as of October 17, 1998, is set
forth below under "--Opinion of Eastern's Financial Adviser." The Eastern Board
had previously consulted with its financial advisor and the legal advisors and
management of Eastern. After careful review and consideration, the Eastern
Board determined that the Merger is a desirable transaction from the standpoint
of the holders of Eastern Common Stock.
In reaching its decision to approve the Merger Agreement, the Eastern Board
considered the following factors:
. The current and historical market prices of the Eastern Common Stock and the
Colonial Common Stock.
. Information concerning the financial performance, condition, business
operations and prospects of each of Eastern and Colonial.
. The effects of the Merger on Eastern's shareholders, including the
opportunity to share in the anticipated benefits to be achieved from
ownership in the larger combined enterprise.
. The expertise and experience of Colonial's management in the gas
distribution industry being available to Eastern as a resource in
implementing the integration of Colonial into Eastern's operations and the
ongoing operations of Eastern's gas distribution subsidiaries.
. Improved customer service and lower costs as a result of economies of scale
and operating efficiencies.
. The terms of the Merger Agreement, which provide for balanced
representations and warranties, conditions to closing and rights upon
termination.
. The opinion of Eastern's financial advisor, Merrill Lynch, that as of the
date thereof and based upon the assumptions made, matters considered and
limits of review set forth in such opinion, the proposed Merger
Consideration to be paid by Eastern pursuant to the Merger was fair from a
financial point of view to Eastern.
The Eastern Board considered the above factors as a whole and did not assign
specific or relative weights to them. In the view of the Eastern Board, each of
the factors listed above reinforced its belief that the combined entity would
have excellent business prospects going forward.
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THE EASTERN BOARD HAS APPROVED THE MERGER AGREEMENT, BELIEVES THAT THE
TERMS OF THE MERGER ARE FAIR TO EASTERN'S SHAREHOLDERS AND RECOMMENDS THAT
THE EASTERN SHAREHOLDERS VOTE TO APPROVE THE STOCK ISSUANCE.
OPINION OF EASTERN'S FINANCIAL ADVISOR
Merrill Lynch delivered its written opinion dated as of October 17, 1998 to
the Eastern Board to the effect that, as of such date, and based upon the
assumptions made, matters considered and limits of review set forth in such
opinion, the proposed Merger Consideration to be paid by Eastern pursuant to
the Merger, was fair from a financial point of view to Eastern. References
herein to the "Merrill Lynch Opinion" refer to the written opinion of Merrill
Lynch dated as of October 17, 1998.
A COPY OF THE MERRILL LYNCH OPINION, WHICH SETS FORTH THE ASSUMPTIONS MADE,
MATTERS CONSIDERED AND CERTAIN LIMITATIONS ON THE SCOPE OF REVIEW UNDERTAKEN BY
MERRILL LYNCH, IS ATTACHED AS ANNEX B TO THIS JOINT PROXY STATEMENT/PROSPECTUS.
EACH HOLDER OF EASTERN COMMON STOCK IS URGED TO READ SUCH OPINION IN ITS
ENTIRETY. THE MERRILL LYNCH OPINION WAS INTENDED FOR THE USE AND BENEFIT OF THE
EASTERN BOARD, AND WAS DIRECTED ONLY TO THE FAIRNESS OF THE MERGER
CONSIDERATION FROM A FINANCIAL POINT OF VIEW AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY EASTERN SHAREHOLDER AS TO HOW SUCH SHAREHOLDER SHOULD
VOTE AT THE EASTERN SPECIAL MEETING. THE MERGER CONSIDERATION WAS DETERMINED ON
THE BASIS OF NEGOTIATIONS BETWEEN EASTERN AND COLONIAL AND WAS APPROVED BY THE
EASTERN BOARD. THE SUMMARY OF THE MERRILL LYNCH OPINION SET FORTH IN THIS JOINT
PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
FULL TEXT OF SUCH OPINION, WHICH IS ATTACHED AS ANNEX B HERETO.
In arriving at the Merrill Lynch Opinion, Merrill Lynch, among other things:
. Reviewed certain publicly available business and financial information
relating to Colonial and Eastern that Merrill Lynch deemed to be relevant.
. Reviewed certain information, including financial forecasts, relating to the
business, earnings, cash flow, assets, liabilities and prospects of Colonial
and Eastern, as well as the amount and timing of the cost savings and
related expenses and synergies expected to result from the Merger furnished
to or discussed with Merrill Lynch by Eastern.
. Conducted discussions with members of senior management and representatives
of Colonial and Eastern concerning the publicly available business and
financial information deemed to be relevant by Merrill Lynch and the other
information furnished to or discussed with Merrill Lynch by Eastern
described above, as well as their respective businesses and prospects before
and after giving effect to the Merger and the cost savings and related
expenses and synergies expected to result from the Merger.
. Reviewed the market prices and valuation multiples for the Colonial Common
Stock and the Eastern Common Stock and compared them with those of certain
publicly traded companies that Merrill Lynch deemed to be relevant.
. Reviewed the results of operations of Colonial and Eastern and compared them
with those of certain publicly traded companies that Merrill Lynch deemed to
be relevant.
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. Compared the proposed financial terms of the Merger with the financial terms
of certain other transactions that Merrill Lynch deemed to be relevant.
. Participated in certain discussions and negotiations among representatives
of Colonial and Eastern and their financial and legal advisors.
. Reviewed the potential pro forma impact of the Merger.
. Reviewed the Merger Agreement.
. Reviewed such other financial studies and analyses and took into account
such other matters as Merrill Lynch deemed necessary, including Merrill
Lynch's assessment of general economic, market and monetary conditions.
In preparing the Merrill Lynch Opinion, Merrill Lynch assumed and relied on
the accuracy and completeness of all information supplied or otherwise made
available to Merrill Lynch, discussed with or reviewed by or for Merrill Lynch,
or publicly available, and Merrill Lynch did not assume any responsibility for
independently verifying such information or undertaking an independent
evaluation or appraisal of any of the assets or liabilities of Colonial or
Eastern and was not furnished with any such evaluation or appraisal. In
addition, Merrill Lynch did not assume any obligation to conduct any physical
inspection of the properties or facilities of Colonial or Eastern. With respect
to the financial forecast information and the cost savings and related expenses
and synergies expected to result from the Merger furnished to or discussed with
Merrill Lynch by Colonial or Eastern, Merrill Lynch assumed that they were
reasonably prepared and reflect the best currently available estimates and
judgment of Colonial's or Eastern's management as to the expected future
financial performance of Colonial or Eastern, as the case may be, and the costs
savings and related expenses and synergies expected to result from the Merger.
Merrill Lynch further assumed that the Merger will qualify as a tax-free
reorganization for U.S. federal income tax purposes.
The Merrill Lynch Opinion was necessarily based upon market, economic and
other conditions as they existed and could be evaluated on, and on the
information made available to Merrill Lynch, as of the date of the Merrill
Lynch Opinion. Merrill Lynch assumed that in the course of obtaining the
necessary regulatory or other consents or approvals (contractual or otherwise)
for the Merger, no restrictions, including any divestiture requirements or
amendments or modifications, would be imposed that would have a material
adverse effect on the contemplated benefits of the Merger.
The Merrill Lynch Opinion did not address the merits of the underlying
decision by Eastern to engage in the Merger. In addition, Merrill Lynch
expressed no opinion as to the prices at which the Colonial Common Stock or the
Eastern Common Stock would trade following the announcement or consummation of
the Merger.
The following is a summary of certain financial and comparative analyses
performed by Merrill Lynch in arriving at the Merrill Lynch Opinion.
HISTORICAL TRADING ANALYSIS. Merrill Lynch compared the Standard & Poor's
Average of 500 stocks for the period beginning January 1, 1997 and ending
October 14, 1998 to the per share daily closing market prices of (i) Eastern
Common Stock, (ii) Colonial Common Stock, (iii) an index composed of the
following small capitalization utility distribution companies which were
determined
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to be comparable to Colonial: Connecticut Energy Corporation, CTG Resources,
Inc., Laclede Gas Company, NUI Corporation, Providence Energy Corporation,
Public Service Company of North Carolina, Incorporated and Yankee Energy
System, Inc. (collectively, the "Colonial Comparables"), and (iv) an index
composed of the following large capitalization utility distribution companies:
AGL Resources Inc., Atmos Energy Corporation, Indiana Energy, Inc., New Jersey
Resources Corporation, NICOR Inc., Northwest Natural Gas Company, ONEOK, Inc.,
Piedmont Natural Gas Company, Inc., Southern Union Company, Southwest Gas
Corporation and Washington Gas Light Company. Merrill Lynch also reviewed the
performance of the per share market price of the Colonial Common Stock for the
52-week trading period ending on October 14, 1998. This analysis showed that
the 52-week high and the 52-week low price per share of Colonial Common Stock
were $30.06 and $23.69, respectively.
PUBLICLY TRADED COMPARABLE COMPANY ANALYSIS. Using publicly available
information, Merrill Lynch compared certain financial and operating information
and ratios (described below) for Colonial, including the ratios implied by the
Merger based upon consideration of $37.50 per share, with the corresponding
financial and operating information and ratios for the Colonial Comparables.
Merrill Lynch derived an estimated valuation range for Colonial by comparing
as of October 14, 1998: (i) current trading value as a multiple of estimated
earnings per share ("EPS") for 1998 for the Colonial Comparables, which
estimates were obtained from Institutional Brokers Estimate System and ranged
from 13.2x to 22.0x with a mean of 17.0x (as compared to the current trading
multiple for the Colonial Common Stock of 17.2x and a multiple implied by the
Merger for the Colonial Common Stock of 22.1x); (ii) current trading value as a
multiple of estimated 1999 EPS for the Colonial Comparables, which estimates
were also obtained from Institutional Brokers Estimate System and ranged from
11.6x to 15.1x with a mean of 13.9x (as compared to the current trading
multiple for the Colonial Common Stock of 15.1x and a multiple implied by the
Merger for the Colonial Common Stock of 18.6x); (iii) current trading value as
a multiple of book value for the Colonial Comparables, which ranged from 1.24x
to 1.96x with a mean of 1.57x (as compared to the current trading multiple for
the Colonial Common Stock of 1.98x and a multiple implied by the Merger for the
Colonial Common Stock of 2.58x); and (iv) "enterprise value" (defined as the
sum of market value, short term debt, long term debt and preferred stock less
cash and temporary investments) as a multiple of then publicly available latest
twelve-month period ended as of June 30, 1998 ("LTM") earnings before interest,
taxes, depreciation and amortization ("EBITDA") for the Colonial Comparables,
which ranged from 5.0x to 10.5x with a mean of 7.6x (as compared to the current
trading multiple for the Colonial Common Stock of 8.7x and a multiple to 1998
EBITDA implied by the Merger for the Colonial Common Stock of 10.5x). These
four analyses resulted in corresponding estimated per share range of values of
the Colonial Common Stock (based on approximately 8.85 million shares
outstanding and net debt of $147.7 million as of June 30, 1998) of $23.80 to
$28.90 (based on valuation multiples of 14.0x to 17.0x), $24.12 to $28.14
(based on valuation multiples of 12.0x to 14.0x), $20.70 to $26.62 (based on
valuation multiples of 1.40x to 1.80x) and $20.02 to $27.89 (based on valuation
multiples of 7.0x to 8.5x), respectively.
COMPARABLE ACQUISITIONS ANALYSIS. Merrill Lynch reviewed certain publicly
available information regarding five selected business combinations in the
utility industry announced since November 1992 (collectively, the "Comparable
Acquisition Transactions") that Merrill Lynch
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deemed to be reasonably similar to the Merger. The Comparable Acquisition
Transactions and the dates these transactions were announced are as follows:
Eastern's acquisition of Essex Gas (December 1997); NIPSCO Industries, Inc.'s
acquisition of Bay State Gas Company (December 1997); Atmos Energy
Corporation's acquisition of United Cities Gas Company (July 1996); Puget Sound
Energy, Inc.'s (formerly known as Puget Sound Power & Light Company)
acquisition of Washington Energy Company (October 1995); and NIPSCO Industries,
Inc.'s acquisition of Northern Indiana Fuel and Light Company, Inc. (November
1992).
Merrill Lynch compared the "offer value" (generally defined as the offer
price per share multiplied by the sum of the number of shares outstanding and
the number of options outstanding) of each such transaction as a multiple of
LTM net income (the "LTM Net Income Multiple") and as a multiple of the book
value of the acquired company (the "Book Value Multiple"). The ranges of
multiples were as follows: (i) the LTM Net Income Multiple ranged from 21.0x to
22.8x (with a mean of 21.9x and a median of 22.0x) and (ii) the Book Value
Multiple ranged from 2.1x to 2.5x (with a mean of 2.3x and a median of 2.4x).
These two analyses resulted in corresponding estimated per share range of
values of the Colonial Common Stock (based on approximately 8.85 million shares
outstanding) of $37.27 to $39.05 (based on valuation multiples of 21.0x to
22.0x) and $29.05 to $36.32 (based on valuation multiples of 2.00x to 2.50x),
respectively. Merrill Lynch also analyzed the per share range of values of the
Colonial Common Stock based on a multiple of 1998 estimated EPS which resulted
in a corresponding estimated per share range of value (based on approximately
8.85 million shares outstanding) of $33.24 to $36.56.
In addition, Merrill Lynch compared the "transaction value" (defined as the
sum of the offer value, the preferred equity at liquidation value, the short
term debt, the long term debt and minority interests, if any, less cash,
temporary investments and option proceeds) as a multiple of the number of
customers of the acquired company and LTM EBITDA. The ranges of the transaction
value as a multiple of such number of customers and LTM EBITDA were as follows:
(i) transaction value to such number of customers ranged from $2,760.7 to
$9,658.0 (with a mean of $5,069.0 and a median of $2,788.3); and (ii)
transaction value to LTM EBITDA ranged from 6.9x to 11.1x (with a mean of 9.1x
and a median of 9.1x). These analyses resulted in the following estimated per
share ranges of values of the Colonial Common Stock (based on approximately
8.85 million shares outstanding and net debt of $147.7 million as of June 30,
1998): $30.51 to $35.76 (based on 1998 EBITDA valuation multiples of 9.0x to
10.0x), $26.15 to $34.72 (based on such number of customers valuation multiples
of $2,500 to $3,000) and $31.12 to $41.75 (based on LTM EBITDA valuation
multiples of 9.0x to 11.0x).
Merrill Lynch also analyzed the estimated per share range of values of the
Colonial Common Stock based on a range of valuation multiples estimated by
Merrill Lynch Equity Research. The three valuation multiples used were: (i)
1998 estimated EPS for Colonial; (ii) current trading value to current book
value for Colonial; and (iii) implied acquisition premium to current trading
value of the Colonial Common Stock. These analyses resulted in an estimated per
share range of values of the Colonial Common Stock of $33.15 to $38.14.
DISCOUNTED CASH FLOW ANALYSIS. Merrill Lynch derived estimated valuation
ranges for Colonial Common Stock by performing discounted cash flow analyses
using estimates of future cash flows provided by the management of Colonial and
assuming no cost savings and related expenses
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and synergies expected to result from the Merger. The discounted cash flow
analyses were calculated using discount rates ranging from 6.5% to 8.0% and
were comprised of the sum of the present values of (i) the projected unlevered
cash flows for the years 1999 through 2003, and (ii) the year 2003 terminal
value, which was estimated based upon two techniques: (a) a range of multiples
of 2003 EBITDA from 6.5x to 8.5x and (b) a range of multiples of 2003 earnings
before interest and taxes ("EBIT") from 9.5x to 11.5x. These two analyses
resulted in estimated per share range of values of the Colonial Common Stock
(based on approximately 8.85 million shares outstanding and net debt of $147.7
million as of June 30, 1998) of $23.03 to $36.25 and $23.53 to $33.56,
respectively.
RELATIVE CONTRIBUTION ANALYSIS. Merrill Lynch compared the relative ownership
of the holders of Eastern Common Stock and the Colonial Common Stock with
respect to the combined company of approximately 84.1% and 15.9%, respectively
(based upon a per share price for Eastern Common Stock of $42.00), to the
relative contribution of each of Eastern (including the pro forma results of
the Essex Gas acquisition) and Colonial to the combined company's 1998
revenues, EBITDA, net income, assets and customers based on estimates provided
by the managements of Eastern and Colonial, excluding cost savings and related
expenses and synergies expected to result from the Merger and transaction
adjustments. This analysis indicated that for 1998, Eastern would contribute to
the combined entity 84.0% of the revenues, 80.2% of the EBITDA, 78.9% of the
net income, 79.4% of the assets and 79.1% of the customers.
PRO FORMA ANALYSIS. Merrill Lynch performed a pro forma EPS
accretion/dilution analysis of the Eastern Common Stock assuming that the
Merger Consideration would consist of $150 million in cash and that the
remainder would be shares of Eastern Common Stock (based upon a per share price
for Eastern Common Stock of $42.00). Merrill Lynch, in performing this
analysis, also assumed the exclusion of cost savings and related expenses and
synergies expected to result from the Merger and transaction adjustments. This
analysis indicated that the Merger would not be dilutive to Eastern's projected
EPS (based upon projections provided by Eastern management) if the Merger
generated incremental pre-tax earnings during the next five years ranging from
$8.3 million to $10.0 million per year. Merrill Lynch also performed a similar
analysis based upon a price for Eastern Common Stock of $37.56. This analysis
demonstrated that the Merger would not be dilutive to Eastern's projected EPS
if the incremental pre-tax earnings during the next five years ranged from
$10.7 million to $12.4 million per year.
The summary set forth above does not purport to be a complete description of
the analyses performed by Merrill Lynch in arriving at the Merrill Lynch
Opinion. The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial or summary description. Merrill Lynch
believes that its analyses must be considered as a whole and that selecting
portions of its analyses and of the factors considered by it, without
considering all such factors and analyses, could create a misleading view of
the process underlying the Merrill Lynch Opinion. In its analyses, Merrill
Lynch made numerous assumptions with respect to industry performance, general
business and economic conditions and other matters, many of which are beyond
Eastern's, Colonial's and Merrill Lynch's control. Any estimates contained in
Merrill Lynch's analyses are not necessarily indicative of actual values, which
may be significantly more or less favorable than as set forth therein.
Estimated values do not purport to be appraisals and do not necessarily reflect
the prices at which businesses or companies may be bought or sold in the
future, and such estimates are inherently subject to uncertainty.
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No public company utilized as a comparison is identical to Colonial, and none
of the Comparable Acquisition Transactions utilized as a comparison is
identical to the proposed Merger. Accordingly, an analysis of publicly traded
comparable companies and comparable business combinations cannot be limited to
a quantitative review of the results of such an analysis; rather it involves
complex considerations and judgments concerning differences in financial and
operating characteristics of the comparable companies and other factors that
could affect the public trading value of the comparable companies or company to
which they are being compared.
The Eastern Board selected Merrill Lynch to act as its financial advisor
because of Merrill Lynch's reputation as an internationally recognized
investment banking firm with substantial experience in transactions similar to
the Merger and because it is familiar with Eastern and its business. As part of
its investment banking business, Merrill Lynch is continually engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, leveraged buyouts, negotiated underwritings, secondary
distributions of listed and unlisted securities and private placements.
Pursuant to a letter agreement dated September 8, 1998, Eastern has agreed to
pay Merrill Lynch (i) a $150,000 retainer fee and (ii) a fee of $2,000,000
payable upon consummation of the Merger against which the fee referred to in
clause (i) will be credited. Eastern has also agreed to reimburse Merrill Lynch
for its reasonable out-of-pocket expenses (including the reasonable fees and
disbursements of legal counsel) and to indemnify Merrill Lynch and certain
related parties from and against certain liabilities, including liabilities
under the federal securities laws arising out of its engagement.
In the ordinary course of Merrill Lynch's business, Merrill Lynch may
actively trade the securities of Eastern and Colonial for its own account and
for the accounts of its customers and, accordingly, may at any time hold a long
or short position in such securities.
COLONIAL'S REASONS FOR THE MERGER; RECOMMENDATION OF THE COLONIAL BOARD
The Colonial Board believes that the terms of the Merger are fair to, and in
the best interests of, Colonial and its stockholders. Accordingly, the Colonial
Board has unanimously approved the Merger Agreement and unanimously recommends
its approval by the Colonial stockholders. The Colonial Board believes that the
Merger represents a significant strategic opportunity for Colonial and its
stockholders.
In response to increasing deregulation and competition in the natural gas
industry, the Colonial Board has been conducting an ongoing evaluation of
potential strategic alternatives. Those alternatives have included
restructuring Colonial into a holding company form or merging into a larger,
more diversified organization with greater financial strength. The formation of
a holding company was approved by the Colonial Board and Colonial's
stockholders earlier in 1998. As a result of its ongoing evaluation, however,
the Colonial Board subsequently concluded that the proposed Merger represented
a preferable strategic alternative to the formation of a holding company. If
the Merger is completed, Colonial will become part of Eastern's larger and more
diversified holding company organization which includes two other Massachusetts
gas distribution companies, Boston Gas and Essex Gas. Colonial's formation of
its own holding company structure would
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therefore become unnecessary. Accordingly, in light of the pending Merger,
Colonial has suspended the process of forming its own holding company
structure.
The terms of the Merger Agreement, including the Merger Consideration, were
the result of arm's-length negotiations between Colonial and Eastern. In
negotiating the consideration, which consists of a combination of cash and
Eastern Common Stock, Colonial management relied in part on the financial
analyses of Salomon Smith Barney summarized below under "--Opinion of
Colonial's Financial Advisor." The Colonial Board consulted with its financial
advisor and legal advisors and management of Colonial and after careful review
and consideration, the Colonial Board determined that the Merger is a desirable
transaction from the standpoint of holders of Colonial Common Stock.
In reaching its decision to approve the Merger Agreement and recommend its
approval to the Colonial stockholders, in addition to the factors described
above, the Colonial Board considered the following factors:
. The current and historical market prices of the Colonial Common Stock and
the Eastern Common Stock.
. Information concerning the financial performance, condition, business
operations and prospects of each of Colonial and Eastern.
. Colonial's size in relation to the other gas distribution companies in
Massachusetts and elsewhere in New England, and its ability to sustain
growth and to continue to perform successfully in an increasingly
deregulated and competitive energy industry.
. The effects of the Merger on Colonial's stockholders, including the premium
to Colonial's then current market price and the opportunity to share in the
anticipated benefits of ownership of the combined enterprise.
. The expected federal income tax treatment of the Merger as a tax-free
reorganization to Colonial stockholders to the extent they receive Eastern
Common Stock (as described under "Certain Federal Income Tax Consequences").
. The belief that Colonial's customers will benefit in the long term from
improved service and lower costs as a result of the economies of scale and
operating efficiencies.
. The belief that the Merger will enhance overall opportunities for Colonial's
employees.
. The terms of the Merger Agreement, which provide for balanced
representations and warranties, conditions to closing and rights upon
termination.
. The opinion of Colonial's financial advisor, Salomon Smith Barney, that, as
of the date thereof and hereof based upon the assumptions made, matters
considered and limits of review in connection with such opinion, the Merger
Consideration was fair to the holders of Colonial Common Stock from a
financial point of view.
In determining that the Merger is fair to Colonial's stockholders, the
Colonial Board considered the above factors as a whole and did not assign
specific or relative weights to them. In the view of the Colonial Board, each
of the factors listed above reinforced its belief that the transaction was in
the best interests of Colonial and its stockholders.
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THE COLONIAL BOARD, BY A UNANIMOUS VOTE, HAS APPROVED THE MERGER AGREEMENT,
BELIEVES THAT THE TERMS OF THE MERGER ARE FAIR TO COLONIAL'S STOCKHOLDERS
AND UNANIMOUSLY RECOMMENDS THAT THE COLONIAL STOCKHOLDERS VOTE TO APPROVE
THE MERGER AGREEMENT.
In considering the recommendation of the Colonial Board with respect to the
Merger Agreement, Colonial stockholders should be aware that certain members of
Colonial's management and the Colonial Board have certain interests in the
Merger that are different from, or in addition to, the interests of
stockholders of Colonial generally and that could potentially represent
conflicts of interest. The Colonial Board was aware of these interests and
considered them, among other matters, in approving the Merger Agreement. See
"--Potential Conflicts and Interests of Certain Persons in the Merger."
OPINION OF COLONIAL'S FINANCIAL ADVISOR
At a Colonial Board meeting held on October 17, 1998, Salomon Smith Barney
delivered its oral opinion, subsequently confirmed in a written opinion dated
October 17, 1998, that, as of that date, the Merger Consideration was fair to
the holders of Colonial Common Stock from a financial point of view. Subject to
the conditions and limitations stated in the written opinion, no limitations
were imposed by the Colonial Board upon Salomon Smith Barney with respect to
the investigation made or the procedures followed by Salomon Smith Barney in
rendering its opinion. The opinion of Salomon Smith Barney was for the use and
benefit of the Colonial Board in connection with its consideration of the
Merger.
THE FULL TEXT OF THE WRITTEN OPINION OF SALOMON SMITH BARNEY IS SET FORTH AS
APPENDIX C TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND SETS FORTH THE
ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS ON
THE REVIEW UNDERTAKEN BY SALOMON SMITH BARNEY. THE SUMMARY OF THE OPINION AS
SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO THE FULL TEXT OF SUCH OPINION, WHICH IS INCORPORATED HEREIN BY
REFERENCE. HOLDERS OF COLONIAL COMMON STOCK ARE URGED TO READ SALOMON SMITH
BARNEY'S OPINION IN ITS ENTIRETY.
In connection with rendering its opinion, Salomon Smith Barney:
. reviewed certain publicly available information concerning Colonial and
Eastern and certain other financial information concerning Colonial and
Eastern, including financial forecasts, that were provided to Salomon Smith
Barney by Colonial and Eastern, respectively;
. discussed the past and current business operations, financial condition and
prospects of Colonial and Eastern with certain officers and employees of
Colonial and Eastern, respectively; and
. considered such other information, financial studies, analyses,
investigations and financial, economic and market criteria that it deemed
relevant.
In its review and analyses and in arriving at its opinion, Salomon Smith
Barney assumed and relied upon the accuracy and completeness of the information
reviewed by it for the purpose of the opinion and Salomon Smith Barney did not
assume any responsibility for independent verification of such information.
With respect to the financial forecasts of Colonial and Eastern, Salomon Smith
Barney was advised by the respective managements of Colonial and Eastern that
such forecasts had
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been reasonably prepared on bases reflecting their best currently available
estimates and judgments, and Salomon Smith Barney expressed no opinion with
respect to such forecasts or the assumptions on which they were based. Salomon
Smith Barney did not assume any responsibility for any independent evaluation
or appraisal of any of the assets (including properties and facilities) or
liabilities of Colonial and Eastern.
Salomon Smith Barney's opinion is necessarily based upon conditions as they
existed and could be evaluated on the date it was given. Salomon Smith Barney's
opinion does not imply any conclusion as to the likely trading range for
Eastern Common Stock following the completion of the Merger. The trading value
of Eastern Common Stock may vary depending upon many factors including changes
in interest rates, dividend rates, market conditions, general economic
conditions and other factors that generally influence the price of securities.
Salomon Smith Barney's opinion did not address Colonial's underlying business
decision to effect the Merger, and Salomon Smith Barney expressed no view on
the effect the Merger will have on Colonial. Salomon Smith Barney's opinion is
directed only to the fairness, from a financial point of view, of the Merger
Consideration to holders of Colonial Common Stock and does not constitute a
recommendation concerning how holders of Colonial Common Stock should vote with
respect to the Merger Agreement or the Merger. The fairness opinion of Salomon
Smith Barney has not been, and will not be, updated to reflect changes in
conditions which occur after the date of its issue.
In connection with its opinion, Salomon Smith Barney performed certain
financial analyses, which it presented to the Colonial Board on October 17,
1998. The material portions of the analyses performed by Salomon Smith Barney
in connection with the rendering of its opinion are summarized below. The
analysis provided below is based on market conditions as they existed on
October 16, 1998.
DISCOUNTED CASH FLOW ANALYSIS. Salomon Smith Barney performed a discounted
cash flow analysis of Colonial to estimate a range of values for the Colonial
Common Stock. The discounted cash flow analysis for Colonial was based upon
certain financial forecasts for the years ended 1999 through 2002 prepared by
the management of Colonial. As a substitute for the cash flows generated beyond
2002, Salomon Smith Barney calculated a terminal year value for Colonial by
applying a range of multiples of common stock price to earnings per share ("P/E
multiples") of 14.5x to 16.5x to terminal year net income, and then added to
those values the outstanding debt (net of cash) as of the end of the terminal
year. The unleveraged free cash flow amounts for the years ended 1999 to 2002,
plus the terminal value were then discounted to the present using a range of
discount rates of 7.00% to 7.75%, based upon an analysis of the weighted
average cost of capital of Colonial. Analysis of the forecast for Colonial,
without considering any benefits derived from the Merger, indicated an implied
equity value range per share of Colonial Common Stock of $27.75 to $32.75.
Salomon Smith Barney performed a similar analysis of Eastern to estimate a
range of values for the Eastern Common Stock. The discounted cash flow analysis
for Eastern was based upon certain base financial forecasts (the "base
forecasts") for each of (i) Eastern's gas segment which is comprised of Boston
Gas, Essex Gas and Eastern's other energy-related businesses and (ii) Eastern's
barging segment which is comprised of Midland, for the years ended 1999 through
2002 provided by the management of Eastern. These base forecasts were
subsequently adjusted by Salomon Smith Barney with respect to Eastern's barging
segment (the "adjusted forecasts"), and separate analyses
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were prepared based upon each of the two sets of financial forecasts. As a
substitute for cash flows beyond 2002, Salomon Smith Barney calculated a
terminal year value for Eastern by applying (i) a range of P/E multiples of
14.5x to 16.5x to terminal year net income for Eastern's gas segment and then
added to those values the outstanding debt and preferred stock balances (net of
cash) as of the end of the terminal year and (ii) a range of firm value to
EBITDA multiples of 5.8x to 6.8x to terminal year EBITDA for Eastern's barging
segment. The unleveraged free cash flow amounts for the years ended 1999 to
2002, plus the terminal values were then discounted back to the present using a
range of discount rates of 7.00% to 7.75% for Eastern's gas segment and 8.25%
to 8.75% for Eastern's barging segment, based upon an analysis of the weighted
average cost of capital for Eastern's gas segment and Eastern's barging
segment, respectively. Analysis of the base forecasts and the adjusted
forecasts for Eastern, without considering any benefits derived from the
Merger, indicated an implied equity value range per share of Eastern Common
Stock of $43.75 to $51.50 and $39.00 to $45.75, respectively.
PUBLIC MARKET VALUATION ANALYSIS. Salomon Smith Barney arrived at a range of
values for Colonial Common Stock and Eastern Common Stock by reviewing and
analyzing certain financial information of other publicly traded companies that
Salomon Smith Barney determined to be comparable to Colonial and to the two
business segments of Eastern. The companies that Salomon Smith Barney
determined to be comparable to Colonial and to Eastern's gas segment included
Connecticut Energy, Indiana Energy, Laclede Gas, New Jersey Resources,
Northwest Natural Gas, Piedmont Natural Gas, Providence Energy, and Yankee
Energy System; and the companies that Salomon Smith Barney determined to be
comparable to Eastern's barging segment included Kirby, Burlington Northern
Santa Fe, CSX, Union Pacific, Alexander & Baldwin, Hvide Marine, OMI Corp., and
Stolt Nielson S.A.
Using publicly available information, including historical book value per
share and EPS for the LTM and projected 1998 and 1999 EPS estimates from First
Call Corporation, Salomon Smith Barney reviewed, among other things, the price
to book value per share and P/E multiples for the companies determined to be
comparable to Eastern's gas segment. This analysis resulted in a range of price
to book value per share multiples for the LTM of 1.24x to 2.08x and a range of
P/E multiples for the LTM, projected 1998 and projected 1999 periods of 13.4x
to 19.7x, 13.1x to 19.5x and 10.8x to 15.5x, respectively. Using this analysis,
Salomon Smith Barney derived a range of implied equity value per share of
Colonial Common Stock of $26.00 to $30.00.
Salomon Smith Barney also reviewed public information, including firm value
and historical EBITDA for the LTM period and projected 1998 and 1999 EBITDA
estimates from First Call and calculated the firm value to EBITDA multiples for
the companies determined to be comparable to Eastern's barging segment. This
analysis resulted in a range of firm value to EBITDA multiples for the LTM,
projected 1998 and projected 1999 periods of 3.7x to 11.6x, 3.5x to 11.8x and
2.6x to 7.0x, respectively. Salomon Smith Barney valued Eastern's gas segment
and Eastern's barging segment individually based upon the range of multiples
for the companies determined to be comparable to Eastern's gas segment and
Eastern's barging segment and derived an implied equity value per share of
Eastern Common Stock of $38.00 to $44.25. Salomon Smith Barney also valued
Eastern solely based upon the range of multiples for the companies determined
to be comparable to Eastern's gas segment and using this methodology derived a
range of implied equity value per share of Eastern Common Stock of $38.25 to
$43.75.
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PRIVATE MARKET VALUATION ANALYSIS. Salomon Smith Barney reviewed and analyzed
certain financial, operating and stock market information relating to selected
merger transactions involving natural gas distribution companies announced
since 1993. The transactions used as precedents in this analysis included
Eastern's acquisition of Essex Gas, NIPSCO Industries Inc.'s acquisition of Bay
State Gas Company, PP&L Resources' acquisition of Penn Fuel Gas Co., TECO
Energy, Inc.'s acquisition of West Florida Gas Co., Citizens Utilities'
acquisition of Gasco, Inc., ONEOK Inc.'s acquisition of Western Resources
Inc.'s Kansas gas operations, TECO Energy, Inc.'s acquisition of Lykes Energy,
Inc., Houston Industries Inc.'s acquisition of NorAm Energy Corp., Atmos Energy
Corp.'s acquisition of United Cities Gas Co., Texas Utilities Co.'s acquisition
of ENSERCH Corp., Puget Sound Power & Light Co.'s acquisition of Washington
Energy Company, Energy Corporation of America's acquisition of Allegheny &
Western Energy Corp., NUI Corp.'s acquisition of Pennsylvania and Southern Gas
Co., Southern Union's acquisition of Western Resources Inc.'s Missouri gas
operations, Wisconsin Energy Corp.'s acquisition of Wisconsin Southern Gas Co.,
and Atmos Energy Corp.'s acquisition of Greeley Gas Company. Salomon Smith
Barney reviewed, among other things, the book value per share, P/E multiples
and firm value to net plant multiples for such precedent transactions. This
analysis resulted in a range of book value per share multiples of 0.88x to
3.12x, a range of P/E multiples for the LTM and projected 1998 and 1999 periods
of 11.2x to 34.3x, 17.6x to 34.1x and 15.8x to 20.1x, respectively, and a range
of firm value to net plant multiples of 0.92x to 2.27x. Using this analysis,
Salomon Smith Barney derived a range of implied equity value per share of
Colonial Common Stock of $30.50 to $38.25. Salomon Smith Barney also applied a
range of observed control premiums from the same selected merger transactions
described above to the $26.00 to $30.00 range derived in the public market
valuation analysis to derive an implied valuation of $32.50 to $39.00
HISTORICAL TRADING RATIOS ANALYSIS. Salomon Smith Barney also reviewed the
daily closing prices of the Colonial Common Stock and the Eastern Common Stock
during the period from October 16, 1993 through October 16, 1998 and the
implied historical trading ratios determined by dividing the price per share of
Colonial Common Stock by the price per share of Eastern Common Stock over such
period. Salomon Smith Barney calculated that during that period that such
implied historical trading ratio ranged from a high of 0.96 to a low of 0.57
with an average of 0.70. Over the three-year period preceding October 16, 1998,
the implied historical trading ratio ranged from a high of 0.73 to a low of
0.57 with an average of 0.64. Over the one-year period preceding October 16,
1998, the implied historical trading ratio ranged from a high of 0.73 to a low
of 0.61 with an average of 0.67. Over the three-month period preceding October
16, 1998, the implied historical trading ratio ranged from a high of 0.73 to a
low of 0.67 with an average of 0.69. Over the one-month period preceding
October 16, 1998, the implied historical trading ratio ranged from a high of
0.70 to a low of 0.67 with an average of 0.68.
PRO FORMA ANALYSIS OF THE MERGER. Salomon Smith Barney analyzed the pro forma
impact of the Merger on an EPS basis to Colonial's stockholders and Eastern's
shareholders for the fiscal years ended December 31, 1999 through 2002. The
analysis was performed utilizing stand-alone earnings estimated for the years
1999 through 2002 for Colonial and Eastern based on financial projections
prepared by Colonial's management and Eastern's management, in each case not
taking into account the synergies expected to be derived from the Merger. Based
upon such analysis, the Merger would be accretive to Colonial's shareholders
for the years 1999 through 2002, ranging from an estimated
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18.3% in 1999 to 38.9% in 2002. In addition, this analysis demonstrated that
the Merger would not be dilutive to Eastern's projected EPS if the incremental
pre-tax earnings during the next four years ranged from $6.4 million to $9.1
million per year.
The preparation of a fairness opinion is a complex process not susceptible to
partial analysis or summary descriptions. The summary set forth above is not
and does not purport to be a complete description of the analyses underlying
Salomon Smith Barney's opinion or its presentation to the Colonial Board.
Salomon Smith Barney believes that its analyses and the summary set forth above
must be considered as a whole and that selecting portions of its analyses and
the factors considered by it, without considering all such analyses and
factors, could create an incomplete view of the processes underlying the
analyses set forth in its opinion. In addition, no company used in the Public
Market Valuation Analysis summarized above is identical to Colonial or Eastern
or any of their business segments and no transaction used in the Private Market
Valuation Analysis summarized above is identical to the Merger. In addition,
Salomon Smith Barney may have deemed various assumptions more or less probable
than other assumptions, and thus the ranges of valuations resulting for any
particular analysis described above should not be taken to be Salomon Smith
Barney's view of the actual value of Colonial or Eastern. Accordingly, an
analysis of the data described above involves complex considerations and
judgments concerning differences in financial and operating characteristics of
Colonial, Eastern or any of their business segments along with other facts that
could affect the public trading value or the acquisition value of the companies
to which they are being compared.
In performing its analyses, Salomon Smith Barney made numerous assumptions
with respect to industry performance, general business, financial, market and
economic conditions and other matters, many of which are beyond the control of
Colonial or Eastern. The analyses which Salomon Smith Barney performed are not
necessarily indicative of actual values or actual future results, which may be
significantly more or less favorable than suggested by such analyses. Such
analyses were prepared solely as part of Salomon Smith Barney's analysis of the
fairness, from a financial point of view, of the Merger Consideration to
holders of Colonial Common Stock. The analyses do not purport to be appraisals
or to reflect the prices at which a company might actually be sold or the
prices at which any securities may trade at the present time or at any time in
the future. In addition, the opinion of Salomon Smith Barney and Salomon Smith
Barney's presentation to the Colonial Board were among the many factors
considered by the Colonial Board in making its determination to approve the
Merger.
Pursuant to an engagement letter dated March 30, 1998, Colonial agreed to pay
to Salomon Smith Barney:
. A retainer fee of $200,000.
. A transaction fee equal to approximately 0.65% of the aggregate
consideration (as defined in the engagement letter) payable in connection
with the Merger, contingent upon the consummation of the Merger and payable
at the closing. The first $500,000 of this transaction fee was payable on
execution of the Merger Agreement and the issuance of Salomon Smith Barney's
fairness opinion.
The transaction fee is net of the retainer fee described in the first clause.
Colonial also agreed, under certain circumstances, to reimburse Salomon Smith
Barney for all reasonable fees and disbursements of Salomon Smith Barney's
counsel and all of Salomon Smith Barney's reasonable travel and other out-of-
pocket expenses incurred in connection with its engagement (subject to a cap
that is not to be exceeded without the approval of Colonial, which shall not be
unreasonably
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withheld). In addition, Colonial agreed to indemnify Salomon Smith Barney and
certain related persons against various liabilities, relating to or arising out
of its engagement.
Salomon Smith Barney is an internationally recognized investment banking firm
that provides financial services in connection with a wide range of business
transactions. As part of its business, Salomon Smith Barney regularly engages
in the valuation of companies and their securities in connection with mergers
and acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and other
purposes. In the ordinary course of its business, Salomon Smith Barney may
actively trade the securities of Colonial and Eastern for its own account and
the accounts of its customers and, accordingly, may at any time hold a long or
short position in such securities. In addition, Salomon Smith Barney has
rendered certain investment banking and financial advisory services to Colonial
and Eastern for which Salomon Smith Barney received customary compensation.
Salomon Smith Barney and its affiliates (including Citigroup Inc.) may have
other business relationships with Colonial, Eastern and their affiliates. The
Colonial Board retained Salomon Smith Barney based on Salomon Smith Barney's
expertise in the valuation of companies as well as its substantial experience
in transactions such as the Merger.
ACCOUNTING TREATMENT
The Merger will be accounted for by Eastern using the purchase method of
accounting for a business combination. Under this method of accounting, the
assets and liabilities of Colonial, including intangible assets, will be
recorded at their fair market values. The results of operations and cash flows
of Colonial will be included in Eastern's financials prospectively as of the
consummation of the Merger.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material United States federal income tax
consequences of the Merger. This summary is limited to United States Persons
(as defined below) who hold their Colonial Common Stock as "capital assets"
within the meaning of Section 1221 of the Internal Revenue Code of 1986, as
amended (the "Code"), and whose "functional currency" as defined in the Code is
the U.S. dollar ("United States Holders"). This discussion does not address the
U.S. federal income tax consequences to certain persons subject to special
treatment under the federal income tax law, including, but not limited to, tax-
exempt organizations, dealers in securities or currencies, regulated investment
companies, real estate investment trusts, real estate mortgage investment
conduits, financial asset securitization investment trusts, financial
institutions, persons subject to alternative minimum tax, insurance companies,
persons holding their stock as a part of a hedging, conversion, short sale, or
integrated transaction or a straddle, or stockholders who acquired their
Colonial Common Stock pursuant to the exercise of an employee stock option or
otherwise as compensation. In addition, this summary does not discuss the tax
consequences of the Merger under state, local, or foreign law.
"United States Person" means (i) a citizen or resident of the United States,
(ii) a corporation or partnership created or organized in or under the laws of
the United States or any state thereof, or (iii) an estate or trust that is
subject to United States federal income taxation without regard to the source
of its income.
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This summary is based upon the provisions of law and the regulations,
administrative rulings, and judicial decisions thereunder now in effect, all of
which are subject to change (possibly with retroactive effect) or different
interpretations. Any such changes could affect the accuracy of the statements
and conclusions set forth herein. This summary does not purport to be a
comprehensive description of all of the tax considerations that may be relevant
to a decision whether to approve the Merger or whether to elect to receive
stock or cash as consideration in the Merger. This summary is provided for
general information purposes only, and does not constitute, and should not be
considered as, legal or tax advice.
EASTERN AND COLONIAL STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS
CONCERNING THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
IN LIGHT OF THEIR PARTICULAR SITUATIONS, AS WELL AS CONCERNING ANY
CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER TAX JURISDICTION,
INCLUDING ANY STATE, LOCAL, OR FOREIGN JURISDICTION, AND ANY ESTATE OR GIFT
TAX CONSIDERATIONS.
Ropes & Gray, counsel to Eastern, and Palmer & Dodge LLP, counsel to
Colonial, have each delivered an opinion that the description of the federal
income tax consequences of the Merger contained in this section fairly and
accurately summarizes the material federal income tax consequences of the
Merger. These tax opinions, which are attached as Exhibits 8.1 and 8.2 to the
Registration Statement in which this Joint Proxy Statement/Prospectus is
included, are based on certain assumptions and subject to certain limitations
and qualifications, including the assumptions that the Merger will be
consummated as described in this Joint Proxy Statement/Prospectus and the
Merger Agreement and that the factual representations contained in letters
delivered to such counsel by Colonial, Eastern and the Merger Sub in connection
with the tax opinions are true, correct and complete as of the date of the tax
opinions and will remain true, correct and complete through the Effective Time.
An opinion of counsel only represents counsel's best judgment, and has no
binding effect or official status of any kind, and no assurance can be given
that contrary positions may not be taken by the IRS or a court considering the
issues. Neither Eastern nor Colonial has requested or will request a ruling
from the IRS with regard to any of the federal income tax consequences of the
Merger.
TAX CONSEQUENCES OF THE MERGER. Based upon and subject to the assumptions and
limitations stated above, the Merger should constitute a reorganization within
the meaning of Section 368(a) of the Code, and the material federal income tax
consequences discussed below should result.
To qualify as a reorganization under Section 368(a) of the Code, the Merger
must satisfy, in addition to other requirements, a "continuity of interest"
test, which requires that the holders of Colonial Common Stock, as a group,
retain a substantial proprietary interest in the Colonial business that Eastern
will conduct following the Merger. IRS ruling guidelines provide that this
requirement will be satisfied if the holders of Colonial Common Stock, as a
group, receive an amount of Eastern Common Stock in the Merger having a value
equal to at least 50% of the value of the formerly outstanding Colonial Common
Stock. However, these guidelines only describe the circumstances in which the
IRS will issue a favorable ruling in advance of the consummation of a subject
transaction, and are not a statement of the substantive law regarding the
qualification of a merger as a reorganization under Section 368(a) of the Code.
The case law is more liberal than the IRS ruling guidelines in this area and,
in one early case, the Supreme Court held that the continuity requirement
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was satisfied where the stockholders of the acquired company received stock of
the acquiring company having a value of less than 45% of the value of the
formerly outstanding stock of the acquired company. The Merger should satisfy
the IRS's advance ruling guidelines in this area unless (i) the market price of
a share of Eastern Common Stock, valued at the lesser of the market price of
Eastern Common Stock on the Effective Date and the average of the closing
prices of Eastern Common Stock on the New York Stock Exchange for the ten
trading day period ending on the third trading day prior to the Effective Date,
is $31.00 or less, or (ii) the market price of Eastern Common Stock on the
Effective Date is less than $39.50 and is also at least 17.4% less than such
ten day average price. If the IRS guideline percentage is not satisfied,
however, the Merger Agreement contains a mechanism that ensures that the value
of the Eastern Common Stock issued in the Merger will be equal to at least 45%
of the value of the formerly outstanding Colonial Common Stock. The "continuity
of interest" requirement should be satisfied at this 45% level.
Treatment of Colonial, Eastern and Merger Sub. No gain or loss will be
recognized by Colonial, Eastern or Merger Sub by reason of the Merger.
Treatment of stockholders who exchange Colonial Common Stock solely for
Eastern Common Stock. Except as discussed below with respect to the receipt of
cash in lieu of fractional shares, a United States Holder of Colonial Common
Stock who receives solely Eastern Common Stock in exchange for Colonial Common
Stock in the Merger will not recognize gain or loss upon such exchange. The
aggregate tax basis of the Eastern Common Stock received by such holder
(including any fractional shares deemed received, as described below) will be
equal to the aggregate tax basis of the Colonial Common Stock surrendered, and
the holding period of the Eastern Common Stock will include the holding period
of the Colonial Common Stock surrendered.
Treatment of stockholders who exchange Colonial Common Stock for a
combination of Eastern Common Stock and cash. Except as discussed below with
respect to the receipt of cash in lieu of fractional shares, a United States
Holder of Colonial Common Stock who receives a combination of Eastern Common
Stock and cash (other than cash in lieu of fractional shares) in exchange for
Colonial Common Stock in the Merger will recognize gain, but not loss, on the
exchange. The gain, if any, that the holder will recognize will equal the
lesser of (i) the amount of cash received in the exchange and (ii) the amount
of gain that the holder realizes in the exchange. The amount of gain that the
holder realizes in the exchange will equal the excess of (i) the sum of the
cash plus the fair market value of the Eastern Common Stock received in the
exchange over (ii) the tax basis of the Colonial Common Stock surrendered. The
aggregate tax basis of the Eastern Common Stock received (including any
fractional shares deemed received, as described below) will be equal to the
aggregate tax basis of the Colonial Common Stock surrendered in the exchange,
decreased by the amount of cash received and increased by the amount of gain
recognized. The holding period of the Eastern Common Stock received will
include the holding period of the Colonial Common Stock surrendered in exchange
therefor. Except as discussed below, any gain recognized by a holder with
respect to the exchange will be capital gain and will be long-term capital gain
if the holding period of the Colonial Common Stock surrendered in the Merger is
more than one year as of the Effective Date.
In certain circumstances, however, a Colonial stockholder receiving a
combination of Eastern Common Stock and cash could be required to treat part or
all of the holder's recognized gain as dividend income if the receipt of cash
has the effect of a distribution of a dividend. In making this
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determination, such holders will be treated as receiving solely Eastern Common
Stock in the Merger and, immediately thereafter, having Eastern redeem a number
of shares of Eastern Common Stock equal in value to the cash consideration the
holders actually received. The receipt of cash will not have the effect of a
distribution of a dividend under this analysis if this hypothetical redemption
satisfies the requirements for non-dividend treatment under Section 302 of the
Code. Generally, the requirements for non-dividend treatment under Section 302
of the Code will be satisfied if (i) a holder's percentage ownership of Eastern
Common Stock immediately after the redemption is less than 80% of the holder's
percentage ownership of such stock immediately before the redemption, and the
holder owns less than 50% (by vote) of Eastern after the redemption, (ii) the
holder's ownership interest in Eastern is completely terminated or (iii) the
redemption is "not essentially equivalent to a dividend." If a holder's
percentage ownership of Eastern Common Stock is minimal and the holder
exercises no control over the affairs of Eastern, even a small reduction in the
holder's percentage ownership should satisfy the "not essentially equivalent to
a dividend" test. In determining whether any of these tests are satisfied,
holders must generally take into account not only the stock they own or are
deemed to own directly, but also stock that they are treated as owning
constructively by reason of certain attribution rules under Section 318 of the
Code, including, generally, stock owned by certain family members, stock
issuable upon the exercise of options, stock owned by certain estates and
trusts of which the stockholder is a beneficiary, and stock owned by certain
affiliated entities. Colonial stockholders should consult with their own tax
advisers as to application of this test to their particular circumstances, and
as to the potential collateral consequences of dividend treatment.
Treatment of stockholders who exchange Colonial Common Stock solely for
cash. A United States Holder of Colonial Common Stock who receives solely cash
in exchange for such holder's Colonial Common Stock in the Merger will, except
as set forth below, recognize gain or loss equal to the difference between the
tax basis of the Colonial Common Stock surrendered and the amount of cash
received therefor. Generally, such gain or loss will be capital gain or loss,
and will be long-term capital gain or loss if the holding period of the
Colonial Common Stock surrendered in the Merger is more than one year as of the
Effective Date. If such a holder owns Eastern Common Stock actually or
constructively immediately after the Merger, however, it is possible that such
holder could be treated as receiving a dividend taxable as ordinary income,
unless the cash payment to such holder, if received as a distribution in
redemption of such holder's stock, would satisfy the requirements for non-
dividend treatment under Section 302 of the Code. If such redemption treatment
were applied, it is not clear whether it would be applied to (i) a hypothetical
redemption of Colonial Common Stock immediately before the Merger (in which
case the redemption and Merger would most likely be treated as terminating the
holder's interest in Colonial and, accordingly, dividend treatment should not
result) or (ii) a hypothetical redemption immediately after the Merger of the
Eastern Common Stock deemed received in the Merger (in which case whether the
hypothetical redemption satisfies the requirements for non-dividend treatment
would be determined as discussed above under "Treatment of stockholders who
exchange Colonial Common Stock for a combination of Eastern Common Stock and
cash.")
Receipt of cash in lieu of fractional shares. A United States Holder of
Colonial Common Stock who receives cash in lieu of fractional shares of Eastern
Common Stock will be treated as having received such fractional shares pursuant
to the Merger and then as having exchanged such fractional shares for cash in a
redemption by Eastern. The holder will recognize gain or loss on this
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deemed redemption in an amount equal to the difference between the portion of
the tax basis of the holder's Colonial Common Stock surrendered in the Merger
that is allocated to such fractional shares and the cash received in lieu
thereof. Such gain or loss generally will be capital gain or loss, and will be
long-term capital gain or loss if the holding period of the Colonial Common
Stock surrendered in the Merger is more than one year as of the Effective Date.
Backup Withholding. Unless a holder of Colonial Common Stock complies with
certain reporting and/or certification procedures or is an exempt recipient
under applicable provisions of the Code and Treasury regulations, cash payments
in exchange for such holder's Colonial Common Stock in the Merger may be
subject to "backup withholding" at a rate of 31% for federal income tax
purposes. Any amounts withheld under the backup withholding rules may be
allowed as a refund or a credit against the holder's federal income tax
liability, provided the required information is furnished to the IRS.
Consummation of the Merger is conditioned on the receipt of an opinion of
Ropes & Gray and Palmer & Dodge LLP, each dated as of the Effective Time, that
the Merger will constitute a reorganization within the meaning of Section
368(a) of the Code. Such opinions will be based on certain assumptions and
subject to certain limitations and qualifications similar to those set forth
above with respect to the tax opinions delivered by Ropes & Gray and Palmer &
Dodge LLP and attached as Exhibits 8.1 and 8.2 to the Registration Statement on
Form S-4.
THE ABOVE SUMMARY IS NOT INTENDED TO CONSTITUTE A COMPLETE ANALYSIS OF ALL OF
THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER. THIS DISCUSSION IS
INCLUDED FOR GENERAL INFORMATION PURPOSES ONLY AND MAY NOT APPLY TO A
PARTICULAR STOCKHOLDER IN LIGHT OF SUCH STOCKHOLDER'S PARTICULAR CIRCUMSTANCES.
STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX
CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE APPLICATION OF STATE, LOCAL,
AND FOREIGN TAX LAWS.
NO APPRAISAL RIGHTS
Under Massachusetts law, holders of Colonial Common Stock who object to the
approval of the Merger Agreement are not entitled to demand separate payment
for their shares or an appraisal of their shares in connection with the Merger
Agreement.
STOCK EXCHANGE LISTING OF EASTERN COMMON STOCK
Applications will be made for the listing on the New York Stock Exchange, the
Pacific Exchange and the Boston Stock Exchange of the shares of Eastern Common
Stock to be issued in the Merger. So long as Eastern continues to meet the
requirements of the New York Stock Exchange, the Pacific Exchange and the
Boston Stock Exchange, Eastern Common Stock will continue to be listed on the
New York Stock Exchange, the Pacific Exchange and the Boston Stock Exchange
until the Effective Time.
FEDERAL SECURITIES LAW CONSEQUENCES
All shares of Eastern Common Stock received by Colonial stockholders in the
Merger will be freely transferable, except that shares of Eastern Common Stock
received by individuals and entities
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who are deemed to be "affiliates" (as such term is defined under the Securities
Act of 1933, as amended (the "Securities Act")) of Colonial before the Merger
may be resold by them only in transactions permitted by the resale provisions
of Rule 145 under the Securities Act (or Rule 144 under the Securities Act, in
the case of individuals and entities who become affiliates of Eastern) or as
otherwise permitted under the Securities Act. Persons who may be deemed to be
affiliates of Colonial or Eastern generally include individuals or entities
that control, are controlled by, or are under common control with, such party
and may include certain officers and directors of such party as well as
principal stockholders of such party. The Merger Agreement also requires
Colonial to use commercially reasonable efforts to cause each of its affiliates
to execute and deliver to Eastern a written agreement to the effect that such
affiliate will not offer or sell or otherwise dispose of Eastern Common Stock
issued to such affiliate in or pursuant to the Merger in violation of the
Securities Act or the rules and regulations adopted by the SEC thereunder. The
delivery of such agreements is also a condition to Eastern's obligation to
complete the Merger.
This Joint Proxy Statement/Prospectus does not cover resales of Eastern
Common Stock received by any person who may be deemed to be an affiliate of
Colonial.
REGULATORY MATTERS
The following is a summary of the material regulatory requirements affecting
the Merger. Although Eastern and Colonial have not yet filed for the required
approvals from all of the agencies discussed, it is anticipated that all
regulatory approvals will be received by the middle of 1999.
STATE APPROVALS AND RELATED MATTERS. The utility operations of Colonial and
of Eastern's utility subsidiaries are subject to the comprehensive regulatory
jurisdiction of the DTE, which must approve the Merger in accordance with
Chapter 164 of the Massachusetts General Laws (the "MGL"). Under Section 96 of
Chapter 164 of the MGL, the DTE's approval of the Merger requires that it
determine, after notice and a public hearing, that the Merger is consistent
with the public interest. As part of its review, the DTE may consider, among
other factors, such matters as the effect of the Merger on Eastern's utility
subsidiaries' and Colonial's rates, quality of customer service and financial
integrity as well as the impact of the Merger on competition, economic
development and employment. Assuming the requisite regulatory approvals are
obtained, the utility operations of Colonial and of Eastern's utility
subsidiaries will remain subject to regulation by the DTE.
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935. As a result of the Merger,
Eastern, which already owns all of the outstanding common stock of Boston Gas
and Essex Gas, will acquire all Colonial Common Stock. Under the Public Utility
Holding Company Act of 1935, as amended, Eastern must obtain the approval of
the SEC before acquiring the Colonial Common Stock. Eastern is currently and
will continue to be a "holding company" as defined in the Public Utility
Holding Company Act, but is exempt from registration and from regulation
generally under the Public Utility Holding Company Act because Eastern and its
utility subsidiaries are "predominantly intrastate in character"--that is, all
of them are organized under Massachusetts law and carry on their utility
activities substantially in Massachusetts. Eastern expects to continue to be
exempt on the same basis after consummation of the Merger. Eastern intends to
file with the SEC an application for approval of the acquisition under the
Public Utility Holding Company Act and for confirmation that Eastern's
"intrastate" exemption will continue in effect. Consummation of the Merger is
conditioned upon the SEC's approving Eastern's application.
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ANTITRUST CONSIDERATIONS. Under the Hart-Scott-Rodino Anti-Trust Improvements
Act of 1976, and the rules, and regulations adopted under the Hart-Scott-Rodino
Anti-Trust Improvements Act, the Merger may not be consummated until the
requisite notifications and report forms have been filed with the Antitrust
Division of the United States Department of Justice and the Federal Trade
Commission and the specified Hart-Scott-Rodino Anti-Trust Improvements Act
waiting period requirements have been satisfied. The Hart-Scott-Rodino Anti-
Trust Improvements Act waiting period is thirty days from the date both parties
have filed their notification and report form unless terminated earlier or
extended by the Federal Trade Commission or the Department of Justice issuing a
request for additional information or documentary materials. Thereafter, the
waiting period may be extended only by court order or with the parties'
consent. The expiration or earlier termination of the Hart-Scott-Rodino
Anti-Trust Improvements Act waiting period does not preclude the Department of
Justice or the Federal Trade Commission from challenging the Merger on
antitrust grounds either before or after consummation of the Merger. Private
parties and state attorneys general may also bring legal action under federal
or state antitrust laws under certain circumstances.
If the Merger is not consummated within twelve months after the expiration or
earlier termination of the Hart-Scott-Rodino Anti-Trust Improvements Act
waiting period, Eastern and Colonial would be required to submit new filings to
the Department of Justice and the Federal Trade Commission, and a new Hart-
Scott-Rodino Anti-Trust Improvements Act waiting period would have to expire or
be earlier terminated before the Merger could be consummated. Eastern and
Colonial intend to file their premerger notification and report forms pursuant
to the Hart-Scott-Rodino Anti-Trust Improvements Act at such time as they
believe there is a high degree of certainty that the Merger will be consummated
within twelve months after the expiration or earlier termination of the waiting
period under the Hart-Scott-Rodino Anti-Trust Improvements Act. The Federal
Trade Commission and the Department of Justice frequently scrutinize the
legality under the antitrust laws of transactions such as the proposed
transaction. Neither Eastern nor Colonial believes that the Merger will violate
federal antitrust laws. Nevertheless, there can be no assurance that a
challenge to the proposed transaction will not be made on antitrust grounds or,
if such a challenge is made, what the result would be.
GENERAL. Colonial and Eastern's utility subsidiaries possess municipal rights
and franchises, and environmental permits and licenses. Those of Colonial may
need to be transferred, renewed or replaced as a result of the Merger. The
companies do not anticipate any difficulties at the present time in making or
obtaining such transfers, renewals or replacements.
Under the Merger Agreement, Eastern and Colonial have agreed to use their
best efforts to obtain all necessary material permits, licenses, franchises and
other governmental authorizations needed to consummate or effect the
transactions contemplated by the Merger Agreement. Various parties may seek
intervention in the proceedings associated with the regulatory approval process
in an attempt to oppose the Merger or to have conditions imposed upon the
receipt of the necessary approvals. Although Colonial and Eastern believe that
they will receive the requisite regulatory approvals for the Merger, the timing
of their receipt cannot be determined. It is a condition to the consummation of
the Merger that final non-appealable orders approving the Merger be obtained
from the various federal and state commissions described above.
POTENTIAL CONFLICTS AND INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Colonial Board with respect to the
Merger, Colonial stockholders should be aware that certain members of
Colonial's management and the Colonial
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Board have certain interests in the Merger that are in addition to the
interests of stockholders of Colonial generally and represent inherent
conflicts of interest, including those set forth below. The Colonial Board was
aware of these interests and considered them, among other things, in approving
the Merger.
Prior to entering into the Merger Agreement, in recognition of the
uncertainties arising from Colonial's exploration of strategic alternatives and
the consolidation taking place in the industry, the Colonial Board evaluated
the Company's existing employment agreements with officers and severance
arrangements for employees. As a result of this evaluation, the Colonial Board
approved (i) amendments to the existing employment agreements as described
below, (ii) a retention bonus plan described below and (iii) an increase in
severance pay from one week for each year of service to one or two weeks
severance pay for each year of service for longer term employees without
employment agreements (depending on the length of service).
EMPLOYMENT AGREEMENTS. Frederic L. Putnam, Jr., Frederic L. Putnam, III,
Nickolas Stavropoulos, Charles W. Sawyer and John P. Harrington as well as
certain other officers of Colonial, are parties to employment agreements with
Colonial and Victor W. Baur is a party to an employment agreement with Transgas
and Colonial, which provide that, upon a " change in control" of Colonial (as
defined in such agreements and which will be deemed to have occurred for
purposes thereof at the Effective Time), if during a period of between 18 and
36 months (depending on the officer) following the change in control of
Colonial (the "Employment Period") such officer is terminated without cause or
terminates his or her own employment as a result of certain adverse actions by
Colonial, as more fully set forth in such employment agreements, such officer
shall receive a lump sum severance amount, continuation of certain welfare plan
benefits, and, in the case of officers age 55 or older on the date of
termination, additional pension benefits.
The lump sum severance payment is an amount equal to a multiple of between
1.5 and 2.99 (depending on the officer) of the sum of (i) the higher of (a) his
or her annual salary in effect immediately prior to the change in control and
(b) his or her annual salary in effect immediately prior to the termination and
(ii) the higher of (a) the average of the last two annual bonuses (annualized
in the case of any bonus paid with respect to a partial year) paid to him or
her preceding the change in control or preceding the date of termination,
whichever is greater, and (b) the most recent annual bonus (annualized in the
case of any bonus paid with respect to a partial year) paid to him or her
preceding the change in control or preceding the date of termination, whichever
is greater. In the case of Messrs. Putnam, Jr., Putnam, III, Sawyer,
Stavropoulos, Harrington and Baur, the agreement covers termination within a
three-year period following a change in control and the amount payable is equal
to a multiple of 2.99. In the case of the other officers, the agreement covers
termination within two years or eighteen months following a change in control
(depending on the officer) and the amount payable is equal to a multiple of
either 1.5 or 2.00 (depending on the officer).
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The following table sets forth the names, positions and estimated maximum
cash amounts payable under the employment agreements discussed above (exclusive
of the additional pension and other benefits discussed below) for each of the
executive officers who are entitled to such benefits, based on compensation
levels as of the date of this Joint Proxy Statement/Prospectus. The estimated
maximum cash amount payable for all officers (15 persons) is $6.9 million.
<TABLE>
<CAPTION>
NAME POSITION MAXIMUM AMOUNT
---- -------- --------------
<C> <S> <C>
Frederic L. Putnam, Jr. .. Chairman of the Board of
Directors and Senior Executive
Officer $554,000
Frederic L. Putnam, III... Director, President and Chief
Executive Officer 993,000
Nickolas Stavropoulos..... Director, Executive Vice
President--Finance, Marketing
and Chief Financial Officer 858,000
Charles W. Sawyer......... Executive Vice President and
Chief Operating Officer 838,000
John P. Harrington........ Director, Senior Vice
President--Gas Supply and
Assistant to the President 654,000
Victor W. Baur............ President and Chief Executive
Officer--Transgas 701,000
In the event of such a termination during the applicable Employment Period,
an executive age 55 or older but under age 65 at that time will receive
additional retirement benefits as though the executive continued to earn
service credit under the Colonial Retirement Plan and, if applicable,
Colonial's Supplemental Executive Retirement Plan until his or her normal
retirement date and as though the executive had received an annual increase in
compensation equal to the average annual compensation increase of all salaried
employees included in Colonial's Retirement Plan and the Supplemental Executive
Retirement Plan. Messrs. Harrington and Baur are currently age 55 or older but
under age 65, and Messrs. Putnam, III and Sawyer will reach age 55 within the
term of their employment agreement. Based on compensation levels as of the date
of this Joint Proxy Statement/Prospectus, and assuming future compensation
increases at a rate of 4% per annum until age 65, the following executive
officers would receive the additional pension benefits described below:
<CAPTION>
PRESENT VALUE OF
ADDITIONAL
NAME POSITION PENSION BENEFIT
---- -------- ----------------
<C> <S> <C>
Frederic L. Putnam, III .. Director, President and Chief $374,000
Executive Officer
Charles W. Sawyer......... Executive Vice President and
Chief Operating Officer 330,000
John P. Harrington........ Director, Senior Vice
President--Gas Supply and
Assistant to the President 340,000
Victor W. Baur............ President and Chief Executive
Officer--Transgas 323,000
</TABLE>
The present value of the aggregate maximum additional pension benefits
payable to all officers eligible to receive benefits (five persons) based on
the assumptions stated above is $1.5 million.
In addition, if an executive is terminated during the applicable Employment
Period, such executive will also be provided with out placement services and
continued health insurance, dental insurance and group term life insurance
plans for himself or herself and his or her dependents for a period ending on
the earlier of the commencement date of equivalent benefits plans from a new
employer or his or her normal retirement date.
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The additional lump sum, retirement and welfare benefits payable to an
individual in event of such a termination are limited to the amounts that may
be paid without causing the payments to constitute excess parachute payments
within the meaning of Section 280G of the Code, except that this limitation
will not apply if the net after-tax benefit received by the executive without
the limitation would be at least 10% more than the executive's net after-tax
benefit with the limitation. If an executive receives an excess parachute
payment, the executive will be subject to a 20% excise tax on the excess
payment and the excess payment will not be deductible by the successor company.
The amendments approved by the Colonial Board prior to execution of the
Merger Agreement provided for the inclusion of bonus payments in the base for
the computation of the change in control severance benefit and permitted the
officer, to the extent described in the preceding paragraph, to retain the full
benefit notwithstanding that it constituted an excess parachute payment under
Section 280G of the Code.
ACCELERATION OF VESTING UNDER COLONIAL'S SUPPLEMENTAL EXECUTIVE RETIREMENT
PLAN. Messrs. Putnam, Jr., Putnam, III, Sawyer, Harrington, Stavropoulos and
Baur participate in Colonial's Supplemental Executive Retirement Plan, which
was adopted in 1994 and replaces all other supplemental retirement benefit
plans and agreements for the participants thereunder. Under Colonial's
Supplemental Executive Retirement Plan, participants will receive upon
retirement an annual benefit equal to the benefit that would be paid from
Colonial's Retirement Plan if the qualified plan benefit and compensation
restrictions did not apply, less the actual benefit paid from Colonial's
Retirement Plan. Colonial's Supplemental Executive Retirement Plan also
provides an annual accrual while a participant is actively employed equal to
the amount of the Colonial match that would have been credited to the
participant under Colonial's Savings Plan if the qualified plan benefit and
compensation restrictions did not apply, less the actual Colonial match
credited under Colonial's Savings Plan. In addition, the participant may defer
under Colonial's Supplemental Executive Retirement Plan the amount of
compensation that could not be deferred in Colonial's Savings Plan due to the
qualified plan benefit and compensation restrictions. The annual accruals and
deferrals are credited with interest each year and paid to the participant at
retirement.
Under Colonial's Supplemental Executive Retirement Plan, each participant
becomes 100% vested upon retirement on or after attainment of age 65,
retirement on or after attainment of age 55 and completion of five years of
service, death while in the employ of Colonial and upon termination within
thirty-six months of a "change in control" under such plan (which will be
deemed to have occurred if the Merger is consummated). Messrs. Putnam, III and
Sawyer are not yet vested but would become vested in their benefits under
Colonial's Supplemental Executive Retirement Plan if they terminate employment
within thirty-six months of the change in control.
RETENTION BONUS PLAN. On October 17, 1998, the Colonial Board approved the
Colonial Gas Company Retention Bonus Plan. Under the Retention Bonus Plan
participating key employees that remain employed by the successor company for
at least ninety days after the Effective Date will receive payments of either
50% or 75% of the key employee's annual salary in effect as of October 19,
1998. In addition, participating employees would also be entitled to payment of
such amounts under the Retention Bonus Plan upon the earliest to occur of the
following events: (i) January 19, 2000; (ii) termination of the employee by
Colonial without cause or by the employee for good reason or (iii) termination
by reason of the death, permanent disability or retirement of the employee.
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The following table sets forth the names, positions and estimated retention
bonus payments that each executive officer would receive if he remained
employed by the successor company for at least ninety days following the
Effective Date, or upon the first to occur of any of the events described in
clauses (i), (ii) and (iii) of the last sentence of the preceding paragraph.
<TABLE>
<CAPTION>
MAXIMUM
NAME POSITION AMOUNT
---- -------- -------
<C> <S> <C>
Frederic L. Putnam, Jr. .. Chairman of the Board of Directors and
Senior Executive Officer $ 93,000
Frederic L. Putnam, III... Director, President and Chief Executive
Officer 166,000
Nickolas Stavropoulos..... Director, Executive Vice President-- 143,000
Finance, Marketing and Chief Financial
Officer
Charles W. Sawyer......... Executive Vice President and Chief
Operating Officer 140,000
John P. Harrington........ Director, Senior Vice President--Gas 109,000
Supply and Assistant to the President
Victor W. Baur............ President and Chief Executive Officer--
Transgas 117,000
</TABLE>
The estimated aggregate retention bonuses payable to all officers (18
persons) based on compensation levels as of the date of this Joint Proxy
Statement/Prospectus is approximately $1.4 million.
DEFENSE, INDEMNIFICATION AND INSURANCE FOR COLONIAL OFFICERS AND
DIRECTORS. Eastern and Colonial have agreed to use their best efforts to defend
all current and former directors and officers of Colonial and its subsidiaries
(the "Indemnified Parties") against any claims, proceedings or investigations
arising before or after the Effective Time as a result of (i) such Indemnified
Party's position with Colonial or its subsidiaries or (ii) the Merger and
related transactions. Eastern has further agreed after the Effective Time to
indemnify each Indemnified Party, to the fullest extent allowed under
applicable law and the charter and bylaws of the relevant entity, against any
losses, liabilities or expenses (including attorneys' fees for not more than
one separate counsel) paid in connection with any such claim, investigation or
proceeding. Colonial's obligation to defend the Indemnified Parties continues
for six years after the Effective Time. Eastern has also agreed to cause the
Surviving Company to (i) honor Colonial's indemnification obligations under
Colonial's Restated Articles of Organization and Bylaws as in effect before the
Effective Time and (ii) maintain for a period of six years after the Effective
Time a directors' and officers' liability insurance policy covering the persons
covered by Colonial's current policy and providing comparable coverage to
Colonial's current policy.
NEW EMPLOYMENT AGREEMENTS FOR COLONIAL OFFICERS. It is expected that Messrs.
Putnam III, Stavropoulos, Sawyer and Baur will be offered new employment
agreements with Eastern or its subsidiaries that will include salaries equal to
the salaries they received with Colonial. In addition, for a limited time
period, each of these employment agreements will provide the officer with a
lump sum severance payment if such officer is terminated without cause or
terminates his or her own employment as a result of certain adverse actions by
Eastern or its subsidiaries, as more fully set forth in such employment
agreements, continuation of certain welfare plan benefits for the officer and
his or her dependents, outplacement services (if requested and reasonable),
and, in the case of officers age 55 or older on the date of termination,
additional pension benefits.
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<PAGE>
ELECTION OF COLONIAL REPRESENTATIVE TO THE EASTERN BOARD. The Merger
Agreement provides that following the Effective Time, Eastern will elect F.L.
Putnam, Jr., or another member of the Colonial Board designated by the Colonial
Board and reasonably acceptable to Eastern, to serve on the Eastern Board for a
term ending with the Eastern 2002 Annual Meeting.
MANAGEMENT AND OTHER INFORMATION
After the Merger, Eastern will continue to be managed by the same Board of
Trustees and officers of Eastern as before the Merger except that Eastern will
elect F.L. Putnam, Jr., or another person designated by the Colonial Board, to
serve on the Eastern Board. Certain information relating to the management,
executive compensation, voting securities, certain relationships and related
transactions and other related matters pertaining to Eastern and Colonial is
set forth in or incorporated by reference in their respective Annual Reports on
Form 10-K for the year ended December 31, 1997. Such Annual Reports are
incorporated by reference into this Joint Proxy Statement/Prospectus. See
"Where You Can Find More Information."
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MERGER AGREEMENT
The following is a summary of the material terms of the Merger Agreement
which is attached as Annex A and incorporated into this Joint Proxy
Statement/Prospectus by reference. The following summary is qualified by and
made subject to the more complete information set forth in the Merger
Agreement.
STRUCTURE OF THE MERGER
The Merger Agreement provides that following the approval of the Merger
Agreement by the stockholders of Colonial and, if required, the shareholders of
Eastern, and the satisfaction or waiver of all other conditions to the Merger,
including regulatory approvals, Colonial will merge with and into Merger Sub.
After the Merger, Merger Sub will continue as the Surviving Company under the
name "Colonial Gas Company."
MERGER CONSIDERATION
As a result of the Merger, each outstanding share of Colonial Common Stock
shall be automatically converted into the right to receive one of the
following:
. $37.50 in cash, without interest;
. a number of shares of Eastern Common Stock determined by dividing (i)
$37.50 by (ii) an amount equal to the average of the closing prices of
Eastern Common Stock on the New York Stock Exchange for the ten trading
days ending on the third trading day before the Effective Date of the
Merger, provided that if the average per share closing price is less than
$37.56, the amount will be fixed at $37.56 and that if the average per
share closing price is more than $47.80, the amount will be fixed at
$47.80; or
. a combination of cash and shares of Eastern Common Stock determined as
described below.
Each holder of Colonial Common Stock may elect the number of shares of
Colonial Common Stock, if any, that it wishes to exchange for cash, the number
it wishes to exchange for Eastern Common Stock, or to indicate no preference,
by completing and returning a form to be provided for this purpose closer to
the anticipated Effective Date as described below.
Although the holders of Colonial Common Stock may indicate the preferred form
of payment for their shares, this election will be subject to the following
limitations. The total amount of consideration payable in cash will be fixed at
$150 million and therefore 4,000,000 shares of Colonial Common Stock will be
converted into cash consideration in the Merger and the remaining shares of
Colonial Common Stock will be converted into Eastern Common Stock. The total
amounts of cash and Eastern Common Stock payable in the Merger will, therefore,
be fixed at amounts which may differ from the total amounts indicated in the
elections. In that case, the amount of cash and Eastern Common Stock payable
will be determined as follows:
. If, based on the elections received, the holders of more than 4,000,000
shares of Colonial Common Stock indicate a preference for cash
consideration then:
C all shares for which elections have been submitted which indicate a
preference for Eastern Common Stock will be converted into Eastern Common
Stock;
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<PAGE>
C all shares for which elections have been submitted which indicate no
preference as to the form of consideration, or for which no election has
been received, will be converted into Eastern Common Stock; and
C all shares for which elections have been submitted which indicate a
preference for cash consideration will be converted into:
-- cash based on the proportion that the total amount of cash available
($150 million) bears to the total amount of cash consideration
requested, and
-- shares of Eastern Common Stock based on the applicable exchange ratio
to the extent that the maximum amount of cash consideration is
exceeded.
. If, based on the elections received, the holders of a number of shares of
Colonial Common Stock which is greater than the difference between the
number of shares of Colonial Common Stock outstanding at the time of the
Merger and 4,000,000 indicate a preference for stock consideration then:
C all shares for which elections have been submitted which indicate a
preference for cash consideration will be converted into cash
consideration;
C all shares for which elections have been submitted which indicate no
preference as to the form of consideration, or for which no election has
been received, will be converted into cash consideration; and
C all shares for which elections have been submitted which indicate a
preference for Eastern Common Stock will be converted into:
-- shares of Eastern Common Stock based on the proportion that the
maximum number of shares of Colonial Common Stock which may be
converted into Eastern Common Stock bears to the total number of shares
of Colonial Common Stock for which a preference for Eastern Common
Stock is indicated; and
-- cash equal to $37.50 per share to the extent that the maximum number
shares of Colonial Common Stock into which Eastern Common Stock may be
converted is exceeded.
. If, based on the elections received, the holders of Colonial Common Stock
do not indicate a preference for consideration in the form of cash or
Eastern Common Stock which would exceed the maximum amount of either form
of consideration payable in the Merger, then:
C all shares for which elections have been submitted which indicate a
preference for cash consideration will be converted into cash
consideration;
C all shares for which elections have been submitted which indicate a
preference for Eastern Common Stock will be converted into Eastern Common
Stock; and
C all shares for which elections have been submitted which indicate no
preference, or for which no election has been received, will be converted
into cash and Eastern Common Stock proportionately so that a total of
4,000,000 shares of Colonial Common Stock will be converted into cash and
the remainder converted into Eastern Common Stock.
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<PAGE>
In order to permit the Merger to qualify as a reorganization within the
meaning of Section 368 of the Code, the Merger Agreement also provides that, if
necessary, the mix of cash and Eastern Common Stock will be adjusted to ensure
that at least 45% of the value of the total consideration paid (including all
cash paid in exchange for fractional shares and other payments required to be
considered for tax purposes) consists of Eastern Common Stock.
Shares of Colonial Common Stock held by Colonial as treasury stock or by a
wholly-owned direct or indirect subsidiary of Colonial will be cancelled and
not converted into Merger Consideration.
No fractional shares of Eastern Common Stock will be issued in the Merger.
Instead of fractional shares, holders will receive cash in an amount equal to
the value of their fractional shares based on the average closing price of
Eastern Common Stock on the New York Stock Exchange for the ten trading days
ending on and including the Effective Date. After the Effective Date, the
outstanding shares of Colonial Common Stock will not represent any ownership
interest in Colonial but will only represent the right to receive a portion of
the Merger Consideration.
PROCEDURE FOR FILING ELECTIONS AND CONVERTING COLONIAL COMMON STOCK INTO MERGER
CONSIDERATION
At least thirty days before the anticipated Effective Date of the Merger, a
form of election will be mailed to each record holder of Colonial Common Stock
as of the date of the Colonial Special Meeting. A form of election will also be
mailed to each person who becomes a holder of record of Colonial Common Stock
between the record date and the date seven calendar days before the anticipated
Effective Date. A form of election will also be made available to all persons
who become holders of Colonial Common Stock after that time. To be effective, a
form of election must:
. be properly completed and signed by the holder of record;
. be accompanied by the certificates for the shares of Colonial Common Stock
for which the election is being made (or by an appropriate guaranty of
delivery by (i) a member of a registered national securities exchange or the
National Association of Securities Dealers or (ii) a bank, trust company or
other financial institution that is a member in good standing of the
Securities Transfer Agents Medallion Program, the New York Stock Exchange
Medallion Signature Guaranty Program or the Stock Exchange Medallion
Program); and
. be delivered to BankBoston, N.A. (the "Exchange Agent") by no later than the
close of business on the last business day before the Effective Date.
If shares of Colonial Common Stock are held on behalf of a holder by a
nominee, trustee or representative, such representative may submit an election
on the holder's behalf so long as it covers all of the shares held by the
representative on such holder's behalf.
Holders may revoke their elections by filing a written revocation with the
Exchange Agent before the deadline for submitting elections.
If a form of election is not received by the Exchange Agent before the
deadline, or if a form of election is determined by the Exchange Agent or
Eastern to be not properly made, the holder submitting such form of election
will be treated as if they indicated no preference as to the form of
consideration to be received.
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<PAGE>
Promptly after the Effective Time, the Exchange Agent will mail the following
materials to each person who held shares of Colonial Common Stock as of the
Effective Time:
. a letter of transmittal to be used by the holder to surrender his, her or
its shares to the Exchange Agent to be exchanged for the Merger
Consideration (if the holder has not already done so in connection with
submitting a form of election); and
. instructions explaining what the holder has to do to effect the exchange of
shares of Colonial Common Stock for the Merger Consideration.
If the holder has not already submitted all of his, her or its certificates
for shares of Colonial Common Stock to the Exchange Agent in connection with
submitting a form of election, such holder should complete and sign the letter
of transmittal and return it to the Exchange Agent in accordance with the
instructions provided by the Exchange Agent, together with any certificates for
Colonial Common Stock held by such holder.
If certificates for any shares of Colonial Common Stock have been lost,
stolen or destroyed, the holder must submit an affidavit to that effect to the
Exchange Agent. The Exchange Agent may prescribe the form of affidavit required
and may also require the holder to deliver a bond to the Exchange Agent in an
amount reasonably required to indemnify the Exchange Agent against claims with
respect to the lost certificates.
If a record holder of Colonial Common Stock at the Effective Time wishes the
Merger Consideration to be paid to some other person, then, before the Merger
Consideration can be issued to the designated recipient, the Exchange Agent
must be provided with the following documentation:
. a properly endorsed certificate for the shares of Colonial Common Stock
being exchanged;
. properly completed and signed originals of any other documents required by
the Exchange Agent to show that the transfer occurred; and
. evidence that any transfer taxes resulting from the issuance of a
certificate(s) for Eastern Common Stock to a person(s) other than the record
holder of Colonial Common Stock have been or will be paid.
To the extent that the Merger Consideration is payable in Eastern Common
Stock, holders of Colonial Common Stock exchanged in the Merger will be
entitled to receive dividends and other distributions with respect to Eastern
Common Stock that they receive in the Merger that are declared or made with a
record date after the Effective Time. No such dividends or other distributions
will be paid to any former holder of Colonial Common Stock, however, until such
holder surrenders his, her or its shares of Colonial Common Stock to the
Exchange Agent.
After six months following the Effective Time, the Exchange Agent will return
to Eastern any Merger Consideration which has not been exchanged for Colonial
Common Stock. After the return of the Merger Consideration to Eastern, Eastern
will act as the Exchange Agent and any former holders of Colonial Common Stock
who have not exchanged their shares for Merger Consideration shall surrender
their certificates to Eastern. Once Eastern has assumed the role of Exchange
Agent, former holders of Colonial Common Stock, to the extent permitted under
applicable law, shall look to Eastern as general creditors only for payment of
the Merger Consideration.
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<PAGE>
HOLDERS OF COLONIAL COMMON STOCK SHOULD NOT SEND IN THEIR STOCK
CERTIFICATES UNTIL THEY RECEIVE A FORM OF ELECTION OR TRANSMITTAL LETTER.
REPRESENTATIONS AND WARRANTIES
Colonial and Eastern have each made customary representations and warranties
to the other in the Merger Agreement relating to, among other things: (i) their
organization, the organization of their subsidiaries and similar corporate
matters; (ii) their capital structure; (iii) authorization, execution, delivery
and performance of the Merger Agreement and the absence of any conflicts,
violations or defaults under their respective organizational documents and
other agreements and documents or conflicts with or violations of any laws as a
result of executing the Merger Agreement; (iv) governmental consents and
filings; (v) reports and financial statements filed with the SEC and the
accuracy of the information contained in such reports and financial statements;
(vi) absence of any change, event or effect that is materially adverse to the
business, assets (including intangible assets), financial condition or results
of operations of such party and its respective subsidiaries taken as a whole
(such change, event or effect will be referred to as a "Colonial Material
Adverse Event" or "Eastern Material Adverse Event", as appropriate) and certain
other events since June 30, 1998; (vii) their regulation as utilities; (viii)
compliance with applicable laws and agreements and maintenance of licenses and
permits; (ix) absence of certain litigation proceedings; and (x) the
information provided for inclusion in the Registration Statement on Form S-4
and Joint Proxy Statement/Prospectus to be filed in connection with the Merger.
In addition to the representations and warranties described above, Colonial
has made representations and warranties to Eastern as to the following matters:
(i) that Colonial has taken all actions so that the restrictions in Chapter
110F of the MGL (which imposes certain restrictions on business combination
transactions involving a present or former holder of 5% or more of the voting
stock of the target corporation) will not apply to the Merger; (ii) that the
Rights Agreement dated as of December 1, 1993 between Colonial and BankBoston,
N.A. has been amended so that it will not apply to the Merger; (iii) the filing
of tax returns and the payment of taxes; (iv) title to its properties; (v)
ownership, use and non-infringement of intellectual property rights; (vi)
brokers' and finders' fees incurred in connection with the Merger; (vii)
employee benefit plans maintained by Colonial; (viii) compliance with
governmental regulations concerning employees and relations with employees;
(ix) compliance with environmental laws and other environmental matters; (x)
disclosure of material agreements and commitments; (xi) delivery of a fairness
opinion by Salomon Smith Barney; (xii) maintenance of insurance coverage; and
(xiii) the compliance status of the computer systems of Colonial and its third
party service providers with respect to the "Year 2000" date recognition
problem.
In addition to the representations and warranties described above, Eastern
has represented and warranted to Colonial in the Merger Agreement as to the
following matters: (i) it does not beneficially own any shares of Colonial
Common Stock; (ii) the capitalization of Merger Sub; and (iii) the business
activities of Merger Sub.
CERTAIN COVENANTS
INTERIM OPERATIONS OF COLONIAL. From the date of the execution of the Merger
Agreement until the Effective Time, Colonial has agreed to carry on its
business and the businesses of its
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<PAGE>
subsidiaries diligently in the ordinary course consistent with good commercial
practice. Colonial has also agreed to use commercially reasonable efforts
consistent with past practice to preserve intact the business organization of
Colonial and its subsidiaries, keep available the services of their officers
and employees, maintain their properties and assets in good condition and to
preserve their relationships with third parties. These obligations are subject
to certain exceptions provided in the Merger Agreement and any other exceptions
that are agreed to in writing by Eastern. In particular, during the period
before the Effective Time, Colonial will not do or permit its subsidiaries to
do or agree to do any of the following:
. Make any filings with governmental authorities regarding rates, charges,
standards of service, accounting matters or services except in the ordinary
course of business or as required by law, or become or establish a "holding
company" within the meaning of the Public Utility Holding Company Act of
1935.
. Declare or pay any dividends or make any distribution with respect to its
capital stock (except for regular quarterly cash dividends on Colonial
Common Stock in a manner and amount consistent with past practice and
dividends payable by subsidiaries to Colonial) or split, combine or
reclassify, repurchase or acquire any shares of its capital stock.
. Issue, deliver, sell, authorize or propose the issuance, delivery or sale of
any capital stock or securities convertible into capital stock or any rights
to acquire any such securities, or authorize the issuance of any other
securities in lieu of such securities, except for issuances in the normal
course consistent with past practices under the Colonial Dividend
Reinvestment Plan and Employee Savings Plan.
. Make, permit or propose any amendments to its Restated Articles of
Organization or By laws.
. Acquire or agree to acquire (by business combination with or a purchase of
any equity interest in or a material portion of the assets of or by any
other manner) any business organization or acquire any material amount of
operating assets, or enter into any partnership or joint development
agreements or strategic alliances, or sell, lease, encumber or otherwise
dispose of any properties or assets of Colonial which alone or taken
together are material to its business.
. Incur or guaranty any indebtedness for borrowing money (except in the
ordinary course under certain existing arrangements described in the Merger
Agreement), issue or sell any debt securities or any rights to acquire debt
securities or guarantee the indebtedness of others.
. Adopt or amend any employee benefit, stock purchase or option plan, enter
into any amendment contract with or pay any special bonus, remuneration, or
grant any severance or termination pay to any director, officer or employee
(except under previously disclosed arrangements or agreements), adopt any
new severance plan, or, except in accordance with past practices as required
by law, increase the salaries or wage rates of its officers or employees.
. Pay, discharge or satisfy any claim, liability or obligation in amounts
greater than $250,000 or make any individual or series of related capital
expenditures or commitments exceeding $250,000 except in the ordinary course
of business.
INTERIM OPERATIONS OF EASTERN. From the date of the execution of the Merger
Agreement until the Effective Time, Eastern has agreed to carry on its business
and the business of its material subsidiaries diligently in the ordinary course
and consistent with good commercial practice. Eastern
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<PAGE>
has also agreed to use commercially reasonable efforts consistent with past
practices to preserve intact the business organization of Eastern and its
material subsidiaries, keep available the services of their officers and
employees, maintain their properties and assets in good condition and to
preserve their relationships with third parties. These obligations are subject
to certain exceptions provided in the Merger Agreement and any other exceptions
that are agreed to in writing by Colonial.
COLONIAL SPECIAL MEETING AND EASTERN SPECIAL MEETING; RECOMMENDATIONS OF THE
COLONIAL BOARD AND EASTERN BOARD. Colonial has agreed in accordance with the
Massachusetts Business Corporation Law, Chapter 164 of the MGL and its Restated
Articles of Organization and By laws, to cause the Colonial Special Meeting to
be held as promptly as practicable after the signing of the Merger Agreement,
but not later than sixty days after the declaration of the effectiveness of the
Registration Statement in which this Joint Proxy Statement/Prospectus is
included, for the purpose of considering the approval of the Merger Agreement.
Eastern has agreed, in accordance with its listing agreement with and the rules
of the New York Stock Exchange, to cause the Eastern Special Meeting to be held
as promptly as possible following the signing of the Merger Agreement, but not
later than sixty days after the declaration of the effectiveness of the
Registration Statement in which this Joint Proxy Statement/Prospectus is
included, for the purpose of considering the approval of the Stock Issuance.
The Colonial Board and the Eastern Board have each agreed, subject to their
respective fiduciary duties, to use their best efforts to solicit from their
stockholders proxies in favor of the approval of the Merger Agreement and the
Stock Issuance, respectively, and to take all other actions necessary or
advisable to secure the vote or consent of their stockholders required to
obtain such approval.
DEFENSE, INDEMNIFICATION AND INSURANCE FOR COLONIAL OFFICERS AND
DIRECTORS. Eastern and Colonial have agreed to use their best efforts to defend
the Indemnified Parties against any claims, proceedings or investigations
arising before or after the Effective Time as a result of (i) such Indemnified
Party's position with Colonial or its subsidiaries or (ii) the Merger and
related transactions. Eastern has further agreed after the Effective Time to
indemnify each Indemnified Party, to the fullest extent allowed under
applicable law and the charter and by-laws of the relevant entity, against any
losses, liabilities or expenses (including attorneys' fees for not more than
one separate counsel) paid in connection with any such claim, investigation or
proceeding. Colonial's obligation to defend the Indemnified Parties continues
for six years after the Effective Time. Eastern has also agreed to cause the
Surviving Company to (i) honor Colonial's indemnification obligations under
Colonial's Restated Articles of Organization and By laws as in effect before
the Effective Time and (ii) maintain for a period of six years after the
Effective Time a directors' and officers' liability insurance policy covering
the persons covered by Colonial's current policy and providing comparable
coverage to Colonial's current policy. See "The Merger--Potential Conflicts and
Interests of Certain Persons in the Merger" on page 53.
CERTAIN OTHER COVENANTS. The Merger Agreement contains certain mutual
covenants of the parties, including covenants relating to: public
announcements; notifications of certain matters; access to information;
qualification of the Merger as a reorganization within the meaning of Section
368 of the Internal Revenue Code; best efforts and further assurances;
compliance with legal requirements and cooperation in connection with certain
governmental and regulatory filings and in obtaining consents and approvals,
including antitrust matters; and confidential treatment of non-public
information.
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<PAGE>
The Merger Agreement also contains covenants by Colonial to (i) provide
Eastern with a list of individuals and entities which may be affiliates of
Colonial within the meaning of Rule 145 under the Securities Act, and to use
reasonable commercial efforts to cause such individuals and entities to sign
and deliver to Eastern an agreement in a form to be provided by Eastern and
(ii) coordinate with Eastern regarding the payment of dividends on the Colonial
Common Stock and Eastern Common Stock.
The Merger Agreement also contains certain covenants of Eastern including
covenants requiring Eastern to: use its best efforts to list the Eastern Common
Stock to be issued in connection with the Merger on the New York Stock
Exchange, the Pacific Exchange and the Boston Stock Exchange before the
Effective Time; and, as of the Effective Time, to cause F.L. Putnam, Jr. or
another candidate recommended by the Colonial Board to be elected as a member
of the Eastern Board until the 2002 Annual Meeting of Eastern. See "The
Merger--Potential Conflicts and Interests of Certain Persons in the Merger" on
page 53.
CERTAIN EMPLOYEE BENEFITS MATTERS
For all employees of Colonial who continue as employees of Eastern after the
Merger and whose employment is not governed by a collective bargaining
agreement, Eastern has agreed as follows:
. To provide such employees in the aggregate with benefits no less favorable
in the aggregate than the benefits provided under Colonial's benefit plans
for a period of one year after the Effective Time.
. To provide such employees at all times with benefits no less favorable than
those provided to other employees of Eastern similarly situated.
. Not to impose any pre-existing condition limitation on such employees'
participation in Eastern's benefit plans other than to the extent such
limitation is applied under the comparable Colonial plan.
. To recognize such employees' service at Colonial for purposes of meeting
eligibility and vesting requirements under Eastern's benefit plans.
. To coordinate incentive plans of Colonial and Eastern and to work with
Colonial management to ensure that officers and employees who were eligible
to participate in Colonial's Executive Performance and Equity Incentive Plan
receive benefits equivalent to the benefits provided under such plan for the
portion of the year before the Effective Time.
Eastern has also agreed to honor all Colonial benefit plans, collective
bargaining agreements, employment contracts and arrangements and all vested
benefits under any plans or agreements which have been disclosed to Eastern.
Eastern may, however, modify or terminate any Colonial employee benefit plan or
agreement in accordance with its terms.
Eastern has also agreed to offer employment arrangements to certain officers
of Colonial, which arrangements are described in more detail in "The Merger--
Potential Conflicts and Interests of Certain Persons in the Merger" on page 53.
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<PAGE>
CONDITIONS TO THE MERGER
CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE MERGER. The obligation
of Eastern, Colonial and Merger Sub to consummate the Merger are subject to the
satisfaction of the following conditions:
. The approval of the Merger Agreement by the holders of Colonial Common
Stock, by the Merger Sub and, to the extent required, approval of the Stock
Issuance by the holders of Eastern Common Stock.
. The Merger and related transactions and rate plan having been finally
approved by the DTE on terms not inconsistent with the DTE's approval of the
merger plan and related rate plan for Eastern's acquisition of Essex Gas and
without terms and conditions that would otherwise have a material adverse
effect on the Surviving Company or on Eastern's other gas distribution
subsidiaries taken as a whole.
. The Merger having been approved by the SEC under the Public Utility Holding
Company Act of 1935 on terms not materially burdensome to Eastern.
. The Registration Statement of which this Joint Proxy Statement/Prospectus is
a part having become effective under the Securities Act and not being
subject to any stop order or related proceedings by the SEC.
. No applicable law or regulation, judgment, injunction, order or decree of a
court of competent jurisdiction prohibiting or enjoining the consummation
of, or having a material adverse affect on, the Merger.
. Colonial and Eastern having each received substantially identical opinions
from their legal counsel that the Merger will qualify as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code.
. The applicable waiting periods under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 relating to the Merger having expired or been
terminated.
. All other third party consents and approvals required to be obtained by
either Colonial or Eastern having been obtained.
. The Surviving Company having executed such documentation necessary to become
the successor under Colonial's Second Amended and Restated First Mortgage
Indenture.
CONDITIONS TO THE OBLIGATIONS OF EASTERN AND MERGER SUB. The obligations of
Eastern and Merger Sub to effect the Merger are further subject to the
satisfaction of the following conditions:
. The representations and warranties of Colonial contained in the Merger
Agreement being true in all material respects at and as of the Effective
Time as if made at and as of such time.
. The performance in all material respects by Colonial of its obligations
under the Merger Agreement at or prior to the Effective Time.
. Each of the individuals and entities who are "affiliates" of Colonial within
the meaning of Rule 145 under the Securities Act having delivered to Eastern
an agreement in a form prescribed by Eastern.
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<PAGE>
CONDITIONS TO THE OBLIGATIONS OF COLONIAL. The obligation of Colonial to
effect the Merger is further subject to the satisfaction of the following
conditions:
. The representations and warranties of Eastern contained in the Merger
Agreement being true in all material respects at and as of the Effective
Time as if made at and as of such time.
. The performance in all material respects by Eastern of its obligations under
the Merger Agreement at or prior to the Effective Time.
. The shares of Eastern Common Stock to be issued in the Stock Issuance having
been authorized for listing on the New York Stock Exchange, the Pacific
Exchange and the Boston Stock Exchange.
AMENDMENTS; WAIVERS
Any provisions of the Merger Agreement may be amended or waived before the
Effective Time only if the amendment or waiver is in writing and signed, in the
case of an amendment, by Eastern and Colonial and, in the case of a waiver, by
the party against whom the waiver is to be effective; provided that after the
approval of the Stock Issuance by holders of Eastern Common Stock or the
approval of the Merger Agreement by the holders of Colonial Common Stock, no
amendment or waiver which would materially and adversely affect the rights of
such stockholders may be made without the further approval of such
stockholders.
NO SOLICITATION BY COLONIAL
Colonial has agreed in the Merger Agreement that, from the date of execution
of the Merger Agreement until the termination thereof, Colonial and its
subsidiaries will not, and Colonial and its subsidiaries will instruct their
respective officers, directors, employees, representatives, investment bankers,
agents and affiliates not to, directly or indirectly: (i) solicit or knowingly
encourage any Acquisition Proposal from or (ii) participate in negotiations or
discussions with, or (iii) disclose any nonpublic information relating to
Colonial or any subsidiary of Colonial to, or (iv) afford access to the
properties, books or records of Colonial or any subsidiary of Colonial to, or
(v) otherwise assist or facilitate or enter into an agreement or understanding
with, any person, entity or group in connection with an Acquisition Proposal.
"Acquisition Proposal" means any offer or proposal for (i) a merger,
consolidation or other business combination involving Colonial or any
subsidiary of Colonial or a substantial portion of the assets of Colonial or
any subsidiary of Colonial, other than the transactions contemplated by the
Merger Agreement; (ii) a sale of 20% or more of the outstanding capital stock
of Colonial; (iii) the acquisition by any person of beneficial ownership of or
the right to beneficially own or the formation of a group that beneficially
owns or has the right to acquire 20% or more of the outstanding capital stock
of Colonial; or (iv) the public announcement of any proposal, plan or intention
to do any transaction described in clauses (i), (ii) and (iii) above. Colonial
also agreed to immediately cease all negotiations or discussions with any
parties conducted prior to the date of the Merger Agreement with respect to the
above and to use reasonable efforts to obtain the return of any confidential
information. Colonial has agreed to notify Eastern promptly of (i) any inquiry
or proposal is made or any request for access or information relating to any
Acquisition Proposal or potential Acquisition Proposal and (ii) the terms of
any Acquisition Proposal or any modification to such terms or any proposed
agreement relating to an Acquisition Proposal and
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<PAGE>
not to make or authorize any public statement, recommendation or solicitation
in support of any Acquisition Proposal made by any party other than Eastern.
Notwithstanding the foregoing, Colonial may, to the extent that the Colonial
Board determines in good faith based on the advice of outside legal counsel,
that its fiduciary duties under applicable law require it to do so: (i)
participate in negotiations with or (ii) disclose information relating to
Colonial and any of its subsidiaries to, any person who has made an Acquisition
Proposal to Colonial which the Colonial Board has determined would result in a
transaction more favorable to the stockholders of Colonial than the Merger. If
Colonial receives an Acquisition Proposal and the Colonial Board determines in
good faith based on the advice of outside legal counsel that its fiduciary
duties under applicable law require it to do so, Colonial may, subject to the
terms of the Merger Agreement: (i) approve such Acquisition Proposal; (ii)
recommend approval of such Acquisition Proposal to Colonial's stockholders; or
(iii) withdraw, modify or refrain from recommending approval of the Merger
Agreement. Before withdrawing, modifying or refraining from recommending the
Merger Agreement, the Colonial Board has agreed to give Eastern at least two
days' prior notice to allow Eastern to make a counterproposal and has agreed to
consider in good faith any counterproposal made by Eastern. Colonial may not
provide any non-public information to a third party unless (i) such information
is provided subject to a non-disclosure agreement with terms comparable to the
non-disclosure agreement with Eastern and (ii) such information has previously
been provided to Eastern.
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated at any time before the Effective Time,
whether before or after approval of the Merger by Colonial's stockholders or
the DTE:
. By mutual written consent of Eastern and Colonial.
. By either Colonial or Eastern:
C if the Merger has not been consummated by December 31, 1999 (which date
may be extended by either Colonial or Eastern to June 30, 2000 if certain
regulatory conditions have not been satisfied); provided, however, that
neither Eastern nor Colonial may terminate if its breach is the reason
that the Merger has not been consummated;
C if a court of competent jurisdiction or governmental, regulatory or
administrative agency or commission has issued an order, decree or ruling
or taken any other action, in any case having the effect of permanently
restraining, enjoining or otherwise prohibiting the Merger, which order,
decree or ruling is final and nonappealable;
C if the Colonial stockholders do not approve the Merger Agreement by June
30, 1999 or at the Colonial Special Meeting or any adjournment thereof;
provided, however, that Colonial will not have the right to terminate the
Merger Agreement for this reason if the failure to obtain the approval of
Colonial's stockholders was caused by Colonial's breach of the Merger
Agreement;
C if Colonial has accepted or approved an Acquisition Proposal (as defined
above under "No Solicitation by Colonial") or if the Colonial Board
recommends an Acquisition Proposal to Colonial's stockholders; or
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<PAGE>
C if the shareholders of Eastern do not approve the issuance of Eastern
Common Stock in the Merger (to the extent required) before June 30, 1999
or at the Eastern Special Meeting or any adjournment thereof; provided,
however, that Eastern will not have the right to terminate this Merger
Agreement for this reason if the failure to obtain the approval of
Eastern's shareholders was caused by Eastern's breach of the Merger
Agreement.
. By Eastern:
C if the Colonial Board has:
-- failed to convene the Colonial Special Meeting;
-- failed to recommend any required approval of the Merger Agreement and
the Merger in this Joint Proxy Statement/Prospectus or withheld,
withdrawn or modified in a manner adverse to Eastern its recommendation
in favor of any required approval of the Merger (or resolved to do so);
or
-- approved or recommended an Acquisition Proposal;
C upon a breach of any representation, warranty, covenant or agreement on
the part of Colonial set forth in the Merger Agreement, if
-- as a result of such breach the conditions set forth in the
representations and warranties or the agreements and covenants would
not be satisfied as of the time of such breach; and
-- such breach has not been cured by Colonial within ten business days
following receipt by Colonial of written notice of such breach from
Eastern; or
C if any event or condition that constitutes, or is reasonably likely to
constitute, a Colonial Material Adverse Effect has occurred since the
date of the Merger Agreement, which condition or event shall not have
been ameliorated such that it is no longer a Colonial Material Adverse
Effect within ten business days following receipt by Colonial of notice
from Eastern.
. By Colonial:
C if the Eastern Board has:
-- failed to convene the Eastern Special Meeting; or
-- failed to recommend approval of the Stock Issuance in the Joint Proxy
Statement/Prospectus or withheld, withdrawn or modified in a manner
adverse to Colonial its recommendation in favor of the Stock Issuance
(or resolved to do so);
C upon a breach of any representation, warranty, covenant or agreement on
the part of Eastern set forth in the Merger Agreement, if
-- as a result of such breach, the representations and warranties or
covenants and agreements would not be satisfied as of the time of such
breach; and
-- such breach shall not have been cured by Eastern within ten business
days following receipt by Eastern of written notice of such breach from
Colonial; or
C if any event or condition that constitutes, or is reasonably likely to
constitute, an Eastern Material Adverse Effect has occurred since the
date of the Merger Agreement, which condition or event shall not have
been ameliorated such that it is no longer an Eastern
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<PAGE>
Material Adverse Effect within ten business days following receipt by
Eastern of notice from Colonial.
If the Merger Agreement is validly terminated, no provision of the Merger
Agreement shall survive (except for the provisions relating to expenses,
termination fees and miscellaneous provisions of general application) and such
termination shall be without any liability on the part of any party, unless
such party is in willful breach of any provision of the Merger Agreement. The
confidentiality agreement entered into between Eastern and Colonial as of June
15, 1998 will continue in effect notwithstanding termination of the Merger
Agreement.
TERMINATION FEES AND EXPENSES
PAYMENT OF EXPENSES OF THE MERGER GENERALLY. Except as described below and
for fees and expenses (other than attorneys' and accountants' fees and
expenses) incurred in connection with the printing and filing of this Joint
Proxy Statement/Prospectus and the Registration Statement (which will be shared
equally by Colonial and Eastern), all fees and expenses incurred in connection
with the Merger will be paid by the party incurring such expenses.
PAYMENT OF EASTERN EXPENSES BY COLONIAL. Colonial has agreed to pay up to $2
million of Eastern's out-of-pocket expenses and fees incurred in connection
with the Merger or the transactions contemplated by the Merger Agreement if:
. Colonial has committed a breach of a representation, warranty, covenant or
agreement under the Merger Agreement and as a result the Merger Agreement is
terminated by Eastern under the circumstances described in "--Termination of
the Merger Agreement."
. An event or condition has occurred which constitutes a Colonial Material
Adverse Effect and as a result the Merger Agreement is terminated by Eastern
under the circumstances described in "--Termination of the Merger
Agreement."
. The Merger Agreement has not been approved by the Colonial stockholders and
as a result the Merger Agreement is terminated under the circumstances
described in "--Termination of the Merger Agreement."
PAYMENT OF COLONIAL EXPENSES BY EASTERN. Eastern has agreed to pay up to $2
million of Colonial's out-of-pocket expenses and fees incurred in connection
with the Merger or the transactions contemplated by the Merger Agreement if:
. Eastern has committed a breach of a representation, warranty, covenant or
agreement under the Merger Agreement and as a result the Merger Agreement is
terminated by Colonial under the circumstances described in "--Termination
of the Merger Agreement."
. An event or condition has occurred which constitutes an Eastern Material
Adverse Effect and as a result the Merger Agreement is terminated by
Colonial under the circumstances described in "--Termination of the Merger
Agreement."
. The Stock Issuance has not been approved by the Eastern shareholders and as
a result the Merger Agreement is terminated under the circumstances
described in "--Termination of the Merger Agreement."
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<PAGE>
COLONIAL TERMINATION FEE. Colonial has agreed to pay Eastern an amount equal
to $15 million (less the amount of any out-of-pocket expenses of Eastern
required to be paid by Colonial) if:
. Colonial accepts or approves an Acquisition Proposal or the Colonial Board
recommends approval of an Acquisition Proposal to the Colonial stockholders
and as a result the Merger Agreement is terminated under the circumstances
described in "--Termination of the Merger Agreement."
. The Colonial Board has failed to convene the Colonial Special Meeting or
recommend approval of the Merger Agreement or recommends approval of an
Acquisition Proposal and as a result the Merger Agreement is terminated by
Eastern under the circumstances described in "--Termination of the Merger
Agreement."
. The stockholders of Colonial fail to approve the Merger Agreement and as a
result the Merger Agreement is terminated under the circumstances described
in "--Termination of the Merger Agreement" and, at the time of such failure
to approve the Merger Agreement, an Alternative Transaction (as defined
below) has been announced, commenced or occurred and:
C Colonial has either (i) executed an agreement to engage in the same or
(ii) the Colonial Board has not recommended against such Alternative
Transaction affirmatively, or has made and withdrawn such a
recommendation against the Alternative Transaction, or has modified such
negative recommendation in a manner adverse to Eastern; or
C within twelve months of the failure of the Colonial stockholders to
approve the Merger Agreement, Colonial has either (i) engaged in, or
entered into an agreement to engage in, an Alternative Transaction with
the third party initially involved at the time of the announcement or
commencement, or an affiliate of such third party, or with another third
party who announces or commences an Alternative Transaction while another
Alternative Transaction is pending (a "competing party") or (ii) the
Colonial Board has recommended an Alternative Transaction with the third
party initially involved in such Alternative Transaction, or an affiliate
of such party, or with a competing party.
. Colonial has committed a willful breach of the Merger Agreement and as a
result the Merger Agreement is terminated by Eastern under the circumstances
described in "--Termination of the Merger Agreement" and, either before such
termination or within twelve months thereafter, Colonial has entered into an
agreement to engage in or has engaged in an Alternative Transaction.
EASTERN TERMINATION FEE. Eastern has agreed to pay Colonial an amount equal
to $15 million (less the amount of any out-of-pocket expenses of Colonial paid
by Eastern) if:
. The Eastern Board fails to convene the Eastern Special Meeting or recommend
any required approval of the merger proposal and as a result, the Merger
Agreement is terminated by Colonial under the circumstances described in "--
Termination of the Merger Agreement."
. The shareholders of Eastern fail to approve the Stock Issuance and as a
result the Merger Agreement is terminated under the circumstances described
in "--Termination of the Merger Agreement" and at the time of such failure
to approve the Stock Issuance, an Alternative Transaction (as defined below)
has:
C been announced or commenced and Eastern has executed or consummated an
agreement to engage in such Alternative Transaction; or
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C been announced and within twelve months of the failure of the Eastern
shareholders to approve the Stock Issuance, Eastern has either (i)
engaged in, or entered into an agreement to engage in, an Alternative
Transaction with the third party initially involved at the time of the
announcement or commencement, or an affiliate of such third party, or
with a competing party or (ii) the Eastern Board has recommended an
Alternative Transaction with the third party initially involved in such
Alternative Transaction, or an affiliate of such party, or with a
competing party.
. Eastern has committed a willful breach of the Merger Agreement and as a
result the Merger Agreement is terminated under the circumstances described
in "--Termination of the Merger Agreement" and, either before such
termination or within twelve months thereafter Eastern has entered into an
agreement to engage in or has engaged in an Alternative Transaction.
"Alternative Transaction", when used to describe a transaction involving
Colonial or Eastern, means either (i) a transaction pursuant to which any
person (or group of persons) other than Eastern or its affiliates, acquires 20%
or more of the outstanding shares of Colonial Common Stock or Eastern Common
Stock, as applicable, pursuant to a tender offer or exchange offer or
otherwise, (ii) a merger, consolidation or combination involving Colonial or
Eastern, in which the holders of Colonial Common Stock or Eastern Common Stock,
do not own at least a majority of the equity of the surviving entity, (iii) any
other transaction pursuant to which any third party other than Eastern or its
affiliates acquires control of assets of Colonial or Eastern, having a fair
market value (as determined in good faith by the Board of Directors or the
Board of Trustees, as applicable, of the company whose assets are being
acquired) equal to more than 20% of the fair market value of all the assets of
the company whose assets are being acquired, immediately prior to such
transaction, or (iv) any public announcement of a proposal, plan or intention
to do any of the foregoing or any agreement to engage in any of the foregoing.
PAYMENT OF TERMINATION FEES AND EXPENSES OF THE OTHER PARTY; NO LIMITATION ON
RECOVERING FOR WILLFUL BREACH. Amounts payable by Colonial or Eastern to the
other party as a termination fee or for out-of-pocket expenses of the other
party will be paid by wire transfer within one business day after the event
giving rise to such payment. Colonial and Eastern, however, will not be
required to pay any expenses or termination fees to the other party if,
immediately prior to the termination of the Merger Agreement, the other party
was in material breach of any of its material obligations under the Merger
Agreement. If a party does not promptly pay any fee due under the Merger
Agreement, that party will also be liable for the costs and expenses of the
other party incurred in recovering such fee, as well as interest on any late
payment amount. In addition, if the Merger Agreement is terminated by a party
as a result of a willful breach by the other party, the terminating party may
pursue any remedies available to it at law or in equity and shall, in addition
to its out-of-pocket expenses (which shall be paid as specified above and shall
not be limited to $2,000,000), be entitled to retain such additional amounts as
the terminating party may be entitled to receive at law or in equity.
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UNAUDITED PRO FORMA COMBINED
FINANCIAL INFORMATION
The following pro forma financial information should be read in conjunction
with the consolidated financial statements including the notes thereto of
Eastern and Colonial which are incorporated by reference in this Joint Proxy
Statement/Prospectus. The unaudited pro forma information is presented for
illustration purposes only in accordance with the assumptions set forth below,
is not necessarily indicative of the operating results or financial position
that would have occurred had the Merger been consummated nor is it necessarily
indicative of future operating results or financial position of the combined
enterprise. The unaudited pro forma combined financial information does not
contain any adjustments to reflect any cost savings or other benefits
anticipated as a result of the Merger.
The following unaudited pro forma combined balance sheet presents, under the
purchase method of accounting for business combinations, the combined
consolidated balance sheets of Eastern and Colonial as of September 30, 1998
giving effect to the Merger as if it had been consummated on September 30,
1998. If and when the Merger is consummated, it is possible that other changes
may be required to the combined financial statements to implement the purchase
method of accounting for this combination.
The following unaudited pro forma combined statements of operations present,
under the purchase method of accounting for business combinations, the combined
consolidated statements of operations of Eastern and Colonial for the nine
months ended September 30, 1998 and the twelve months ended December 31, 1997
giving effect to the Merger as if it had been consummated on January 1, 1997.
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UNAUDITED PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
EASTERN COLONIAL
ENTERPRISES GAS COMPANY PRO FORMA PRO FORMA
(AS REPORTED)(2) (AS RECLASSIFIED)(2) ADJUSTMENTS BALANCES(1)
---------------- -------------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and short-term investments.................. $ 167,501 $ 1,139 $(157,500)(5a) $ 11,140
Receivables, less reserves of $20,355............ 63,675 5,438 -- 69,113
Inventories...................................... 56,176 15,990 -- 72,166
Deferred gas costs............................... 48,853 14,582 -- 63,435
Other current assets............................. 9,247 12,214 -- 21,461
---------- -------- --------- ----------
Total current assets........................... 345,452 49,363 (157,500) 237,315
PROPERTY AND EQUIPMENT, AT COST................... 1,699,539 402,611 -- 2,102,150
Less--accumulated depreciation................... 735,068 104,131 -- 839,199
---------- -------- --------- ----------
Net property and equipment....................... 964,471 298,480 -- 1,262,951
OTHER ASSETS
Deferred post-retirement health care costs....... 82,965 432 -- 83,397
Investments...................................... 13,894 -- -- 13,894
Deferred charges and other costs, net............ 69,205 35,211 214,404 (3) 318,820
---------- -------- --------- ----------
Total other assets............................. 166,064 35,643 214,404 416,111
---------- -------- --------- ----------
TOTAL ASSETS................................ $1,475,987 $383,486 $ 56,904 $1,916,377
========== ======== ========= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current debt..................................... $ 18,488 $ 52,083 $ -- $ 70,571
Accounts payable................................. 47,490 8,528 -- 56,018
Accrued expenses................................. 44,156 2,055 -- 46,211
Other current liabilities........................ 40,739 9,232 -- 49,971
---------- -------- --------- ----------
Total current liabilities...................... 150,873 71,898 -- 222,771
GAS INVENTORY FINANCING........................... 43,249 11,860 -- 55,109
LONG-TERM DEBT.................................... 387,311 111,041 -- 498,352
RESERVES AND OTHER LIABILITIES
Deferred income taxes............................ 135,899 55,909 -- 191,808
Post-retirement health care...................... 96,710 -- -- 96,710
Preferred stock of subsidiary.................... 29,351 -- -- 29,351
Other reserves................................... 91,671 7,983 -- 99,654
---------- -------- --------- ----------
Total reserves and other liabilities........... 353,631 63,892 -- 417,523
---------- -------- --------- ----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, authorized:
Eastern--50 million
Colonial--15 million
Issued and outstanding:
Eastern--
22.5 million; 26.9 million, pro forma......... 22,508 -- 4,423 (4b) 26,931
Colonial--8.8 million; none, pro forma......... -- 29,455 (29,455)(4b) --
Capital in excess of par......................... 52,666 61,162 116,114 (4b) 229,942
Retained earnings................................ 467,795 34,178 (34,178)(4b) 467,795
Accumulated other comprehensive earnings (loss).. (1,687) -- -- (1,687)
Treasury stock................................... (359) -- -- (359)
---------- -------- --------- ----------
Total shareholders' equity..................... 540,923 124,795 56,904 722,622
---------- -------- --------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.. $1,475,987 $383,486 $ 56,904 $1,916,377
========== ======== ========= ==========
</TABLE>
See accompanying notes to Unaudited Pro Forma Combined Financial Information.
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<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
EASTERN COLONIAL
ENTERPRISES GAS COMPANY PRO FORMA PRO FORMA
(AS REPORTED)(2) (AS RECLASSIFIED)(2) ADJUSTMENTS RESULTS(1)
---------------- -------------------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues................ $707,980 $122,471 $ -- $830,451
Operating costs and
expenses:
Operating costs....... 485,009 74,093 -- 559,102
Selling, general and
administrative
expenses............. 92,194 20,226 -- 112,420
Depreciation and
amortization......... 56,794 10,884 4,020 (3c) 71,698
-------- -------- -------- --------
Operating earnings...... 73,983 17,268 (4,020) 87,231
Other income (expense):
Interest income....... 5,548 1,702 (6,497)(5b) 753
Interest expense...... (24,495) (8,065) -- (32,560)
Other, net............ $ 5,384 555 -- 5,939
-------- -------- -------- --------
Earnings before
extraordinary items and
income taxes........... 60,420 11,460 (10,517) 61,363
Provision (benefit) for
income taxes........... $ 22,491 4,234 (2,274)(7) 24,451
-------- -------- -------- --------
Net earnings before
extraordinary items.... $ 37,929 $ 7,226 $ (8,243) $ 36,912
======== ======== ======== ========
Earnings per common
share before
extraordinary
items(4a)(6):
Basic................. $ 1.69 $ 0.83 $ 1.37
Diluted............... $ 1.67 $ 0.83 $ 1.36
Weighted average number
of common shares
outstanding:
Basic................. 22,461 8,750 26,884
Diluted............... 22,692 8,750 27,115
</TABLE>
See accompanying notes to Unaudited Pro Forma Combined Financial Information.
76
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FISCAL YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
EASTERN COLONIAL
ENTERPRISES GAS COMPANY PRO FORMA PRO FORMA
(AS REPORTED)(2) (AS RECLASSIFIED)(2) ADJUSTMENTS RESULTS(1)
---------------- -------------------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues................ $1,023,740 $200,213 $ -- $1,223,953
Operating costs and
expenses:
Operating costs....... 715,066 123,196 -- 838,262
Selling, general and
administrative
expenses............. 122,035 29,930 -- 151,965
Depreciation and
amortization......... 71,322 13,293 5,360 (3c) 89,975
---------- -------- -------- ----------
Operating earnings...... 115,317 33,794 (5,360) 143,751
Other income (expense):
Interest income....... 8,997 2,581 (8,663)(5b) 2,915
Interest expense...... (37,411) (10,373) -- (47,784)
Other, net............ (4,033) 462 -- (3,571)
---------- -------- -------- ----------
Earnings before income
taxes.................. 82,870 26,464 (14,023) 95,311
Provision (benefit) for
income taxes........... 26,954 10,424 (3,032)(7) 34,346
---------- -------- -------- ----------
Net earnings............ $ 55,916 $ 16,040 $(10,991) $ 60,965
========== ======== ======== ==========
Earnings per common
share(4a)(6):
Basic................. $ 2.50 $ 1.87 $ 2.28
========== ======== ==========
Diluted............... 2.49 $ 1.87 $ 2.26
========== ======== ==========
Weighted average number
of common shares
outstanding:
Basic................. 22,329 8,598 26,752
========== ======== ==========
Diluted............... 22,498 8,598 26,921
========== ======== ==========
</TABLE>
See accompanying notes to Unaudited Pro Forma Combined Financial Information.
77
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED
FINANCIAL INFORMATION
(1)THE MERGER
The Merger will be accounted for under the purchase method of accounting for
business combinations. The unaudited pro forma combined financial data do not
give effect to any restructuring costs, nor any potential cost savings or other
benefits that could result from the Merger. Eastern is in the process of
developing its plan to integrate the operations of Colonial. There were no
intercompany transactions between Eastern and Colonial during the periods
presented that require elimination.
On September 30, 1998, Eastern completed a merger with Essex Gas which was
accounted for as a pooling of interests. Accordingly, the accompanying
unaudited pro forma combined financial data include in Eastern the accounts of
Essex Gas for all periods presented.
(2)RECLASSIFICATIONS
These columns represent historical results of operations and financial
position of the respective companies. Certain reclassifications have been made
to Colonial's historical results to conform with Eastern's historical
presentation.
(3)PURCHASE PRICE ALLOCATION
The fair value of the consideration exchanged to acquire Colonial Common
Stock will be determined at the closing date and will be allocated to the
assets and liabilities of Colonial based on their estimated fair value. A
preliminary allocation of the purchase price has been presented in the
unaudited pro forma combined financial information in which the fair value of
the identifiable net tangible assets of Colonial is assumed to equal the net
book value of such assets. The excess of consideration over the fair value of
the identifiable net tangible assets has been preliminarily allocated to
goodwill as follows (in thousands, except price per share):
<TABLE>
<S> <C>
Shares of Colonial Common Stock outstanding
on September 30, 1998.............................................. 8,845
Consideration per Colonial share(a)................................ $ 37.50
--------
Consideration exchanged for Colonial Common Stock.................. $331,699
Plus: Estimated transaction costs(b)............................... 7,500
--------
Total estimated purchase price..................................... 339,199
Less: Estimated fair value of Colonial's identifiable
net assets (net book value) on September 30, 1998.................. 124,795
--------
Total estimated goodwill due to merger............................. $214,404
========
</TABLE>
- --------
(a) The estimated consideration and purchase price allocation used for pro
forma purposes are based on a value of $37.50 per share of Colonial
Common Stock.
(b) Transaction costs primarily include investment banking fees and other
professional fees.
(c) A pro forma adjustment has been made for the nine months ended
September 30, 1998 and the twelve months ended December 31, 1997 to
reflect incremental amortization expense on the goodwill created by the
Merger. Goodwill is amortized over a 40-year life.
78
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED
FINANCIAL INFORMATION--(CONTINUED)
(4)STOCK CONSIDERATION
(a) The Merger consideration consists of $150 million in cash and the
balance in Eastern Common Stock. 4,000,000 shares of Colonial Common
Stock will be exchanged for cash consideration in an amount equal to
$37.50 per share. Shares of Colonial Common Stock which are not
exchanged for cash consideration will be converted into a number of
shares of Eastern Common Stock based on the exchange ratio to be
determined in the manner described in Note 6 below. Based on the
average closing price of Eastern Common Stock on the New York Stock
Exchange for the ten trading day period (which is the period used to
calculate the exchange ratio under the Merger Agreement--as discussed
in Note 6 below) ended on December 11, 1998 which was $41.08, Eastern
would issue approximately 4.423 million shares in the transaction
(based on the number of shares of Colonial Common Stock outstanding on
September 30, 1998). The unaudited pro forma net earnings per share
reflect the weighted average number of Eastern common shares that would
have been outstanding if the Merger occurred at the beginning of the
periods presented upon the conversion of each outstanding share of
Colonial Common Stock not exchanged for cash into 0.913 shares of
Eastern Common Stock, as provided in the Merger Agreement.
(b) Pro forma adjustments have been made as of September 30, 1998 to
reflect the issuance of approximately 4.423 million shares of Eastern
Common Stock ($1.00 par value per share) to be exchanged together with
cash of $150 million for all of the outstanding shares of Colonial
Common Stock (based on the number of shares of Colonial Common Stock
outstanding on September 30, 1998) and to eliminate the shareholders'
equity accounts of Colonial.
(5)CASH CONSIDERATION
(a) A pro forma adjustment has been made to reflect the fixed $150 million
cash consideration Eastern will use to fund the purchase price of a
portion of the Colonial Common Stock plus an additional $7.5 million
for estimated transaction costs, assuming such cash consideration was
taken from on-hand cash and short-term investments. The remaining
Merger consideration will be comprised of Eastern Common Stock.
(b) A pro forma adjustment has been made to reflect reduced interest income
resulting from the use of $157.5 million cash, assuming such cash was
taken from on-hand cash and short-term investments, to fund part of the
Colonial purchase price and estimated transaction costs as if such
funding had occurred on January 1, 1997, assuming a weighted average
annual interest rate of 5.5%.
(6)EXCHANGE RATIO
As provided for in the Merger Agreement, Colonial shareholders will be
permitted to elect either Eastern Common Stock or cash, with the total amount
of cash consideration fixed at $150 million. Shareholder elections will be
prorated to the extent necessary to maintain this mix of consideration. Under
the Merger Agreement's collar mechanism, if Eastern's average closing price
79
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED
FINANCIAL INFORMATION--(CONTINUED)
per share for the ten trading day period ending on the third trading day prior
to the Effective Date is either higher than $47.80 or lower than $37.56, the
portion of the purchase price payable in Eastern shares would be determined
based upon a fixed exchange ratio calculated at such prices. Based upon the
average closing price per share of Eastern Common Stock on the New York Stock
Exchange for the ten trading day period ended on December 11, 1998 (which is
calculated as if the Effective Date was December 16, 1998) of $41.08, the fixed
exchange ratio would be 0.913 shares of Eastern Common Stock for each share of
Colonial Common Stock (other than shares of Colonial Common Stock to be
exchanged for an aggregate $150 million of cash consideration in the Merger)
and Eastern would issue approximately 4.423 million shares in this transaction
based on the number of shares of Colonial Common Stock outstanding as of
September 30, 1998. Any increase in the exchange ratio will cause a
corresponding decrease in the pro forma combined per share amounts and any
decrease in the exchange ratio will cause a corresponding increase in the pro
forma per share amounts. For example, if Eastern's stock price was at either
$47.80 or $37.56, the recalculated combined pro forma earnings per share in the
latest fiscal year and interim period would be as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1997 SEPTEMBER 30, 1998
----------------- -------------------
<S> <C> <C> <C> <C>
Eastern stock price................. $ 47.80 $ 37.56 $ 47.80 $ 37.56
-------- -------- --------- ---------
Basic earnings per share............ $ 2.33 $ 2.24 $ 1.41 $ 1.35
Diluted earnings per share.......... $ 2.32 $ 2.23 $ 1.39 $ 1.34
</TABLE>
(7) INCOME TAXES
A pro forma adjustment has been made for the nine months ended September 30,
1998 and the twelve months ended December 31, 1997 to reflect the tax effect of
the pro forma adjustments using Eastern's incremental tax rate of 35%. Goodwill
created by the Merger is nondeductible for tax purposes because the transaction
is tax-free.
80
<PAGE>
PRINCIPAL STOCKHOLDERS
BENEFICIAL OWNERS OF MORE THAN 5% OF EASTERN'S OUTSTANDING SECURITIES
The following table shows, as of October 31, 1998, any person who is known by
Eastern to be the beneficial owner of more than five percent of any class of
voting securities of Eastern.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL PERCENTAGE OF
OF BENEFICIAL OWNER OWNERSHIP(1) COMMON STOCK
- ------------------- ----------------- -------------
<S> <C> <C>
Sasco Capital, Inc. ............................ 1,461,700(2) 7.2%
10 Sasco Hill Road
Fairfield, CT 06430
</TABLE>
- --------
(1) According to Schedule 13G filed with the Securities and Exchange Commission
on or before October 31, 1998.
(2) 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.
EASTERN MANAGEMENT OWNERSHIP
The following information is furnished as to the Eastern Common Stock owned
beneficially (as defined in Rule 13d-3 under the Securities Exchange Act of
1934), as of October 31, 1998 by each Trustee and the executive officers of
Eastern, and the Trustees and executive officers of Eastern as a group. The
information concerning beneficial ownership has been furnished by the persons
listed below.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENTAGE OF
NAME OF INDIVIDUAL OWNERSHIP(1)(2) COMMON STOCK
- ------------------ ----------------- -------------
<S> <C> <C>
J.R. Barker................... 3,450(3)(4) *
R.R. Clayton.................. 84,241(5)(7) .4%
J.D. Curtin, Jr. ............. 2,225(3)(8) *
W.J. Flaherty................. 44,072(6) .2%
S. Frankenheim................ 5,772(3)(4) *
J.A. Ives..................... 363,902(6)(7) 1.6%
L.R. Jaskol................... 4,250(3)(4) *
W.J. Knox..................... 375(9) *
L. W. Law, Jr. ............... 28,657(6) .1%
C.R. Messer................... 49,542(6)(7) .2%
F.C. Raskin................... 44,302(6) .2%
R.K. Spence................... 3,950(3)(4) *
D.B. Stone.................... 2,850(3)(4) *
Directors and executive
officers as a group (13
persons)..................... 637,588(3)(4)(5)(6)(7)(8)(9) 2.8%
</TABLE>
- --------
* Less than 0.1%
(1) Except as noted, each Trustee, nominee and executive officer has sole
voting and investment power over the shares owned.
(2) Figures do not include the following Share Units held under Eastern's
Deferred Compensation Plan for Trustees as to which they have no voting
rights: Mr. Barker, 454; Mr. Curtin, 1,533; Mr. Frankenheim, 6,857; Mr.
Jaskol, 2,491; Mr. Knox, 1,079; Ms. Spence, 454; and Mr. Stone, 1,653.
81
<PAGE>
(3) 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 include 8,000 such shares.
(4) Figures include 1,650 shares which may be acquired as of December 30, 1998
through the exercise of stock options for each of Messrs. Barker,
Frankenheim, Jaskol and Stone and Ms. Spence.
(5) Figure includes 27,700 shares which may be acquired as of December 30, 1998
through the exercise of stock options.
(6) Figures include the following shares which executive officers have the
right to acquire as of December 30, 1998 through the exercise of employee
stock options: Mr. Ives, 285,800; Mr. Raskin, 23,600; Mr. Flaherty, 19,200;
Mr. Law, 14,700; Mr. Messer, 17,100; and Trustees and executive officers as
a group, 397,450.
(7) Figures include the following shares owned by spouse or held by spouse as
custodian for children: Mr. Ives, 5,000; Mr. Clayton, 52,342 and Mr.
Messer, 7,400.
(8) Figure includes 825 shares which may be acquired as of December 30, 1998
through exercise of stock options.
(9) Figure includes 275 shares which may be acquired as of December 30, 1998
through exercise of stock options.
BENEFICIAL OWNERS OF MORE THAN 5% OF COLONIAL'S OUTSTANDING SECURITIES
The following table sets forth information as of October 31, 1998 with
respect to any person or group known to Colonial to be the beneficial owner of
more than five percent of the Colonial Common Stock.
<TABLE>
<CAPTION>
SOLE VOTING PERCENTAGE OF
AND INVESTMENT AGGREGATE
NAME AND ADDRESS OF BENEFICIAL OWNER POWER COMMON STOCK
- ------------------------------------ -------------- -------------
<S> <C> <C>
LaSalle National Trust, N.A.(1).................... 675,169(2) 7.6%
135 S. LaSalle Street
Chicago, IL 60603
</TABLE>
- --------
(1) Information herein is based solely on a Summary Report provided to the
Company by LaSalle National Trust, N.A.
(2) These shares are held by LaSalle as Trustee under the Savings Plan pursuant
to which participating employees direct how they wish to invest their
individual accounts among the plan investments and how they wish to have
voted the shares of Colonial's Common Stock allocated to their accounts.
82
<PAGE>
COLONIAL MANAGEMENT OWNERSHIP
The following table sets forth (i) the number of shares of Common Stock
beneficially owned as of October 31, 1998 by each of Colonial's Directors, by
each of the executive officers and by Colonial's Directors and executive
officers as a group, and (ii) the percentage which such shares bear to the
total number of outstanding shares as of that date.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME OF INDIVIDUAL OR OF BENEFICIAL OWNERSHIP PERCENTAGE OF
NUMBER OF PERSONS IN GROUP OF COMMON STOCK(1) COMMON STOCK
-------------------------- ------------------------ -------------
<S> <C> <C>
Frederic L. Putnam, Jr.
Individually.......................... 31,369(2) *
By Corporation........................ 218,898(3) 2.47%
Frederic L. Putnam, III................ 9,869(4) *
Victor W. Baur......................... 5,215(5) *
John P. Harrington..................... 3,624(6) *
Nickolas Stavropoulos.................. 8,473(6) *
Howard C. Homeyer...................... 1,147(7) *
Richard L. Hull........................ 1,352(7) *
Richard A. Perkins..................... 211(7) *
John F. Reilly, Jr. ................... 1,375(7) *
Andrew B. Sides, Jr. .................. 14,106(7) *
Margaret M. Stapleton.................. 450(7) *
Two other executive officers of the
Company............................... 10,399 *
Directors and executive officers as a
group (13 persons).................... 306,488 3.46%
</TABLE>
- --------
* Less than 1%
(1) Number of shares based on information furnished to Colonial by its
Directors and officers and by the Trustee of the Colonial Savings Plan.
(2) Consisting of 2,242 shares owned solely; 4,811 shares owned jointly with
spouse; 1,500 shares owned of record by spouse over which Mr. Putnam, Jr.
has or shares the power to direct voting or disposition, or both; 22,816
shares held in trust for Mr. Putnam, Jr. under the Colonial Savings Plan
pursuant to which Mr. Putnam, Jr. has the power to direct the disposition
and the voting of such shares; and the results of a small acquisition and
bona fide gift transaction which Mr. Putnam, Jr. made in 1997.
(3) These shares are held by F.L. Putnam Securities Company, Inc. of which Mr.
Putnam, Jr. is a director and owner (as Trustee without beneficial
interest) of approximately 16% of the voting stock. Brothers of Mr. Putnam,
Jr. are the other directors and stockholders of that corporation. Mr.
Putnam, Jr. disclaims beneficial ownership of these shares.
(4) Consisting of 9,854 shares held in trust for Mr. Putnam, III under the
Colonial Savings Plan pursuant to which Mr. Putnam, III has the power to
direct the disposition and the voting of such shares and 15 shares held by
Mr. Putnam, III as custodian for his minor child pursuant to which Mr.
Putnam, III as custodian for his minor child pursuant to which Mr. Putnam,
III has the power to direct the disposition and the voting of such shares.
(5) Consisting of 101 shares owned jointly with spouse, over which Mr. Baur has
or shares the power to direct voting or disposition, or both, and 5,114
shares held in trust for Mr. Baur under the Colonial Savings Plan pursuant
to which Mr. Baur has the power to direct the disposition and the voting of
such shares.
(6) These shares are held in trust for the named individual under the Colonial
Savings Plan pursuant to which the named individual has the power to direct
the disposition and the voting of such shares.
(7) Owner of record with sole voting and investment power.
83
<PAGE>
DESCRIPTION OF EASTERN CAPITAL STOCK
GENERAL
The description of the capital stock below is qualified in its entirety by
reference to Eastern's Declaration of Trust and the Eastern By-laws, copies of
which are on file with the SEC.
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
Eastern is authorized to issue up to 50,000,000 shares of Eastern Common
Stock. On December 15, 1998, there were 22,510,920 shares of Eastern Common
Stock issued and outstanding.
Shares of Eastern Common Stock which, by the provisions of Eastern's
Declaration of Trust, 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 Eastern Common Stock shall be by cumulative voting, namely,
each holder of Eastern Common Stock will be entitled to as many votes as will
equal the number of such holder's shares multiplied by the number of trustees
to be elected, and such holder may cast all of such votes for a single
candidate or distribute them among any two or more candidates as such holder
shall elect.
The Eastern shareholders are entitled to receive dividends only when and if
declared by the Eastern Board out of the earned surplus of Eastern.
Upon the termination of Eastern, the trustees shall sell and convert into
money or into securities the whole or any part of the trust estate, and shall
apportion the proceeds thereof and any property forming part of the trust
estate excepted from such sale among all the shareholders in accordance with
their respective rights, ratably according to the number and kind of shares
held by them, respectively.
The Eastern shareholders will have no preemptive rights to purchase shares of
capital stock of Eastern. Shares of Eastern Common Stock will not be subject to
any redemption provisions and will not be convertible into any other securities
or property. All issued and outstanding shares of Eastern Common Stock are
fully-paid and non-assessable and the shares of Eastern Common Stock to be
issued in connection with the Merger, when authorized, approved, issued and
delivered, subject to the terms of the Merger Agreement, will be fully-paid and
non-assessable.
COMMON STOCK PURCHASE RIGHTS
Eastern adopted a shareholder rights plan that is designed to protect
shareholders from coercive or unfair tactics. To implement the plan, on
February 22, 1990, the Eastern Board declared a dividend of one common stock
purchase right (an "Eastern Right") for each outstanding share of Eastern
Common Stock. The dividend was payable on March 5, 1990 to the shareholders of
record on that date. Each Eastern Right entitles the registered holder to
purchase one share of Eastern Common Stock at a price of $100 per share (the
"Eastern Purchase Price"), subject to adjustment, upon the occurrence of
certain events. The description and terms of the Eastern Rights are set forth
in a Rights Agreement (the "Eastern Rights Agreement"), dated as of February
22, 1990, between Eastern and BankBoston N.A., as rights agent, as amended,
which is on file with the SEC. The Eastern Rights Agreement contemplates the
issuance of one Eastern Right for every share of Eastern Common Stock issued
and outstanding on March 5, 1990 and for each share of Eastern Common Stock
issued on or after March 5, 1990 and prior to the Eastern Distribution Date, as
described in the next paragraph.
84
<PAGE>
The Eastern Rights will separate from the Eastern Common Stock upon the
Eastern Distribution Date, which is defined as the earliest to occur of: (i)
the 10th business day following the later of the date of a public announcement
that a person, together with affiliates or associates of such person (an
"Eastern Acquiring Person") has acquired, or obtained the rights to acquire,
beneficial ownership of 10% or more of the outstanding shares of Eastern Common
Stock or the date on which an executive officer of Eastern had actual knowledge
of such beneficial ownership (the later of such dates, the "Eastern Stock
Acquisition Date") or (ii) the 10th business day following the commencement of
a tender offer or exchange offer that would result in any person or its
affiliates and associates owning 10% or more of the outstanding shares of
Eastern Common Stock (or such specified or unspecified later date as may be
determined by a majority of the Trustees then in office).
The Eastern Rights Agreement provides that, until the Eastern Distribution
Date (or earlier redemption or expiration of the Eastern Rights), the Eastern
Rights will be transferred with and only with Eastern Common Stock. Until the
Eastern Distribution Date (or earlier redemption or expiration of the Eastern
Rights), (i) Eastern Common Stock certificates issued after March 5, 1990 will
contain a notation incorporating the Eastern Rights Agreement by reference and
(ii) the surrender for transfer of any certificates for Eastern Common Stock
also constitutes the transfer of the Eastern Rights associated with the Eastern
Common Stock represented by the certificate. As soon as practicable following
the Eastern Distribution Date, separate certificates evidencing the Eastern
Rights will be mailed to holders of record for the Eastern Common Stock as of
the close of business on the Eastern Distribution Date and these separate
Eastern Rights certificates alone will then evidence the Eastern Rights.
The Eastern Rights are not exercisable until the Eastern Distribution Date.
The Eastern Rights will expire on March 5, 2000, or the earlier redemption of
the Eastern Rights.
In the event that, at any time following the Eastern Stock Acquisition Date,
Eastern is acquired in a merger or other business combination transaction or
25% or more of its consolidated assets or earning power are sold, proper
provision will be made so that each holder of an Eastern Right, other than
Eastern Rights beneficially owned by the Eastern Acquiring Person or any
disqualified transferee (which will thereafter be void), will thereafter have
the right to receive, upon the exercise thereof at the then current exercise
price of the Eastern Right, that number of shares of common stock of the
acquiring company which at the time of such transaction will have a market
value of two times the exercise price of the Eastern Right. In the event that,
at any time after February 22, 1990, any person or group of affiliated or
associated persons (other than Eastern or its affiliates) becomes the
beneficial owner of 10% or more of the outstanding Eastern Common Stock, proper
provision shall be made so that each holder of an Eastern Right, other than
Eastern Rights beneficially owned by the Eastern Acquiring Person or any
disqualified transferee (which will thereafter be void), will thereafter have
the right to receive upon exercise that number of shares of Eastern Common
Stock having a market value of two times the exercise price of the Eastern
Right. The occurrence of any event in this paragraph constitutes an "Eastern
Common Stock Event."
The Eastern Board may, at its option, at any time after any person becomes an
Eastern Acquiring Person exchange all or part of the then outstanding and
exercisable Eastern Rights for shares of Eastern Common Stock at an exchange
ratio of one share of Eastern Common Stock per Eastern Right, approximately
adjusted to reflect any stock split, stock dividend or similar transaction
85
<PAGE>
occurring after the date of declaration of the Eastern Rights. The Eastern
Board, however, may not effect an exchange at any time after any person (other
than (i) Eastern, (ii) any subsidiary of Eastern, (iii) any employee benefit
plan of Eastern or any such subsidiary or any entity holding Eastern Common
Stock for or pursuant to the terms of any such plan), together with all
affiliates of such person, becomes the beneficial owner of 50% or more of the
Eastern Common Stock then outstanding. Immediately upon the action of the
Eastern Board ordering the exchange of any Eastern Rights and without any
further action and without any notice, the right to exercise such Eastern
Rights will terminate and the only right thereafter of a holder of such Eastern
Rights will be to receive that number of shares of Eastern Common Stock equal
to the number of such Eastern Rights held by the holder multiplied by the
exchange ratio described above.
The Eastern Purchase Price payable, and the number of whole or fractional
shares of the Eastern Common Stock or other securities or property issuable,
upon exercise of the Eastern Rights are subject to adjustment from time to time
to prevent dilution (i) in the event of a stock dividend on, or a subdivision,
combination or reclassification, of Eastern Common Stock, (ii) upon the grant
to holders of Eastern Common Stock of certain rights or warrants to subscribe
for shares of Eastern Common Stock or convertible securities at less than the
current market price of Eastern Common Stock, or (iii) upon the distribution to
holders of Eastern Common Stock of evidences of indebtedness or assets
(excluding cash dividends paid out of the earnings or retained earnings of
Eastern and dividends payable in shares of Eastern Common Stock) or of
subscription rights or warrants (other than those referred to above).
With certain exceptions, no adjustment in the Eastern Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Eastern Purchase Price. No fractional shares of any securities upon
exercise of the Eastern Rights will be issued and, in lieu thereof, at the
election of Eastern, an adjustment in cash may be made based on the market
price of such securities on the last trading date prior to the date of
exercise.
At any time prior to the earlier of (i) the close of business on the 10th
business day after the Eastern Stock Acquisition Date or (ii) March 5, 2000,
Eastern, by a majority vote of the trustees then in office, may redeem the
Eastern Rights at a price of $.01 per Eastern Right. Immediately upon the
action of the Eastern Board electing to redeem the Eastern Rights, the right to
exercise the Eastern Rights will terminate and the only right of the holders of
Eastern Rights will be to receive the redemption price of $.01 per Eastern
Right. Until an Eastern Right is exercised, the holder thereof, as such, will
have no rights as a shareholder of Eastern, including, without limitation, the
right to vote or to receive dividends.
Until the Eastern Distribution Date, the Eastern Rights Agreement may be
amended without the approval of the holders of the Eastern Rights. After this
date, the Eastern Rights Agreement may be amended without the approval of the
holders of the Eastern Rights in order to cure any ambiguity, to make changes
that do not adversely affect the interests of the holders of the Eastern Rights
(other than the Eastern Acquiring Person, disqualified transferee or their
affiliates and associates), or to change any time period for redemption or
otherwise under the Eastern Rights Agreement, except that no change may be made
to lengthen the time period for redemption or modify the ability of the Eastern
Board to redeem the Eastern Rights at a time when the Eastern Rights are not
then redeemable. No amendments may be made at any time to increase the Eastern
Purchase Price or
86
<PAGE>
reduce the number of shares of Eastern Common Stock for which an Eastern Right
is exercisable, to decrease the redemption price or to accelerate the
expiration date of the Eastern Rights. Any amendments after the Eastern Stock
Acquisition Date require the approval of a majority of the trustees then in
office.
New Rights Agreement
On July 22, 1998, the Eastern Board declared a dividend of one purchase right
(a "New Right") for every outstanding share of Eastern Common Stock. The New
Rights will be distributed at the close of business upon the New Dividend
Record Date, which is defined as the earlier to occur of (i) the date of
redemption by Eastern of Eastern's Rights issued pursuant to the Eastern Rights
Agreement discussed above, and (ii) February 18, 2000, to shareholders of
record as of the close of business on such date. The terms of the New Rights
are set forth in a Rights Agreement dated as of July 22, 1998 (the "New Rights
Agreement") between Eastern and BankBoston N.A. as rights agent, a copy of
which is on file with the SEC.
The New Rights Agreement provides for the issuance of one New Right for every
share of Eastern Common Stock issued and outstanding on the New Dividend Record
Date and for each share of Eastern Common Stock which is issued or sold after
that date and prior to the Eastern Distribution Date (which under the New
Rights Agreement will take place after the New Dividend Record Date). Each New
Right entitles the holder to purchase from Eastern one share of Eastern Common
Stock at a price of $160 per share, subject to adjustment, upon the occurrence
of certain events. The New Rights will expire on July 22, 2008, or upon the
earlier redemption of the New Rights, and are not exercisable until the Eastern
Distribution Date (which under the New Rights Agreement will take place after
the New Dividend Record Date). The material terms of the New Rights Agreement
are substantially similar to the terms of the Eastern Rights Agreement
discussed above.
MASSACHUSETTS LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS; ANTI-TAKEOVER
EFFECTS
Eastern is subject to Chapter 110F of the MGL, an anti-takeover law. Under
Chapter 110F of the MGL, a Massachusetts corporation, or business trust that
controls a gas utility organized under Chapter 164 of the MGL, with more than
200 stockholders may not engage in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person becomes an interested stockholder, unless (i) the interested
stockholder obtains the approval of the board of directors (or Board of
Trustees in the case of Eastern) prior to becoming an interested stockholder,
(ii) the interested stockholder acquires 90% of the outstanding voting stock of
the corporation (excluding shares held by certain affiliates of the
corporation) at the time it becomes an interested stockholder or (iii) the
business combination is approved by both the board of directors and the holders
of two-thirds of the outstanding voting stock of the issuer (excluding shares
held by the interested stockholder). An "interested stockholder" is a person
who, together with affiliates and associates, owns (or, in certain cases, at
any time within the prior three years did own) 5% or more of the outstanding
voting stock of the issuer. A "business combination" includes a merger, certain
stock or asset sales, and certain other specified transactions resulting in a
financial benefit to the interested stockholder.
The Eastern By-laws include a provision excluding Eastern from the
applicability of Chapter 110D of the MGL, which regulates the acquisition of
so-called "control shares." A control share
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acquisition is the acquisition of shares that, when added to shares already
owned, would (but for Chapter 110D of the MGL) entitle the acquiring person to
vote at least 20% of an entity's stock. Shares acquired in such a transaction
would, under Chapter 110D of the MGL, have no voting rights unless a majority
of non-interested stockholders voted to grant such voting rights. In general,
the person acquiring such shares, officers of Eastern and those trustees of
Eastern who are also employees, are not permitted to vote on whether such
voting rights shall be granted. The Eastern Board may amend the Eastern By-laws
at any time to subject Eastern to Chapter 110D of the MGL prospectively.
Eastern's Declaration of Trust provides that the trustees, officers and
agents of Eastern generally shall not be liable except for acts or failures to
act which at the time would impose liability on such party if Eastern were a
Massachusetts business corporation and such person was a director, officer or
agent thereof. Pursuant to Eastern's Declaration of Trust, Eastern shall
indemnify each of its trustees and officers against all liabilities and
expenses, including amounts paid in satisfaction of judgments, in compromise or
as fines and penalties, and counsel fees, reasonably incurred by such trustee
or officer in connection with the defense or disposition of any action, suit or
other proceeding, whether civil or criminal, including, but not limited to,
derivative suits (to the extent permitted by law), in which such trustee or
officer may be involved or with which such trustee or officer may be
threatened, while in office or thereafter, except with respect to any matters
as to which such trustee or officer shall have been adjudicated to have acted
in bad faith or not to have acted in good faith in the reasonable belief that
such trustee's or officer's action was in the best interests of Eastern or, to
the extent that such matter relates to service with respect to an employee
benefit plan, in the best interests of the participants or beneficiaries of
such plan. Eastern's Declaration of Trust provides, however that, as to any
matter disposed of by a compromise payment by such trustee or officer pursuant
to a consent decree or otherwise, no indemnification either for said payment or
for any other expenses shall be provided unless such compromise shall be
approved as in the best interests of Eastern, after notice that it involves
such indemnification: (i) if no change of control has occurred, (a) by a
disinterested majority of the trustees then in office or (b) by a majority of
the disinterested trustees then in office or by the shareholders of Eastern,
provided that Eastern shall have received a written opinion of independent
legal counsel to the effect that such trustee or officer appears to have acted
in good faith in the reasonable belief that such trustee's or officer's action
was in the best interests of Eastern; or (ii) if a change of control shall have
occurred, by an opinion in writing of independent legal counsel to the effect
that such trustee or officer appears to have acted in good faith in the
reasonable belief that his action was in the best interests of Eastern. The
rights accruing to any trustee or officer under the foregoing provisions do not
exclude any other right to which such trustee or officer may be lawfully
entitled; provided, however, that no trustee or officer may satisfy any rights
of indemnity or reimbursement granted pursuant to Eastern's Declaration of
Trust or to which such trustee or officer may be otherwise entitled except out
of the trust estate of Eastern and no shareholder will be personally liable to
any person with respect to any claim for indemnity or reimbursement or
otherwise.
Eastern's Declaration of Trust provides that in discharging his or her
duties, when acting in good faith, any trustee or officer shall be fully
entitled to rely upon information, opinions, reports or records, including
financial statements, books of account and other financial records, in each
case presented or prepared by, or under the supervision of, (i) one or more
officers or employees of Eastern (or of
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another organization in which such person serves as contemplated by Article 19
of Eastern's Declaration of Trust, including all directors, officers and
trustees of wholly-owned subsidiaries of Eastern) whom the trustee or officer
reasonably believes to be reliable and competent in the matters presented,
(ii) counsel, public accountants or other persons as to matters which the
trustee or officer reasonably believes to be within such person's professional
or expert competence, or (iii) in the case of a trustee, a duly constituted
committee of trustees (or similar governing body of such other organization)
upon which such trustee does not serve, as to matters within its delegated
authority, which committee the trustee reasonably believes to merit confidence,
but such trustee shall not be considered to be acting in good faith if such
trustee has knowledge concerning the matter in question that would cause such
reliance to be unwarranted. The fact that a trustee or officer so relied shall
be a complete defense to any claim asserted against such trustee or officer,
except as expressly provided by statute, by reason of such trustee or officer
being or having been a trustee or officer of Eastern (or such other
organization).
Eastern's Declaration of Trust further provides that, notwithstanding any
provision of law or any other provision of Eastern's Declaration of Trust, a
trustee shall not be liable to Eastern or any Eastern shareholder for monetary
damages for breach of such trustee's fiduciary duties as a trustee, except with
respect to any matter as to which such liability is imposed by applicable law
and he or she shall have been adjudicated (i) to have breached his or her duty
of loyalty to Eastern or its shareholders, (ii) to have acted not, or omitted
to act, in good faith, (iii) to have knowingly violated the law, (iv) to have
intentionally engaged in misconduct, or (v) to have derived any improper
personal benefit from a transaction. Trustees, officers and agents of Eastern
will also not be held liable for any act or failure to act in good faith, which
is required, authorized or approved by any order issued pursuant to PUHCA or
any other federal or state statute regulating Eastern or any of its
subsidiaries by reason of its being a public utility holding company or their
being public utilities. Eastern's Declaration of Trust also provides that
shareholders, trustees, officers and agents of Eastern will have no liability
for the payment or satisfaction of all obligations and liabilities incurred in
carrying on the business of Eastern, but that the trust estate of Eastern shall
only be liable. Shareholders are indemnified out of the trust estate if held
personally liable in any event, except for payments due upon shares of Eastern.
The trustees or the President of Eastern at any time may, and the President
or Secretary of Eastern shall upon written request of a majority of the
trustees then in office or of the holders of one-tenth of all the shares of
Eastern at the time outstanding and carrying the right to vote upon any
question to be presented to a meeting of shareholders, call a special meeting
of the shareholders having the right to vote upon any such question, to be held
at the principal place of business of Eastern or such other place (within the
Commonwealth of Massachusetts) as the trustees shall designate. Every such
request shall state the purpose of the meeting and shall be delivered at the
principal office of Eastern addressed to the President or Secretary, and, in
case the President or Secretary shall refuse or fail for fourteen days after
the request shall have been so delivered to call or cause to be called such
meeting to be held within 60 days after the delivery of the request, such
meeting may be called by the person or persons signing such request or by any
three of them, and, for such purposes such person or persons or agents shall be
given access to the principal share register of Eastern.
The shareholders of Eastern may not take any action without a meeting.
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TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Eastern Common Stock is BankBoston,
N.A.
COMPARATIVE RIGHTS OF HOLDERS OF COLONIAL
AND EASTERN COMMON STOCK
Rights of stockholders of Colonial are currently governed by the MGL,
including Chapter 164 of the MGL and certain provisions of Chapter 156B of the
MGL, Colonial's Restated Articles of Organization and the Colonial By laws.
Rights of shareholders of Eastern are currently governed by the MGL, Eastern's
Declaration of Trust , and the Eastern By-laws. Upon consummation of the
Merger, some Colonial stockholders will become shareholders of Eastern and
their rights as shareholders of Eastern will be governed by Eastern's
Declaration of Trust , the Eastern By-laws and the MGL. There are a number of
differences between the rights of Colonial stockholders and the rights of
Eastern shareholders. The following is a brief summary of certain differences
between the rights of Eastern shareholders and the rights of Colonial
stockholders, and is qualified in its entirety by reference to the relevant
provisions of MGL, Eastern's Declaration of Trust and the Eastern By-laws,
Colonial's Restated Articles of Organization and the Colonial By laws.
AUTHORIZED CAPITAL STOCK
COLONIAL. The authorized capital stock of Colonial consists of 15,000,000
shares of Colonial Common Stock and 547,559 shares of Colonial preferred stock
Class A and 370,000 shares of Colonial preferred stock Class B. With respect to
the preferred stock, the Colonial Board is authorized, without stockholder
approval (subject to any class voting rights of any existing holders of
preferred stock), to designate series of each such class and to determine the
relative rights, preferences and limitations of such series. As of the date
hereof, there have been designated an aggregate of 100,000 shares of Colonial
Series A-1 Junior Participating Preferred Stock (of which no shares were issued
and outstanding as of the Colonial Record Date). On December 15, 1998, there
were 8,908,543 shares of Colonial Common Stock issued and outstanding.
EASTERN. Eastern is authorized to issue up to 50,000,000 shares of Eastern
Common Stock. On December 15, 1998, there were 22,510,920 shares of Eastern
Common Stock issued and outstanding.
BOARDS OF DIRECTORS/TRUSTEES
COLONIAL. The Colonial Board currently consists of eleven members, with the
number of directors constituting the Colonial Board to be between three and
fifteen and to be determined from time to time by an affirmative vote of the
majority of the Colonial Board. The Colonial Board is divided into three
classes having staggered terms of three years each.
EASTERN. The Eastern Board is divided into three classes having staggered
terms of three years each. Eastern's Declaration of Trust 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 is
currently fixed at nine. Three of the trustees now in office have terms
expiring at the 2001 Annual Meeting of Eastern shareholders, three have terms
expiring at the 2000 Annual Meeting of Eastern shareholders and three have
terms expiring at the 1999 Annual Meeting of Eastern shareholders.
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Shares of Eastern Common Stock which are entitled to vote upon a given
question are entitled to one vote per share in person or by proxy on such
question. Eastern's Declaration of Trust provides, however, the election of
trustees by the holders of Eastern Common Stock shall be by cumulative voting,
namely, each holder of Eastern Common Stock will be entitled to as many votes
as will equal the number of such holder's shares multiplied by the number of
trustees to be elected, and such holder may cast all of such votes for a single
candidate or distribute them among any two or more candidates as such holder
shall elect.
REMOVAL OF DIRECTORS/TRUSTEES
COLONIAL. Under the Colonial By laws, a director may be removed with cause by
the vote of a majority of the directors then in office. A director may be
removed without cause by the vote of at least 80% of the stockholders entitled
to vote in the election of directors.
EASTERN. Under Eastern's Declaration of Trust, a trustee may be removed
without cause only by the affirmative vote of the holders of 80% of the
combined voting power of the then-outstanding shares of beneficial interest
entitled to vote generally in the election of trustees, voting together as a
single class.
SPECIAL MEETINGS OF STOCKHOLDERS; STOCKHOLDER ACTION WITHOUT MEETING
COLONIAL. Under the Colonial By laws, special meetings of stockholders may be
called by the Chairman of the Board of Directors, the President, a Vice
President or by the Directors, and shall be called by the Clerk, or by any
other officer, or upon written application of one or more stockholders holding
at least 40% in interest of the capital stock entitled to vote on the subject
matter in question. Pursuant to Chapter 156B, Section 43 of the MGL,
stockholders of Colonial may take action without a meeting if all stockholders
entitled to vote on the matter consent to the action in writing and the written
consents are filed with the records of the meetings of stockholders.
EASTERN. The trustees or the President at any time may, and the President or
Secretary shall upon written request of a majority of the trustees then in
office or of the holders of one-tenth of all the shares of Eastern at the time
outstanding and carrying the right to vote upon any question to be presented at
a meeting of shareholders, call a special meeting of the shareholders having
the right to vote upon any such question, and in case the President or
Secretary shall refuse or fail for fourteen days after the request shall have
been so delivered to call or cause to be called such meeting to be held within
sixty days after the delivery of the request, such meeting may be called by the
person or persons signing such request or by any three of them.
The shareholders of Eastern may not take any action without a meeting.
STOCKHOLDER PROPOSALS AND NOMINATIONS
COLONIAL. For any item of business to be properly considered at an annual or
special meeting, the item of business must either (i) be specified in the
notice of meeting (or any supplement thereto) given by or at the direction of
the Colonial Board or the persons calling the meeting, (ii) be otherwise
properly brought before the meeting by or at the direction of the Colonial
Board, or (iii) be otherwise properly brought before the meeting by a
stockholder. For business to be properly brought before a meeting by a
stockholder, the stockholder must have given timely notice thereof in writing
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to the Clerk of Colonial. To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of
Colonial not less than 60 days nor more than 90 days prior to the meeting;
provided, however, that in the event that less than 70 days' notice or prior
public disclosure of the date of the meeting of stockholders is given or made
to stockholders, to be timely, notice by the stockholder of business to be
conducted at a meeting must be received by the Clerk of Colonial not later than
the close of business on the 10th day following the day on which notice of the
date of the meeting of stockholders was mailed or such public disclosure was
made to the stockholders. A stockholder's notice to the Clerk of Colonial shall
be set forth as to each matter he proposes to bring before the meeting (i) a
brief description of the business desired to be brought before the meeting and
the reasons for conducting such business at the meeting, (ii) the name and
address of the stockholders proposing such business, (iii) the class and number
of shares of such class of stock which are beneficially owned by the proposing
stockholders, and (iv) any material interest of the proposing stockholders in
such business.
EASTERN. The Nominating Committee of the Eastern Board is responsible for
nominating trustees, members of committees of the Eastern Board and officers,
among other things. The Nominating Committee will consider nominees for the
Eastern Board recommended by shareholders of Eastern. Written recommendations
together with supporting information should be directed to Eastern not later
than forty-five days prior to the anniversary of the date of the immediately
preceding annual meeting. Such notice shall set forth: (i) the name and address
of the shareholder who intends to make the nomination and of the person or
persons to be nominated; (ii) a representation that the shareholder is a holder
of record of Eastern entitled to vote at such meeting and intends to appear in
person or by proxy at the meeting to nominate the person or persons specified
in the notice; (iii) a description of all arrangements or understandings
between the shareholder and each nominee and any other person or persons
(naming such person or persons) pursuant to which the nomination or nominations
are to be made by the shareholder; (iv) such other information regarding each
nominee proposed by such shareholder as would be required to be included in a
proxy statement filed pursuant to the proxy rules of the SEC; and (v) the
consent of each nominee to serve as a trustee if so elected. The presiding
officer of the meeting may refuse to acknowledge the nomination of any person
not made in compliance with the foregoing procedure.
Shareholder proposals intended to be presented at any annual meeting of
shareholders must be received at Eastern's principal executive offices no later
than 120 days prior to the date of the proxy statement released to shareholders
for the immediately preceding annual meeting.
DISSENTERS' RIGHTS
COLONIAL. The stockholders of Colonial are not entitled to appraisal rights.
EASTERN. Eastern's Declaration of Trust provides that in the event of a
merger or consolidation of Eastern with another entity, the governing agreement
for such transaction must provide that the shareholders of Eastern are entitled
to the rights of dissent available under Massachusetts law as if Eastern were a
Massachusetts business corporation.
CHARTER AMENDMENTS
COLONIAL. Amendments to Colonial's Restated Articles of Organization require
a vote of two-thirds of each class outstanding and entitled to vote thereon;
provided, however, if any such
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amendment would adversely affect the rights of any class of stock, two-thirds
of such class, voting separately, would be necessary to authorize such
amendment.
EASTERN. Eastern's Declaration of Trust may be amended by vote of at least a
majority of the outstanding Eastern Common Stock; provided that (i) no change
shall be made to the article pertaining to the liabilities of the trustees,
officers and agents of Eastern which would impair the relief from personal
liability provided therein, (ii) any provision requiring a higher percentage
than a majority shall be amended only by such higher percentage and (iii) the
Eastern Declaration of Trust may be amended for the purpose of changing the
name of Eastern, supplying any omission, curing any ambiguity or curing,
correcting or supplementing any defective or inconsistent provision contained
in Eastern's Declaration of Trust by the trustees without authorization by
shareholder vote.
DIVIDENDS AND STOCK REPURCHASES
COLONIAL. The Directors, in their discretion, may from time to time declare
dividends payable at any date fixed by them out of the earned surplus of
Colonial determined in accordance with sound accounting practice.
EASTERN. The trustees, in their discretion, may from time to time declare
dividends payable at any date fixed by them out of the earned surplus of
Eastern, determined in accordance with sound accounting practice, in cash,
securities or property, and may declare dividends in securities of Eastern and
for that purpose may authorize the issuance of certificates and scrip and may
capitalize all or any part of the earned or capital surplus and may determine
the number of dollars per share so capitalized and may determine that shares
held in the treasury of Eastern shall be entitled to all or part of any such
dividend declared in securities of Eastern but in no event shall such treasury
shares be entitled to any cash payment made in connection with such dividend,
whether or not made in lieu of fractional securities; but no shareholder shall
have any right to any dividends whether in cash, securities or property of
Eastern except when and as notice shall have been given that the same have been
declared as aforesaid, and no shareholder, trustee, officer of agent of Eastern
shall be liable personally therefor, and every shareholder entitled thereto
shall look only to Eastern's trust estate for the payment of any such dividend.
Pursuant to Eastern's Declaration of Trust, shares of Eastern purchased,
redeemed or otherwise acquired by Eastern may, in the discretion of the
trustees, be canceled and the number of shares issued thereby be reduced, or
such shares may, in the discretion of the trustees, be held in the treasury and
may be sold or otherwise disposed of by the trustees at such time or times, to
such party or parties and for such consideration and on such terms as the
trustees may determine, but such shares while so held in the treasury shall not
be entitled to any voting rights nor to dividends (except for dividends payable
in securities of Eastern, at the discretion of the trustees) or right of
subscription or purchase and shall not be deemed outstanding in computing
proportions or percentages of shares or shareholders under Eastern's
Declaration of Trust. Shares canceled pursuant to Eastern's Declaration of
Trust shall have the status of authorized but unissued shares.
FAIR PRICE CHARTER PROVISIONS
COLONIAL. Colonial's Restated Articles of Organization provide for a higher
affirmative vote in connection with certain business transactions with any
entity which holds 10% or more of the shares
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of stock of Colonial entitled to vote for the election of directors or any
affiliates or associates of such interested entity. This higher vote is
required (i) for the approval of any agreement for the merger or consolidation
of the corporation with or into any such interested entity, (ii) to authorize
any sale, lease, exchange, mortgage, pledge or other disposition of all, or
substantially all, of the assets of the corporation to any such interested
entity, (iii) to authorize the issuance or transfer by the corporation of any
securities of Colonial having a then fair market value of more than $500,000 in
exchange for the securities or assets of any such interested entity or (iv) to
engage in any other transaction the effect of which is to combine the assets
and business of the corporation with any such interested entity. In any such
case, the affirmative vote is required of the holders of voting stock
representing shares of at least 80% of all classes of stock of Colonial
entitled to vote for the election of directors. The foregoing provisions are
not applicable to any direct or indirect purchase or other acquisition of
Colonial capital stock by any such interested entity if such transaction is
approved by a resolution of the board of directors of Colonial, provided that
the directors voting in favor of such resolution includes a majority of the
persons who were duly elected and acting members of the board of directors
prior to the time any such interested entity becomes the beneficial owner of
ten percent or more of the shares of Colonial entitled to vote for the election
of directors.
EASTERN. Eastern's Declaration of Trust contains certain "anti-Greenmail"
provisions in the case of certain stock repurchases from interested
securityholders. Any direct or indirect purchase or other acquisition by
Eastern or any majority owned subsidiary of any shares of capital stock of
Eastern from any "interested securityholder" (generally defined as any holder
(with certain exceptions) of 5% or more of the outstanding shares of voting
stock of Eastern or an affiliate of Eastern who at any time within the two-year
period immediately prior to the date in question was the beneficial owner of 5%
or more of all outstanding shares of voting stock of Eastern) who has been the
beneficial owner of such shares for less than two years prior to the date of
such purchase or other acquisition or any agreement in respect thereof, for
aggregate consideration greater than the then "fair market value" (as defined
in Eastern's Declaration of Trust) of such shares shall, except as expressly
provided, require the affirmative vote of the holders of voting stock
representing shares equal to the sum of (i) a majority of the then-outstanding
voting stock, excluding voting stock of which such interested securityholder is
the beneficial owner, plus (ii) the number of shares of voting stock of which
such interested securityholder is the beneficial owner, voting together as a
single class. The foregoing provisions do not apply to any purchase or other
acquisition of securities made as part of a tender or exchange offer to
purchase securities of the same class made on the same terms to all holders of
such securities, or made as part of an open market purchase program approved by
a majority of the disinterested trustees of Eastern provided that such purchase
is effected on the open market and is not the result of a privately negotiated
transaction.
Eastern's Declaration of Trust further provides for a higher affirmative vote
in connection with certain business transactions with interested
securityholders or their affiliates or associates, including (i) any merger or
consolidation of Eastern or any majority owned subsidiary with any interested
securityholder or any other company which is or after such merger or
consolidation would be an affiliate or associate of an interested
securityholder; (ii) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition involving any assets or securities of Eastern having an
aggregate fair market value in excess of 5% of the total consolidated book
assets of Eastern and its majority owned subsidiaries; (iii) the adoption of
any plan or proposal for the termination, liquidation or dissolution
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of Eastern proposed by or on behalf of an interested securityholder or any
affiliate or associate; (iv) any reclassification of securities (including any
reverse stock split), or recapitalization of Eastern or any merger or
consolidation of Eastern with any of its majority owned subsidiaries or any
other transaction that has the effect, directly or indirectly, of increasing
the proportionate share of any class or series of capital stock of Eastern, or
any securities convertible into capital stock of Eastern or into equity
securities of any majority owned subsidiary, that is beneficially owned by an
interested securityholder or any affiliate or associate; or (v) any tender
offer or exchange offer made by Eastern for shares of capital stock of Eastern
that may have the effect of increasing an interested securityholder's
percentage beneficial ownership so that following the completion of the tender
offer or exchange offer such interested securityholder's percentage beneficial
ownership of the outstanding capital stock of Eastern may exceed 110% of its
percentage beneficial ownership immediately prior to the commencement of such
tender offer or exchange offer; or (vi) any agreement, contract or other
arrangement providing for any one or more of the actions specified in the
foregoing clauses (i) to (v). In any such case, the affirmative vote is
required of the holders of voting stock representing shares equal to the sum of
(a) a majority of the then outstanding voting stock, excluding voting stock of
which such interested securityholder is the beneficial owner, plus (b) the
number of shares of voting stock of which such interested securityholder is the
beneficial owner, voting together as a single class. The foregoing provisions
are not applicable to any direct or indirect purchase or other acquisition of
Eastern capital stock by Eastern or any majority owned subsidiary from any
interested securityholder, or to any particular transaction referred to in (i)
through (vi) above if approved by a majority of the disinterested trustees.
SHAREHOLDER RIGHTS PLANS
COLONIAL. The Colonial Rights Agreement, except as explained below, has
material terms that are substantially the same as the Eastern Rights Agreement.
See "Description of Eastern Capital Stock--Common Stock Purchase Rights" on
page 84. Under the Colonial Rights Agreement, holders of Colonial Common Stock
are granted one right for each share of Colonial Common Stock held, which right
entitles them to purchase from Colonial one one-hundredth of a share of
Colonial's Series A-1 Junior Participating Preferred Stock at an exercise price
of $60.00 per right, subject to adjustments as described below. Like the
Eastern Rights, Colonial rights are initially evidenced by the Colonial Common
Stock certificates. The Colonial rights expire on December 1, 2003 and like the
Eastern Rights, are transferred with and only with the Colonial Common Stock.
The Colonial Rights Agreement has been amended so that the Merger and related
transactions will not trigger the operation of any of the provisions of the
Colonial Rights Agreement.
The Colonial rights become exercisable and transferable apart from the
Colonial Common Stock, on the date, which will be the earliest of (i) the date
ten days after the date of a public announcement that a person or group has
acquired beneficial ownership of 20% (as compared to a 10% threshold for a
similar event under the Eastern Rights Agreement) or more of the outstanding
shares of Common Stock, or (ii) the close of business on the tenth business day
after commencement of a tender or exchange offer which, upon its consummation,
would result in a person or group beneficially owning 20% (as compared to a 10%
threshold for a similar event under the Eastern Rights Agreement) or more of
the outstanding shares of Colonial Common Stock.
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In the event that, at any time following the date of the public announcement
described in clause (i) in the preceding sentence, Colonial is acquired in a
merger or other business combination transaction or 50% (as compared to a 25%
threshold for a similar event under the Eastern Rights Agreement) or more of
its consolidated assets or earning power are sold, proper provision will be
made so that each holder of a Colonial right, other than Colonial rights
beneficially owned by the person or group whose acquisition triggered such
public announcement (which will become void), will thereafter have the right to
receive, upon the exercise at the then current exercise price, in lieu of
Colonial Series A-1 Junior Participating Preferred Stock, that number of shares
of common stock of the acquiring company which at the time of such transaction
will have a market value of two times the exercise price of the Colonial right.
In the event that any person or group of affiliated or associated persons
(other than Colonial or its affiliates) shall become the beneficial owner of
20% (as compared to a 10% threshold for a similar event under the Eastern
Rights Agreement) or more of the outstanding Colonial Common Stock, proper
provision shall be made so that each holder of a Colonial right, other than
Colonial rights beneficially owned by the person or group whose acquisition
triggered such public announcement (which will become void), will thereafter
have the right to receive upon exercise that number of shares of Colonial
Common Stock having a market value of two times the exercise price of the
Colonial right.
The purchase price payable upon exercise of the Colonial rights, and the
number of whole or fractional shares of the Colonial Common Stock or other
securities or property issuable upon exercise are subject to adjustment from
time to time to prevent dilution in the event of a stock dividend on, or a
subdivision, combination or reclassification, of Colonial Series A-1 Junior
Participating Preferred Stock.
The Colonial rights may be redeemed at a price of $.01 per Colonial right in
the same manner and with the same limitations as the Eastern Rights may be
redeemed. In addition, the Colonial Rights Agreement may be amended in the same
manner and with the same limitations as the Eastern Rights Agreement may be
amended.
EASTERN. Pursuant to the Eastern Rights Agreement, one Eastern Right was
payable as a dividend on March 5, 1990 for each outstanding share of Eastern
Common Stock to shareholders of record on that date. Each Eastern Right
entitles the holder to purchase one share of Eastern Common Stock for $100 upon
the occurrence of certain events. Each Eastern Right may also allow the holder
to purchase shares of Eastern Common Stock, or shares of stock of any entity
that has engaged in certain specified transactions with Eastern, at a discount
upon the occurrence of certain events. On July 22, 1998, the Eastern Board
declared a dividend of one New Right for every outstanding share of Eastern
Common Stock. The New Rights will be distributed on the earlier of (i) the date
of redemption by Eastern of the Eastern Rights and (ii) February 18, 2000. Each
New Right entitles the holder to purchase from Eastern one share of Eastern
Common Stock at a price of $160 per share, subject to adjustment, upon the
occurrence of certain events. The New Rights will expire on July 22, 2008, or
upon their earlier redemption. The material terms of the New Rights Agreement
are substantially similar to the terms of the Eastern Rights Agreement. See
"Description of Eastern Capital Stock-Common Stock Purchase Rights."
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<PAGE>
BUSINESS COMBINATION STATUTES
COLONIAL. Chapter 110F of the MGL prohibits any business combination with an
"interested stockholder" (defined generally as a person owning 5% of more of a
corporation's outstanding voting stock) for three years after that person
becomes an interested stockholder unless: (i) the board gives prior approval to
the 5% purchase of the proposed business combination; (ii) upon consummation of
the transaction that resulted in the person becoming an interested stockholder,
the interested stockholder owns at least 90% of the voting stock of the
corporation, excluding certain shares; or (iii) subsequent to the acquiror's
becoming an interested stockholder, the board of directors and two-thirds of
the noninterested shares approve the business combination. Colonial has not
opted out of Chapter 110F of the MGL and the provisions of Chapter 110F of the
MGL apply to an acquisition of Colonial. The Colonial Board has given its
approval to the proposed Merger.
Section 20E of Chapter 149 of the MGL prohibits the termination or impairment
of collective bargaining agreements following a business combination until the
negotiated termination date of the agreement or until the parties to the
agreement negotiate a new termination date.
EASTERN. Eastern is also subject to the provisions of Chapter 110F and
Section 20E of Chapter 149 of the MGL.
CONTROL SHARE STATUTE
COLONIAL. Chapter 110D of the MGL provides that, once a potential acquiror
notifies a company of its intention to purchase 20% or more of a corporation, a
stockholders meeting must be held within 50 days, at the acquiror's expense, to
vote on whether the control shares may exercise voting rights. Without the
approval of a majority of the outstanding shares not owned by the acquiror, or
by officers or directors of the target, the control shares do not receive
voting rights. The Colonial By-laws provides that the provision of Chapter 110D
of the MGL shall not apply to control share acquisitions of beneficial shares
of Colonial.
EASTERN. The Eastern By-laws provide that the provisions of Chapter 110D of
the MGL shall not apply to control share acquisitions of beneficial shares of
Eastern.
PROPER FACTORS FOR CONSIDERATION IN EVALUATING BUSINESS COMBINATIONS
COLONIAL. In performing his or her duties, a director, officer or
incorporator is entitled to rely on information, opinions, reports or records,
including financial statements, books of account and other financial records,
in each case presented by or prepared by or under the supervision of (i) one or
more officers or employees of the corporation whom the director, officer or
incorporator reasonably believes to be reliable and competent in the matters
presented, (ii) counsel, public accountants or other persons as to matters
which the director, officer or incorporator reasonably believes to be within
such person's professional or expert competence, or (iii) in the case of a
director, a duly constituted committee of the board of directors upon which he
or she does not serve, as to matters within its delegated authority, which
committee the director reasonably believes to merit confidence, but he or she
shall not be considered to be acting in good faith if he or she has knowledge
concerning the matter in question that would cause such reliance to be
unwarranted. The fact that a director, officer or incorporator so performed his
or her duties shall be a complete defense
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<PAGE>
to any claim asserted against him or her, except as expressly provided by
statute, by reason of his or her being or having been a director, officer or
incorporator of the corporation.
EASTERN. Eastern's Declaration of Trust provides that in discharging his or
her duties, when acting in good faith, any trustee or officer of Eastern shall
be fully entitled to rely upon information, opinion, reports or records,
including financial statements, books of account, and other financial records,
in each case, presented or prepared by, or under the supervision of, (i) one or
more officers or employees of Eastern (or of another organization in which he
or she serves as contemplated by Article 19 of Eastern's Declaration of Trust,
including all directors, officers and trustees of wholly owned subsidiaries of
Eastern) whom the trustee or officer reasonably believes to be reliable and
competent in the matters presented, (ii) counsel, public accountants or other
persons as to matters which the trustee or officer reasonably believes to be
within such person's professional or expert competence, or (iii) in the case of
a trustee, a duly constituted committee of trustees (or similar governing body
of such other organization) upon which he or she does not serve, as to matters
within its delegated authority, which committee the trustee reasonably believes
to merit confidence, but he or she shall not be considered to be acting in good
faith if he or she has knowledge concerning the matter in question that would
cause such reliance to be unwarranted. The fact that a trustee or officer so
relied shall be a complete defense to any claim asserted against him or her,
except as expressly provided by statute, by reason of his or her being or
having been a trustee or officer of Eastern (or such other organization).
FORM OF CONSIDERATION FOR CAPITAL STOCK
COLONIAL. Pursuant to Section 11 of Chapter 164 of the MGL, capital stock may
be issued for cash, or real or personal property that has been approved by the
DTE.
EASTERN. Eastern's Declaration of Trust provides that authorized shares of
the trust may be issued either for money, services, stock, property or other
value, or by way of a stock dividend or in exchange for other shares or
securities of Eastern and par for par in exchange for stock of another company
irrespective of the dividend rate or the then-market value of such stock.
Shares may not be issued at less than par in the case of shares with a par
value.
LIMITATION OF DIRECTOR LIABILITY
COLONIAL. Pursuant to Section 64 of Chapter 164 of the MGL, the fact that a
director performed his or her duties in accordance with Section 65 of Chapter
156B of the MGL shall be a complete defense to any claim asserted against him
or her, except as expressly provided by statute, by reason of his or her being
or having been a director of a corporation.
Colonial's Restated Articles of Organization further provide that no director
shall be personally liable to the corporation or its stockholders for monetary
damages for any breach of fiduciary duty by such director as a director
notwithstanding any provision of law imposing such liability, except that, to
the extent provided by applicable law, this provision shall not eliminate or
limit the liability of a director (i) for breach of the director's duty of
loyalty to the corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 61 or 62 of Chapter 156B of the MGL or any amendatory
or successor
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provisions thereto or (iv) for any transaction from which the director derived
an improper personal benefit. This provision shall not eliminate or limit the
liability of a director for any act or omission occurring prior to the date
upon which this provision became effective, and no amendment or repeal of this
provision shall deprive a director of the benefits hereof with respect to any
act or omission occurring prior to such amendment or repeal.
EASTERN. Eastern's Declaration of Trust provides that no trustee shall be
liable except for acts or failures to act which at the time would impose
liability on him or her if Eastern were a Massachusetts business corporation
and he or she were a director thereof.
Eastern's Declaration of Trust further provides that the trustees of Eastern
will not personally be liable to Eastern or its shareholders for monetary
damages for certain breaches of fiduciary duty as trustees, unless they
violated their duty of loyalty to Eastern or its shareholders, acted not, or
omitted to act, in good faith, knowingly or intentionally violated the law,
intentionally misconducted themselves, or derived an improper benefit from
their actions as trustees. Trustees, officers and agents of Eastern will also
not be held liable for any act or failure to act in good faith, that is
required, authorized or approved by an order issued pursuant to PUHCA or any
other federal or state statute regulating Eastern or any of its subsidiaries
by reason of its being a public utility holding company or their being public
utilities. Eastern's Declaration of Trust also provides that shareholders,
trustees, officers and agents of Eastern will have no liability for the
payment or satisfaction of obligations and liabilities incurred in carrying on
the business of Eastern and that the trust estate of Eastern only shall be
liable.
INDEMNIFICATION
COLONIAL. Pursuant to the Colonial By laws, Colonial shall indemnify each
person (other than a party plaintiff suing on such party plaintiff's own
behalf or in the right of Colonial who at any time is serving or has served as
a director or officer of Colonial, or any of its subsidiaries, against any
claim, liability, or expense incurred as a result of this service, or as a
result of any other service on behalf of Colonial, or service at the request
of Colonial as a director, officer, employee, member or agent of another
corporation, partnership, joint venture, trust, trade or industry association
or other enterprise (whether incorporated or unincorporated, for-profit or
not-for-profit), to the maximum extent permitted by law. Without limited the
generality of the foregoing, Colonial shall indemnify any such person who was
or is a party (other than a party plaintiff suing on such party plaintiff's
own behalf or in the right of Colonial), or is threatened to be made a party,
to any threatened, pending, or completed action, suit, or proceeding, whether
civil, criminal, administrative, or investigative (including, without
limitation, attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such
action, suit, or proceeding.
Colonial shall not be liable to indemnify a director or officer for any
amounts paid in settlement of any action or claim effected without Colonial's
written consent. Colonial will not unreasonably withhold its consent to any
proposed settlement.
EASTERN. Pursuant to Eastern's Declaration of Trust, Eastern shall indemnify
each of its trustees and officers against all liabilities and expenses,
including amounts paid in satisfaction of judgments, in compromise or as fines
and penalties, and counsel fees, reasonably incurred by him or
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her in connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, including, but not limited to,
derivative suits (to the extent permitted by law), in which he or she may be
involved or with which he or she may be threatened, while in office or
thereafter, except with respect to any matters as to which he or she shall have
been adjudicated to have acted in bad faith or not to have acted in good faith
in the reasonable belief that his or her action was in the best interests of
Eastern or, to the extent that such matter relates to service with respect to
an employee benefit plan, in the best interests of the participants or
beneficiaries of such plan; provided, however, that as to any matter disposed
of by a compromise payment by such trustee or officer pursuant to a consent
decree or otherwise, no indemnification either for said payment or for any
other expenses shall be provided unless such compromise shall be approved as in
the best interests of Eastern, after notice that it involves such
indemnification: (i) if no change of control has occurred, (a) by a
disinterested majority of the trustees then in office or (b) by a majority of
the disinterested trustees then in office or by the shareholders of Eastern,
provided that Eastern shall have received a written opinion of independent
legal counsel to the effect that such trustee or officer appears to have acted
in good faith in the reasonable belief that his or her action was in the best
interests of Eastern; or (ii) if a change of control shall have occurred, by an
opinion in writing of independent legal counsel to the effect that such trustee
or officer appears to have acted in good faith in the reasonable belief that
his or her action was in the best interests of Eastern. No trustee or officer
may satisfy any rights of indemnity or reimbursement granted pursuant to
Eastern's Declaration of Trust or to which he or she may be otherwise entitled
except out of the trust estate of Eastern.
LEGAL MATTERS
Certain legal matters relating to Eastern in connection with the Merger,
including, among other things, certain legal matters with respect to the
validity of the securities to be issued, will be passed upon for Eastern by
Ropes & Gray, Boston, Massachusetts.
Certain legal matters relating to Colonial in connection with the Merger will
be passed upon for Colonial by Palmer & Dodge LLP, Boston, Massachusetts.
EXPERTS
The Colonial consolidated financial statements as of December 31, 1997 and
1996, and for each of the three years in the period ended December 31, 1997,
incorporated by reference in this Joint Proxy Statement/Prospectus have been
audited by Grant Thornton LLP, independent public accountants, as indicated in
their report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
Representatives of Grant Thornton LLP are expected to be present at the
Colonial Special Meeting with the opportunity to make a statement, if they
desire to do so, and to be available to respond to appropriate questions.
The Eastern consolidated financial statements and schedule as of December 31,
1997 and 1996, and for each of the three years in the period ended December 31,
1997, incorporated by reference in this Joint Proxy Statement/Prospectus and
elsewhere in this Joint Proxy Statement/Prospectus have
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been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
Representatives of Arthur Andersen LLP are expected to be present at the
Eastern Special Meeting with the opportunity to make a statement, if they
desire to do so, and to be available to respond to appropriate questions.
FUTURE EASTERN SHAREHOLDER PROPOSALS
As noted in Eastern's proxy statement for the 1998 annual meeting, the
deadline to have shareholder proposals included in the proxy statement for
Eastern's 1999 annual meeting was November 18, 1998. Proposals must comply with
the SEC's proxy regulations relating to shareholder proposals in order to be
considered for inclusion in Eastern's proxy materials. If a proponent fails to
notify Eastern by February 1, 1999 of a proposal for consideration at the 1999
annual meeting, then the proxies named by Eastern management with respect to
that meeting will have discretionary voting authority with respect to that
proposal.
FUTURE COLONIAL STOCKHOLDER PROPOSALS
Assuming the timing of the consummation of the Merger contemplated in the
Merger Agreement requires Colonial to hold an annual meeting in 1999, proposals
of stockholders intended to be presented at such meeting must be received by
Colonial at its offices at 40 Market Street, Lowell, Massachusetts 01852,
Attention: Clerk, not later than sixty days prior to the meeting. As noted in
Colonial's proxy statement for Colonial's 1998 annual meeting, the deadline to
have stockholder proposals included in the proxy statement for the 1999
Colonial annual meeting was November 9, 1998. Proposals must comply with the
SEC's proxy regulations relating to stockholder proposals in order to be
considered for inclusion in Colonial's proxy materials.
OTHER MATTERS
Neither Eastern nor Colonial presently intends to bring before the Eastern
Special Meeting or the Colonial Special Meeting, respectively, any matters
other than those specified and neither Eastern nor Colonial has any knowledge
of any other matters which may be brought up by other persons. However, if any
other matters not now known properly come before the Eastern Special Meeting or
the Colonial Special Meeting or any adjournments thereof, the persons named in
the enclosed forms of Eastern proxy or Colonial proxy, as the case may be,
including any substitutes, will vote such proxies in accordance with their
judgment on such matters.
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WHERE YOU CAN FIND MORE INFORMATION
Eastern and Colonial file annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy any
reports, statements or other information that the companies file at the SEC's
public reference rooms at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the SEC's Regional Offices located at 7 World
Trade Center, Suite 1300, New York, New York 10048 and at Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661- 2511. Please call
the SEC at 1-800-SEC-0330 for further information on the public reference
rooms. Eastern's and Colonial's SEC filings should also be available to the
public from commercial document retrieval services and at the Internet web site
maintained by the SEC at http://www.sec.gov.
In addition, material and information concerning Eastern and Colonial can be
inspected at the New York Stock Exchange, Inc., 20 Broad Street, 7th Floor, New
York, New York 10005, on which exchange the Eastern Common Stock and the
Colonial Common Stock are listed, and material and information concerning
Eastern can also be inspected at the Pacific Exchange, Inc., 301 Pine Street,
San Francisco, California 94104, and the Boston Stock Exchange, on which
exchanges the Eastern Common Stock is also listed.
The SEC allows Eastern and Colonial to "incorporate by reference" information
into this Joint Proxy Statement/Prospectus, which means that Eastern and
Colonial can disclose important information to you by referring you to another
document filed separately with the SEC. The information incorporated by
reference is deemed to be part of this Joint Proxy Statement/Prospectus, except
for any information superseded by information contained directly in this Joint
Proxy Statement/Prospectus. This Joint Proxy Statement/Prospectus incorporates
by reference the documents set forth below that were previously filed with the
SEC by Eastern (File No. 1-2297) or Colonial (File No. 0-10007). These
documents contain important information about Eastern and Colonial and their
financial condition.
Regarding Eastern
. Eastern's Annual Report on Form 10-K for the fiscal year ended December 31,
1997.
. Eastern's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998.
. Eastern's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998.
. Eastern's Quarterly Report on Form 10-Q for the quarter ended September 30,
1998.
. Eastern's Current Reports on Form 8-K dated June 29, 1998, July 28, 1998,
October 14, 1998, October 26, 1998 and December 7, 1998.
. Eastern's Current Report on Form 8-K dated November 23, 1998, containing
Eastern's restated financial statements and schedule as of December 31, 1997
and 1996 and for each of the three years in the period ended December 31,
1997. To the extent applicable, the information contained in this report
will supersede information contained in Eastern's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997.
. The description of Eastern Common Stock contained in its Form 8, filed on
May 23, 1991, amending its Registration Statement on Form 8-A dated
November 6, 1950.
. The description of the Eastern Rights contained in Eastern's Registration
Statement on Form 8-A filed on March 1, 1990, as amended.
. The description of the New Rights contained in Eastern's Registration
Statement on Form 8-A filed on July 29, 1998.
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Regarding Colonial
. Colonial's Annual Report on Form 10-K for the year ended December 31, 1997.
. Colonial's Quarterly Report on Form 10-Q for the quarter ended March 31,
1998.
. Colonial's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998.
. Colonial's Quarterly Report on Form 10-Q for the quarter ended September 30,
1998.
. Colonial's Current Report on Form 8-K dated October 21, 1998.
Eastern and Colonial may be required by the SEC to file other documents
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934, as amended, between the time this Joint Proxy Statement/Prospectus is
sent and the date the Eastern Special Meeting and the Colonial Special Meeting
are held. These documents will be deemed to be incorporated by reference in
this Joint Proxy Statement/Prospectus and to be a part of it from the date they
are filed with the SEC.
If you are a stockholder, Eastern and Colonial may have sent you some of the
documents incorporated by reference, but you can obtain any of them through
Eastern and Colonial, the SEC or the SEC's Internet web site as described
above. Documents incorporated by reference are available from Eastern and
Colonial without charge, excluding all exhibits except for exhibits which have
been specifically incorporated by reference as an exhibit in this Joint Proxy
Statement/Prospectus. Stockholders may obtain documents incorporated by
reference in this Joint Proxy Statement/Prospectus by requesting them in
writing or by telephone from the appropriate company at the following
addresses:
<TABLE>
<S> <C>
Eastern Enterprises Colonial Gas Company
9 Riverside Road 40 Market Street
Weston, Massachusetts 02493 Lowell, Massachusetts
(781) 647-2300 (978) 322-3000
</TABLE>
If you would like to request documents from Eastern or Colonial, please do so
promptly in order to receive them before the Stockholder Meetings.
All information contained in or incorporated by reference into this Joint
Proxy Statement/Prospectus with respect to Eastern has been provided by
Eastern. All information contained in or incorporated by reference into this
Joint Proxy Statement/Prospectus with respect to Colonial has been provided by
Colonial. Neither Eastern nor Colonial assumes any responsibility for the
accuracy or completeness of the information provided by the other party.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS JOINT PROXY STATEMENT/PROSPECTUS TO VOTE ON THE MERGER
AGREEMENT OR THE STOCK ISSUANCE. NEITHER EASTERN NOR COLONIAL HAS
AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM
WHAT IS CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS. THIS JOINT
PROXY STATEMENT/PROSPECTUS IS DATED DECEMBER , 1998. YOU SHOULD NOT
ASSUME THAT THE INFORMATION CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THAT DATE, AND
NEITHER THE MAILING OF THIS JOINT PROXY STATEMENT/PROSPECTUS TO
STOCKHOLDERS NOR THE ISSUANCE OF EASTERN'S COMMON STOCK IN THE MERGER SHALL
CREATE ANY IMPLICATION TO THE CONTRARY.
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----------------
The name "Eastern Enterprises" refers to the trustees under Eastern's
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. A copy of Eastern's Declaration of Trust
is on file with the SEC as Exhibit 3.1 to Eastern's Quarterly Report on Form
10-Q for the quarter ended June 30, 1989.
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<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
DEFINED TERM PAGE NO.
- ------------ --------
<S> <C>
Acquisition Proposal................................................... 68
adjusted forecasts..................................................... 43
Alternative Transaction................................................ 73
base forecasts......................................................... 43
Book Value Multiple.................................................... 38
Code................................................................... 47
Colonial Board......................................................... 26
Colonial Common Stock.................................................. 26
Colonial Comparables................................................... 37
Colonial Material Adverse Event........................................ 63
Colonial Record Date................................................... 28
Colonial Special Meeting............................................... 26
Comparable Acquisition Transactions.................................... 37
competing party........................................................ 72
DTE.................................................................... 31
Eastern Acquiring Person............................................... 85
Eastern Board.......................................................... 26
Eastern Common Stock................................................... 26
Eastern Common Stock Event............................................. 85
Eastern Distribution Date ............................................. 85
Eastern Material Adverse Event......................................... 63
Eastern Purchase Price................................................. 84
Eastern Record Date.................................................... 26
Eastern Right.......................................................... 84
Eastern Rights Agreement............................................... 84
Eastern Special Meeting................................................ 26
Eastern Stock Acquisition Date......................................... 85
EBIT................................................................... 39
EBITDA................................................................. 37
Effective Date......................................................... 31
Effective Time......................................................... 31
Employment Period...................................................... 54
EPS.................................................................... 37
Exchange Agent......................................................... 61
Indemnified Parties.................................................... 57
LTM.................................................................... 37
LTM Net Income Multiple................................................ 38
</TABLE>
105
<PAGE>
INDEX OF DEFINED TERMS--(CONTINUED)
<TABLE>
<CAPTION>
DEFINED TERM PAGE NO.
- ------------ --------
<S> <C>
Merger................................................................. 26
Merger Agreement....................................................... 26
Merger Consideration................................................... 34
Merger Sub............................................................. 26
MGL.................................................................... 52
New Right.............................................................. 87
New Rights Agreement................................................... 87
P/E multiples.......................................................... 43
Securities Act......................................................... 52
Stock Issuance......................................................... 26
Surviving Company...................................................... 31
United States Holders.................................................. 47
United States Person................................................... 47
</TABLE>
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<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
BY AND BETWEEN
EASTERN ENTERPRISES
AND
COLONIAL GAS COMPANY
DATED AS OF OCTOBER 17, 1998
<PAGE>
<TABLE>
<C> <S> <C>
ARTICLE 1 THE MERGER..................................................... A-1
1.1 The Merger..................................................... A-1
1.2 Effective Time; Closing........................................ A-2
1.3 Effect of the Merger........................................... A-2
1.4 Articles of Organization; Bylaws............................... A-2
1.5 Directors and Officers......................................... A-2
1.6 Effect on Capital Stock........................................ A-2
1.7 Surrender of Certificates...................................... A-5
1.8 No Further Ownership Rights in Seller Common Stock............. A-6
1.9 Lost, Stolen or Destroyed Certificates......................... A-6
1.10 Tax Consequences............................................... A-6
1.11 Taking of Necessary Action; Further Action..................... A-7
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF THE SELLER................... A-7
2.1 Organization of the Seller..................................... A-7
2.2 The Seller Capital Structure................................... A-7
2.3 Authority...................................................... A-8
2.4 Chapter 110F Not Applicable.................................... A-9
2.5 SEC Filings; the Seller Financial Statements................... A-9
2.6 Absence of Certain Changes or Events........................... A-10
2.7 Tax Matters.................................................... A-11
2.8 Regulation as a Utility........................................ A-12
2.9 Title to Properties; Absence of Liens and Encumbrances......... A-12
2.10 Intellectual Property.......................................... A-12
2.11 Compliance; Permits; Restrictions.............................. A-13
2.12 Litigation..................................................... A-13
2.13 Brokers' and Finders' Fees..................................... A-13
2.14 Employee Benefit Plans......................................... A-13
2.15 Employment Matters............................................. A-15
2.16 Environmental Matters.......................................... A-15
2.17 Agreements, Contracts and Commitments.......................... A-16
2.18 Statements; Proxy Statement/Prospectus......................... A-17
2.19 Fairness Opinion............................................... A-17
2.20 Insurance...................................................... A-17
2.21 Year 2000...................................................... A-17
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE BUYER.................... A-18
3.1 Organization of the Buyer...................................... A-18
3.2 The Buyer Capital Structure.................................... A-18
3.3 Merger Sub..................................................... A-18
3.4 Authority...................................................... A-19
</TABLE>
A-i
<PAGE>
<TABLE>
<C> <S> <C>
3.5 SEC Filings; the Buyer Financial Statements.................. A-20
3.6 Absence of Certain Changes and Events........................ A-20
3.7 Litigation................................................... A-21
3.8 Registration Statement; Proxy Statement/Prospectus........... A-21
3.9 Compliance; Permits; Restrictions............................ A-21
3.10 Regulation as a Utility...................................... A-21
3.11 Ownership of the Seller Common Stock......................... A-21
ARTICLE 4 CONDUCT PRIOR TO THE EFFECTIVE TIME.......................... A-22
4.1 Conduct of Business by the Seller and the Buyer.............. A-22
4.2 Certain Actions by the Seller................................ A-22
ARTICLE 5 ADDITIONAL AGREEMENTS........................................ A-23
Proxy Statement/Prospectus; Registration Statement; Other
5.1 Filings...................................................... A-23
5.2 Meetings of Stockholders..................................... A-24
5.3 Access to Information; Confidentiality....................... A-24
5.4 No Solicitation.............................................. A-24
5.5 Public Disclosure............................................ A-26
5.6 Legal Requirements........................................... A-26
5.7 Third Party Consents......................................... A-26
5.8 Notification of Certain Matters.............................. A-27
5.9 Best Efforts and Further Assurances.......................... A-27
5.10 The Seller Employee Plans; Employment Matters................ A-27
5.11 Indemnification; D&O Insurance............................... A-28
5.12 Tax-Free Reorganization...................................... A-29
5.13 Listing...................................................... A-29
5.14 The Seller Affiliate Agreement............................... A-29
5.15 Representation on Buyer Board................................ A-29
5.16 Dividend Record Date......................................... A-30
ARTICLE 6 CONDITIONS TO THE MERGER..................................... A-30
Conditions to Obligations of Each Party to Effect the
6.1 Merger....................................................... A-30
6.2 Additional Conditions to Obligations of the Seller........... A-31
Additional Conditions to the Obligations of the Buyer and
6.3 Merger Sub................................................... A-31
ARTICLE 7 TERMINATION.................................................. A-32
7.1 Termination.................................................. A-32
7.2 Notice of Termination; Effect of Termination................. A-33
7.3 Fees and Expenses............................................ A-33
ARTICLE 8 GENERAL PROVISIONS........................................... A-36
8.1 Non-Survival of Representations and Warranties............... A-36
8.2 Notices...................................................... A-36
</TABLE>
A-ii
<PAGE>
<TABLE>
<C> <S> <C>
8.3 Interpretation; Knowledge........................................ A-36
8.4 Counterparts..................................................... A-37
8.5 Entire Agreement................................................. A-37
8.6 Severability..................................................... A-37
8.7 Amendment........................................................ A-37
8.8 Extension; Waiver................................................ A-37
8.9 Other Remedies; Specific Performance............................. A-37
8.10 Governing Law.................................................... A-37
8.11 Assignment....................................................... A-38
8.12 Parties in Interest.............................................. A-38
8.13 Waiver of Jury Trial............................................. A-38
8.14 Massachusetts Business Trust..................................... A-38
</TABLE>
EXHIBIT A-Affiliate Letter
A-iii
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") dated as of
October 17, 1998 is by and between Eastern Enterprises (the "Buyer"), a
Massachusetts business trust, and Colonial Gas Company (the "Seller"), a
Massachusetts utility corporation.
RECITALS
A. Upon the terms and subject to the conditions of this Agreement and in
accordance with Chapter 156B of the Massachusetts General Laws, the
Massachusetts Business Corporation Law (the "MBCL"), and Chapter 164 of the
Massachusetts General Laws ("Chapter 164"), the Massachusetts Manufacture and
Sale of Gas and Electricity Law, the Buyer and the Seller will enter into a
business combination transaction pursuant to which the Seller will merge with
and into a wholly-owned subsidiary of the Buyer to be formed as a Massachusetts
utility corporation ("Merger Sub").
B. The Board of Trustees of the Buyer (i) has determined that the Merger is
consistent with and in furtherance of the long-term business strategy of the
Buyer and fair to, and in the best interests of, the Buyer and its
stockholders, and (ii) has approved this Agreement, the Merger and the other
transactions contemplated by this Agreement, subject to approval by the
stockholders of the Buyer, if required.
C. The Board of Directors of the Seller (i) has determined that the Merger is
consistent with and in furtherance of the long-term business strategy of the
Seller and fair to, and in the best interests of, the Seller and its
stockholders, and (ii) has approved this Agreement, the Merger and the other
transactions contemplated by this Agreement, subject to approval of the Merger
by the stockholders of the Seller and by the Massachusetts Department of
Telecommunications and Energy (the "DTE") in accordance with Chapter 164.
D. The Buyer and the Seller, and Merger Sub when it is organized and becomes
a party to this Agreement, desire to make certain representations and
warranties and other agreements in connection with the Merger.
E. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code
of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties agree as follows:
ARTICLE 1
THE MERGER
1.1 THE MERGER.
(a) At the Effective Time (as defined in Section 1.2) and subject to and upon
the terms and conditions of this Agreement and the applicable provisions of the
MBCL and Chapter 164, the Seller shall be merged with and into Merger Sub, the
separate corporate existence of the Seller shall cease and Merger Sub shall
continue as the surviving corporation. Merger Sub as the surviving corporation
after the Merger is hereinafter sometimes referred to as the "Surviving
Corporation."
(b) Prior to the Effective Time, the Buyer shall cause Merger Sub to be
incorporated as a Massachusetts utility corporation, to adopt a charter and
other organizational documents as may be necessary or advisable and which shall
be appropriate for effecting the purposes of this Agreement, and to become a
party to this Agreement for purposes of effecting the Merger in accordance with
the MBCL and Chapter 164.
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1.2 EFFECTIVE TIME; CLOSING. Subject to the provisions of this Agreement, the
parties hereto shall cause the Merger to be consummated by filing Articles of
Merger (the "Articles of Merger") with the Secretary of the Commonwealth of
Massachusetts in accordance with the relevant provisions of the MBCL and
Chapter 164 (the time of such filing, or such later time as may be agreed in
writing by the parties and specified in the Articles of Merger, being the
"Effective Time," and the date on which the Effective Time occurs being the
"Effective Date") as soon as practicable on the Closing Date (as herein
defined). Unless the context otherwise requires, the term "Agreement" as used
herein refers collectively to this Agreement and the Articles of Merger. The
closing of the Merger (the "Closing") shall take place at the offices of Palmer
& Dodge LLP, One Beacon Street, Boston, Massachusetts, at a time and date to be
specified by the parties, which shall be no later than the second business day
after the satisfaction or waiver of the conditions set forth in Article 6
(other than delivery of items to be delivered at Closing), or at such other
time, date and location as the parties hereto agree in writing (the "Closing
Date"). At the Closing, (a) the Seller shall deliver to the Buyer the various
certificates and instruments required under Article 6, (b) the Buyer and Merger
Sub shall deliver to the Seller the various certificates and instruments
required under Article 6, and (c) the Seller and Merger Sub shall execute and
file with the Secretary of the Commonwealth of Massachusetts the Articles of
Merger.
1.3 EFFECT OF THE MERGER. At the Effective Time, the effect of the Merger
shall be as provided in this Agreement and the applicable provisions of the
MBCL and Chapter 164. Without limiting the generality of the foregoing, and
subject thereto, at the Effective Time all the estate, property, rights,
privileges, powers and franchises of the Seller and Merger Sub shall vest in
the Surviving Corporation, and all debts, liabilities and obligations of the
Seller and Merger Sub shall become the debts, liabilities and obligations of
the Surviving Corporation.
1.4 ARTICLES OF ORGANIZATION; BYLAWS.
(a) At the Effective Time, the Articles of Organization of Merger Sub, as in
effect immediately prior to the Effective Time, shall be the Articles of
Organization of the Surviving Corporation until thereafter amended as provided
by law and such Articles of Organization; provided, however, that at the
Effective Time the Articles of Organization of the Surviving Corporation shall
be amended so that the name of the Surviving Corporation shall be "Colonial Gas
Company."
(b) The Bylaws of Merger Sub, as in effect immediately prior to the Effective
Time, shall be, at the Effective Time, the Bylaws of the Surviving Corporation
until thereafter amended.
1.5 DIRECTORS AND OFFICERS. The directors of Merger Sub immediately prior to
the Effective Time shall be the initial directors of the Surviving Corporation,
to serve until their respective successors are duly elected or appointed and
qualified. The officers of Merger Sub immediately prior to the Effective Time
shall be the initial officers of the Surviving Corporation, to serve until
their successors are duly elected or appointed or qualified.
1.6 EFFECT ON CAPITAL STOCK. At the Effective Time, by virtue of the Merger
and without any action on the part of Merger Sub, the Seller or the holders of
any of the following securities:
(a) Conversion of Seller Common Stock. Each share of Common Stock, $3.33 par
value, of the Seller (the "Seller Common Stock") issued and outstanding
immediately prior to the Effective Time (other than any shares of Seller Common
Stock to be canceled pursuant to Section 1.6(c)) will be canceled and
extinguished and automatically converted (subject to Section 1.6(f)) into the
right to receive at the Effective Time:
(i) (A) $37.50 in cash, without interest (the "Per Share Cash Amount"), (B)
a number of shares of Common Stock, $1.00 par value, of the Buyer (the
"Buyer Common Stock") equal to the Per Share Cash Amount divided by the
Market Value (as defined below) of Buyer Common Stock (the "Exchange
Ratio"), or (C) a combination of cash and shares of Buyer Common Stock
determined in accordance with
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this Section 1.6. For purposes of this Agreement, "Market Value" of Buyer
Common Stock means the average of the per share closing prices of Buyer
Common Stock as reported on the New York Stock Exchange (the "NYSE") for
the ten trading days ending on the third trading day prior to the Effective
Date. Notwithstanding the previous sentence, (x) if the Market Value of
Buyer Common Stock computed in accordance with the previous sentence is
less than $37.56 per share, Market Value for purposes of this Section
1.6(a)(i) shall mean $37.56 and (y) if the Market Value of Buyer Common
Stock computed in accordance with the previous sentence is greater than
$47.80 per share, Market Value for purposes of this Section 1.6(a)(i) shall
mean $47.80.
(ii) The number of shares of Seller Common Stock to be converted into the
right to receive cash in the Merger will, subject to Section 1.6(a)(vii),
be 4,000,000 shares (the "Cash Election Number"). The remaining shares of
Seller Common Stock outstanding immediately prior to the Effective Time
(the "Stock Election Number") will be converted into the right to receive
Buyer Common Stock in the Merger.
(iii) Subject to the allocation and election procedures set forth in this
Section 1.6, each record holder of shares of Seller Common Stock
immediately prior to the Effective Time will be entitled in respect of each
such share (i) to elect to receive cash for such share (a "Cash Election"),
(ii) to elect to receive Buyer Common Stock for such share (a "Stock
Election"), or (iii) to indicate that such record holder has no preference
as to the receipt of cash or Buyer Common Stock for such share (a "Non-
Election"). All such elections will be made on a form designed for that
purpose (a "Form of Election").
(iv) If the aggregate number of shares covered by Cash Elections (the "Cash
Election Shares") exceeds the Cash Election Number, all shares of Seller
Common Stock covered by Stock Elections (the "Stock Election Shares") and
all shares of Seller Common Stock covered by Non-Elections (the "Non-
Election Shares") will be converted into the right to receive Buyer Common
Stock, and the Cash Election Shares will be converted into the right to
receive Buyer Common Stock and cash in the following manner:
Each Cash Election Share will be converted into the right to receive
(A) an amount in cash, without interest, equal to the product of (x)
the Per Share Cash Amount and (y) a fraction (the "Cash Fraction"), the
numerator of which will be the Cash Election Number and the denominator
of which will be the total number of Cash Election Shares, and (B) a
number of shares of Buyer Common Stock equal to the product of (x) the
Exchange Ratio and (y) a fraction equal to one minus the Cash Fraction.
(v) If the aggregate number of Stock Election Shares exceeds the Stock
Election Number, all Cash Election Shares and all Non-Election Shares will
be converted into the right to receive cash, and all Stock Election Shares
will be converted into the right to receive Buyer Common Stock and cash in
the following manner:
Each Stock Election Share will be converted into the right to receive
(A) a number of shares of Buyer Common Stock equal to the product of
(x) the Exchange Ratio and (y) a fraction (the "Stock Fraction"), the
numerator of which will be the Stock Election Number and the
denominator of which will be the total number of Stock Election Shares,
and (B) an amount in cash, without interest, equal to the product of
(x) the Per Share Cash Amount and (y) a fraction equal to one minus the
Stock Fraction.
(vi) In the event that neither subparagraph (iv) nor subparagraph (v) above
is applicable, all Cash Election Shares will be converted into the right to
receive cash, all Stock Election Shares will be converted into the right to
receive Buyer Common Stock, and all Non-Election Shares will be converted
into the right to receive Buyer Common Stock and the right to receive cash
on a proportionate basis so that the Stock Election Number and the Cash
Election Number equal their respective percentages of the number of shares
of Seller Common Stock outstanding as closely as possible.
(vii) In the event that the Buyer Common Stock (excluding fractional shares
to be paid in cash pursuant to Section 1.6(f)) to be issued in the Merger
in exchange for shares of Seller Common Stock,
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valued at the lesser of (i) the average of the per share closing prices as
reported on the NYSE for the ten trading days ending on the third trading
day prior to the Effective Date and (ii) the average of the high and low
trading prices as reported on the NYSE for the Effective Date, minus the
aggregate discount, if any, due to trading restrictions on the Buyer Common
Stock to be issued in the Merger (the "Buyer Common Stock Value") is less
than 45% of the total consideration to be paid in exchange for the shares
of Seller Common Stock (including without limitation the amount of cash to
be paid in lieu of fractional shares pursuant to Section 1.6(f) and any
other payments required to be considered in determining whether the
continuity of interest requirement applicable to reorganizations under
Section 368 of the Code has been satisfied) (the "Total Consideration"),
then the Cash Election Number shall be reduced, and the Stock Election
Number shall be correspondingly increased, to the extent necessary so that
the Buyer Common Stock Value is 45% of the Total Consideration.
(b) Cash Election Procedure.
(i) The Buyer and the Seller will each use its reasonable best efforts to
cause a Form of Election to be mailed not less than thirty (30) days prior
to the anticipated Effective Time to all holders of record of shares of
Seller Common Stock as of the record date for the Seller Stockholders'
Meeting (as hereinafter defined) and to all persons who become holders of
Seller Common Stock during the period between the record date for the
Seller Stockholders' Meeting and 5:00 p.m., New York time, on the date
seven calendar days prior to the anticipated Effective Time and to make the
Form of Election available to all persons who become holders of Seller
Common Stock subsequent to such time. Elections will be made by holders of
Seller Common Stock by mailing to the Exchange Agent a Form of Election.
Holders of record of shares of Seller Common Stock who hold such shares as
nominees, trustees or in other representative capacities (a
"Representative") may submit multiple Forms of Election, provided that such
Representative certifies that each such Form of Election covers all the
shares of Seller Common Stock held by each Representative for a particular
beneficial owner. To be effective, a Form of Election must be properly
completed, signed and submitted to the Exchange Agent and accompanied by
the certificates representing the shares of Seller Common Stock as to which
the election is being made (or by an appropriate guarantee of delivery of
such certificates as set forth in such Form of Election from a member of
any registered national securities exchange or of the National Association
of Securities Dealers, Inc. ("NASD") or a bank, trust company, credit
union, savings association, broker, dealer or other entity that is a member
in good standing of the Securities Transfer Agent's Medallion Program, the
NYSE Medallion Signature Guaranty Program or the Stock Exchange Medallion
Program). The Buyer will have the discretion, which it may delegate in
whole or in part to the Exchange Agent, to determine whether Forms of
Election have been properly completed, signed and submitted or revoked and
to disregard immaterial defects in Forms of Election. The decision of the
Buyer (or the Exchange Agent) in such matters will be conclusive and
binding. Neither the Buyer nor the Exchange Agent will be under any
obligation to notify any person of any defect in a Form of Election
submitted to the Exchange Agent. The Exchange Agent will also make
computations contemplated by this Section 1.6 and all such computations
will be conclusive and binding on the holders of Seller Common Stock.
(ii) For the purposes hereof, a holder of Seller Common Stock who does not
submit a Form of Election which is received by the Exchange Agent prior to
the Election Deadline (as defined herein) will be deemed to have made a
Non-Election. If the Buyer or the Exchange Agent determine that any
purported Cash Election or Stock Election was not properly made, such
purported Cash Election or Stock Election will be deemed to be of no force
and effect and the stockholder making such purported election will for
purposes hereof be deemed to have made a Non-Election.
(iii) A Form of Election must be received by the Exchange Agent by the
close of business on the last business day prior to the Effective Time (the
"Election Deadline") in order to be effective. All elections may be revoked
until the Election Deadline in writing by holders submitting the Forms of
Election.
(c) Cancellation of Certain Shares. Each share of Seller Common Stock held in
the treasury of the Seller or owned by Merger Sub, the Buyer or any direct or
indirect wholly owned subsidiary of the Seller or of
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the Buyer immediately prior to the Effective Time shall be canceled and
extinguished without any conversion thereof.
(d) Capital Stock of Merger Sub. Each share of Common Stock, $1.00 par value,
of Merger Sub issued and outstanding immediately prior to the Effective Time
shall continue to be outstanding following, and shall be unaffected by, the
Merger.
(e) Adjustment of Exchange Ratio. The Exchange Ratio and Cash Election Number
shall be adjusted to reflect fully the effect of any stock split, reverse
split, stock dividend (including any dividend or distribution of securities
convertible into Buyer Common Stock), reorganization, recapitalization or other
like change with respect to Buyer Common Stock, occurring after the date hereof
and having a record date prior to the Effective Time.
(f) Fractional Shares. No fraction of a share of Buyer Common Stock will be
issued by virtue of the Merger, but in lieu thereof each holder of shares of
Seller Common Stock who would otherwise be entitled to a fraction of a share of
Buyer Common Stock (after aggregating all fractional shares of Buyer Common
Stock to be received by such holder) shall receive from the Buyer an amount of
cash (rounded to the nearest whole cent), without interest thereon, equal to
the product of (i) such fraction, multiplied by (ii) the Average Closing Price.
The "Average Closing Price" shall mean the average of the per share closing
prices of Buyer Common Stock as reported on the NYSE for the ten trading days
ending on and including the Effective Date.
1.7 SURRENDER OF CERTIFICATES.
(a) Exchange Agent. The Buyer shall select a bank or trust company reasonably
acceptable to the Seller, which may be the Buyer's existing transfer agent, to
act as the exchange agent (the "Exchange Agent") in the Merger.
(b) The Buyer to Provide Merger Consideration. Promptly after the Effective
Time, the Buyer shall make available to the Exchange Agent for exchange in
accordance with this Article 1 certificates for the shares of Buyer Common
Stock issuable, and cash payable, pursuant to Section 1.6(a) in exchange for
outstanding shares of Seller Common Stock and cash in an amount sufficient for
payment in lieu of fractional shares pursuant to Section 1.6(f) and any
dividends or distributions to which holders of shares of Seller Common Stock
may be entitled pursuant to Section 1.7(d). The shares of Buyer Common Stock
issuable pursuant to Section 1.6(a) and the cash payable pursuant to Sections
1.6(a) and (f) and Section 1.7(d) are referred to collectively as the "Merger
Consideration".
(c) Exchange Procedures. Promptly after the Effective Time, the Buyer shall
cause the Exchange Agent to mail to each holder of record (as of the Effective
Time) of a certificate or certificates (the "Certificates") that immediately
prior to the Effective Time represented outstanding shares of Seller Common
Stock whose shares were converted into the right to receive the Merger
Consideration (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Exchange Agent and shall be in
such form and have such other provisions as the Buyer may reasonably specify)
and (ii) instructions for effecting the exchange of the Certificates for the
Merger Consideration. Upon surrender of a Certificate for cancellation to the
Exchange Agent or to such other agent or agents as may be appointed by the
Buyer, together with such letter of transmittal duly completed and validly
executed in accordance with the instructions thereto, the holder of such
Certificate shall be entitled to receive in exchange therefor the Merger
Consideration, and the Certificate so surrendered shall forthwith be canceled.
Until so surrendered, each outstanding Certificate will be deemed from and
after the Effective Time, for all corporate purposes, subject to Section 1.7(d)
as to the payment of dividends, to evidence only the ownership of the number of
full shares of Buyer Common Stock and the aggregate Per Share Cash Amount into
which such shares of Seller Common Stock shall have been so converted and the
right to receive an amount in cash in lieu of the issuance of any fractional
shares in accordance with Section 1.6(f) and any dividends or distributions
payable pursuant to Section 1.7(d).
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(d) Distributions With Respect to Unexchanged Shares. No dividends or other
distributions declared or made after the date of this Agreement with respect to
Buyer Common Stock with a record date after the Effective Time will be paid to
the holder of any unsurrendered Certificate with respect to the shares of Buyer
Common Stock represented thereby until the holder of record of such Certificate
shall surrender such Certificate. Subject to applicable law, following
surrender of any such Certificate, there shall be delivered to the record
holder thereof certificates representing whole shares of Buyer Common Stock and
the aggregate Per Share Cash Amount issuable and payable in exchange therefor,
without interest, along with payments of the amount of dividends or other
distributions with a record date after the Effective Time then payable with
respect to such whole shares of Buyer Common Stock and cash in lieu of any
fractional shares in accordance with Section 1.6(f).
(e) Transfers of Ownership. If any certificate for shares of Buyer Common Stock
is to be issued in a name other than that in which the Certificate surrendered
in exchange therefor is registered or if any of the other Merger Consideration
is to be payable to a person other than the person to whom such Certificate is
registered, it will be a condition of the issuance and payment thereof that the
Certificate so surrendered will be properly endorsed, accompanied by any
documents required to evidence and effect such transfer and otherwise in proper
form for transfer and that the person requesting such exchange will have paid
to the Buyer or any agent designated by it any applicable transfer taxes
required by reason of the issuance of a certificate for shares of Buyer Common
Stock in any name other than that of the registered holder of the Certificate
surrendered, or shall provide evidence that any applicable transfer taxes have
been paid.
(f) No Liability. Notwithstanding anything to the contrary in this Section 1.7,
neither the Exchange Agent, the Buyer, the Surviving Corporation nor any other
party hereto shall be liable to a holder of shares of Buyer Common Stock or
Seller Common Stock for any amount properly paid to a public official pursuant
to any applicable abandoned property, escheat or similar law.
(g) Termination of Exchange Agent. Any Merger Consideration made available to
the Exchange Agent pursuant to Section 1.7(b) and not exchanged within six
months after the Effective Time pursuant to this Section 1.7 shall be returned
by the Exchange Agent to Buyer, which shall thereafter act as Exchange Agent,
and thereafter any holder of unsurrendered Certificates shall look as a general
creditor only to Buyer for payment of any funds to which such holder may be
due, subject to applicable law.
1.8 NO FURTHER OWNERSHIP RIGHTS IN SELLER COMMON STOCK. The Merger
Consideration issued and paid in exchange of shares of Seller Common Stock in
accordance with the terms hereof shall be deemed to have been issued and paid
in full satisfaction of all rights pertaining to such shares of Seller Common
Stock, and there shall be no further registration of transfers on the records
of the Surviving Corporation of shares of Seller Common Stock that were
outstanding immediately prior to the Effective Time. If after the Effective
Time, Certificates are presented to the Surviving Corporation for any reason,
they shall be canceled and exchanged as provided in this Article 1.
1.9 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any Certificates shall
have been lost, stolen or destroyed, the Exchange Agent shall deliver in
exchange for such lost, stolen or destroyed Certificates, upon the making of an
affidavit of that fact by the holder thereof, the Merger Consideration;
provided, however, that the Buyer may, in its discretion and as a condition
precedent to such delivery, require the owner of such lost, stolen or destroyed
Certificates to deliver a bond in such sum as it may reasonably direct as
indemnity against any claim that may be made against the Buyer or the Exchange
Agent with respect to the Certificates alleged to have been lost, stolen or
destroyed.
1.10 TAX CONSEQUENCES. It is intended by the parties hereto that the Merger
shall constitute a reorganization within the meaning of Section 368 of the
Code. The parties hereto adopt this Agreement as a "plan of reorganization"
within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the United States
Income Tax Regulations.
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1.11 TAKING OF NECESSARY ACTION; FURTHER ACTION. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of the Seller and Merger Sub, the officers and directors of the
Seller and Merger Sub are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and necessary
action, so long as such action is consistent with this Agreement.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller represents and warrants to the Buyer, subject to the exceptions
set forth in the disclosure schedule supplied by the Seller to the Buyer (the
"Seller Disclosure Schedule"), as follows:
2.1 ORGANIZATION OF THE SELLER. The Seller and each of its Subsidiaries and
joint ventures (as defined below) is a corporation or other legal entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization, has the requisite corporate
or similar power to own, lease and operate its property and to carry on its
business as now being conducted, and is duly qualified to do business and in
good standing as a foreign corporation or other legal entity in each
jurisdiction in which the failure to be so qualified would have a Seller
Material Adverse Effect (as defined below). Included in the Seller Disclosure
Schedule is a true and complete list of all of the Seller's Subsidiaries and
joint ventures, together with the jurisdiction of incorporation or organization
of each Subsidiary and joint venture and the Seller's equity interest therein.
The Seller has delivered or made available to the Buyer a true and correct copy
of the Restated Articles of Organization and Bylaws of the Seller and similar
governing instruments of each of its Subsidiaries and joint venture, each as
amended to date. The minute books of the Seller and its Subsidiaries and joint
ventures made available to the Buyer are the only minute books of the Seller
and its Subsidiaries and joint ventures, and the minutes contain a reasonably
accurate record of all actions taken in all meetings of directors (or
committees thereof) and stockholders or actions by written consent. The term
"Seller Material Adverse Effect" means, for purposes of this Agreement, any
change, event or effect that is materially adverse to the business, assets
(including intangible assets), financial condition or results of operations of
the Seller and its Subsidiaries taken as a whole; provided, however, that, for
purposes of Sections 6.3(a) and 7.1(i), the following shall not be deemed to
constitute a Seller Material Adverse Effect: (i) an adverse change in the
business, financial condition or results of operations of the Seller following
the date of this Agreement primarily attributable to the transactions
contemplated by this Agreement or the announcement thereof, circumstances or
events affecting the gas distribution industry generally or adverse weather
conditions or (ii) the loss of any officer or key employee of the Seller
following the date of this Agreement. "Subsidiary" means, with respect to any
party, any corporation or other organization, whether incorporated or
unincorporated, of which (i) such party or any other Subsidiary of such party
is a general partner (excluding partnerships, the general partnership interests
of which held by such party or any Subsidiary of such party do not have a
majority of the voting interest in such partnership) or (ii) at least 50% of
the securities or other interests having by their terms ordinary voting power
to elect a majority of the Board of Directors or others performing similar
functions with respect to such corporation or other organization are directly
or indirectly owned or controlled by such party or by any one or more of its
Subsidiaries, or by such party and one or more of its Subsidiaries. The term
"joint venture" of a party shall mean any corporation or other entity
(including partnerships and other business associations) that is not a
Subsidiary of such party, in which such party or one or more of its
Subsidiaries owns an equity interest, other than equity interests held for
passive investment purposes which are less than 10% of any class of the
outstanding voting securities or equity of any such entity.
2.2 THE SELLER CAPITAL STRUCTURE.
(a) The authorized capital stock of the Seller consists of 15,000,000 shares of
Common Stock, $3.33 par value, of which, as of September 30, 1998, there were
8,845,315 shares issued and outstanding and no shares in treasury, 547,559
shares of Class A Preferred Stock, $25 par value, of which 100,000 shares have
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been designated as Series A-1 Junior Participating Preferred Stock and none of
which are outstanding, and 370,000 shares of Class B Preferred Stock, $1.00 par
value, none of which are outstanding. No shares of Seller's capital stock have
been issued since that date except shares of Seller Common Stock issued in the
normal course and consistent with past practice pursuant to the Seller's
Dividend Reinvestment and Common Stock Purchase Plan (the "Seller Dividend
Reinvestment Plan") or the Employee Savings Plan. All outstanding shares of
Seller Common Stock are duly authorized, validly issued, fully paid and non-
assessable and are not subject to preemptive rights created by statute, the
Restated Articles of Organization or Bylaws of the Seller or any agreement or
document to which the Seller is a party or by which it is bound. As of
September 30, 1998, an aggregate of 380,290 shares of Seller Common Stock were
reserved for issuance pursuant to the Seller Dividend Reinvestment Plan and
Employee Savings Plan; and 100,000 shares of Seller's Series A-1 Junior
Participating Preferred Stock were reserved for issuance under the Rights
Agreement (the "Rights Agreement"), dated as of December 1, 1993 between the
Seller and BankBoston, N.A., as Rights Agent. All shares of Seller Common Stock
subject to issuance as aforesaid, upon issuance on the terms and conditions
specified in the instruments pursuant to which they are issuable, would be duly
authorized, validly issued, fully paid and nonassessable.
(b) The Seller Disclosure Schedule includes a true and complete list of all
outstanding rights, subscriptions, warrants, calls, preemptive rights, options
or other agreements of any kind to purchase or otherwise receive from the
Seller any shares of the capital stock or any other security of the Seller, and
all outstanding securities of any kind convertible into or exchangeable for
such securities. True and complete copies of all instruments (or other forms of
such instruments) referred to in this Section 2.2(b) have been previously
furnished to the Buyer. There are no stockholder agreements, voting trusts,
proxies or other agreements, instruments or understandings with respect to the
outstanding shares of capital stock of the Seller to which the Seller is a
party.
(c) Except for securities the Seller owns directly or indirectly through one or
more Subsidiaries, there are no equity securities of any class of any
Subsidiary of the Seller, or any security exchangeable or convertible into or
exercisable for such equity securities, issued, reserved for issuance or
outstanding.
2.3 AUTHORITY.
(a) The Seller has all requisite corporate power and authority to enter into
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Seller, subject only to the approval of
this Agreement and the Merger by the Seller's stockholders and by the DTE and
the filing and recording of the Articles of Merger pursuant to the MBCL and
Chapter 164. This Agreement has been duly executed and delivered by the Seller.
Assuming the due authorization, execution and delivery by the Buyer and, when
it becomes a party, Merger Sub, this Agreement constitutes the valid and
binding obligation of the Seller, enforceable in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general principles of equity. The execution and
delivery of this Agreement by the Seller does not, and the performance of this
Agreement by the Seller will not, (i) conflict with or violate the Restated
Articles of Organization or Bylaws of the Seller or the equivalent
organizational documents of any of its Subsidiaries, (ii) subject to obtaining
the approval by the Seller's stockholders of this Agreement as contemplated in
Section 5.2 and of the DTE in accordance with Chapter 164 and compliance with
the other requirements set forth in Section 2.3(b) below, conflict with or
violate any law, rule, regulation, order, judgment or decree applicable to the
Seller or any of its Subsidiaries or by which its or any of their respective
properties is bound, or (iii) subject to obtaining any third party consents
referred to in the final sentence of this Section 2.3(a), result in any breach
of or constitute a default (or an event that with notice or lapse of time or
both would become a default) under, or impair the rights of the Seller or any
Subsidiary or alter the rights or obligations of any third party under, or give
to others any rights of termination, amendment, acceleration or cancellation
of, or result in the creation of a lien or encumbrance on any of the properties
or assets of the Seller or any of its Subsidiaries pursuant to, any note, bond,
mortgage, indenture,
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contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which the Seller or any of its Subsidiaries is a party or by
which the Seller or any of its Subsidiaries or its or any of their respective
properties are bound or affected, except, with respect to clauses (ii) and
(iii), for any such conflicts, violations, defaults or other occurrences that
would not have a Seller Material Adverse Effect. The Seller Disclosure Schedule
lists all consents, waivers and approvals under any of the Seller's or any of
its Subsidiaries' agreements, contracts, licenses or leases required to be
obtained in connection with the consummation of the transactions contemplated
hereby, except for those the absence of which would not have a Seller Material
Adverse Effect.
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with any court, administrative agency or commission or
other governmental or regulatory body or authority or instrumentality
("Governmental Entity") is required by or with respect to the Seller in
connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby, except for (i) the filing
of the Articles of Merger with the Secretary of the Commonwealth of
Massachusetts, (ii) the filing of the Proxy Statement (as defined in Section
2.18) with the United States Securities and Exchange Commission (the "SEC") in
accordance with the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), (iii) the filing of a Current Report on Form 8-K with the SEC, (iv) the
filing with the Antitrust Division of the United States Department of Justice
(the "Antitrust Division") and the Federal Trade Commission (the "FTC") of such
forms as may be required by the Hart-Scott-Rodino Antitrust Improvements Act of
1976 (the "HSR Act") and the termination or expiration of all applicable
waiting periods thereunder, (v) approval of the Merger and the related
transactions contemplated hereunder by DTE in accordance with Chapter 164 and
any required filing thereof with the Secretary of the Commonwealth, (vi) the
approval of the Merger by the SEC pursuant Section 9(a)(2) of the Public
Utility Holding Company Act of 1935, as amended ("PUHCA"), (vii) such consents,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under applicable federal and state securities laws and the laws
of any foreign country and with respect to the transfer of the Seller's
franchises to the Surviving Corporation and (viii) such other consents,
authorizations, filings, approvals and registrations that, if not obtained or
made, would not have a Seller Material Adverse Effect or a material adverse
effect on the ability of the parties to consummate the Merger.
(c) The Rights Agreement has been amended to make it inapplicable to the
Buyer's acquisition of Seller Common Stock and the other transactions
contemplated by and pursuant to this Agreement.
2.4 CHAPTER 110F NOT APPLICABLE. The Board of Directors of the Seller has taken
all actions so that the restrictions contained in Chapter 110F of the
Massachusetts General Laws applicable to a "business combination" (as defined
in Chapter 110F) will not apply to the execution, delivery or performance of
this Agreement or to the consummation of the Merger or the other transactions
contemplated by this Agreement.
2.5 SEC FILINGS; THE SELLER FINANCIAL STATEMENTS.
(a) The Seller has filed all forms, reports and documents required to be filed
with the SEC since January 1, 1993, and has made available to the Buyer such
forms, reports and documents in the form filed with the SEC. All such required
forms, reports and documents (including those that the Seller may file after
the date hereof until the Closing) are referred to herein as the "Seller SEC
Reports." As of their respective dates, the Seller SEC Reports (i) were or will
be prepared in compliance in all material respects with the requirements of the
Securities Act of 1933, as amended (the "Securities Act") or the Exchange Act,
as the case may be, and the rules and regulations of the SEC thereunder
applicable to such Seller SEC Reports, and (ii) did not or will not at the time
they were or are filed (or if amended or superseded by a filing prior to the
Closing, then on the date of such filing) contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances in which they were made, not misleading. None of the Seller's
Subsidiaries is required to file any forms, reports or other documents with the
SEC.
(b) Each of the consolidated financial statements (including, in each case, any
related notes thereto) contained in the Seller SEC Reports (the "Seller
Financials"), including any Seller SEC Reports filed after the
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date hereof until the Closing, (i) complied or will comply as to form in all
material respects with the published rules and regulations of the SEC with
respect thereto, (ii) was or will be prepared in accordance with generally
accepted accounting principles ("GAAP") applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes
thereto or, in the case of unaudited interim financial statements, as may be
permitted by the SEC on Form 10-Q under the Exchange Act) and (iii) fairly
presented or will fairly present, in all material respects, the consolidated
financial position of the Seller and its Subsidiaries at the respective dates
thereof and the consolidated results of its operations and cash flows for the
periods indicated, consistent with the books and records of the Seller, except
that the unaudited interim financial statements were or are subject to normal
and recurring year-end adjustments which were not, or are not expected to be,
material in amount. The balance sheet of the Seller contained in the Seller's
SEC Report as of June 30, 1998 is hereinafter referred to as the "Seller
Balance Sheet." Except as disclosed in the Seller Disclosure Schedule and
except for obligations under this Agreement, neither the Seller nor any of its
Subsidiaries has (i) any liabilities (absolute, accrued, contingent or
otherwise) of a nature required to be disclosed on a balance sheet or in the
related notes to the consolidated financial statements prepared in accordance
with GAAP which are, individually or in the aggregate, material to the
business, results of operations or financial condition of the Seller and its
Subsidiaries taken as a whole, except liabilities (x) provided for in the
Seller Balance Sheet and the related notes or (y) incurred since the date of
the Seller Balance Sheet in the ordinary course of business consistent with
past practices, nor (ii) any other liabilities reasonably likely to have a
Seller Material Adverse Effect.
2.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since June 30, 1998, there has not
occurred any Seller Material Adverse Effect and there has not been, occurred or
arisen any:
(a) transaction by the Seller or its Subsidiaries except in the ordinary course
of business as conducted on the date of the Seller Balance Sheet and consistent
with past practices;
(b) amendments or changes to the Restated Articles of Organization or Bylaws of
the Seller;
(c) individual capital expenditure or commitment, or series of related capital
expenditure or commitments, by the Seller or its Subsidiaries outside the
ordinary course of business exceeding $250,000;
(d) destruction of, damage to or loss of any assets material to the business of
the Seller and its Subsidiaries taken as a whole (whether or not covered by
insurance);
(e) material adverse change in a material customer relationship, including
without limitation any cancellation or termination or written notice of
cancellation or termination by any material customer of its relationship or a
material portion of its relationship with the Seller or any of its Subsidiaries
or any material decrease in the usage or purchase of the products or services
of the Seller or any of its Subsidiaries by any such customer;
(f) labor trouble or claim of wrongful discharge or other unlawful labor
practice or action that is reasonably likely to have a Seller Material Adverse
Effect;
(g) material change in accounting methods or practices (including any change in
depreciation or amortization policies or rates) by the Seller;
(h) material revaluation by the Seller or its Subsidiaries of any of its
significant assets;
(i) declaration, setting aside or payment of a dividend or other distribution
with respect to the capital stock of the Seller (other than regular quarterly
dividends in accordance with past practice), or any direct or indirect
redemption, purchase or other acquisition by the Seller of any of its capital
stock;
(j) increase in the salary or other compensation payable or to become payable
to any of its officers or directors or, other than in the ordinary course of
business and consistent with past practices, any of its
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employees or advisors, or the declaration, payment or commitment or obligation
of any kind for the payment of a bonus or other additional salary or
compensation to any such person except as otherwise contemplated by this
Agreement and except for increases, payments or commitments in the ordinary
course of business and consistent with past practices;
(k) sale, lease, license or other disposition of any material assets or
properties of the Seller or its Subsidiaries, except in the ordinary course of
business;
(l) amendment or termination of any material contract, agreement or license to
which the Seller or any of its Subsidiaries is a party or by which it is bound
except for amendments in the ordinary course of business that are not
reasonably likely to have a Seller Material Adverse Effect or scheduled
expiration pursuant to the terms of the contract, agreement or license and not
as a result of any breach;
(m) loan by the Seller or any of its Subsidiaries to any person or entity,
incurring by the Seller or any Subsidiary of any indebtedness (except for
indebtedness incurred in the ordinary course under existing credit lines or
arrangements set forth in the Seller Disclosure Schedule), guaranteeing by the
Seller or any Subsidiary of any indebtedness, issuance or sale of any debt
securities of the Seller or any Subsidiary or guaranteeing of any debt
securities of others, except in the ordinary course of business and consistent
with past practices;
(n) waiver or release of any material right or claim of the Seller or any of
its Subsidiaries, including any write-off or other compromise of any account
receivable of the Seller or any Subsidiary, other than in the ordinary course
of business and consistent with past practices;
(o) adoption, amendment, modification or termination of any Plan (as defined in
Section 2.14) by the Seller or any of its Subsidiaries, or the taking of any
action with respect thereto;
(p) regulatory decision by the DTE that would have a material adverse impact on
the Surviving Corporation; or
(q) commitment, understanding or agreement by the Seller or any of its
Subsidiaries or any officer or employee thereof to do any of the things
described in the preceding clauses (a) through (o) (other than this Agreement).
2.7 TAX MATTERS.
(a) The Seller and its Subsidiaries have filed all tax reports and returns
required to be filed by them and have paid or will timely pay all taxes and
other charges shown as due on such reports and returns. Neither the Seller nor
any of its Subsidiaries is delinquent in the payment of any material tax
assessment or other governmental charge (including without limitation
applicable withholding taxes). Any provision for taxes reflected in the Seller
Balance Sheet is adequate for payment of any and all tax liabilities for
periods ending on or before June 30, 1998 and there are no tax liens on any
assets of the Seller or its Subsidiaries except for current taxes not yet due.
(b) There has not been any audit of any tax return filed by the Seller or any
of its Subsidiaries for any period subsequent to 1995 and no audit of any tax
return filed by the Seller or any of its Subsidiaries is in progress and
neither the Seller nor any Subsidiary has been notified by any tax authority
that any such audit is contemplated or pending. No extension of time with
respect to any date on which a tax return was or is to be filed by the Seller
or any of its Subsidiaries is in force, and no waiver or agreement by the
Seller or any of its Subsidiaries is in force for the extension of time for the
assessment or payment of any tax. For purposes of this Agreement, the term
"tax" includes all federal, state, local and foreign taxes or assessments,
including income, sales, gross receipts, excise, use, value added, royalty,
franchise, payroll, withholding, property and import taxes and any interest or
penalties applicable thereto.
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(c) Neither the Seller nor any of its Subsidiaries has agreed to, or is
required to, make any adjustments under Section 481(a) of the Code by reason of
a change in accounting method or otherwise.
(d) Each agreement, contract or arrangement to which the Seller or any of its
Subsidiaries is a party that could result, on account of the transactions
contemplated hereunder, separately or in the aggregate, in the payment of any
"excess parachute payments" within the meaning of Section 280G of the Code is
set forth in Section 2.7 of the Seller Disclosure Schedule.
2.8 REGULATION AS A UTILITY.
(a) The Seller is not a "holding company" under PUHCA.
(b) The Seller is subject to regulation as a natural gas distribution utility
by the Commonwealth of Massachusetts.
(c) Neither the Seller nor any of its Subsidiaries is currently subject to
regulation by the Federal Energy Regulation Commission under the Federal Power
Act or as a "natural gas company" under the Natural Gas Act or is subject to
regulation as a public utility or public service company (or similar
designation) by any state in the United States other than Massachusetts or in
any foreign country.
2.9 TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES.
(a) The Seller and its Subsidiaries have good and valid title to, or have a
valid and enforceable right to use or a valid and enforceable leasehold
interest in, all real property (including all buildings, fixtures and other
improvements thereto) owned by them and material to the conduct of their
respective businesses as such businesses are now being conducted. Neither the
Company's nor any of its Subsidiaries' ownership of or leasehold interest in
any such property is subject to any mortgage, pledge, lien, option, conditional
sale agreement, encumbrance, security interest, title exception or restriction
or claim or charge of any kind ("Encumbrances"), except for such Encumbrances
as are set forth in the Seller Disclosure Schedule or the Seller Financials or
are not in the aggregate reasonably likely to have a Seller Material Adverse
Effect. All such property is in condition and repair adequate in all material
respects for the continued conduct of the business of the Seller and its
Subsidiaries in the manner in which it is currently conducted, except to the
extent that the condition of any property is not in the aggregate reasonably
likely to have a Seller Material Adverse Effect.
(b) The Seller and its Subsidiaries have good and valid title to, or, in the
case of leased properties and assets, valid leasehold interests in, all of
their tangible personal properties and assets, used or held for use in their
business, and such properties and assets, as well as all other properties and
assets of the Seller and its Subsidiaries, whether tangible or intangible, are
free and clear of any Encumbrances, except for such Encumbrances as are set
forth in the Seller Disclosure Schedule or the Seller Financials or are not in
the aggregate reasonably likely to have a Seller Material Adverse Effect. All
such property is in condition and repair adequate in all material respects for
the continued conduct of the business of the Seller and its Subsidiaries in the
manner in which it is currently conducted, except to the extent that the
condition of any property is not in the aggregate reasonably likely to have a
Seller Material Adverse Effect.
2.10 INTELLECTUAL PROPERTY. The Seller and its Subsidiaries own, or are
licensed or otherwise possess legally enforceable and otherwise adequate rights
to use, all patents, trademarks, trade names, service marks, copyrights, and
any applications therefor, schematics, technology, know-how, computer software
programs or applications, and tangible or intangible proprietary information or
material that are required or reasonably necessary for the conduct of business
of the Seller or its Subsidiaries as currently conducted, the absence of which
would have a Seller Material Adverse Effect (collectively, the "Seller
Intellectual Property Rights"). All of the Seller Intellectual Property Rights
are owned or licensed by the Seller or one of its Subsidiaries, free and clear
of any and all Encumbrances, except for those Encumbrances under or set forth
in applicable license
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agreements or that would not, individually or in the aggregate, have a Seller
Material Adverse Effect, and, to the knowledge of the Seller, neither the
Seller nor any of its Subsidiaries has forfeited or otherwise relinquished any
Seller Intellectual Property Rights which forfeiture would have a Seller
Material Adverse Effect. To the knowledge of the Seller, the use of the Seller
Intellectual Property Rights by the Seller and its Subsidiaries does not, in
any material respect, conflict with, infringe upon, violate or interfere with
or constitute an appropriation of any right, title, interest or goodwill
(including, without limitation, any intellectual property right, trademark,
trade name, patent, service mark, brand mark, brand name, computer program,
database, industrial design, copyright or any pending application therefor) of
any other person, and neither the Seller nor any of its Subsidiaries has
received notice of any claim or otherwise knows that any of the Seller
Intellectual Property Rights is invalid, conflicts with the asserted rights of
any other person, has not been used or enforced or has failed to be used or
enforced in a manner that would result in the abandonment, cancellation or
unenforceability of any of the Seller Intellectual Property Rights, except for
such conflicts, infringements, violations, interferences, claims, invalidity,
abandonments, cancellations or unenforceability that would not, individually or
in the aggregate, have a Seller Material Adverse Effect.
2.11 COMPLIANCE; PERMITS; RESTRICTIONS.
(a) Neither the Seller nor any of its Subsidiaries is in conflict with, or in
default or violation of, (i) any law, rule, regulation, order, judgment or
decree applicable to the Seller or any of its Subsidiaries or by which its or
any of their respective properties is bound or affected, or (ii) any note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which the Seller or any of its
Subsidiaries is a party or by which the Seller or any of its Subsidiaries or
its or any of their respective properties is bound or affected, except for any
conflicts, defaults or violations that are not reasonably likely to have a
Seller Material Adverse Effect.
(b) The Seller and its Subsidiaries hold all consents, permits, licenses,
variances, exemptions, orders and approvals from governmental authorities that
are material to the operation of the business of the Seller and its
Subsidiaries taken as a whole (collectively, the "Seller Permits"). The Seller
and its Subsidiaries are in compliance with the terms of the Seller Permits,
except where the failure to so comply is not reasonably likely to have a Seller
Material Adverse Effect.
2.12 LITIGATION. There is no action, suit or proceeding of any nature pending
or to the Seller's knowledge threatened against the Seller or any of its
Subsidiaries, or any of their respective properties, officers or directors, in
their respective capacities as such (i) in which injunctive or other equitable
relief or damages in excess of $250,000 are or are reasonably likely to be
sought against the Seller or any Subsidiary or that otherwise are reasonably
likely to result in a Seller Material Adverse Effect or (ii) that in any manner
challenges or seeks to prevent, enjoin, alter or delay any of the transactions
contemplated by this Agreement. To the Seller's knowledge, there is no
investigation pending or threatened against the Seller or any of its
Subsidiaries, their respective properties or any of their respective officers
or directors by or before any Governmental Entity that is reasonably likely to
have a Seller Material Adverse Effect.
2.13 BROKERS' AND FINDERS' FEES. Except for fees payable to Salomon Smith
Barney and disclosed to the Buyer, the Seller has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or any similar charges in connection with this Agreement or
any transaction contemplated hereby.
2.14 EMPLOYEE BENEFIT PLANS. The Seller Disclosure Schedule sets forth a
complete list of all pension, profit sharing, retirement, deferred
compensation, employment, welfare, insurance, disability, bonus, vacation pay,
severance pay, fringe benefits and similar plans, programs, agreements or
arrangements, whether benefiting one or more individuals, including without
limitation all employee benefit plans as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
maintained by the Seller or its Subsidiaries or to which Seller or any of its
Subsidiaries are parties or are required to contribute (the "Plans"). Seller
has delivered (or within five (5) business days after the date hereof will
deliver) to the Buyer
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current, accurate and complete copies of (i) each Plan that has been reduced to
writing, together with all amendments; (ii) a summary of the material terms of
each Plan that has not been reduced to writing, as amended; (iii) the summary
plan description for each Plan subject to ERISA and, in the case of each other
Plan, any similar employee summary (including employee handbook description) of
the Plan; (iv) for each Plan intended to be qualified under Section 401(a) or
Section 501(c)(9) of the Code, the most recent determination letter or
exemption determination issued by the Internal Revenue Service ("IRS"); (v) for
each Plan with respect to which a Form 5500 series annual report is required to
be filed, the most recently filed such annual report and the annual report for
the two preceding years, together with all schedules and exhibits; (vi) all
insurance contracts, administrative services contracts, trust agreements,
investment management agreements or similar agreements maintained in connection
with the Plans or any of them; and (vii) copies of any correspondence from the
IRS, the Department of Labor ("DOL") or other U.S. government agency or
department relating to an audit or an asserted or assessed penalty with respect
to a Plan or relating to requested relief from any liability or penalty
(including, but not limited to, any correspondence relating to the IRS's EPRSC,
VCR or CAP programs, or the DOL's amnesty programs for late filers and non-
filers). To the best knowledge of the Seller, no employee benefit handbook or
similar employee communication relating to any Plan nor any written
communication of benefits under such Plan from the administrator thereof
describes the terms of such Plan in a manner that is materially inconsistent
with the documents and summary plan descriptions relating to such Plan that
have been delivered pursuant to the foregoing sentence. Since January 1, 1992,
neither the Seller nor any Subsidiary has maintained or contributed to, or been
obligated to maintain or contribute to, any "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA. To the best knowledge of the Seller, neither the
Seller nor any Subsidiary has incurred any material liability under Sections
4062, 4063 or 4201 of ERISA. No partial or complete withdrawal occurring on or
before, or deemed to occur on or before, the Effective Time of any of Seller
and its Subsidiaries from any multiemployer plan to which any of them
contributes or is required to contribute could result in any liability under
Section 4201 of ERISA. The immediately preceding sentence shall be applied
without regard to whether any of Seller or its Subsidiaries could satisfy any
or all required prerequisites for withdrawing from such plan. Each Plan
maintained by the Seller or a Subsidiary which is intended to be qualified
under Section 401(a) or 501(c)(9) of the Code is so qualified. Without limiting
the generality of the immediately preceding sentence, each Plan containing an
account described in Section 401(h) of the Code has been maintained in
accordance with Section 401(h) of the Code and the limitations described
therein and in applicable regulations. Each Plan has been administered in all
material respects in accordance with the terms of such Plan and the provisions
of any and all statutes, orders or governmental rules or regulations, including
without limitation ERISA and the Code, and, to the best knowledge of the
Seller, nothing has been done or omitted to be done with respect to any Plan
that has resulted or is reasonably likely to result in any material liability
on the part of the Seller or a Subsidiary under Title I of ERISA or Chapter 43
of the Code. All reports required to be filed with respect to all Plans,
including without limitation Form 5500 series annual reports, have been timely
filed, except where the failure to so file could not reasonably be expected to
result in material fines or penalties. No "reportable event" as defined in
Section 4043 of ERISA, other than any such event for which the thirty-day
notice period has been waived, has occurred with respect to any Plan subject to
Title IV of ERISA. Each Plan that is subject to Title IV of ERISA, other than a
multiemployer plan, could be terminated on or before the Effective Time
(without regard to whether any of Seller or its Subsidiaries could satisfy any
or all required prerequisites for terminating such plan), in a "standard
termination" as defined in Section 4041(b) of ERISA without further
contribution from any contributing employer. All claims for welfare benefits
incurred by employees and their eligible dependents on or before the Closing
are or prior to the Closing will be fully insured under fully paid up third-
party insurance policies. Except for continuation of health coverage to the
extent required under Section 4980B of the Code or applicable state law or as
otherwise set forth in Section 2.14 of the Seller Disclosure Schedule, no Plan
that is a "Welfare Plan" as defined in Section 3(1) of ERISA provides for any
benefits following retirement or other termination of employment. Except for
individual employment agreements specified in Section 2.14 of the Seller
Disclosure Schedule, each Plan can be amended, terminated or modified
prospectively on and after the Effective Time without advance notice to or
consent by any employee, former employee or beneficiary, except as required by
law.
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2.15 EMPLOYMENT MATTERS.
(a) The Seller and each of its Subsidiaries (i) is in compliance in all
material respects with all applicable foreign, federal, state and local laws,
rules and regulations respecting employment, employment practices, terms and
conditions of employment and wages and hours, in each case, with respect to
employees; (ii) has withheld all amounts required by law or by agreement to be
withheld from the wages, salaries and other payments to employees; (iii) is not
liable for any arrears of wages or any taxes or any penalty for failure to
comply with any of the foregoing; and (iv) is not liable for any payment to any
trust or other fund or to any Governmental Entity, with respect to unemployment
compensation benefits, social security or other benefits or obligations for
employees (other than routine payments to be made in the normal course of
business and consistent with past practice).
(b) No work stoppage or labor strike against the Seller or any of its
Subsidiaries is pending or, to the best knowledge of the Seller, threatened.
Neither the Seller nor any of its Subsidiaries is involved in or, to the
knowledge of the Seller, threatened with, any labor dispute, grievance, or
litigation relating to labor, safety or discrimination matters involving any
employee, including without limitation charges of unfair labor practices or
discrimination complaints, that, if adversely determined, would, in the
aggregate, have a Seller Material Adverse Effect. Neither the Seller nor any of
its Subsidiaries has engaged in any unfair labor practices within the meaning
of the National Labor Relations Act that would, in the aggregate, directly or
indirectly have a Seller Material Adverse Effect. Neither the Seller nor any of
its Subsidiaries is presently, nor has it been in the past, a party to or bound
by any collective bargaining agreement or union contract with respect to
employees other than as set forth in the Seller Disclosure Schedule and no
collective bargaining agreement is being negotiated by the Seller or any of its
Subsidiaries. No union organizing campaign or activity with respect to non-
union employees of the Seller or any of its Subsidiaries is ongoing, pending
or, to the best knowledge of the Seller, threatened.
2.16 ENVIRONMENTAL MATTERS.
(a) Except as would not have a Seller Material Adverse Effect, no material
amount of any substance that has been designated by any Governmental Entity or
by applicable federal, state or local law to be radioactive, hazardous or
otherwise to pose an unreasonable danger to human health or the environment,
including without limitation all substances listed as hazardous substances
pursuant to the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended, or defined as a hazardous waste pursuant to
the United States Resource Conservation and Recovery Act of 1976, as amended,
and the regulations promulgated pursuant to said laws, (a "Hazardous
Material"), but excluding office, maintenance and janitorial supplies in
nonmaterial amounts, are present as a result of the actions of the Seller or
any of its Subsidiaries, or, to the best knowledge of the Seller, as a result
of any actions of any third party or otherwise, in, on or under any property,
including the land and the improvements, ground water and surface water
thereof, that the Seller or any of its Subsidiaries has at any time owned,
operated, occupied or leased. The Seller Disclosure Schedule lists all
locations that the Seller or any Subsidiary formerly owned or leased where, to
the Seller's knowledge, Hazardous Materials are present in a volume or
concentration that would reasonably be expected to have a Seller Material
Adverse Effect.
(b) Except as would not have a Seller Material Adverse Effect, (i) neither the
Seller nor any of its Subsidiaries has generated, transported, stored, used,
manufactured, disposed of, released or exposed its employees or others to
Hazardous Materials in violation of, or in a manner which could give rise to
liabilities under, any law in effect prior to or as of the date hereof, nor
(ii) has the Seller or any of its Subsidiaries disposed of, transported, sold,
or manufactured any product containing a Hazardous Material (collectively
"Hazardous Materials Activities") in violation of any rule, regulation, treaty
or statute promulgated by any Governmental Entity in effect prior to or as of
the date hereof to prohibit, regulate or control Hazardous Materials or any
Hazardous Material Activity.
(c) The Seller and its Subsidiaries currently hold all environmental approvals,
permits, licenses, clearances and consents (the "Seller Environmental Permits")
necessary for the conduct of the Seller's and its
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Subsidiaries' Hazardous Material Activities and other businesses of the Seller
and its Subsidiaries as such activities and businesses are currently being
conducted, except where the failure to so hold would not have a Seller Material
Adverse Effect.
(d) No action, proceeding, revocation proceeding, amendment procedure, writ,
injunction or claim is pending, or to the Seller's knowledge, threatened
concerning any Seller Environmental Permit, Hazardous Material in, on or under
any property owned or leased at any time by the Seller or any of its
Subsidiaries or any Hazardous Materials Activity of the Seller or any of its
Subsidiaries, in which injunctive or other equitable relief or damages in
excess of $250,000 are or are reasonably likely to be sought against the Seller
or any Subsidiary or that otherwise would have a Seller Material Adverse
Effect.
2.17 AGREEMENTS, CONTRACTS AND COMMITMENTS. Except as identified in the Seller
Disclosure Schedule or listed in the Exhibit Index to the Seller's Form 10-K
for the year ended December 31, 1997 (the "Seller 10-K"), neither the Seller
nor any of its Subsidiaries is a party to or is bound by:
(a) any agreement, contract or commitment containing any covenant limiting the
freedom of the Seller or any of its Subsidiaries to engage in any line of
business or compete with any person;
(b) any agreement, contract or commitment relating to capital expenditures and
involving future obligations in excess of $250,000 and not cancelable without
penalty;
(c) any agreement, contract or commitment currently in force relating to the
disposition or acquisition of assets not in the ordinary course of business or
any ownership interest in any corporation, partnership, joint venture or other
business enterprise (other than the Seller's wholly-owned subsidiaries);
(d) any mortgages, indentures, loans or credit agreements, security agreements
relating to a material amount of assets or other agreements or instruments
relating to the borrowing of money or extension of credit;
(e) any other agreement, contract, commitment or lease which requires annual
payments by the Seller or any of its Subsidiaries under any such agreement,
contract, commitment or lease of $250,000 or more in the aggregate and is not
cancelable without penalty within thirty (30) days.
(f) any consulting arrangements and contracts for professional, advisory and
other services involving payments of more than $100,000 in any year, including
contracts under which the Seller or any of its Subsidiaries performs services
for others;
(g) any material contracts relating to the source or supply of gas and other
raw materials essential to the conduct of the business of the Seller or any of
its Subsidiaries, and any financial derivatives master agreements,
confirmations, or futures account opening agreements and/or brokerage
statements evidencing financial hedging or other trading activities with
respect to the foregoing;
(h) any contracts relating to the employment, engagement, compensation or
termination of directors, officers, employees or agents of the Seller or any of
its Subsidiaries not included under Plans (as defined in Section 2.14);
(i) any union and other labor contracts;
(j) any agreement, contract or instrument (including amendments thereto) to
which the Seller or any of its Subsidiaries is a party or by which any of them
is bound that is required to be included in the Seller 10-K; and
(k) any other material contracts made other than in the usual or ordinary
course of business of the Seller or any of its Subsidiaries to which the Seller
or any of its Subsidiaries is a party or under which the Seller or any of its
Subsidiaries is obligated.
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Neither the Seller nor any of its Subsidiaries, nor to the Seller's knowledge
any other party to a Seller Contract (as defined below), has breached, violated
or defaulted under, or received notice that it has breached violated or
defaulted under, any of the terms or conditions of any of the agreements,
contracts or commitments to which the Seller or any Subsidiary is a party or by
which it is bound of the type described in clauses (a) through (k) above (any
such agreement, contract or commitment, a "Seller Contract") in such a manner
as would permit any other party to cancel or terminate any such Seller
Contract, or would permit any other party to seek damages, in either case,
which would have a Seller Material Adverse Effect.
2.18 STATEMENTS; PROXY STATEMENT/PROSPECTUS. The information to be supplied by
the Seller for inclusion in the Registration Statement on Form S-4 to be filed
to register under the Securities Act Buyer Common Stock issuable pursuant to
Section 1.6 (the "Registration Statement") shall not at the time the
Registration Statement is filed with the SEC or at the time it becomes
effective under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The information
supplied by the Seller for inclusion in the proxy statement/prospectus to be
sent to the stockholders of the Seller in connection with the meeting of the
Seller's stockholders to consider the approval of this Agreement (the "Seller
Stockholders' Meeting") and, if the approval of the Buyer's stockholders is
required, to the stockholders of the Buyer in connection with the meeting of
the Buyer's stockholders to consider the approval of this Agreement (the "Buyer
Stockholders' Meeting") (such proxy statement/prospectus as amended or
supplemented, including any joint proxy statement, is referred to herein as the
"Proxy Statement") shall not, on the dates the Proxy Statement is first mailed
to the Seller's stockholders and the Buyer's stockholders and at the time of
the Seller Stockholders' Meeting and the Buyer Stockholders' Meeting, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not false or
misleading, or omit to state any material fact necessary to correct any
statement in any earlier written communication with respect to the solicitation
of proxies for the Seller Stockholders' Meeting or the Buyer Stockholders'
Meeting which has become false or misleading. The Proxy Statement utilized by
the Seller will comply as to form in all material respects with the provisions
of the Exchange Act and the rules and regulations thereunder. If at any time
prior to the Effective Time, any event relating to the Seller or any of its
affiliates, officers or directors should be discovered by the Seller which
should be set forth in an amendment to the Registration Statement or a
supplement to the Proxy Statement, or which is required to be disclosed to the
Seller's stockholders so that the information made available to them in
connection with electing the form of Merger Consideration is not false or
misleading in any material respect, the Seller shall promptly inform the Buyer.
Notwithstanding the foregoing, the Seller makes no representation or warranty
with respect to any information supplied by the Buyer or Merger Sub that is
contained in any of the foregoing documents.
2.19 FAIRNESS OPINION. The Seller has received an opinion from Salomon Smith
Barney, dated as of the date hereof, to the effect that as of the date hereof,
the consideration to be received by the Seller's stockholders in the Merger is
fair from a financial point of view and will deliver to the Buyer a copy of
such written opinion.
2.20 INSURANCE. The Seller and each of its Subsidiaries are, and have been
continuously since January 1, 1993, insured for a minimum amount of $15,000,000
against such risks and losses as are customary in all material respects for
companies conducting the business as conducted by the Seller and its
Subsidiaries during such time period. Neither the Seller nor any of its
Subsidiaries has received any notice of cancellation or termination with
respect to any material insurance policy of the Seller or any of its
Subsidiaries. The insurance policies of the Seller and each of its Subsidiaries
are, to the best of Seller's knowledge, valid and enforceable policies in all
material respects.
2.21 YEAR 2000. The Seller Disclosure Schedule summarizes the status of the
Seller's assessment of third-party service providers with respect to attempting
to ensure that the Seller's computer systems do not, or will not following
modification thereof, be deficient with respect to formatting for the problem
relating to computer programs and systems recognizing dates that use two-digit
year data rather than four-digit year data
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(the "Year 2000 Problem") and that such third-party service providers and the
Seller's computer systems are, or will be following modification thereof, in
material compliance with all regulations and trade organization guidelines
concerning the Year 2000 Problem. The Seller has made available to the Buyer
copies of all correspondence between the Seller and its third-party service
providers concerning Year 2000 Problem compliance. Except as set forth in the
Seller Disclosure Schedule, the Seller has no other contracts with, or
commitments to, any third-party with respect to the Year 2000 Problem. The
Seller has not been informed by any customer, insurance company or service
provider with which the Seller or any of its Subsidiaries transacts business of
an inability to timely remedy their own deficiencies with respect to the Year
2000 Problem, which deficiencies, individually or in the aggregate, would have
a Seller Material Adverse Effect.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents and warrants to the Seller, subject to the exceptions
set forth in the disclosure schedule supplied by the Buyer to the Seller (the
"Buyer Disclosure Schedule"), as follows:
3.1 ORGANIZATION OF THE BUYER. The Buyer and each of its Subsidiaries is a
corporation or other legal entity duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
organization, has the requisite corporate or similar power to own, lease and
operate its property and to carry on its business as now being conducted and as
proposed to be conducted, and is duly qualified to do business and in good
standing as a foreign corporation or other legal entity in each jurisdiction in
which the failure to be so qualified would have a Buyer Material Adverse Effect
(as defined below). The Buyer has delivered or made available a true and
correct copy of the Declaration of Trust and Bylaws of the Buyer, each as
amended to date, to the Seller. The term "Buyer Material Adverse Effect" means,
for purposes of this Agreement, any change, event or effect that is materially
adverse to the business, assets (including intangible assets), financial
condition or results of operations of the Buyer and its Subsidiaries taken as a
whole; provided, however, that, for purposes of Sections 6.2(a) and 7.1(j), the
following shall not be deemed to constitute a "Buyer Material Adverse Effect":
(i) an adverse change in the business, financial condition, or results of
operations of the Buyer following the date of this Agreement primarily
attributable to the transactions contemplated by this Agreement or the
announcement thereof, circumstances or events affecting the gas distribution
industry generally or adverse weather conditions, or (ii) the loss of any
officer or key employee of the Seller following the date of this Agreement.
3.2 THE BUYER CAPITAL STRUCTURE. The authorized capital stock of the Buyer
consists of 50,000,000 shares of Common Stock, $1.00 par value, of which there
were 22,497,183 shares issued and outstanding as of September 30, 1998. As of
the date hereof, except for an aggregate of 2,146,383 shares of Buyer Common
Stock reserved for issuance under various stock option and other stock plans of
the Buyer, there is no outstanding right, subscription, warrant, call,
preemptive right, option or other agreement of any kind to purchase or
otherwise to receive from the Buyer any shares of the capital stock or any
other security of the Buyer and there is no outstanding security of any kind
convertible into or exchangeable for such capital stock. Since September 30,
1998, no shares of Buyer Common Stock have been issued except pursuant to the
stock option and other stock plans of the Buyer. All outstanding shares of
Buyer Common Stock are duly authorized, validly issued, and fully paid and non-
assessable and are not subject to preemptive rights created by statute, the
Declaration of Trust or Bylaws of the Buyer or any agreement or document to
which the Buyer is a party or by which it is bound. All of the shares of Buyer
Common Stock to be issued in the Merger will be, when issued in accordance with
this Agreement, duly authorized, validly issued, fully paid and nonassessable.
3.3 MERGER SUB.
(a) Merger Sub will, when it is incorporated, be duly organized, validly
existing and in good standing as a Massachusetts utility corporation, with the
requisite corporate power to own, lease and operate the property and carry on
the business as now being conducted by the Seller.
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(b) All of the capital stock of Merger Sub prior to and at the Effective
Time will be duly authorized, validly issued, fully paid and nonassessable and
owned of record and beneficially by the Buyer.
(c) Merger Sub shall be formed solely for the purpose of engaging in the
transactions contemplated by this Agreement and, prior to the Effective Time,
will not have engaged in any other business activities.
3.4 AUTHORITY.
(a) The Buyer has, and Merger Sub will have, all requisite corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been and will be duly
authorized by all necessary corporate action on the part of the Buyer and
Merger Sub, respectively, subject only to the approval of the Merger by the
stockholders of the Buyer, if required, and the DTE and filing and recording of
the Articles of Merger. This Agreement has been and will be duly executed and
delivered by the Buyer and Merger Sub, respectively, and, assuming the due
authorization, execution and delivery of this Agreement by the Seller, this
Agreement constitutes and will constitute the valid and binding obligation of
the Buyer and Merger Sub, respectively, enforceable in accordance with its
terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general principles of equity. The execution and
delivery of this Agreement by the Buyer and Merger Sub do not and will not, and
the performance of this Agreement by the Buyer and Merger Sub will not,
(i) conflict with or violate the charter or bylaws of the Buyer or Merger Sub,
(ii) subject to obtaining the approval of the DTE in accordance with Chapter
164 and compliance with the other requirements set forth in Section 3.4(b)
below, conflict with or violate any law, rule, regulation, order, judgment or
decree applicable to the Buyer or any of its Subsidiaries or by which its or
any of their respective properties is bound or affected, or (iii) subject to
obtaining the third party consents referred to in the final sentence of this
Section 3.4(a), result in any breach of or constitute a default (or an event
that with notice or lapse of time or both would become a default) under, or
impair the Buyer's rights or alter the rights or obligation of any third party
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the properties or assets of the Buyer or any of its Subsidiaries pursuant to,
any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which the Buyer or any
of its Subsidiaries is a party or by which the Buyer or any of its Subsidiaries
or its or any of their respective properties are bound or affected, except,
with respect to clauses (ii) and (iii), for any such conflicts, violations,
defaults or other occurrences that would not have a Buyer Material Adverse
Effect. The Buyer Disclosure Schedule lists all material consents, waivers and
approvals under any of the Buyer's or any of its Subsidiaries' agreements,
contracts, licenses or leases required to be obtained in connection with the
consummation of the transactions contemplated hereby, except for those the
absence of which would not have a the Buyer Material Adverse Effect.
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with any Governmental Entity is required by or with
respect to the Buyer or Merger Sub in connection with the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby, except for (i) the filing and effectiveness of the Registration
Statement with the SEC in accordance with the Securities Act, (ii) the filing
of the Articles of Merger with the Secretary of the Commonwealth of
Massachusetts, (iii) the filing of a Current Report on Form 8-K with the SEC,
(iv) the filing with the Antitrust Division and the FTC of such forms as may be
required by the HSR Act and the termination or expiration of all applicable
waiting periods thereunder, (v) the listing of Buyer Common Stock issuable
pursuant to Section 1.6 on the NYSE, the Pacific Exchange and the Boston Stock
Exchange, (vi) the approval of the Merger, the related transactions
contemplated hereunder and the issuance of shares of capital stock of Merger
Sub by the DTE and any required filing thereof with the Secretary of the
Commonwealth; (vii) the approval of the Merger by the SEC pursuant to Section
(9)(a) (2) of PUHCA; (viii) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
federal and state securities laws and the laws of any foreign country and with
respect to the transfer of the Seller's franchises to the Surviving
Corporation; and (ix) such
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other consents, authorizations, filings, approvals and registrations that, if
not obtained or made, would not have a Buyer Material Adverse Effect or a
material adverse effect on the ability of the Buyer to consummate the Merger.
3.5 SEC FILINGS; THE BUYER FINANCIAL STATEMENTS.
(a) The Buyer and its Subsidiaries have filed all forms, reports and
documents required to be filed with the SEC since January 1, 1995, and have
made available to the Seller such forms, reports and documents in the form
filed with the SEC. All such required forms, reports and documents (including
those that the Buyer or its Subsidiaries may file after the date hereof until
the Closing) are referred to herein as the "Buyer SEC Reports." As of their
respective dates, the Buyer SEC Reports (i) were or will be prepared in
compliance in all material respects with the requirements of the Securities Act
or the Exchange Act, as the case may be, and the rules and regulations of the
SEC thereunder applicable to such Buyer SEC Reports, and (ii) did not and will
not at the time they were or are filed (or if amended or superseded by a filing
prior to the date of this Agreement, then on the date of such filing) contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
(b) Each of the consolidated financial statements (including, in each case,
any related notes thereto) contained in the Buyer SEC Reports (the "Buyer
Financials"), including any Buyer SEC Reports filed after the date hereof until
the Closing, (i) complied or will comply as to form in all material respects
with the published rules and regulations of the SEC with respect thereto, (ii)
was or will be prepared in accordance with GAAP applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes
thereto or, in the case of unaudited interim financial statements, as may be
permitted by the SEC on Form 10-Q under the Exchange Act) and (iii) fairly
presented or will fairly present, in all material respects, the consolidated
financial position of the Buyer and its Subsidiaries as at the respective dates
thereof and the consolidated results of its operations and cash flows for the
periods indicated, except that the unaudited interim financial statements were
or are subject to normal and recurring year-end adjustments which were not, or
are not expected to be, material in amount. The balance sheet of the Buyer
contained in the Buyer SEC Reports as of June 30, 1998 is hereinafter referred
to as the "Buyer Balance Sheet." Except as disclosed in the Buyer Disclosure
Schedule and except for obligations under this Agreement, neither the Buyer nor
any of its Subsidiaries has any liabilities (absolute, accrued, contingent or
otherwise) of a nature required to be disclosed on a balance sheet or in the
related notes to the consolidated financial statements prepared in accordance
with GAAP that are, individually or in the aggregate, material to the business,
results of operations or financial condition of the Buyer and its Subsidiaries
taken as a whole, except liabilities (i) provided for in the Buyer Balance
Sheet or the related notes , (ii) incurred since the date of the Buyer Balance
Sheet in the ordinary course of business consistent with past practices, or
(iii) incurred in connection with the transactions contemplated hereby.
3.6 ABSENCE OF CERTAIN CHANGES AND EVENTS. Since June 30, 1998, there has not
occurred any Buyer Material Adverse Effect and there has not been, occurred or
arisen any:
(a) material damage, destruction, or loss to the business or properties of
the Buyer and its Subsidiaries taken as a whole (whether or not covered by
insurance);
(b) declaration, setting aside, or payment of any dividend or other
distribution in respect of the Buyer's capital stock (other than regular
quarterly dividends in accordance with past practice), or any direct or
indirect redemption, purchase or any other acquisition of such stock;
(c) change in the capital stock or in the number of shares or classes of
the Buyer's authorized or outstanding capital stock as described in Section
3.2; or
(d) other event or condition known to the Buyer adversely affecting the
operations, assets or business of the Buyer or any of its Subsidiaries which
could reasonably be expected to have a Buyer Material Adverse Effect.
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3.7 LITIGATION. There is no action, suit, proceeding or investigation pending
or to the Buyer's knowledge, threatened against the Buyer or any of its
Subsidiaries that would have a Buyer Material Adverse Effect or that in any
manner challenges or seeks to prevent, enjoin, alter or delay any of the
transactions contemplated by this Agreement.
3.8 REGISTRATION STATEMENT; PROXY STATEMENT/PROSPECTUS. The information
supplied by the Buyer for inclusion in the Registration Statement (as defined
in Section 2.18) shall not at the time the Registration Statement is filed with
the SEC and at the time it becomes effective under the Securities Act, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The information supplied by the Buyer for inclusion in the Proxy
Statement to be sent to the stockholders of the Seller in connection with the
Seller Stockholders' Meeting and, if required, the stockholders of the Buyer in
connection with the Buyer Stockholders' Meeting, and the information made
available to the Seller's stockholders in connection with their election as to
the form of Merger Consideration, shall not, on the date the Proxy Statement is
first mailed to the Seller's stockholders and the Buyer's stockholders and at
the time of the Seller Stockholders' Meeting and the Buyer Stockholders'
Meeting, as the case may be, and at the time such information is made available
to the Seller's stockholders in connection with such election, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not false or misleading,
or omit to state any material fact necessary to correct any statement in any
earlier written communication with respect to the solicitation of proxies for
the Seller Stockholders' Meeting and the Buyer Stockholders' Meeting which has
become false or misleading. The Registration Statement and the Proxy Statement
used by the Buyer will comply as to form in all material respects with
applicable provisions of the Securities Act and the Exchange Act, respectively,
and the rules and regulations thereunder. If at any time prior to the Effective
Time, any event relating to the Buyer or any of its affiliates, officers or
directors should be discovered by the Buyer that should be set forth in an
amendment to the Registration Statement or a supplement to the Proxy Statement
or as part of the information made available to the Seller's stockholders, the
Buyer shall promptly inform the Seller. Notwithstanding the foregoing, the
Buyer makes no representation or warranty with respect to any information
supplied by the Seller that is contained in any of the foregoing documents.
3.9 COMPLIANCE; PERMITS; RESTRICTIONS.
(a) Neither the Buyer nor any of its Subsidiaries is in conflict with, or
in default or violation of, (i) any law, rule, regulation, order, judgment or
decree applicable to the Buyer or any of its Subsidiaries or by which its or
any of their respective properties is bound or affected, or (ii) any note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which the Seller or any of its
Subsidiaries is a party or by which the Buyer or any of its Subsidiaries or its
or any of their respective properties is bound or affected, except for any
conflicts, defaults or violations that would not have a Buyer Material Adverse
Effect.
(b) The Buyer and its Subsidiaries hold all consents, permits, licenses,
variances, exemptions, orders and approvals from governmental authorities that
are material to the operation of the business of the Buyer and its Subsidiaries
taken as a whole (collectively, the "Buyer Permits"). The Buyer and its
Subsidiaries are in compliance with the terms of the Buyer Permits, except
where the failure to so comply would not have a Buyer Material Adverse Effect.
3.10 REGULATION AS A UTILITY. The Buyer is a holding company exempt from
registration under Section 3(a)(1) of the PUHCA.
3.11 OWNERSHIP OF THE SELLER COMMON STOCK. As of the date of this Agreement,
the Buyer does not "beneficially own" (as such term is defined for purposes of
Section 13(d) of the Exchange Act) any shares of Seller Common Stock.
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ARTICLE 4
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 CONDUCT OF BUSINESS BY THE SELLER AND THE BUYER. During the period from
the date of this Agreement and continuing until the earlier of the termination
of this Agreement or the Effective Time, the Seller (which for the purposes of
this Article 4 shall include the Seller and each of its Subsidiaries) and the
Buyer (which for the purposes of this Article 4 shall include the Buyer and
each of its material Subsidiaries) agree, except (i) in the case of the Seller
as provided in Article 4 of the Seller Disclosure Schedule and in the case of
the Buyer as provided in Article 4 of the Buyer Disclosure Schedule, (ii) as
otherwise contemplated by this Agreement, or (iii) to the extent that the other
party shall otherwise consent in writing, to carry on its business diligently
and in accordance with good commercial practice and to carry on its business
operations in the usual, regular and ordinary course, in substantially the same
manner as heretofore conducted and use its commercially reasonable efforts
consistent with past practices and policies to preserve intact its present
business organization, keep available the services of its present officers and
employees, maintain its properties and assets in good condition and repair and
preserve its relationships with customers, suppliers, distributors, and others
with which it has business dealings.
4.2 CERTAIN ACTIONS BY THE SELLER. In addition, notwithstanding Section 4.1
above, without the prior written consent of the Buyer, the Seller shall not do
any of the following, nor shall the Seller permit its Subsidiaries to do any of
the following:
(a) Enter into any partnership arrangements, joint development agreements
or strategic alliances;
(b) Grant any severance or termination pay to any officer or employee
except payments pursuant to written agreements outstanding, or policies
existing, on the date hereof and as previously disclosed in writing to the
Buyer, or adopt any new severance plan;
(c) Make any filings with any government authority regarding its rates or
charges, standards of service, accounting matters or services it provides,
except in the ordinary course of business consistent with past practices or as
required by law;
(d) Declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any capital stock or split,
combine or reclassify any capital stock or issue or authorize the issuance of
any other securities in respect of, in lieu of or in substitution for any
capital stock, other than the declaration and payment of regular quarterly cash
dividends on the Seller Common Stock with record and payment dates consistent
with past practice and at rates not in excess, in any fiscal year, of the
dividends for the prior fiscal year increased at a rate consistent with past
practice, and dividends payable by a Subsidiary to the Company;
(e) Repurchase or otherwise acquire, directly or indirectly, any shares of
capital stock;
(f) Issue, deliver, sell, authorize or propose the issuance, delivery or
sale of, any shares of Seller capital stock or any securities convertible into
shares of Seller capital stock, or subscriptions, rights, warrants or options
to acquire any shares of capital stock or any securities convertible into
shares of Seller capital stock, or enter into other agreements or commitments
of any character obligating it to issue any such shares or convertible
securities, other than the issuance in the normal course and consistent with
past practice of shares of Seller Common Stock under the Seller Dividend
Reinvestment Plan and Employee Savings Plan;
(g) Cause, permit or propose any amendments to its Restated Articles of
Organization or Bylaws;
(h) Acquire or agree to acquire by merging or consolidating with, or by
purchasing any equity interest in or a material portion of the assets of, or by
any other manner, any business or any corporation, partnership, association or
other business organization or division thereof, or otherwise acquire or agree
to acquire any material amount of operating assets;
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(i) Sell, lease, encumber or otherwise dispose of any properties or assets
that are material, individually or in the aggregate, to the business of the
Seller;
(j) Incur any indebtedness for borrowed money (other than ordinary course
trade payables or pursuant to (i) existing credit facilities identified in the
Seller Disclosure Schedule in accordance with their existing terms in the
ordinary course of business or (ii) the Seller's existing Medium Term Note
Program to finance or refinance capital expenditures in the ordinary course of
business and in accordance with the provisions of this Agreement) or guarantee
any such indebtedness (or enter any other guarantee, keep-well, capital
maintenance or other similar agreement) or issue or sell any debt securities or
warrants or rights to acquire debt securities of the Seller or guarantee any
debt securities of others;
(k) Adopt or amend any employee benefit or stock purchase or option plan,
or enter into any employment contract, pay any special bonus or special
remuneration to any director, officer or employee other than pursuant to
existing agreements, plans and arrangements identified in the Seller Disclosure
Schedule, or increase the salaries or wage rates, other than in the ordinary
course of business and consistent in timing and amount with past practice or as
required by law, of its officers or employees;
(l) Pay, discharge or satisfy any claim, liability or obligation (absolute,
accrued, asserted or unasserted, contingent or otherwise), other than payment,
discharge or satisfaction in the ordinary course of business or amounts less
than $250,000;
(m) Make any individual capital expenditure or commitment, or series of
related capital expenditures or commitments, outside the ordinary course of
business, exceeding $250,000;
(n) Become or establish a "holding company" within the meaning of PUHCA; or
(o) Agree in writing or otherwise to take any of the actions described in
this Section 4.2.
ARTICLE 5
ADDITIONAL AGREEMENTS
5.1 PROXY STATEMENT/PROSPECTUS; REGISTRATION STATEMENT; OTHER FILINGS. As
promptly as practicable after the execution of this Agreement, the Seller and,
to the extent the approval of its stockholders is required, the Buyer will
prepare and file with the SEC the Proxy Statement, and the Buyer will prepare
and file with the SEC the Registration Statement in which the Proxy Statement
will be included as a prospectus. Each of the Seller and the Buyer will respond
to any comments of the SEC and will use its best efforts to have the
Registration Statement declared effective under the Securities Act as promptly
as practicable after such filing. The Seller and, to the extent the approval of
its stockholders is required, the Buyer will cause the Proxy Statement to be
mailed to its stockholders at the earliest practicable time, provided that the
Seller may require receipt of confirmation as of the date of mailing the Proxy
Statement of the opinion of its financial advisor referred to in Section 2.19.
As promptly as practicable after the date of this Agreement, the Seller and the
Buyer will prepare and file any other filings required under the Exchange Act,
the Securities Act or any other Federal, foreign or state securities laws
relating to the Merger and the transactions contemplated by this Agreement (the
"Other Filings"). Each party will notify the other party promptly upon the
receipt of any comments from the SEC or its staff and of any request by the SEC
or its staff or any other government officials for amendments or supplements to
the Registration Statement, the Proxy Statement or any Other Filing or for
additional information and will supply the other party with copies of all
correspondence between such party or any of its representatives, on the one
hand, and the SEC or its staff or any other government officials, on the other
hand, with respect to the Registration Statement, the Proxy Statement, the
Merger or any Other Filing. From and after the date of this Agreement until the
Effective Time, the Buyer and the Seller shall file with the SEC when due all
reports required to be filed pursuant to Section 13 or 15(d) of the Exchange
Act, and the Buyer shall make available to the Seller's stockholders such
information as may be required in connection with
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their election as to the form of Merger Consideration. Whenever any event
occurs that is required to be set forth in an amendment or supplement to the
Proxy Statement, the Registration Statement or any Other Filing or to be made
available to the Seller's stockholders in connection with such election, the
Seller or the Buyer, as the case may be, will promptly inform the other party
of such occurrence and cooperate in filing with the SEC or its staff or any
other government officials, and/or mailing to stockholders of the Seller or the
Buyer, such amendment, supplement or information. The Proxy Statement will also
include the recommendations of the Board of Directors of the Seller and, to the
extent the approval of the Buyer's stockholders is required, of the Board of
Trustees of the Buyer in favor of approval of this Agreement (except that the
Board of the Seller or the Buyer may withdraw, modify or refrain from making
such recommendation to the extent that the Board determines in good faith on
the advice of outside legal counsel that the Board's fiduciary duties under
applicable law require it to do so).
5.2 MEETINGS OF STOCKHOLDERS.
(a) Promptly after the date hereof, the Seller will take all action
necessary in accordance with the MBCL, Chapter 164 and its Restated Articles of
Organization and Bylaws to convene the Seller Stockholders' Meeting to be held
as promptly as practicable, and in any event within 60 days after the
declaration of effectiveness of the Registration Statement, for the purpose of
considering the approval of this Agreement. Unless otherwise required by the
fiduciary duties of the Seller's Board of Directors, the Seller will use its
best efforts to solicit from its stockholders proxies in favor of the approval
of this Agreement, and will take all other action necessary or advisable to
secure the vote or consent of its stockholders required to obtain such
approval.
(b) Promptly after the date hereof, to the extent that the approval of its
stockholders is required, the Buyer will take all action necessary in
accordance with its listing agreement with or the rules of the NYSE to convene
the Buyer Stockholders' Meeting to be held as promptly as practicable, and in
any event within 60 days after the declaration of effectiveness of the
Registration Statement, for the purpose of considering the approval of the
issuance of the Buyer Common Stock to be issued in the Merger as contemplated
by this Agreement. Unless otherwise required by the fiduciary duties of the
Buyer's Board of Trustees, the Buyer will use its best efforts in connection
with such Buyer Stockholders' Meeting to solicit from its stockholders proxies
in favor of the approval of this Agreement, and will take all other action
necessary or advisable to secure the vote or consent of its stockholders
required to obtain such approval.
5.3 ACCESS TO INFORMATION; CONFIDENTIALITY.
(a) Each party will afford the other party and its accountants, counsel and
other representatives reasonable access during normal business hours to the
properties, books, records and personnel of the other party during the period
prior to the Effective Time to obtain all information concerning the business,
including properties, results of operations and personnel of such party, as the
other party may reasonably request. No information or knowledge obtained in any
investigation pursuant to this Section 5.3 will affect or be deemed to modify
or waive any representation or warranty contained herein or the conditions to
the obligations of the parties to consummate the Merger.
(b) The parties acknowledge that the Seller and the Buyer have previously
executed a Confidentiality Agreement dated June 15, 1998 (the "Confidentiality
Agreement"), which Confidentiality Agreement will continue in full force and
effect in accordance with its terms, except as is necessary to comply with the
terms of this Agreement.
5.4 NO SOLICITATION.
(a) From and after the date of this Agreement until the earlier of the
Effective Time or termination of this Agreement, the Seller and its
Subsidiaries will not, and will instruct their respective directors, officers,
employees, representatives, investment bankers, agents and affiliates not to,
directly or indirectly, (i) solicit or knowingly encourage submission of, any
proposals or offers by any person, entity or group (other than the
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Buyer and its affiliates, agents and representatives), or (ii) participate in
any discussions or negotiations with, or disclose any non-public information
concerning the Seller or any of its Subsidiaries to, or afford any access to
the properties, books or records of the Seller or any of its Subsidiaries to,
or otherwise assist or facilitate, or enter into any agreement or understanding
with, any person, entity or group (other than the Buyer and its affiliates,
agents and representatives), in connection with any Acquisition Proposal with
respect to the Seller. For the purposes of this Agreement, an "Acquisition
Proposal" means (x) any proposal or offer (other than one with or relating to
the Buyer or an affiliate thereof) relating to (i) any merger, consolidation,
sale of substantial assets of the Seller or similar transactions involving the
Seller or any Subsidiary (other than sales of assets or inventory in the
ordinary course of business or permitted under the terms of this Agreement),
(ii) sale of 20% or more of the outstanding shares of capital stock of the
Seller (including without limitation by way of a tender offer or an exchange
offer), or (iii) the acquisition by any person of beneficial ownership or a
right to acquire beneficial ownership of, or the formation of any "group" (as
defined under Section 13(d) of the Exchange Act and the rules and regulations
thereunder) that beneficially owns, or has the right to acquire beneficial
ownership of, 20% or more of the then outstanding shares of capital stock of
the Seller (except for acquisitions for passive investment purposes only in
circumstances where the person or group qualifies for and files a Schedule 13G
with respect thereto); or (y) any public announcement of a proposal, plan or
intention to do any of the foregoing or any agreement to engage in any of the
foregoing. The Seller will immediately cease any and all existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any of the foregoing and will use reasonable efforts to obtain the return of
any confidential information furnished to any such Parties. The Seller will (i)
notify the Buyer promptly if any inquiry or proposal is made or any information
or access is requested in connection with an Acquisition Proposal or potential
Acquisition Proposal and (ii) promptly notify the Buyer of the applicable terms
and conditions of any such Acquisition Proposal and of any modification thereof
or any proposed agreement. In addition, subject to the other provisions of this
Section 5.4, from and after the date of this Agreement until the earlier of the
Effective Time and termination of this Agreement, the Seller and its
Subsidiaries will not, and will instruct their respective directors, officers,
employees, representatives, investment bankers, agents and affiliates not to,
directly or indirectly, make or authorize any public statement, recommendation
or solicitation in support of any Acquisition Proposal made by any person,
entity or group (other than the Buyer); provided, however, that nothing herein
shall prohibit the Seller's Board of Directors from taking and disclosing to
the Seller's stockholders a position with respect to a tender offer pursuant to
Rules 14d-9 and 14e-2 promulgated under the Exchange Act or any other
disclosure required by law.
(b) Notwithstanding the provisions of paragraph (a) above, the Seller may,
to the extent the Board of Directors of the Seller determines, in good faith,
based upon the advice of outside legal counsel, that the Board's fiduciary
duties under applicable law require it to do so, participate in discussions or
negotiations with, and, subject to the requirements of paragraph (c) below,
furnish information to any person, entity or group after such person, entity or
group has delivered to the Seller in writing an Acquisition Proposal that the
Board of Directors of the Seller determines, would result in a transaction more
favorable to the stockholders of the Seller than the Merger. In addition,
notwithstanding the provisions of paragraph (a) above, in connection with a
possible Acquisition Proposal, the Seller may refer any third party to this
Section 5.4 or make a copy of this Section 5.4 available to a third party. In
the event the Seller receives an Acquisition Proposal, nothing contained in
this Agreement (but subject to the terms hereof) will prevent the Board of
Directors of the Seller from approving such Acquisition Proposal, or
recommending such Acquisition Proposal to the Seller's stockholders, if the
Board determines in good faith, based on the advice of its outside legal
counsel, that such action is required by its fiduciary duties under applicable
law; in such case, the Board of Directors of the Seller may withdraw, modify or
refrain from making its recommendation concerning the approval of this
Agreement, provided that the Seller provides Buyer with at least two days'
prior notice thereof, during which time the Buyer may make, and in such event
the Seller shall in good faith consider, a counterproposal to such Acquisition
Proposal. Nothing in this Section 5.4 shall (x) permit the Seller to terminate
this Agreement (except as specifically provided in Section 7.1 hereof),
(y) permit the Seller to enter into any agreement with respect to an
Acquisition Proposal during the term of this Agreement (it being agreed that
during the term of this Agreement, the Seller shall not enter into any
agreement with any person that provides for, or in any way
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facilitates, an Acquisition Proposal (other than a confidentiality agreement of
the type referred to below)) or (z) affect any other obligation of the Seller
under this Agreement.
(c) Notwithstanding anything to the contrary in this Section 5.4, the
Seller will not provide any non-public information to a third party unless (i)
the Seller provides such non-public information pursuant to a nondisclosure
agreement with terms comparable to the terms in the Confidentiality Agreement
and (ii) such non-public information has previously been delivered or made
available to the Buyer.
5.5 PUBLIC DISCLOSURE. The Buyer will consult with the Seller, and the Seller
will consult the Buyer, and each will get the approval of the other (which will
not be unreasonably withheld or delayed), before issuing any press release or
otherwise making any public statement with respect to the Merger or this
Agreement and will not issue any such press release or make any such public
statement prior to such consultation and approval, except as may be required by
law or any listing agreement with or rule of a national securities exchange.
5.6 LEGAL REQUIREMENTS.
(a) Each of the Buyer, Merger Sub and the Seller will take all reasonable
actions necessary or desirable to comply promptly with all legal requirements
that may be imposed on them with respect to the consummation of the
transactions contemplated by this Agreement (including furnishing all
information required in connection with approvals of or filings with any
Governmental Entity, and prompt resolution of any litigation prompted hereby)
and will promptly cooperate with and furnish information to any party hereto
necessary in connection with any such requirements imposed upon any of them or
their respective Subsidiaries in connection with the consummation of the
transactions contemplated by this Agreement. The Buyer will use its
commercially reasonable efforts to take such steps as may be necessary to
comply with the securities and blue sky laws of all jurisdictions which are
applicable to the issuance of Buyer Common Stock pursuant hereto. The Seller
will use its commercially reasonable efforts to assist the Buyer as may be
necessary to comply with the securities and blue sky laws of all jurisdictions
that are applicable in connection with the issuance of Buyer Common Stock
pursuant hereto.
(b) As soon as practicable after execution of this Agreement or as
otherwise mutually agreed by the parties, each of the Buyer and the Seller
shall file with the Antitrust Division and the FTC a premerger notification
form and any supplemental information (other than privileged information) which
may be requested in connection therewith pursuant to the HSR Act, which filings
and supplemental information will comply in all material respects with the
requirements of the HSR Act. Each of the Buyer and the Seller shall cooperate
fully with the other in connection with the preparation of such filings and
shall use its best efforts to respond to any requests for supplemental
information from the Antitrust Division or the FTC and to obtain early
termination of any waiting period applicable to the Merger under the HSR Act
without any materially burdensome conditions or any divestiture. Filing fees
required to be paid in connection with the premerger notification pursuant to
the HSR Act shall be borne and paid by the Buyer.
(c) As soon as practicable after execution of this Agreement, to the extent
applicable, the Buyer shall file with the SEC an application for approval under
Section 9(a)(2) of PUHCA and such other application and information (other than
privileged information) which may be requested by the SEC in connection
therewith pursuant to PUHCA and the rules of the SEC thereunder, which filings
and information will comply in all material respects with the requirements of
PUHCA and such rules. The Buyer will diligently prosecute such applications and
take such actions (excluding any obligations to register as a non-exempt
"holding company" under PUHCA other than as a result of any actions taken by
the Buyer after the date of this Agreement except as contemplated by this
Agreement) as may reasonably be necessary to obtain the requisite SEC approval
under PUHCA.
5.7 THIRD PARTY CONSENTS. As soon as practicable following the date hereof,
each of the Seller and the Buyer will use its commercially reasonable efforts
to obtain all material consents, waivers and approvals under any of its or its
Subsidiaries' agreements, contracts, licenses, leases or franchises required to
be obtained in connection with the consummation of the transactions
contemplated hereby.
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5.8 NOTIFICATION OF CERTAIN MATTERS. The Buyer will give prompt notice to the
Seller, and the Seller will give prompt notice to the Buyer, of the occurrence,
or failure to occur, of any event, which occurrence or failure to occur would
be reasonably likely to cause (a) any representation or warranty contained in
this Agreement to be untrue or inaccurate in any material respect at any time
from the date of this Agreement to the Effective Time, or (b) any material
failure of the Buyer and Merger Sub or the Seller, as the case may be, or of
any officer, director, employee or agent thereof, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it under
this Agreement. Notwithstanding the above, the delivery of any notice pursuant
to this section will not limit or otherwise affect the remedies available
hereunder to the party receiving such notice or the conditions to such party's
obligation to consummate the Merger.
5.9 BEST EFFORTS AND FURTHER ASSURANCES. Subject to the respective rights and
obligations of the Buyer and the Seller under this Agreement, each of the
parties to this Agreement will and the Buyer will cause Merger Sub to, use its
best efforts to effectuate the Merger and the other transactions contemplated
hereby and to fulfill and cause to be fulfilled the conditions to closing under
this Agreement. Each party hereto, at the reasonable request of another party
hereto, will, and the Buyer will cause Merger Sub to, execute and deliver such
other instruments and do and perform such other acts and things as may be
necessary or desirable for effecting completely the consummation of the
transactions contemplated hereby. Notwithstanding the foregoing, nothing in
this Agreement shall require the Buyer to agree to any materially burdensome
condition or any divestiture in order to obtain any clearance for the Merger
under the HSR Act or in connection with any other regulatory order or approval.
5.10 THE SELLER EMPLOYEE PLANS; EMPLOYMENT MATTERS.
(a) For a period of one year after the Effective Time, and subject to
applicable law, the Buyer shall provide to the employees in the aggregate of
the Buyer and its Subsidiaries who were formerly employees of the Seller and
its Subsidiaries employee benefits that are no less favorable in the aggregate
than those provided under the Seller's Plans (as defined in Section 2.14)
disclosed in the Seller Disclosure Schedule as in effect on the Closing Date,
provided that, from and after the Effective Time, the employee benefits
provided to the employees of the Buyer and its Subsidiaries who were formerly
employees of the Seller and its Subsidiaries shall be no less favorable than
the employee benefits provided from time to time by the Buyer or its Subsidiary
for its similarly situated employees. Such employee benefits shall be without
limitation for preexisting conditions other than any such condition or
limitation (including without limitation preexisting condition exclusions,
waiting periods, actively-at-work requirements and other similar exclusions and
conditions) as to which the relevant corresponding Plan of the Seller or its
Subsidiaries provided only a conditional waiver and as to which the employee
(or his or her spouse or dependents) had not, as of the Closing Date, satisfied
the relevant conditions for such waiver. From and after the Effective Time, in
the case of each employee benefit plan (a "Buyer Plan") of the Buyer or its
Subsidiaries which determines an individual's eligibility to become a
participant in the Buyer Plan (an "eligibility requirement") or the extent of a
participant's nonforfeitable right to benefits otherwise accrued under the
Buyer Plan (a "vesting requirement") by reference to service for the Buyer and
its Subsidiaries, the Buyer Plan's eligibility and vesting requirements shall
be applied to the extent permitted by law by taking into account for each
employee of the Buyer or its Subsidiaries who was an employee of the Seller or
its Subsidiaries immediately prior to the Effective Time such service of such
employee for the Seller or its Subsidiaries prior to the Effective Time as
would have been taken into account for purposes of the Buyer Plan's eligibility
and vesting requirements had such service been for the Buyer and its
Subsidiaries. This Section 5.10(a) shall not apply to the employees of the
Buyer and its Subsidiaries who were formerly employees of the Seller and its
Subsidiaries and whose terms and conditions of employment are governed by a
collective bargaining agreement.
(b) The Buyer agrees to honor from the Effective Time in accordance with
their terms (i) all Plans, (ii) all collective bargaining agreements, (iii) all
contracts, arrangements or commitments with or for the benefit of officers and
employees disclosed in the Seller Disclosure Schedule and (iv) all benefits
vested thereunder as of the Effective Time; provided, however, that nothing in
this sentence shall be interpreted as preventing the
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Buyer or its Subsidiaries from amending, modifying or terminating any such
Plans, contracts, arrangements or commitments in accordance with their terms.
(c) The Buyer will offer employment arrangements to the officers of the
Seller and its Subsidiaries and otherwise honor the provisions as set forth in
a memorandum entitled "Proposed Plan for Colonial's Officers and Employees"
dated October 14, 1998 furnished by the Buyer to the Seller.
(d) The Seller and the Buyer agree to coordinate their executive incentive
plans in order to assure that the officers and employees of the Seller and its
Subsidiaries entitled to participate in the Seller's Executive Performance and
Equity Incentive Plan receive on an equitable basis the benefits provided under
such plan for the portion of the year in which the Merger occurs during which
they were officers or employees of the Seller or its Subsidiaries.
5.11 INDEMNIFICATION; D&O INSURANCE.
(a) In the event of any threatened or actual claim, action, suit,
proceeding or investigation, whether civil, criminal or administrative,
including without limitation any such claim, action, suit, proceeding or
investigation in which any person who is now, or has been at any time prior to
the date of this Agreement, or who become prior to the Effective Time, a
director or officer of the Seller or any of its Subsidiaries (the "Indemnified
Parties") is, or is threatened to be, made a party based in whole or in part
on, or arising in whole or in part out of, or pertaining to (i) the fact that
he is or was a director or officer of the Seller, any of its Subsidiaries or
any of their respective predecessors or (ii) this Agreement or any of the
transactions contemplated hereby, whether in any case asserted or arising
before or after the Effective Time, the parties hereto agree to cooperate and
use their best efforts to defend against and respond thereto. It is understood
and agreed that after the Effective Time, the Buyer shall indemnify and hold
harmless, as and to the fullest extent permitted by law and the charter and by-
laws of the relevant entity, each such Indemnified Party against any losses,
claims, damages, liabilities, costs, expenses (including reasonable attorney's
fees and expenses in advance of the final disposition of any claim, suit,
proceeding or investigation to each Indemnified Party to the fullest extent
permitted by law upon receipt of any undertaking required by applicable law),
judgments, fines and amounts paid in settlement in connection with any such
threatened or actual claim, action, suit, proceeding or investigation. In the
event of any such threatened or actual claim, action, suit, proceeding or
investigation (whether asserted or arising before or after the Effective Time),
the Indemnified Parties may retain counsel reasonably satisfactory to them
after consultation with the Buyer; provided, however, that (i) the Buyer shall
have the right to assume the defense thereof and upon such assumption the Buyer
shall not be liable to any Indemnified Party in connection with the defense
thereof, except that if the Buyer elects not to assume such defense or counsel
for the Indemnified Parties reasonably advises the Indemnified Parties that
there are issues which raise conflicts of interest between the Buyer and the
Indemnified Parties, the Indemnified Parties may retain counsel reasonably
satisfactory to them after consultation with the Buyer, and the Buyer shall pay
the reasonable fees and expenses of such counsel for the Indemnified Parties,
(ii) the Buyer shall be obligated pursuant to this paragraph to pay for only
one counsel for all Indemnified Parties, (iii) the Buyer shall not be liable
for any settlement effected without its prior written consent (which consent
shall not be unreasonably withheld) and (iv) the Buyer shall have no obligation
hereunder to any Indemnified Party when and if a court of competent
jurisdiction shall ultimately determine, and such determination shall have
become final and nonappealable, that indemnification of such Indemnified Party
in the manner contemplated hereby is prohibited by applicable law. Any
Indemnified Party wishing to claim indemnification under this Section 5.11 upon
learning of any such claim, action, suit, proceeding or investigation shall
notify the Buyer thereof, provided that the failure to so notify shall not
affect the obligations of the Buyer under this Section 5.11 except to the
extent such failure to notify materially prejudices the Buyer. The Seller's
obligations under this Section 5.11 shall continue in full force and effect for
a period of six (6) years from the Effective Time, provided, however, that all
rights to indemnification in respect of any claim asserted or made within such
period shall continue until the final disposition of such claim.
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(b) From and after the Effective Time, the Surviving Corporation will
fulfill and honor in all respects the indemnification obligations of the Seller
pursuant to the provisions of the Restated Articles of Organization and the
Bylaws of the Seller as in effect immediately prior to the Effective Time.
(c) For a period of six (6) years after the Effective Time, the Buyer shall
cause the Surviving Corporation to maintain (to the extent available in the
market) in effect a directors' and officers' liability insurance policy
covering those persons who are currently covered by the Seller's directors' and
officers' liability insurance policy (a copy of which has been heretofore
delivered to the Buyer) with coverage in amount and scope at least as favorable
as the Seller's existing coverage (which coverage may be an endorsement
extending the period in which claims may be made under such existing policy);
provided that in no event shall the Buyer or the Surviving Corporation be
required to expend per year under this Section 5.11(c) more than an aggregate
of 150% of the current annual premium expended by the Seller to provide such
coverage.
(d) In the event the Buyer or any of its successors or assigns (i)
consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger
or (ii) transfer or conveys all or substantially all of its assets to any
person, then, and in each such case, to the extent necessary, proper provision
shall be made so that the successors and assigns of the Buyer assume the
obligations set forth in this Section 5.11.
(e) The provisions of this Section 5.11 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party and his or her heirs
and representatives, and nothing herein shall affect any indemnification rights
that any Indemnified Party and his or her heirs and representatives may have
under the Bylaws of the Seller or any of its Subsidiaries, any contract or
applicable law.
5.12 TAX-FREE REORGANIZATION. The Buyer and the Seller will each use its best
efforts to cause the Merger to be treated as a reorganization within the
meaning of Section 368 of the Code, and neither party will take any action that
would cause the Merger to fail to qualify as a reorganization within the
meaning of Section 368(a) of the Code. Each of the parties shall report the
Merger for income tax purposes as a reorganization within the meaning of
Section 368(a) of the Code (and any comparable state or local tax statute). The
Buyer and the Seller will each make available to the other party and their
respective legal counsel copies of all tax returns as may be requested by the
other party. Each of the Buyer and the Seller will make and will use its best
efforts to obtain from its affiliates such reasonable representations as may be
requested by legal counsel for the purpose of rendering the opinions
contemplated by Section 6.1(f).
5.13 LISTING. The Buyer shall use its best efforts to cause the shares of
Buyer Common Stock to be issued in the Merger to be approved for listing on the
NYSE, the Pacific Exchange and the Boston Stock Exchange prior to the Effective
Time.
5.14 THE SELLER AFFILIATE AGREEMENT. Set forth on Section 5.14 of the Seller
Disclosure Schedule is a list of those persons who may be deemed to be, in the
Seller's reasonable judgment, affiliates of the Seller within the meaning of
Rule 145 under the Securities Act (each, a "Seller Affiliate"). The Seller will
provide the Buyer with such information and documents as the Buyer reasonably
requests for purposes of reviewing such list. The Seller will use reasonable
commercial efforts to deliver or cause to be delivered to the Buyer promptly
after the date hereof from each Seller Affiliate an executed affiliate
agreement in substantially the form attached hereto as Exhibit A (the "Seller
Affiliate Agreement"). The Buyer will be entitled to place appropriate legends
on the certificates evidencing any Buyer Common Stock to be received by a
Seller Affiliate pursuant to the terms of this Agreement, and to issue
appropriate stop transfer instructions to the transfer agent for Buyer Common
Stock, consistent with the terms of the Seller Affiliate Agreement.
5.15 REPRESENTATION ON BUYER BOARD. The Buyer shall take such action as may
be necessary to cause the number of Trustees comprising the Buyer's Board of
Trustees at the Effective Time to be sufficient to permit one director of the
Seller to serve thereon and shall elect as a Trustee F.L. Putnam, Jr. or
another director of the Seller designated by the Board of Directors of the
Seller who is reasonably satisfactory to the
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Buyer. The Buyer shall, as of the Effective Time, appoint such director to
serve on the Buyer's Board for a term ending at the 2002 Annual Meeting of
Shareholders of the Buyer.
5.16 DIVIDEND RECORD DATE. The Seller agrees to coordinate with the Buyer in
establishing the record date for the payment of any dividends on the Seller
Common Stock in order to assure that the holders of record of Seller Common
Stock (i) are entitled to receive a dividend on either Seller Common Stock or
Buyer Common Stock received in the Merger in the quarter in which the Closing
occurs, and (ii) are not entitled to receive a dividend on both Seller Common
Stock and Buyer Common Stock received in the Merger in the quarter in which the
Closing occurs.
ARTICLE 6
CONDITIONS TO THE MERGER
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction or waiver at or prior to the Effective
Time of the following conditions:
(a) Stockholder Approval. This Agreement shall have been approved by the
requisite vote under the Seller's, the Buyer's and Merger Sub's charter and
bylaws, the MBCL, Chapter 164 and the rules and regulations of the NYSE, as and
to the extent required.
(b) DTE Approval. The Merger, the related transactions contemplated
hereunder, and the related rate plan shall have been approved by the DTE
pursuant to Chapter 164 (i) on terms and conditions which are not materially
inconsistent with the principles set forth by the DTE in its approval of the
merger plan and related rate plan in Eastern Enterprises/Essex County Gas
Company, D.T.E. 98-27, order dated September 17, 1998, and D.T.E. 98-27-A,
order dated September 25, 1998, as such orders are in effect on the date of
this Agreement, pertaining to the recovery of costs, including without
limitation transaction, premium and integration costs, associated with the
Merger, and (ii) without terms and conditions that would otherwise have a
material adverse effect (determined after giving effect to the related rate
plan) on the business, assets (including intangible assets), prospects,
financial condition or results of operations of (x) the Surviving Corporation
or (y) the other gas distribution Subsidiaries of the Buyer taken as a whole,
and such approval shall be final, nonappealable and not under appeal.
(c) Registration Statement Effective. The SEC shall have declared the
Registration Statement effective, and no stop order suspending the
effectiveness of the Registration Statement or any part thereof shall have been
issued and no proceeding for that purpose, and no similar proceeding in respect
of the Proxy Statement, shall have been initiated or threatened in writing by
the SEC.
(d) PUHCA Approval. The requisite approval of the SEC under PUHCA shall
have been obtained on terms and conditions that are not materially burdensome
to the Buyer, including without limitation any requirement that the Buyer
register as a non-exempt "holding company" under PUHCA (other than as a result
of actions taken by the Buyer after the date of this Agreement except as
contemplated by this Agreement).
(e) No Order. No Governmental Entity shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, executive
order, decree, injunction or other order (whether temporary, preliminary or
permanent) which is in effect and which has the effect of making the Merger
illegal, otherwise prohibiting consummation of the Merger or having a material
adverse effect on the Merger.
(f) Tax Opinions. The Buyer and the Seller shall each have received
substantially identical written opinions from their counsel, Ropes & Gray and
Palmer & Dodge LLP, respectively, in form and substance reasonably satisfactory
to them, to the effect that the Merger will constitute a reorganization within
the meaning of Section 368(a) of the Code; provided that if the respective
counsel to the Buyer or the Seller does not render
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such opinion, this condition shall nonetheless be deemed satisfied with respect
to such party if counsel to the other party renders such opinion to such party.
(g) HSR and Similar Compliance. Any applicable waiting period relating to
the consummation of Merger under the HSR Act shall have expired or been
terminated by the reviewing agency and any similar government requirements have
been satisfied or complied with.
(h) Required Approvals. All consents and approvals referred to in Section
2.3 and 3.3 (or in the applicable Disclosure Schedule with respect thereto)
shall have been obtained.
(i) Supplemental Indenture. The Surviving Corporation shall have executed
such documentation as is required by and in compliance with the Second Amended
and Restated First Mortgage Indenture dated as of June 30, 1992 from the Seller
to State Street Bank and Trust Company, Trustee, as amended and supplemented.
6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE SELLER. The obligations of
the Seller to consummate and effect the Merger shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, exclusively by the Seller:
(a) Representations and Warranties. The representations and warranties of
the Buyer and Merger Sub contained in this Agreement shall be true and correct
on and as of the Effective Time (without regard to any updates to the Buyer
Disclosure Schedule, unless otherwise agreed by the Seller), except for changes
contemplated by this Agreement and except for those representations and
warranties that address matters only as of a particular date (which shall
remain true and correct as of such particular date), with the same force and
effect as if made on and as of the Effective Time, except, in all such cases,
where the failure to be so true and correct (without regard to any materiality
or knowledge qualifications contained therein) would not have a Buyer Material
Adverse Effect, and the Seller shall have received a certificate to such effect
signed on behalf of the Buyer by the Chief Executive Officer, Chief Operating
Officer or Chief Financial Officer of the Buyer.
(b) Agreements and Covenants. The Buyer and Merger Sub shall have performed
or complied in all material respects with all agreements and covenants required
by this Agreement to be performed or complied with by them on or prior to the
Effective Time, and the Seller shall have received a certificate to such effect
signed on behalf of the Buyer by the Chief Executive Officer, Chief Operating
Officer or Chief Financial Officer of the Buyer.
(c) Listing. The shares of Buyer Common Stock issuable to stockholders of
the Seller pursuant to this Agreement shall have been authorized for listing on
the NYSE, the Pacific Exchange and the Boston Stock Exchange.
6.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF THE BUYER AND MERGER SUB. The
obligations of the Buyer and Merger Sub to consummate and effect the Merger
shall be subject to the satisfaction at or prior to the Effective Time of each
of the following conditions, any of which may be waived, in writing,
exclusively by the Buyer:
(a) Representations and Warranties. The representations and warranties of
the Seller contained in this Agreement shall be true and correct on and as of
the Effective Time (without regard to any updates to the Seller Disclosure
Schedule, unless otherwise agreed by the Buyer), except for changes
contemplated by this Agreement and except for those representations and
warranties that address matters only as of a particular date (which shall
remain true and correct as of such particular date), with the same force and
effect as if made on and as of the Effective Time, except, in all such cases,
where the failure to be so true and correct (without regard to any materiality
or knowledge qualifications contained therein) would not have a Seller Material
Adverse Effect, and the Buyer and Merger Sub shall have received a certificate
to such effect signed on behalf of the Seller by the Chief Executive Officer,
Chief Operating Officer or Chief Financial Officer of the Seller.
(b) Agreements and Covenants. The Seller shall have performed or complied
in all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it
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on or prior to the Effective Time, and the Buyer shall have received a
certificate to such effect signed on behalf of the Seller by the Chief
Executive Officer, Chief Operating Officer or Chief Financial Officer of the
Seller.
(c) Affiliate Agreements. Except as set forth thereon, each of the
individuals and entities listed on Section 5.14 of the Seller Disclosure
Schedule shall have entered into an Affiliate Agreement, and such Agreements
shall be in full force and effect.
ARTICLE 7
TERMINATION
7.1 TERMINATION. This Agreement may be terminated at any time prior to the
Effective Time of the Merger, whether before or after approval of the Merger by
the stockholders of the Seller or the DTE:
(a) by mutual written consent duly authorized by the Board of Trustees of
the Buyer and the Board of Directors of the Seller;
(b) by either the Seller or the Buyer if the Merger shall not have been
consummated by December 31, 1999 (which date may be extended at the written
request of either the Buyer or the Seller to June 30, 2000 to the extent
necessary to satisfy the condition set forth in Section 6.1(b), (d) or (g) and
so long as all other conditions have been or shall be capable of being
fulfilled); provided, however, that the right to terminate this Agreement under
this Section 7.1(b) shall not be available to any party whose action or failure
to act has been a principal cause of or resulted in the failure of the Merger
to occur on or before such date if such action or failure to act constitutes a
breach of this Agreement;
(c) by either the Seller or the Buyer if a court of competent jurisdiction
or governmental, regulatory or administrative agency or commission shall have
issued an order, decree or ruling or taken any other action (an "Order"), in
any case having the effect of permanently restraining, enjoining or otherwise
prohibiting the Merger, which order is final, nonappealable and not under
appeal;
(d) by either the Seller or the Buyer if the required approval of the
stockholders of the Seller contemplated by this Agreement shall not have been
obtained on or before June 30, 1999 or by reason of the failure to obtain the
required vote upon a vote taken at a duly held meeting of the Seller's
stockholders duly convened therefor or at any adjournment thereof (a "Seller
Stockholder Approval Failure Event"); provided, however, that the right to
terminate this Agreement under this Section 7.1(d) shall not be available to
the Seller where the failure to obtain Seller stockholder approval shall have
been caused by the action or failure to act of the Seller in breach of this
Agreement;
(e) by either the Seller or the Buyer, if the Seller shall have accepted or
approved an Acquisition Proposal or if the Seller's Board of Directors
recommends an Acquisition Proposal to the stockholders of the Seller as
permitted by Section 5.4(b);
(f) by the Buyer, if the Board of Directors of the Seller shall have (i)
failed to convene the Seller Stockholders' Meeting, as required by Section 5.2,
(ii) failed to recommend approval of this Agreement in the Proxy Statement or
withheld, withdrawn or modified in a manner adverse to the Buyer such
recommendation or resolved to do so, or (iii) approved or recommended an
Acquisition Proposal;
(g) by the Seller, upon a breach of any representation, warranty, covenant
or agreement on the part of the Buyer set forth in this Agreement, if (i) as a
result of such breach the conditions set forth in Section 6.2(a) or Section
6.2(b) would not be satisfied as of the time of such breach and (ii) such
breach shall not have been cured by the Buyer within ten (10) business days
following receipt by the Buyer of written notice of such breach from the
Seller;
(h) by the Buyer, upon a breach of any representation, warranty, covenant
or agreement on the part of the Seller set forth in this Agreement, if (i) as a
result of such breach the conditions set forth in
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Section 6.3(a) or Section 6.3(b) would not be satisfied as of the time of such
breach and (ii) such breach shall not have been cured by the Seller within ten
(10) business days following receipt by the Seller of written notice of such
breach from the Buyer;
(i) by the Buyer, if there shall have occurred any event or condition that
constitutes, or is reasonably likely to constitute, a Seller Material Adverse
Effect since the date of this Agreement which condition or event shall not have
been ameliorated such that it is no longer, or is no longer reasonably likely
to constitute, a Seller Material Adverse Effect within ten (10) business days
following receipt by the Seller of notice from the Buyer;
(j) by the Seller, if there shall have occurred any event or condition that
constitutes, or is reasonably likely to constitute, a Buyer Material Adverse
Effect since the date of this Agreement, which condition or event shall not
have been ameliorated such that it is no longer, or is no longer reasonably
likely to constitute, a Buyer Material Adverse Effect within ten (10) business
days following receipt by the Buyer of notice from the Seller;
(k) by either the Seller or the Buyer, if any required approval of the
stockholders of the Buyer regarding the issuance of the Buyer Common Stock in
the Merger as contemplated by this Agreement shall not have been obtained on or
before June 30, 1999 or by reason of the failure to obtain the required vote
upon a vote taken at a duly held meeting of the Buyer's stockholders duly
convened therefor or at any adjournment thereof (a "Buyer Stockholder Approval
Failure Event"); provided, however, that the right to terminate this Agreement
under this Section 7.1(k) shall not be available to the Buyer where the failure
to obtain Buyer stockholder approval shall have been caused by the action or
failure to act of the Buyer in breach of this Agreement; and
(l) by the Seller, if the Board of Trustees of the Buyer shall have (i)
failed to convene the Buyer Stockholders' Meeting, to the extent required by
Section 5.2, or (ii) failed to recommend any required approval of this
Agreement in the Proxy Statement or withheld, withdrawn or modified in a manner
adverse to the Seller such recommendations or resolved to do so.
7.2 NOTICE OF TERMINATION; EFFECT OF TERMINATION. Any termination of this
Agreement under Section 7.1 above will be effective immediately upon the
delivery of written notice of the terminating party to the other parties
hereto. In the event of the termination of this Agreement as provided in
Section 7.1, this Agreement shall be of no further force or effect, except (i)
as set forth in this Section 7.2, Section 7.3 and Article 8 (General
Provisions), each of which shall survive the termination of this Agreement. No
termination of this Agreement shall affect the obligations of the parties
contained in the Confidentiality Agreement, all of which obligations shall
survive termination of this Agreement in accordance with their terms.
7.3 FEES AND EXPENSES.
(a) Except as set forth in this Section 7.3, all fees and expenses incurred
in connection with this Agreement and the transactions contemplated hereby
shall be paid by the party incurring such expenses, whether or not the Merger
is consummated; provided, however, that the Buyer and the Seller shall share
equally all fees and expenses, other than attorneys' and accountants fees and
expenses, incurred in relation to the printing and filing of the Proxy
Statement (including any preliminary materials related thereto) and the
Registration Statement (including financial statements and exhibits) and any
amendments or supplements thereto.
(b) The Seller shall pay to the Buyer an amount equal to all out-of-pocket
expenses and fees incurred by the Buyer, including without limitation fees and
expenses payable to all legal, accounting, financial and other professional
advisors, relating to the Merger or the transactions contemplated by this
Agreement not exceeding $2,000,000 in the aggregate upon the earliest to occur
of the following events:
(i) the termination of this Agreement by the Buyer pursuant to 7.1(h)
or (i); or
(ii) the termination of this Agreement by the Buyer or the Seller
pursuant to Section 7.1(d).
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(c) The Seller shall pay the Buyer a termination fee of $15,000,000 (less
any amount paid pursuant to Section 7.3(b)), upon the earliest to occur of the
following events:
(i) the termination of this Agreement pursuant to Section 7.1(e) or
(f); or
(ii) the termination of this Agreement pursuant to Section 7.1(d) if,
at the time of the Seller Stockholder Approval Failure Event,
(A) there shall have been announced, commenced or occurred an
Alternative Transaction (as defined in Section 7.3(g)) and
the Seller shall have either (x) executed an agreement to
engage in the same or (y) the Seller's Board of Directors
shall not have recommended against such Alternative
Transaction affirmatively or, if the Seller's Board of
Directors has recommended against such Alternative
Transaction, the Seller's Board of Directors shall have
withdrawn such recommendation against such Alternative
Transaction or modified such recommendation in a manner
adverse to the Buyer, or
(B) there shall have been announced, commenced or occurred an
Alternative Transaction with a Third Party (as defined in
Section 7.3(g)) and (x) the Seller shall have engaged in, or
entered into an agreement to engage in, an Alternative
Transaction with such Third Party or any affiliate thereof or
with a Competing Party (as defined in Section 7.3(g)) within
twelve months after the date of the Seller Stockholders
Approval Failure Event or (y) the Seller's Board of Directors
shall have recommended an Alternative Transaction with the
Third Party proposing such Alternative Transaction or any
affiliate thereof or with a Competing Party within twelve
months after the date of the Seller Stockholders Approval
Failure Event; or
(iii) the termination of this Agreement by the Buyer pursuant to
Section 7.1(h) after a willful breach by the Seller of this
Agreement, if before such termination or within twelve months
thereafter the Seller shall have entered into an agreement to
engage in or shall have engaged in an Alternative Transaction.
(d) The Buyer shall pay to the Seller an amount equal to all out-of-pocket
expenses and fees incurred by the Seller, including without limitation fees
and expenses payable to all legal, accounting, financial and other
professional advisors, relating to the Merger or the transactions contemplated
by this Agreement not exceeding $2,000,000 in the aggregate upon the earliest
to occur of the following events:
(i) the termination of this Agreement by the Seller pursuant to
Section 7.1(g) or (j); or
(ii) the termination of this Agreement by the Seller or the Buyer
pursuant to Section 7.1(k).
(e) The Buyer shall pay the Seller a termination fee of $15,000,000 (less
any amount paid pursuant to Section 7.3(d)) upon the earliest to occur of the
following events:
(i) the termination of this Agreement by the Seller pursuant to
Section 7.1 (l); or
(ii) the termination of this Agreement pursuant to Section 7.1(k) if
at the time of the Buyer Stockholder Approval Failure Event,
(A) there shall have been announced or commenced an Alternative
Transaction (as defined in Section 7.3(g) substituting
"Buyer" for "Seller") and the Buyer shall have executed or
consummated an agreement to engage in the same, or
(B) there shall have been announced an Alternative Transaction
with a Third Party and (x) the Buyer shall have engaged in,
or entered into an agreement to engage in, an Alternative
Transaction with such Third Party or any affiliate thereof or
with a Competing Party within twelve months after the date of
the Buyer Stockholders Approval Failure Event or (y) the
Buyer's Board of Trustees shall have recommended an
Alternative Transaction with the Third Party proposing such
Alternative Transaction
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or any affiliate thereof or with a Competing Party within
twelve months after the date of the Buyer Stockholders Approval
Failure Event; or
(iii) the termination of this Agreement by the Seller pursuant to
Section 7.1(g) after a willful breach by the Buyer of this
Agreement, if before such termination or within twelve months
thereafter the Buyer shall have entered into an agreement to
engage in or shall have engaged in an Alternative Transaction.
(f) The amounts payable pursuant to Section 7.3(b), (c), (d) or (e) shall
be paid by wire transfer within one business day after the event giving rise
to such payment; provided that in no event shall the Seller or the Buyer be
required to pay any expenses or termination fees to the other party if,
immediately prior to the termination of this Agreement, the other party was in
material breach of any of its material obligations under this Agreement. If
one party fails to promptly pay to the other any fee due hereunder, the
defaulting party shall pay the costs and expenses (including legal fees and
expenses) in connection with any action, including the filing of any lawsuit
or other legal action, taken to collect payment, together with interest on the
amount of any unpaid fee at the publicly announced prime rate of BankBoston,
N.A. from the date such fee was required to be paid.
(g) As used in this Agreement, (A) "Alternative Transaction" means either
(i) a transaction pursuant to which any person (or group of persons) other
than the Buyer or its Affiliates (a "Third Party"), acquires 20% or more of
the outstanding shares of Seller Common Stock, pursuant to a tender offer or
exchange offer of otherwise, (ii) a merger, consolidation or combination
involving the Seller in which the holders of Seller Common Stock do not own at
least a majority of the equity of the surviving entity, (iii) any other
transaction pursuant to which any Third Party acquires control of assets
(including for this purpose the outstanding equity securities of Subsidiaries
of the Seller, and the entity surviving any merger or business combination
including any of them) of the Seller having a fair market value (as determined
by the Board of Directors of the Seller in good faith) equal to more than 20%
of the fair market value of all the assets of the Seller immediately prior to
such transaction, or (iv) any public announcement of a proposal, plan or
intention to do any of the foregoing or any agreement to engage in any of the
foregoing, and (B) "Competing Party" shall mean any person other than the
Buyer or its affiliates who announces or commences an Alternative Transaction,
or with whom an Alternative Transaction occurs, while an Alternative
Transaction with a Third Party is pending.
(h) If this Agreement is terminated by a party as a result of a willful
breach by the other party, the terminating party may pursue any remedies
available to it at law or in equity and shall, in addition to its
out-of-pocket expenses (which shall be paid as specified above and shall not
be limited to $2,000,000), be entitled to retain such additional amounts as
the terminating party may be entitled to receive at law or in equity.
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ARTICLE 8
GENERAL PROVISIONS
8.1 NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Seller, the Buyer and Merger Sub contained in this Agreement
shall terminate at the Effective Time, and only the covenants that by their
terms survive the Effective Time shall survive the Effective Time.
8.2 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or sent via telecopy (receipt confirmed) to the parties at
the following addresses or telecopy numbers (or at such other address or
telecopy numbers for a party as shall be specified by like notice):
(a) if to the Buyer or Merger Sub, to:
Eastern Enterprises
9 Riverside Road
Weston, Massachusetts 02493
Attention: J. Atwood Ives
Chairman and Chief Executive Officer
Telephone: (781) 647-2302
Facsimile: (781) 647-2350
with a copy to:
Eastern Enterprises
9 Riverside Road
Weston, Massachusetts 02493
Attention: L. William Law, Jr., Esq.
Senior Vice President and General Counsel
Telephone: (781) 647-2313
Facsimile: (781) 647-2398
(b) if to the Seller, to:
Colonial Gas Company
40 Market Street
Lowell, Massachusetts 01852
Attention: F.L. Putnam, III
President and Chief Executive Officer
Telephone: (978) 322-3465
Facsimile: (978) 322-3456
with a copy to:
Palmer & Dodge LLP
One Beacon Street
Boston, Massachusetts 02108
Attention: Stanley Keller, Esq.
Telephone: (617) 573-0100
Facsimile: (617) 227-4420
8.3 INTERPRETATION; KNOWLEDGE. When a reference is made in this Agreement to
Exhibits, such reference shall be to an Exhibit to this Agreement unless
otherwise indicated. The words "include,"
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"includes" and "including" when used herein shall be deemed in each case to be
followed by the words "without limitation." The table of contents and headings
contained in this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement. When
reference is made herein to "business of" an entity, such reference shall be
deemed to include the business of all direct and indirect subsidiaries of such
entity. Reference to the Subsidiaries of an entity shall be deemed to include
all direct and indirect subsidiaries of such entity. References to the
"knowledge of the Seller," or any similar expression shall mean the actual
knowledge of any executive officer of the Seller.
8.4 COUNTERPARTS. This Agreement may be executed in one or more counterparts,
all of which shall be considered one and the same agreement and shall become
effective when one or more counterparts have been signed by each of the parties
and delivered to the other party, it being understood that all parties need not
sign the same counterpart.
8.5 ENTIRE AGREEMENT. This Agreement and the documents and instruments and
other agreements among the parties hereto as contemplated by or referred to
herein, including the Seller Disclosure Schedule and the Buyer Disclosure
Schedule (i) constitute the entire agreement among the parties with respect to
the subject matter hereof and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, it being understood that the Confidentiality Agreement
shall continue in full force and effect until the Closing and shall survive any
termination of this Agreement; and (ii) are not intended to confer upon any
other person any rights or remedies hereunder, except as set forth herein.
8.6 SEVERABILITY. In the event that any provision of this Agreement or the
application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further
agree to replace such void or unenforceable provision of this Agreement with a
valid and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of such void or unenforceable provision.
8.7 AMENDMENT. Subject to applicable law, this Agreement may be amended by
the parties hereto at any time by execution of an instrument in writing signed
on behalf of each of the parties hereto.
8.8 EXTENSION; WAIVER. At any time prior to the Effective Time any party
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties made
to such party contained herein or in any document delivered pursuant hereto and
(iii) waive compliance with any of the agreements or conditions for the benefit
of such party contained herein. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid only if set forth in an instrument
in writing signed on behalf of such party.
8.9 OTHER REMEDIES; SPECIFIC PERFORMANCE. Except as otherwise provided
herein, any and all remedies herein expressly conferred upon a party will be
deemed cumulative with and not exclusive of any other remedy conferred hereby,
or by law or equity upon such party, and the exercise by a party of any one
remedy will not preclude the exercise of any other remedy. The parties hereto
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent breaches
of this Agreement and to enforce specifically the terms and provisions hereof
in any court of the United States or any state having jurisdiction, this being
in addition to any other remedy to which they are entitled at law or in equity.
8.10 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts, regardless of
the laws that might otherwise govern under applicable principles of conflicts
of law thereof.
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8.11 ASSIGNMENT. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the of the other parties.
8.12 PARTIES IN INTEREST. Except for rights of Indemnified Parties as set
forth in Section 5.11, nothing in this Agreement, express or implied, is
intended to confer upon any other person any rights or remedies of any nature
whatsoever under or by reason of this Agreement.
8.13 WAIVER OF JURY TRIAL. EACH OF THE BUYER AND SELLER HEREBY IRREVOCABLY
WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
(WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE ACTIONS OF THE BUYER, THE SELLER OR MERGER SUB IN THE
NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.
8.14 MASSACHUSETTS BUSINESS TRUST. Reference is hereby made to the
declaration of trust establishing Eastern Enterprises (formerly Eastern Gas and
Fuel Associates) 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.
[Balance of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the Buyer and the Seller have caused this Agreement to be
signed as a sealed instrument by their duly authorized respective officers, all
as of the date first written above.
EASTERN ENTERPRISES
/s/ J. Atwood Ives
By:
Chairman and Chief Executive Officer
COLONIAL GAS COMPANY
/s/ Frederic L. Putnam, III
By:
President and Chief Executive Officer
and
/s/ Dennis W. Carroll
By:
Treasurer
[Signature Page to Agreement and Plan of Reorganization]
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[MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED LETTERHEAD]
October 17, 1998
Board of Trustees
Eastern Enterprises
9 Riverside Road
Weston, Massachusetts 02493
Members of the Board of Trustees:
Eastern Enterprises (the "Acquiror") and Colonial Gas Company (the "Company")
propose to enter into an Agreement and Plan of Reorganization (the "Agreement")
pursuant to which the Company will be merged (the "Merger") with and into a
newly formed, wholly-owned subsidiary of the Acquiror (the "Acquisition Sub").
Pursuant to the Merger, each outstanding share of the Company's common stock,
par value $3.33 per share (the "Company Shares"), will be converted into the
right to receive (i) $37.50 in cash (the "Per Share Cash Amount"), (ii) such
number of shares of the Acquiror's common stock, par value $1.00 per share (the
"Acquiror Shares"), as shall be equal to the Per Share Cash Amount divided by
the Market Value (as defined below), or (iii) a combination of cash and
Acquiror Shares, in each case as the holder thereof shall have elected or be
deemed to have elected, subject to the terms, limitations and procedures set
forth in the Agreement, which include a limitation on the aggregate amount of
cash available to be paid in the Merger. The Agreement also provides that if
the Market Value of the Acquiror Shares is less than $37.56 per share, the
Market Value will be deemed to be $37.56 per share, and if the Market Value of
the Acquiror Shares is greater than $47.80 per share, the Market Value will be
deemed to be $47.80 per share. For purposes of our opinion, the term "Market
Value" means the average of the per share closing prices of the Acquiror Shares
on the New York Stock Exchange for the ten trading days ending on the third
trading day prior to the closing of the Merger, and the term "Consideration"
means the aggregate amount of cash and Acquiror Shares to be paid by the
Acquiror pursuant to the Merger.
You have asked us whether, in our opinion, the Consideration to be paid by
the Acquiror pursuant to the Merger is fair from a financial point of view to
the Acquiror.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed certain publicly available business and financial information
relating to the Company and the Acquiror that we deemed to be relevant;
(2) Reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets, liabilities and prospects
of the Company and the Acquiror, as well as the amount and timing of
the cost savings and related expenses and synergies expected to result
from the Merger furnished to or discussed with us by the Acquiror;
(3) Conducted discussions with members of senior management and
representatives of the Company and the Acquiror concerning the matters
described in clauses 1 and 2 above, as well as their respective
businesses and prospects before and after giving effect to the Merger
and the cost savings and related expenses and synergies expected to
result from the Merger;
(4) Reviewed the market prices and valuation multiples for the Company
Shares and the Acquiror Shares and compared them with those of certain
publicly traded companies that we deemed to be relevant;
(5) Reviewed the results of operations of the Company and the Acquiror and
compared them with those of certain publicly traded companies that we
deemed to be relevant;
(6) Compared the proposed financial terms of the Merger with the financial
terms of certain other transactions that we deemed to be relevant;
B-1
<PAGE>
(7) Participated in certain discussions and negotiations among
representatives of the Company and the Acquiror and their financial and
legal advisors;
(8) Reviewed the potential pro forma impact of the Merger;
(9) Reviewed the Agreement; and
(10) Reviewed such other financial studies and analyses and took into
account such other matters as we deemed necessary, including our
assessment of general economic, market and monetary conditions.
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available, and we have not
assumed any responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of any of the assets or
liabilities of the Company or the Acquiror or been furnished with any such
evaluation or appraisal. In addition, we have not assumed any obligation to
conduct any physical inspection of the properties or facilities of the Company
or the Acquiror. With respect to the financial forecast information and the
cost savings and related expenses and synergies expected to result from the
Merger furnished to or discussed with us by the Company or the Acquiror, we
have assumed that they have been reasonably prepared and reflect the best
currently available estimates and judgment of the Company's or the Acquiror's
management as to the expected future financial performance of the Company or
the Acquiror, as the case may be, and the cost savings and related expenses and
synergies expected to result from the Merger. We have further assumed that the
Merger will qualify as a tax-free reorganization for U.S. federal income tax
purposes.
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on, and on the information made available to
us as of, the date hereof. We have assumed that in the course of obtaining the
necessary regulatory or other consents or approvals (contractual or otherwise)
for the Merger, no restrictions, including any divestiture requirements or
amendments or modifications, will be imposed that will have a material adverse
effect on the contemplated benefits of the Merger.
We are acting as financial advisor to the Acquiror in connection with the
Merger and will receive a fee from the Acquiror for our services, a significant
portion of which is contingent upon the consummation of the Merger. In
addition, the Acquiror has agreed to indemnify us for certain liabilities
arising out of our engagement. In the ordinary course of our business, we may
actively trade the Company Shares and the Acquiror Shares for our own account
and for the accounts of customers and, accordingly, may at any time hold a long
or short position in such securities.
This opinion is for the use and benefit of the Board of Trustees of the
Acquiror. Our opinion does not address the merits of the underlying decision by
the Acquiror to engage in the Merger and does not constitute a recommendation
to any shareholder of the Acquiror as to how such shareholder should vote on
the proposed Merger or any matter related thereto.
We are not expressing any opinion herein as to the prices at which the
Company Shares or the Acquiror Shares will trade following the announcement or
consummation of the Merger.
On the basis of and subject to the foregoing, we are of the opinion that, as
of the date hereof, the Consideration to be paid by the Acquiror pursuant to
the Merger is fair from a financial point of view to the Acquiror.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
B-2
<PAGE>
[SALOMON SMITH BARNEY INC. LETTERHEAD]
October 17, 1998
Board of Directors
Colonial Gas Company
40 Market Street
Lowell, MA 01852
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of common stock, par value $3.33 per share ("Company
Common Stock"), of Colonial Gas Company (the "Company"), of the consideration
to be received by such holders in connection with the proposed merger (the
"Merger") of the Company with and into a wholly-owned subsidiary ("Sub") of
Eastern Enterprises, Inc. ("Parent"), pursuant to an Agreement and Plan of
Reorganization, dated as of October 17, 1998 (the "Merger Agreement"), by and
among the Parent and the Company. Upon the effectiveness of the Merger, each
issued and outstanding share of Company Common Stock (other than shares owned
by the Parent, the Sub, the Company or any direct or indirect wholly owned
subsidiary of the Parent or Company) will be converted into and represent the
right to receive (i) $37.50 in cash without interest (the "Per Share Cash
Amount"), (ii) a number of shares of common stock, $1.00 par value, of the
Parent (the "Parent Common Stock") equal to the Per Share Cash Amount divided
by the Market Value (as defined below) of the Parent Common Stock (as adjusted
pursuant to the Merger Agreement) or (iii) a combination of cash and shares of
Parent Common Stock determined in accordance with the Merger Agreement
(together, the "Merger Consideration"). "Market Value" of the Parent Common
Stock means the average of the per share closing prices of the Parent Common
Stock as reported on the New York Stock Exchange for the ten trading days
ending on the third trading day prior to the closing of the transaction.
Notwithstanding the foregoing, if the Market Value of the Parent Common Stock
as computed above is less than $37.56 per share then Market Value shall mean
$37.56 per share and if the Market Value of the Parent Common Stock as computed
above is greater than $47.80 per share then Market Value shall mean $47.80 per
share.
In connection with rendering our opinion, we have reviewed certain publicly
available information concerning the Company and Parent and certain other
financial information concerning the Company and Parent, including financial
forecasts, that were provided to us by the Company and Parent, respectively. We
have discussed the past and current business operations, financial condition
and prospects of the Company and Parent with certain officers and employees of
the Company and Parent, respectively. We have also considered such other
information, financial studies, analyses, investigations and financial,
economic and market criteria that we deemed relevant.
In our review and analysis and in arriving at our opinion, we have assumed
and relied upon the accuracy and completeness of the information reviewed by us
for the purpose of this opinion and we have not assumed any responsibility for
independent verification of such information. With respect to the financial
forecasts of the Company and Parent, we have been advised by the respective
managements of the Company and Parent that such forecasts have been reasonably
prepared on bases reflecting their best currently available estimates and
judgements, and we express no opinion with respect to such forecasts or the
assumptions on which they are based. We have not assumed any responsibility for
any independent evaluation or appraisal of any of the assets (including
properties and facilities) or liabilities of the Company or Parent.
Our opinion is necessarily based upon conditions as they exist and can be
evaluated on the date hereof. Our opinion as expressed below does not imply any
conclusion as to the likely trading range for Parent
C-1
<PAGE>
Common Stock following the consummation of the Merger, which may vary depending
upon, among other
factors, changes in interest rates, dividend rates, market conditions, general
economic conditions and other factors that generally influence the price of
securities. Our opinion does not address the Company's underlying business
decision to effect the Merger, and we express no view on the effect on the
Company of the Merger and related transactions. Our opinion is directed only to
the fairness, from a financial point of view, of the Merger Consideration to
holders of Company Common Stock and does not constitute a recommendation
concerning how holders of Company Common Stock should vote with respect to the
Merger Agreement or the Merger.
We have acted as financial advisor to the Board of Directors of the Company
in connection with the Merger and will receive a fee for our services, a
portion of which is payable upon initial delivery of this fairness opinion and
the remainder of which is contingent upon consummation of the Merger. In the
ordinary course of business, we and our affiliates may actively trade the
securities of the Company and Parent for our own account and for the accounts
of customers and, accordingly, may at any time hold a long or short position in
such securities. In addition, we and our affiliates have previously rendered
certain investment banking and financial advisory services to the Company and
Parent for which we have received customary compensation. We and our affiliates
(including Citigroup Inc.) may have other business relationships with the
Company or Parent in the ordinary course of their businesses.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Merger Consideration is fair to the holders of Company Common
Stock from a financial point of view.
Very truly yours,
/s/ Salomon Smith Barney Inc.
SALOMON SMITH BARNEY INC.
C-2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF TRUSTEES AND OFFICERS.
The Declaration of Trust of the Registrant (the "Registrant's Charter")
provides that the Trustees, officers and agents of the Registrant generally
shall not be liable except for acts or failures to act which at the time would
impose liability on such party if the Registrant were a Massachusetts business
corporation and such person was a director, officer or agent thereof. The
Registrant's Charter provides that it shall indemnify each of its Trustees and
officers against all liabilities and expenses, including amounts paid in
satisfaction of judgments, in compromise or as fines and penalties, and counsel
fees, reasonably incurred by such person in connection with the defense or
disposition of any action, suit or other proceeding, whether civil or criminal,
including but not limited to derivative suits (to the extent permitted by law),
in which such person may be involved or with which such person may be
threatened, while in office or thereafter, except with respect to any matters
as to which such person shall have been adjudicated to have acted in bad faith
or not to have acted in good faith in the reasonable belief that such person's
action was in the best interests of the Registrant or, to the extent that such
matter relates to service with respect to an employee benefit plan, in the best
interests of the participants or beneficiaries of such plan. The Registrant's
Charter provides, however, that as to any matter disposed of by a compromise
payment by such Trustee or officer pursuant to a consent decree or otherwise,
no indemnification either for said payment or for any other expenses shall be
provided unless such compromise shall be approved as in the best interests of
the Registrant, after notice that it involves such indemnification: (a) if no
change of control has occurred, (i) by a disinterested majority of the Trustees
then in office or (ii) by a majority of the disinterested Trustees then in
office or by the shareholders of the Registrant, provided that the Registrant
shall have received a written opinion of independent legal counsel to the
effect that such Trustee or officer appears to have acted in good faith in the
reasonable belief that such person's action was in the best interests of the
Registrant; or (b) if a change of control shall have occurred, by an opinion in
writing of independent legal counsel to the effect that such Trustee or officer
appears to have acted in good faith in the reasonable belief that such person's
action was in the best interests of the Registrant. The rights accruing to any
Trustee or officer under the foregoing provisions do not exclude any other
right to which such Trustee or officer may be lawfully entitled; provided,
however, that no Trustee or officer may satisfy any rights of indemnity or
reimbursement granted pursuant to the Registrant's Charter or to which he may
be otherwise entitled except out of the trust estate of the Registrant.
The Registrant's Charter further provides that notwithstanding any provision
of law or any other provision of the Registrant's Charter, a Trustee shall not
be liable to the Registrant or any shareholder of the Registrant for monetary
damages for breach of such Trustee's fiduciary duties as a Trustee, except with
respect to any matter as to which such liability is imposed by applicable law
and such Trustee shall have been adjudicated (a) to have breached such
Trustee's duty of loyalty to the Registrant or its shareholders, (b) to have
acted (or omitted to act) not in good faith, (c) to have knowingly violated the
law, (d) to have intentionally engaged in misconduct, or (e) to have derived
any improper personal benefit from a transaction. Trustees, officers and agents
of the Registrant will also not be held liable for any act or failure to act in
good faith, that is required, authorized or approved by an order issued
pursuant to the Public Utility Holding Company Act of 1935 or any other federal
or state statute regulating the Registrant or any of its subsidiaries by reason
of its being a public utility holding company or their being public utilities.
In the event that the foregoing provisions of the preceding sentence are found
by a court not to constitute a valid defense on the grounds of not being
applicable to the particular class of plaintiffs, each such Trustee, officer
and agent (and his or her legal representatives) shall be reimbursed for, or
indemnified against, all expenses and liabilities incurred by him or her or
imposed on him or her in connection with any such action, suit or proceeding;
provided, however, that as to any matter disposed of by a compromise payment by
such Trustee or officer, pursuant to a consent decree or otherwise, no
indemnification either for said payment or for any other expenses shall be
provided unless such compromise shall be approved as in the best interest of
the Registrant as provided in the Registrant's Charter. Such expenses and
liabilities shall include, but shall not be limited to, judgments, court costs,
and attorneys' fees.
II-1
<PAGE>
The Registrant's Charter provides that in discharging his or her duties, when
acting in good faith, any Trustee or officer shall be fully entitled to rely
upon information, opinion, reports or records, including financial statements,
books of account and other financial records, in each case presented or
prepared by, or under the supervision of, (a) one or more officers or employees
of the Registrant (or of another organization in which such party serves as
contemplated by Article 19 of the Registrant's Charter, including all
directors, officers and trustees of wholly-owned subsidiaries of the
Registrant) whom the Trustee or officer reasonably believes to be reliable and
competent in the matters presented, (b) counsel, public accountants or other
persons as to matters which the Trustee or officer reasonably believes to be
within such person's professional or expert competence, or (c) in the case of a
Trustee, a duly constituted committee of Trustees (or similar governing body of
such other organization) upon which such Trustee does not serve, as to matters
within its delegated authority, which committee the Trustee reasonably believes
to merit confidence, but such Trustee shall not be considered to be acting in
good faith if such Trustee has knowledge concerning the matter in question that
would cause such reliance to be unwarranted. The fact that a Trustee or officer
so relied shall be a complete defense to any claim asserted against such party,
except as expressly provided by statute, by reason of such party being or
having been a Trustee or officer of the Registrant (or such other
organization).
The Registrant maintains an insurance policy that insures its Trustees and
officers against certain liabilities.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS.
<TABLE>
<CAPTION>
NUMBER TITLE OF EXHIBIT
------ ----------------
<C> <S>
2.1 Agreement and Plan of Reorganization dated as of October 17, 1998,
between Eastern Enterprises, and Colonial Gas Company (attached as
Annex A to the Joint Proxy Statement/Prospectus contained in this
Registration Statement). Pursuant to Item 601(b)(2) of Regulation S-
K, the schedules and exhibits referred to in the Agreement are
omitted. The Registrant hereby undertakes to furnish supplementally a
copy of any omitted schedule and exhibit to the Commission upon
request.
4.1 Declaration of Trust of Eastern Enterprises, as amended, filed as
Exhibit 3.1 to the Eastern Enterprises Quarterly Report on Form 10-Q
for the quarter ended June 30, 1989, Commission File No. 1-2297,
incorporated by reference herein.
4.2 By-laws of Eastern Enterprises, as amended, filed as Exhibit 3.1 to
the Eastern Enterprises Quarterly Report on Form 10-Q for the quarter
ended June 30, 1992, Commission File No. 1-2297, incorporated by
reference herein.
4.3 Specimen copy of common stock certificate for Eastern Enterprises,
filed as Exhibit A-1 to the Eastern Enterprises Form U-1 dated March
31, 1998, Commission File No. 070-09195, incorporated by reference
herein.
4.4 Common Stock Rights Agreement between Eastern Enterprises and the Bank
of New York dated as of February 22, 1990, filed as Exhibit 1 to the
Eastern Enterprises Current Report on Form 8-K dated March 1, 1990,
Commission File No. 1-2297, incorporated by reference herein.
4.4.1 Agreement between Eastern and the First National Bank of Boston dated
January 30, 1995, filed as Exhibit 4.1.1. to the Eastern Enterprises
Annual Report on Form 10-K for the year ended December 31, 1994,
Commission File No. 1-2297, incorporated by reference herein.
4.4.2 Amendment No. 2 to Common Stock Rights Agreement between Eastern
Enterprises and BankBoston, N.A. dated as of July 22, 1998, filed as
Exhibit 99.1 to the Eastern Enterprises Current Report on Form 8-K
dated July 29, 1998, Commission File No. 1-2297, incorporated by
reference herein.
4.5 Rights Agreement between Eastern Enterprises and BankBoston, N.A.
dated as of July 22, 1998, filed as Exhibit 99.2 to the Eastern
Enterprises Current Report on Form 8-K dated July 29, 1998,
Commission File No. 1-2297, incorporated by reference herein.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
NUMBER TITLE OF EXHIBIT
------ ----------------
<C> <S>
5.1 Opinion of Ropes & Gray as to the legality of the shares being issued.
8.1 Opinion of Ropes & Gray as to certain tax matters.
8.2 Opinion of Palmer & Dodge LLP as to certain tax matters.
12.1 Statement re: computation of ratio of earnings to fixed charges.
23.1 Consent of Salomon Smith Barney Inc.
23.2 Consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated.
23.3 Consent of Ropes & Gray (included in Exhibits 5.1 and 8.1).
23.4 Consent of Palmer & Dodge LLP (included in Exhibit 8.2).
23.5 Consent of Arthur Andersen LLP with respect to the Registrant.
23.6 Consent of Grant Thornton LLP with respect to Colonial Gas Company.
24.1 Power of Attorney (included on signature page).
Form of proxy card to be used in soliciting Eastern Enterprises
99.1 shareholders.
Form of proxy card to be used in soliciting Colonial Gas Company
99.2 stockholders.
Form of proxy card to be used by participants in Colonial's Employee
99.3 Savings Plan.
</TABLE>
(B) FINANCIAL STATEMENT SCHEDULES.
Schedule II. Valuation and Qualifying Accounts and Reserves.
(C) FAIRNESS OPINIONS.
Included in Part I as Annex B and Annex C to the Joint Proxy
Statement/Prospectus contained in this Registration Statement.
ITEM 22. UNDERTAKINGS.
(A) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(B) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the provisions set forth in Item 20 above, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
(C) The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer
II-3
<PAGE>
undertakes that such reoffering prospectus will contain the information called
for by the applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information called for by
the other items of the applicable form.
(D) The Registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (C) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(E) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through
the date of responding to the request.
(F) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
(G) The undersigned Registrant hereby undertakes:
1. To file during any period in which offers and sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) under the Securities Act of
1933, if, in the aggregate, the changes in volume and price represent
no more than a 20% change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the effective
registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
2. That for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
3. To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination
of the offering.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this registration
statement on Form S-4 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Weston, State of Massachusetts, on the 16th day
of December, 1998.
EASTERN ENTERPRISES
/s/ Walter J. Flaherty
By: _________________________________
Name: Walter J. Flaherty
Title: Senior Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
KNOW ALL MEN BY THESE PRESENTS that each officer and Trustee of Eastern
Enterprises whose signature appears below constitutes and appoints Walter J.
Flaherty and L. William Law, Jr., and each of them, his or her true and lawful
attorney-in-fact and agent, with full power of substitution and revocation, for
him or her and in his or her name, place and stead, in any and all capacities,
to execute any and all amendments, or any post-effective amendments and
supplements to this Registration Statement, or any Registration Statement
relating to this Registration Statement under Rule 462(b), and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-
fact and agent full power and authority to do and perform each and every act
and thing requisite and necessary to be done, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or his or her substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ J. Atwood Ives Chairman of the Board, December 16, 1998
____________________________________ Chief Executive Officer
J. Atwood Ives and Trustee
/s/ Fred C. Raskin President and Chief December 16, 1998
____________________________________ Operating Officer
Fred C. Raskin
/s/ Walter J. Flaherty Senior Vice President and December 16, 1998
____________________________________ Chief Financial Officer
Walter J. Flaherty
/s/ James J. Harper Vice President and December 16, 1998
____________________________________ Controller (chief
James J. Harper accounting officer)
/s/ James R. Baker Trustee December 16, 1998
____________________________________
James R. Baker
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Richard R. Clayton Trustee December 16, 1998
____________________________________
Richard R. Clayton
/s/ John D. Curtin, Jr. Trustee December 16, 1998
____________________________________
John D. Curtin, Jr.
/s/ Samuel Frankenheim Trustee December 16, 1998
____________________________________
Samuel Frankenheim
/s/ Leonard R. Jaskol Trustee December 16, 1998
__________________________________
Leonard R. Jaskol
/s/ Wendell J. Knox Trustee December 16, 1998
____________________________________
Wendell J. Knox
/s/ Rina K. Spence Trustee December 16, 1998
__________________________________
Rina K. Spence
/s/ David B. Stone Trustee December 16, 1998
____________________________________
David B. Stone
</TABLE>
II-6
<PAGE>
SCHEDULE II
EASTERN ENTERPRISES AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS DEDUCTIONS
------------------- --------------
BALANCE CHARGED TO CHARGED CHARGES FOR BALANCE
DECEMBER 31, COSTS AND TO OTHER WHICH RESERVES DECEMBER 31,
1996 EXPENSES ACCOUNTS WERE CREATED 1997
------------ ---------- -------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Reserves deducted from
assets:
Reserves for doubtful
accounts............. $ 17,301 $ 5,818 $ 167 $ (6,066) $ 17,220
======== ======= ===== ======== ========
Reserves for loss on
investments.......... $ 19 $ 0 $ 0 $ 0 $ 19
======== ======= ===== ======== ========
Reserves included in
liabilities:
Reserve for post-
retirement health
care................. $100,446 $ 4,578 $ 0 $ (6,642) $ 98,382
Reserve for coal
miners retiree health
care................. 77,308 0 0 (808) 76,500
Reserves for employee
benefits............. 24,624 9,690 907 (9,985) 25,236
Reserves for
environmental
expenses............. 26,809 0 122 (1,011) 25,920
Reserves for insurance
claims............... 12,838 7,348 (530) (6,485) 13,171
Other................. 17,680 6,304 41 (7,706) 16,319
-------- ------- ----- -------- --------
Total liability
reserves........... $259,705 $27,920 $ 540 $(32,637) $255,528
======== ======= ===== ======== ========
</TABLE>
<PAGE>
SCHEDULE II
EASTERN ENTERPRISES AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS DEDUCTIONS
------------------- --------------
BALANCE CHARGED TO CHARGED CHARGES FOR BALANCE
DECEMBER 31, COSTS AND TO OTHER WHICH RESERVES DECEMBER 31,
1995 EXPENSES ACCOUNTS WERE CREATED 1996
------------ ---------- -------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Reserves deducted from
assets:
Reserves for doubtful
accounts............. $ 16,604 $13,555 $ 164 $(13,022) $ 17,301
======== ======= ====== ======== ========
Reserves for loss on
investments.......... $ 19 $ 0 $ 0 $ 0 $ 19
======== ======= ====== ======== ========
Reserves included in
liabilities:
Reserve for post-
retirement health
care................. $102,387 $ 1,311 $3,725 $ (6,977) $100,446
Reserve for coal
miners retiree health
care................. 78,125 0 0 (817) 77,308
Reserves for employee
benefits............. 16,439 12,216 2,896 (6,927) 24,624
Reserves for
environmental
expenses............. 26,356 0 1,255 (802) 26,809
Reserves for insurance
claims............... 14,133 7,746 1,972 (11,013) 12,838
Other................. 18,537 5,212 (837) (5,232) 17,680
-------- ------- ------ -------- --------
Total liability
reserves........... $255,977 $26,485 $9,011 $(31,768) $259,705
======== ======= ====== ======== ========
</TABLE>
<PAGE>
SCHEDULE II
EASTERN ENTERPRISES AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS DEDUCTIONS
------------------- --------------
BALANCE CHARGED TO CHARGED CHARGES FOR BALANCE
DECEMBER 31, COSTS AND TO OTHER WHICH RESERVES DECEMBER 31,
1994 EXPENSES ACCOUNTS WERE CREATED 1995
------------ ---------- -------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Reserves deducted from
assets:
Reserves for doubtful
accounts............. $ 16,895 $15,190 $ 230 $(15,711) $ 16,604
======== ======= ======= ======== ========
Reserves for loss on
investments.......... $ 19 $ 0 $ 0 $ 0 $ 19
======== ======= ======= ======== ========
Reserves included in
liabilities:
Reserve for post-
retirement health
care................. $106,256 $ 1,150 $ 3,974 $ (8,993) $102,387
Reserve for coal
miners retiree health
care................. 68,693 10,000 0 (568) 78,125
Reserves for employee
benefits............. 12,453 11,039 169 (7,222) 16,439
Reserves for
environmental
expenses............. 9,850 15,350 1,920 (764) 26,356
Reserves for insurance
claims............... 9,890 8,978 5,876 (10,611) 14,133
Other................. 18,753 5,642 (1,008) (4,850) 18,537
-------- ------- ------- -------- --------
Total liability
reserves........... $225,895 $52,159 $10,931 $(33,008) $255,977
======== ======= ======= ======== ========
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER TITLE OF EXHIBIT
------ ----------------
<C> <S>
2.1 Agreement and Plan of Reorganization dated as of October 17, 1998,
between Eastern Enterprises and Colonial Gas Company (attached as
Annex A to the Joint Proxy Statement/Prospectus contained in this
Registration Statement). Pursuant to Item 601(b)(2) of Regulation S-K,
the schedules and exhibits referred to in the Agreement are omitted.
The Registrant hereby undertakes to furnish supplementally a copy of
any omitted schedule and exhibit to the Commission upon request.
4.1 Declaration of Trust of Eastern Enterprises, as amended, filed as
Exhibit 3.1 to the Eastern Enterprises Quarterly Report on Form 10-Q
for the quarter ended June 30, 1989, Commission File No. 1-2297,
incorporated by reference herein.
4.2 By-laws of Eastern Enterprises, as amended, filed as Exhibit 3.1 to the
Eastern Enterprises Quarterly Report on Form 10-Q for the quarter
ended June 30, 1992, Commission File No. 1-2297, incorporated by
reference herein.
4.3 Specimen copy of common stock certificate for Eastern Enterprises filed
as Exhibit A-1 to the Eastern Enterprises Form U-1 dated March 31,
1998, Commission File No. 070-09195, incorporated by reference herein.
4.4 Common Stock Rights Agreement between Eastern Enterprises and the Bank
of New York dated as of February 22, 1990, filed as Exhibit 1 to the
Eastern Enterprises Current Report on Form 8-K dated March 1, 1990,
Commission File No. 1-2297, incorporated by reference herein.
4.4.1 Agreement between Eastern and the First National Bank of Boston dated
January 30, 1995, filed as Exhibit 4.1.1. to the Eastern Enterprises
Annual Report on Form 10-K for the year ended December 31, 1994,
Commission File No. 1-2297, incorporated by reference herein.
4.4.2 Amendment No. 2 to Common Stock Rights Agreement between Eastern
Enterprises and BankBoston, N.A. dated as of July 22, 1998, filed as
Exhibit 99.1 to the Eastern Enterprises Current Report on Form 8-K
dated July 29, 1998, Commission File No. 1-2297, incorporated by
reference herein.
4.5 Rights Agreement between Eastern Enterprises and BankBoston, N.A. dated
as of July 22, 1998, filed as Exhibit 99.2 to the Eastern Enterprises
Current Report on Form 8-K dated July 29, 1998, Commission File No. 1-
2297, incorporated by reference herein.
5.1 Opinion of Ropes & Gray as to the legality of the shares being issued.
8.1 Opinion of Ropes & Gray as to certain tax matters.
8.2 Opinion of Palmer & Dodge LLP as to certain tax matters.
12.1 Statement re: computation of ratio of earnings to fixed charges.
23.1 Consent of Salomon Smith Barney Inc.
23.2 Consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated.
23.3 Consent of Ropes & Gray (included in Exhibits 5.1 and 8.1).
23.4 Consent of Palmer & Dodge LLP (included in Exhibit 8.2).
23.5 Consent of Arthur Andersen LLP with respect to the Registrant.
23.6 Consent of Grant Thornton LLP with respect to Colonial Gas Company.
24.1 Power of Attorney (included on signature page).
99.1 Form of proxy card to be used in soliciting Eastern Enterprises
shareholders.
99.2 Form of proxy card to be used in soliciting Colonial Gas Company
stockholders.
99.3 Form of proxy card to be used by participants in Colonial's Employee
Savings Plan.
</TABLE>
<PAGE>
EXHIBIT 5.1
[ROPES & GRAY LETTERHEAD]
December 16, 1998
Eastern Enterprises
9 Riverside Road
Weston, MA 02493
Re: Eastern Enterprises
Ladies and Gentlemen:
This opinion is furnished to you in connection with a registration statement
on Form S-4 (the "Registration Statement"), filed with the Securities and
Exchange Commission under the Securities Act of 1933, as amended, by Eastern
Enterprises, a Massachusetts business trust (the "Company"), for registration
of certain shares of Common Stock, $1.00 par value (the "Shares"), of the
Company to be issued pursuant to an Agreement and Plan of Reorganization dated
as of October 17, 1998 (the "Merger Agreement"), by and between the Company and
Colonial Gas Company, a Massachusetts gas utility company.
We have acted as counsel for the Company in connection with the Merger
Agreement and the proposed issuance of the Shares thereunder. For purposes of
this opinion, we have examined and relied upon such documents, records,
certificates and other instruments as we have deemed necessary.
We express no opinion as to the applicability of, compliance with or effect
of Federal law or the law of any jurisdiction other than The Commonwealth of
Massachusetts.
Based on the foregoing, we are of the opinion that the Shares have been duly
authorized and, when the Shares have been issued and delivered in accordance
with the terms of the Merger Agreement, the Shares will be validly issued,
fully paid and non-assessable.
We hereby consent to your filing this opinion as an exhibit to the
Registration Statement.
It is understood that this opinion is to be used only in connection with the
Registration Statement while it is in effect and may not be relied upon for any
other purpose.
Very truly yours,
/s/ Ropes & Gray
Ropes & Gray
<PAGE>
EXHIBIT 8.1
[ROPES & GRAY LETTERHEAD]
December 16, 1998
Eastern Enterprises
9 Riverside Road
Weston, MA 02493
Ladies and Gentlemen:
We have acted as counsel to Eastern Enterprises, a Massachusetts business
trust ("Eastern"), in connection with the proposed merger (the "Merger") of
Colonial Gas Company, a Massachusetts corporation ("Colonial"), with and into a
wholly owned subsidiary of Eastern ("Merger Sub") pursuant to an Agreement and
Plan of Reorganization (the "Merger Agreement") dated as of October 17, 1998 by
and between Eastern and Colonial. The Merger is described in the Registration
Statement on Form S-4 (the "Registration Statement") of which this exhibit is a
part. This opinion is being rendered pursuant to the requirements of Item 21(a)
of Form S-4 under the Securities Act of 1933, as amended. All capitalized terms
used but not defined herein have the meanings ascribed to them in the Merger
Agreement.
For purposes of the opinion set forth below, we have reviewed and relied upon
(i) the Merger Agreement, (ii) the Joint Proxy Statement and Prospectus (the
"Proxy Statement") included in the Registration Statement, (iii) the tax
representation letters delivered by Eastern and Colonial to us in connection
with this opinion, and (iv) such other documents, records and instruments as we
have deemed necessary or appropriate as a basis for our opinion. We have
assumed without investigation or verification that all statements contained in
the foregoing documents are true, correct and complete as of the date hereof
and will remain true, correct and complete through the Effective Time; that no
actions inconsistent with such statements have occurred or will occur; that all
such statements made "to the best of the knowledge of" any persons or parties,
or similarly qualified, are true, correct and complete as if made without such
qualification; and, as to all matters in which a person or entity making a
representation has represented that such person or entity either is not a party
to, does not have, or is not aware of, any plan or intention, understanding or
agreement, we have assumed that there is in fact no such plan, intention,
understanding or agreement.
We also have assumed that (i) the Merger will be consummated in accordance
with the Merger Agreement (including satisfaction of all covenants and
conditions to the obligations of the parties without amendment or waiver
thereof); (ii) all representations and warranties contained in the Merger
Agreement are true, correct and complete in all respects; (iii) the Merger will
be effective as a merger under the applicable laws of Massachusetts; and (iv)
each of Eastern, Colonial and Merger Sub will comply with all reporting
obligations with respect to the Merger required under the Internal Revenue Code
(the "Code") and the Treasury regulations promulgated thereunder.
Any inaccuracy in, or breach of, any of the aforementioned statements,
representations and assumptions and any change in applicable law after the date
hereof could adversely affect our opinion. No ruling has been sought from the
Internal Revenue Service by Eastern or Colonial as to the federal income tax
consequences of any aspect of the Merger, and the Internal Revenue Service is
not bound by our opinion herein.
Based upon and subject to the foregoing, the discussion contained in the
Proxy Statement under the heading "THE MERGER--Certain Federal Income Tax
Consequences," subject to the limitations and qualifications described therein,
fairly and accurately represents our opinion as to the material federal income
tax consequences of the Merger.
<PAGE>
No opinion is expressed as to any matter not specifically addressed above,
including the tax consequences of any of the transactions under any foreign,
state, or local tax law or the tax consequences of any other transactions
contemplated or entered into by Eastern, Colonial or Merger Sub in connection
with the transactions described above. Our opinion is based on current federal
income tax law and we do not undertake to advise you as to any changes in
federal income tax law after the date hereof that may affect our opinion.
This opinion is solely for your benefit, shall not inure to the benefit of
any other person, including without limitation any successor or assign of
Eastern, whether by operation of law or otherwise, and is not to be used,
circulated, quoted or otherwise referred to for any purpose without our express
written permission.
We hereby consent to the use of our name under the caption "Federal Income
Tax Consequences" in the Registration Statement and to the filing with the
Securities and Exchange Commission of this opinion as an exhibit to the
Registration Statement on Form S-4 filed by Eastern in connection with the
Merger.
Very truly yours,
/s/ Ropes & Gray
Ropes & Gray
<PAGE>
EXHIBIT 8.2
PALMER & DODGE LLP
One Beacon Street, Boston, MA 02108-3190
Telephone: (617) 573-0100 Facsimile: (617) 227-4420
December 16, 1998
Colonial Gas Company
40 Market Street
Lowell, Massachusetts 01852
Ladies and Gentlemen:
We have acted as counsel to Colonial Gas Company ("Colonial"), a
Massachusetts corporation, in connection with the proposed merger (the
"Merger") of Colonial with and into a wholly owned subsidiary of Eastern
Enterprises ("Eastern"), a Massachusetts business trust, pursuant to an
Agreement and Plan of Reorganization (the "Merger Agreement"), dated as of
October 17, 1998, by and among Eastern and Colonial. The Merger is described in
the Registration Statement on Form S-4 (the "Registration Statement") of which
this exhibit is a part. This opinion is being rendered pursuant to the
requirements of Item 21(a) of Form S-4 under the Securities Act of 1933, as
amended. Capitalized terms not defined herein have the meanings set forth in
the Merger Agreement and the documents related thereto. All section references,
unless otherwise indicated, are to the United States Internal Revenue Code of
1986, as amended (the "Code").
In preparing this opinion, we have examined and relied upon (i) the Merger
Agreement, (ii) the Joint Proxy Statement/Prospectus (the "Proxy Statement")
included in the Registration Statement (iii) the tax representation letters
delivered to us by Eastern and Colonial in connection with this opinion (the
"Representation Letters"), and (iv) such other documents as we have deemed
necessary or appropriate in order to enable us to render this opinion. In our
examination of documents, we have assumed the authenticity of original
documents, the accuracy of copies, the genuineness of signatures, and the legal
capacity of signatories.
In rendering this opinion, we have assumed without investigation or
verification that the facts relating to the Merger as described in the Proxy
Statement are true, correct and complete in all material respects; that all
representations and warranties contained in the Proxy Statement, the Merger
Agreement and the Representation Letters are, at the time they are made, and
will remain at all times through the Effective Time, true, correct and complete
and may be relied upon by us at the time they are made and at all times through
the Effective Time; that any representation in any of the documents referred to
herein that is made "to the best of the knowledge and belief" (or similar
qualification) of any person or party are true, correct and complete without
such qualification; and that, as to all matters for which a person or entity
has represented that such person or entity is not a party to, does not have, or
is not aware of, any plan, intention, understanding or agreement, there is no
such plan, intention, understanding or agreement. We have further assumed that
all parties to the Merger Agreement and to any other documents examined by us
have acted, and will act, in accordance with the terms of such Merger Agreement
and documents; that the Merger will be consummated at the Effective Time
pursuant to the terms and conditions set forth in the Merger Agreement
(including all covenants and conditions contained therein) without the waiver
or modification of any such terms and conditions; that the Merger will be
effective as a merger under the applicable laws of Massachusetts; and that
Eastern, Merger Sub and Colonial each will comply with all reporting
obligations required under the Code and Treasury Regulations with respect to
the Merger. Any inaccuracy in, or breach of, any of the aforementioned
statements, representations or assumptions could adversely affect our opinion.
Our opinion is based on existing provisions of the Code, Treasury
Regulations, judicial decisions, and rulings and other pronouncements of the
Internal Revenue Service (the "IRS") as in effect on the date of this
<PAGE>
opinion, all of which are subject to change (possibly with retroactive effect)
or reinterpretation. No assurances can be given that a change in the law on
which our opinion is based or the interpretation thereof will not occur or that
such change will not affect the opinion expressed herein. We undertake no
responsibility to advise you of any such developments in the law after the
Effective Time.
No ruling has been or will be sought from the IRS by Eastern, Colonial or
Merger Sub as to the federal income tax consequences of any aspect of the
Merger, and our opinion is not binding upon either the IRS or any court. Thus,
no assurances can be given that a position taken in reliance on our opinion
will not be challenged by the IRS or rejected by a court.
Based upon and subject to the foregoing, the discussion contained in the
Proxy Statement under the heading "Certain Federal Income Tax Consequences,"
subject to the limitations and qualifications described therein, fairly and
accurately represents our opinion as to the material United States federal
income tax consequences of the Merger.
Our opinion addresses only the specific United States federal income tax
consequences of the Merger set forth herein, and does not address any other
federal, state, local, or foreign income, estate, gift, transfer, sales, use or
other tax consequences that may result from the Merger or any other transaction
(including any transaction undertaken in connection with the Merger).
This opinion is being provided to you solely for use in connection with the
Registration Statement, and this opinion letter may not be used, circulated,
quoted, or otherwise referred to for any other purpose. We hereby consent to
the use of our name under the caption "Certain Federal Income Tax Consequences"
in the Registration Statement and to the filing of this opinion as an exhibit
to the Registration Statement.
Very truly yours,
/s/ Palmer & Dodge LLP
<PAGE>
EXHIBIT 12.1
EASTERN ENTERPRISES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER
YEAR ENDED DECEMBER 31, 30,
----------------------------------------------- ----------------
1997 1996 1995 1994 1993 1998 1997
-------- -------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Pretax earnings......... $ 82,870 $102,249 $ 89,805 $ 68,520 $48,979 $60,420 $55,720
Less: Capitalized
interest............... (636) (570) (591) (969) (1,211) (315) (414)
Plus: Fixed charges..... 44,408 44,868 49,158 48,694 44,847 29,358 33,410
-------- -------- -------- -------- ------- ------- -------
Adjusted earnings..... $126,642 $146,547 $138,372 $116,245 $92,615 $89,463 $88,716
Fixed charges:
Interest reported..... $ 37,411 $ 37,290 $ 41,273 $ 41,001 $37,741 $24,495 $27,814
Interest capitalized.. 636 570 591 969 1,211 315 414
Fuel clause interest.. 2,452 2,120 2,480 2,061 1,532 1,576 1,813
Interest element of
lease rental payments
( 1/3)............... 3,909 4,888 4,814 4,663 4,363 2,972 3,369
-------- -------- -------- -------- ------- ------- -------
$ 44,408 $ 44,868 $ 49,158 $ 48,694 $44,847 $29,358 $33,410
Fixed charge
coverage............. 2.9 3.3 2.8 2.4 2.1 3.0 2.7
</TABLE>
<PAGE>
EXHIBIT 23.1
[SALOMON SMITH BARNEY LETTERHEAD]
CONSENT OF SALOMON SMITH BARNEY INC.
We hereby consent to the use in the Registration Statement of Eastern
Enterprises on Form S-4, and in the related Joint Proxy Statement of Eastern
Enterprises/Colonial Gas Company, of our opinion dated October 17, 1998
appearing as Annex C to such Joint Proxy Statement/Prospectus, and to the
description therein of such opinion and to the references therein to us under
the headings "SUMMARY--The Colonial Special Meeting--Fairness Opinion of
Colonial's Financial Advisor" and "THE MERGER--Opinion of Colonial's Financial
Advisor." In giving the foregoing consent, we do not admit that we come within
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended (the "Securities Act"), or the rules and
regulations promulgated thereunder, nor do we admit that we are experts with
respect to any part of such Registration Statement within the meaning of the
term "experts" as used in the Securities Act or the rules and regulations
promulgated thereunder.
/s/ Salomon Smith Barney Inc.
New York, New York
December 16, 1998
<PAGE>
EXHIBIT 23.2
[MERRILL LYNCH LETTERHEAD]
CONSENT OF MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
We hereby consent to the use of our opinion letter dated October 17, 1998 to
the Board of Trustees of Eastern Enterprises included as Annex B to the Joint
Proxy Statement/Prospectus which forms a part of the Registration Statement on
Form S-4 relating to the proposed merger of Colonial Gas Company with and into
a wholly-owned subsidiary of Eastern Enterprises, and to the references to such
opinion in such Joint Proxy Statement/Prospectus under the captions "SUMMARY"
and "THE MERGER." In giving such consent, we do not admit that we come within
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission promulgated thereunder, nor do we thereby
admit that we are experts with respect to any part of such Registration
Statement within the meaning of the term "experts" as used in the Securities
Act of 1933, as amended, or the rules and regulations of the Securities and
Exchange Commission promulgated thereunder.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
/s/ Laurel A. Coben
By: _________________________________
Name: Laurel A. Coben
Title: Managing Director
New York, New York
December 16, 1998
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Registration Statement of our reports dated October 1, 1998
(except with respect to the matter discussed in Note 3 to the financial
statements, as to which the date is October 17, 1998) included in Eastern
Enterprises' Current Report on Form 8-K dated November 23, 1998, and to all
references to our Firm included in this Registration Statement.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Boston, Massachusetts
December 16, 1998
<PAGE>
EXHIBIT 23.6
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have issued our reports dated January 14, 1998, accompanying the
consolidated financial statements and schedule incorporated by reference and
included in the Annual Report of Colonial Gas Company and subsidiaries on Form
10-K for the year ended December 31, 1997. We hereby consent to the
incorporation by reference of said reports in the Registration Statement and
Joint Proxy Statement/Prospectus on Form S-4, and to the use of our name as it
appears under the caption "Experts."
Grant Thornton LLP
/s/ Grant Thornton LLP
Boston, Massachusetts
December 16, 1998
<PAGE>
EXHIBIT 99.1
[FORM OF FRONT OF PROXY CARD]
DETACH HERE
PROXY CARD
PROXY CARD [EASTERN ENTERPRISES LOGO]
THIS PROXY IS SOLICITED ON BEHALF OF THE EASTERN ENTERPRISES BOARD OF
TRUSTEES FOR THE SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON FEBRUARY ,
1999
The undersigned appoints J. Atwood Ives and Fred C. Raskin, or either of them
(the "Proxy Holders") proxies for the undersigned, each with full power of
substitution and revocation, to attend the special meeting (the "Special
Meeting") of Shareholders of Eastern Enterprises ("Eastern"), to be held on
, February , 1999 at 10:00 a.m., Eastern Standard Time, at the offices
of Ropes & Gray at One International Place, 36th Floor, Boston, Massachusetts,
or at any adjournments or postponements of the Special Meeting, and to vote as
specified in this Proxy all the shares of Eastern Common Stock which the
undersigned would be entitled to vote if personally present.
THE MATTERS REFERRED TO ON THE REVERSE SIDE ARE MORE FULLY DESCRIBED IN THE
NOTICE OF AND PROXY STATEMENT FOR THE SPECIAL MEETING, RECEIPT OF WHICH IS
HEREBY ACKNOWLEDGED. THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS VOTE
FOR THE APPROVAL OF THE PROPOSED STOCK ISSUANCE.
YOUR VOTE IS IMPORTANT!
PLEASE MARK, SIGN, AND DATE
THIS PROXY ON THE REVERSE
SIDE AND RETURN IT PROMPTLY
IN THE ACCOMPANYING
ENVELOPE.
<TABLE>
<C> <S> <C>
SEE REVERSE SIDE (CONTINUED AND TO BE SIGNED SEE REVERSE SIDE
ON REVERSE SIDE)
</TABLE>
<PAGE>
[FORM OF REVERSE OF PROXY CARD]
[EASTERN ENTERPRISES LOGO]
DETACH HERE
[X] Please mark vote as in this example.
THE BOARD OF TRUSTEES RECOMMENDS A VOTE FOR APPROVAL OF THE STOCK ISSUANCE
PROPOSAL.
This Proxy when properly executed will be voted in accordance with your
indicated directions. If no direction is made, this Proxy will be voted FOR the
following proposal.
FOR AGAINST ABSTAIN
1.APPROVAL OF STOCK ISSUANCE PROPOSAL: [_] [_] [_]
Approval of the issuance of common stock
pursuant to the Agreement and Plan of
Reorganization, dated as of October 17,
1998, between Colonial Gas Company and
Eastern Enterprises.
In their discretion, the Proxy Holders are authorized to vote upon any other
business that may properly come before the meeting.
You must return your completed proxy card before the Special Meeting in order
for your vote to be counted.
MARK HERE IF YOU PLAN TO ATTEND THE MEETING [_]
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [_]
NOTE: Please sign name exactly as your name(s) appears. If shares are held
jointly, both holders should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by president or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
Signature ___________________________
Date ________________________________
Signature ___________________________ Date ________________________________
<PAGE>
EXHIBIT 99.2
[PROXY CARD]
COLONIAL GAS COMPANY
THIS PROXY IS SOLICITED ON BEHALF OF THE
DIRECTORS FOR THE FEBRUARY , 1999 SPECIAL MEETING
The undersigned stockholder of Colonial Gas Company (the "Company") hereby
appoints Carol E. Elden and Dennis W. Carroll (each with power to act without
the other and with power of substitution) proxies to represent the undersigned
at the special meeting of Stockholders of the Company to be held on ,
February , 1999 at 11:00 a.m. Eastern Standard Time, at BankBoston, 100
Federal Street, Boston, Massachusetts, and at any adjournment thereof, with
all the power the undersigned would possess if personally present, and to
vote, as designated below, all shares of Common Stock of the company which the
undersigned may be entitled to vote at said Meeting, hereby revoking any proxy
heretofore given. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON
SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
The matters referred to on the reverse side are more fully described in the
Notice of and Joint Proxy Statement/Prospectus for the Special Meeting,
receipt of which is hereby acknowledged. THE DIRECTORS UNANIMOUSLY RECOMMEND
THAT STOCKHOLDERS VOTE FOR THE APPROVAL OF THE PROPOSED MERGER AGREEMENT WITH
EASTERN ENTERPRISES. The Shares represented by this proxy will be voted in
accordance with the specification made on the reverse side. If no
specification is made, the proxy will be voted in accordance with the
Directors' recommendations.
[IMPORTANT -- TO BE SIGNED AND DATED ON REVERSE SIDE]
<PAGE>
[FORM OF REVERSE OF PROXY CARD]
The Board of Directors recommends a vote FOR approval of the Agreement and Plan
of Reorganization, dated as of October 17, 1998, between Colonial Gas Company
and Eastern Enterprises (the "Merger Agreement").
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C> <C> <C>
1.Approval of Merger Agreement. [_] [_] [_]
</TABLE>
2. To transact such other business as may properly come before the meeting
or any adjournment thereof.
MARK HERE MARK HERE
FOR ADDRESS IF YOU PLAN
CHANGE AND TO ATTEND
NOTE AT LEFT [_] THE MEETING [_]
NOTE: Please sign name exactly as your name(s) appears. If shares are held
jointly, both holders should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by president or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
Signature ___________________________ Date ________________________________
Signature ___________________________ Date ________________________________
<PAGE>
EXHIBIT 99.3
[PROXY CARD]
COLONIAL GAS COMPANY
THIS PROXY IS SOLICITED ON BEHALF OF THE
DIRECTORS FOR THE FEBRUARY , 1999 SPECIAL MEETING
The undersigned stockholder of Colonial Gas Company (the "Company") hereby
appoints Carol E. Elden and Dennis W. Carroll (each with power to act without
the other and with power of substitution) proxies to represent the undersigned
at the special meeting of Stockholders of the Company to be held on ,
February , 1999 at 11:00 a.m. Eastern Standard Time, at BankBoston, 100
Federal Street, Boston Massachusetts, and at any adjournment thereof, with all
the power the undersigned would possess if personally present, and to vote, as
designated below, all shares of Common Stock of the company which the
undersigned may be entitled to vote at said Meeting, hereby revoking any proxy
heretofore given. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON
SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
The matters referred to on the reverse side are more fully described in the
Notice of and Joint Proxy Statement/Prospectus for the Special Meeting,
receipt of which is hereby acknowledged. THE DIRECTORS UNANIMOUSLY RECOMMEND
THAT STOCKHOLDERS VOTE FOR THE APPROVAL OF THE PROPOSED MERGER AGREEMENT WITH
EASTERN ENTERPRISES. The Shares represented by this proxy will be voted in
accordance with the specification made on the reverse side. If no
specification is made, the proxy will be voted in accordance with the
Directors' recommendations.
[IMPORTANT--TO BE SIGNED AND DATED ON REVERSE SIDE]
<PAGE>
[FORM OF REVERSE OF PROXY CARD]
The Board of Directors recommends a vote FOR approval of the Agreement and Plan
of Reorganization, dated as of October 17, 1998, between Colonial Gas Company
and Eastern Enterprises (the "Merger Agreement").
<TABLE>
<S> <C> <C> <C> <C>
FOR AGAINST ABSTAIN
1.Approval of Merger Agreement. [_] [_] [_]
</TABLE>
2. To transact such other business as may properly come before the meeting
or any adjournment thereof.
MARK HERE MARK HERE
FOR ADDRESS IF YOU PLAN
CHANGE AND TO ATTEND
NOTE AT LEFT [_] THE MEETING [_]
NOTE: Please sign name exactly as your name(s) appears. If shares are held
jointly, both holders should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by president or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
Signature ___________________________ Date ________________________________
Signature ___________________________ Date ________________________________
