(As filed January 5, 2000)
File No. 70-[____]
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM U-1
APPLICATION/DECLARATION
under
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
EASTERN ENTERPRISES
9 Riverside Road
Weston, Massachusetts 02493
ENERGYNORTH, INC.
1260 Elm Street
P.O Box 329
Manchester, New Hampshire 03105
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(Names of companies filing this statement and
addresses of principal executive offices)
NONE.
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(Name of top registered holding company parent of each applicant or declarant)
L. William Law, Jr., Esq. Michelle L. Chicoine
Senior Vice President and General Counsel Executive Vice President
Eastern Enterprises EnergyNorth, Inc.
9 Riverside Road 1260 Elm Street
Weston, Massachusetts 02493 Manchester, New Hampshire 03101
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(Names and addresses of agents for service)
The Commission is requested to send copies of all notices, orders and
other communications to:
Andrew F. MacDonald, Esq. Richard A. Samuels, Esq.
Thelen Reid & Priest LLP McLane, Graf, Raulerson &
701 Pennsylvania Ave., N.W. Middleton P.A.
Washington, D.C. 20004 900 Elm Street
P.O. Box 326
Manchester, New Hampshire 03105
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TABLE OF CONTENTS
Item 1. DESCRIPTION OF PROPOSED TRANSACTION.................................1
1.1 INTRODUCTION........................................................1
1.2 PROPOSED ACQUISITION OF ENERGYNORTH.................................1
1.3 OTHER RELATED TRANSACTION...........................................2
1.4 DESCRIPTION OF EASTERN AND ENERGYNORTH AND
THEIR RESPECTIVE SUBSIDIARIES.......................................3
a. Eastern Enterprises.................................................3
b. EnergyNorth.........................................................6
1.5. PRINCIPAL TERMS OF THE AMENDED MERGER AGREEMENT.....................8
ITEM 2. FEES, COMMISSIONS AND EXPENSES.....................................11
ITEM 3. APPLICABLE STATUTORY PROVISIONS....................................11
3.1. COMPLIANCE WITH SECTION10..........................................11
a. The Acquisition is Lawful Under Section 8 of the Act and
Is Not Detrimental to the Carrying Out of the Provisions
of Section 11......................................................12
b. The Acquisition Will Serve the Public Interest by Tending
Toward the Economical and Efficient Development of an
Integrated Public-Utility System...................................12
c. The Merger's Compliance with Relevant New Hampshire Law............14
d. The Acquisition Will Not Tend Toward Any Interlocking
Relations or Undue Concentration of Control of
Public-Utility Companies...........................................15
e. The Consideration To Be Paid Is Reasonable and Bears
a Fair Relation to the Value of the Utility Assets
Underlying the Securities To Be Acquired...........................16
f. The Acquisition Will Not Unduly Complicate the
Capital Structure of Eastern's Holding-Company System and
Will Not Be Detrimental to the Public Interest, the
Interest of Investors or Consumers, or the Proper
Functioning of the Holding-Company System..........................17
3.2 EXEMPTION UNDER SECTION 3(A)(1)....................................17
a. Eastern Will Not Derive a Material Part of Its
income from ENGI...................................................18
b. After the Acquisition of EnergyNorth, Eastern and its
Utility Subsidiaries Will Remain "Predominantly Intrastate
In Character and Carry On Their Business Substantially
in Massachusetts...................................................21
ITEM 4. REGULATORY APPROVAL................................................22
ITEM 5. PROCEDURE..........................................................22
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS..................................23
a. Exhibits...........................................................23
b. Financial Statements...............................................24
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS............................25
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ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION
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1.1 Introduction. Eastern Enterprises ("Eastern"), an exempt holding
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company pursuant to Section 3(a)(1) the Public Utility Holding Company Act of
1935 (the "Act"),1 herein requests authorization pursuant to Sections 9(a)(2)
and 10 of the Act to acquire all the issued and outstanding common stock of
EnergyNorth, Inc. ("EnergyNorth"), also an exempt holding company pursuant to
Section 3(a)(1).2 Eastern also requests that the Commission issue an order under
Section 3(a)(1) of the Act confirming that Eastern and its subsidiary companies,
as such, as well as EnergyNorth in its capacity as a holding company, will
continue to qualify for an exemption under Section 3(a)(1) following the
proposed transaction.
Eastern is a Massachusetts voluntary association. 3 It currently owns
all of the issued and outstanding common stock of three gas utility companies:
Boston Gas Company ("Boston Gas"), Essex Gas Company ("Essex Gas"), and Colonial
Gas Company ("Colonial Gas"). Each of these companies is organized under the
laws of the Commonwealth of Massachusetts and operates as a gas utility company
exclusively within Massachusetts. EnergyNorth, a New Hampshire corporation, owns
all of the issued and outstanding common stock of one gas utility company:
EnergyNorth Natural Gas, Inc. ("ENGI"). ENGI, a New Hampshire corporation,
operates as a gas utility company exclusively within New Hampshire.
1.2 Proposed Acquisition of EnergyNorth. Eastern and EnergyNorth have
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entered into an Agreement and Plan of Reorganization ("Merger Agreement"), dated
as of July 14, 1999, as amended by Amendment No. 1 thereto, dated as of November
4, 1999, pursuant to which Eastern has agreed to acquire EnergyNorth through a
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1 See Eastern Enterprises, et al., Holding Co. Act Release No. 27059
(August 12, 1999).
2 EnergyNorth claims an exemption pursuant to Rule 2, 17 C.F.R.
ss.250.2. See File No. 69-273.
3 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.
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merger (the "Merger") of EnergyNorth with a newly-organized subsidiary of
Eastern ("Merger Sub") formed specifically for that purpose. Following the
Merger, Eastern will own all the outstanding common stock of EnergyNorth and
ENGI will remain a wholly-owned subsidiary of EnergyNorth. The Merger is subject
to, among other conditions precedent, approval by the shareholders of
EnergyNorth, approvals of this Commission and the New Hampshire Public Utilities
Commission ("NHPUC"), and filing of pre-merger notification statements with the
Department of Justice and Federal Trade Commission pursuant to the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended ("H-S-R Act"),
and the expiration or early termination of the required waiting periods
thereunder.
The Merger Agreement and Amendment No. 1 thereto are incorporated by
reference as Exhibits B-1 and B-2, respectively, hereto. A copy of the
Registration Statement on Form S-4 to be filed by Eastern, which includes the
proxy statement of EnergyNorth (the "Proxy Statement") to be used in connection
with the annual meeting of EnergyNorth's stockholders, will be incorporated by
reference as Exhibit C hereto.
1.3 Other Related Transaction. On November 4, 1999, subsequent to
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entering into the Merger Agreement with EnergyNorth, Eastern, KeySpan
Corporation ("KeySpan"), an exempt holding company pursuant to Section 3(a)(1)
of the Act,4 and ACJ Acquisition LLC, a wholly-owned subsidiary of KeySpan,
entered into an Agreement and Plan of Merger ("KeySpan Merger Agreement"),
pursuant to which KeySpan has agreed to acquire all of the issued and
outstanding common stock of Eastern in an all-cash transaction (the "KeySpan
Merger").5 Concurrently, Eastern and EnergyNorth entered into Amendment No. 1 to
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4 See BL Holding Corp., Holding Co. Act Release No. 26875 (May 15, 1998).
5 See Current Report on Form 8-K of Eastern Enterprises, dated
November 8, 1999, in File No. 1-2297, and Current Report on Form 8-K
of KeySpan Corporation, dated November 4, 1999, in File No. 1-14161.
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the Merger Agreement (as so amended, the "Amended Merger Agreement"). As
explained in Item 1.5, below, under the Amended Merger Agreement, the
consideration to be paid by Eastern for the shares of EnergyNorth's common stock
will vary depending upon whether the KeySpan Merger Agreement is terminated for
any reason prior to the Effective Time (as defined in the Amended Merger
Agreement).
The indirect acquisition of ENGI by KeySpan as a result of the KeySpan
Merger is subject to, among other conditions, receipt of regulatory approvals by
the NHPUC and this Commission. KeySpan intends to file a separate application
under the Act for approval of the KeySpan Merger, and has stated that, following
its acquisition of Eastern, it intends to register as a holding company pursuant
to Section 5 of the Act.
The obligation of Eastern under the Amended Merger Agreement to acquire
EnergyNorth is not conditioned upon KeySpan's acquisition of Eastern, although
the Amended Merger Agreement contemplates that the Merger will close
contemporaneously with the KeySpan Merger. If closing on the KeySpan Merger is
delayed beyond March 31, 2001, EnergyNorth would have the option to terminate
the Merger Agreement or to extend the closing date to be coterminous with the
closing of the KeySpan Merger.
1.4 Description of Eastern and EnergyNorth and Their Respective
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Subsidiaries.
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a. Eastern Enterprises. Eastern conducts all of its business
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through its operating subsidiaries. As indicated above, its gas utility
subsidiaries are:
o Boston Gas Company, which makes bundles sales and transports
natural gas to approximately 535,000 customers in Boston and 73
other cities and towns throughout eastern and central
Massachusetts. Boston Gas has been wholly-owned by Eastern
since 1929 and has been in the gas business for 177 years,
making it the second oldest gas company in the United States.
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o Essex Gas Company, a regulated utility which distributes
natural gas to approximately 44,000 customers in 17 cities and
towns in an area of eastern Massachusetts that is contiguous to
Boston Gas's service territory. Essex Gas has been in business
for 146 years and was purchased by Eastern in September 1998.6
o Colonial Gas Company, a regulated utility that distributes
natural gas to approximately 155,000 customers in 24
communities located in northeastern Massachusetts (contiguous
to Boston Gas's service territory) and on Cape Cod. Colonial
Gas has been in business for 150 years. Eastern completed its
acquisition of Colonial Gas on August 31, 1999.
The facilities of Boston Gas, Essex Gas and Colonial Gas together
include approximately 10,900 miles of mains and 610,000 service connections, all
in Massachusetts, and liquefied natural gas (LNG) storage facilities located in
Dorchester, Lynn, Salem, Haverhill, Tewksbury and South Yarmouth, Massachusetts.
In 1998, the three companies delivered a total of 165 billion cubic feet ("Bcf")
of gas, including gas sold on a "bundled" basis to retail customers and gas
delivered to transportation-only customers. Most of the gas delivered on the
Eastern system is derived from sources outside of New England, primarily the
producing areas of Texas and Louisiana. Gas is delivered to the Eastern system
by interstate pipelines pursuant to long-term contracts at rates approved by the
Federal Energy Regulatory Commission ("FERC"). The Eastern companies currently
have firm transportation agreements with Tennessee Gas Pipeline Company
("Tennessee"), Texas Eastern Transmission Corp. ("Texas Eastern"), Algonquin Gas
Transmission Company ("Algonquin") and several other upstream interstate
pipelines. Boston Gas, Essex Gas and Colonial Gas are subject to regulation by
the Massachusetts Department of Telecommunications and Energy ("MDTE") as to
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6 See Eastern Enterprises, Holding Co. Act Release No. 26923
(September 30, 1998).
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retail rates, transportation rates, affiliate transactions, securities issuances
and other matters.
Eastern's principal non-utility subsidiaries are:
o Midland Enterprises Inc. ("Midland"), which is primarily
engaged, through wholly-owned subsidiaries, in the operation of
a fleet of towboats, tugboats and barges, principally on the
Ohio River and Mississippi River and their tributaries, the
Gulf Intracoastal Waterway and the Gulf of Mexico. Midland has
been operating on the nation's inland waterways since 1925 and
transports dry bulk commodities, a major portion of which is
coal. Through other subsidiaries, Midland also performs repair
work on marine equipment, operates coal dumping terminals and a
phosphate chemical fertilizer terminal, and provides refueling
and barge fleeting services.
o Transgas Inc., an unregulated energy trucking company, which
provides over-the-road transportation of liquefied natural gas,
propane and other commodities. Transgas is the nation's largest
over-the-road transporter of liquefied natural gas.
o ServicEdge Partners, Inc., which offers heating, ventilation
and air conditioning services, primarily to residential
customers in eastern Massachusetts.
For the year ended December 31, 1998, Eastern reported gross revenues
of $935,264,000, of which $667,106,000 (or approximately 71%) were derived from
regulated sales of gas and gas transportation, operating earnings of
$100,405,000, and earnings before extraordinary items of $50,828,000. At
December 31, 1998, Eastern had consolidated assets of $1,518,370,000, including
net property and equipment of $975,749,000. On an unaudited adjusted basis, to
take into account financial results of Colonial Gas, which Eastern acquired in
August 1999, Eastern would have had $1,118,357,000 in gross revenues, including
$835,000,000, or 75% of the total, from regulated gas sales and gas
transportation. At September 30, 1999, Eastern had adjusted combined total
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assets of $1,908,495,000, including adjusted net property and equipment of
$1,269,101,000.7 At December 17, 1999, Eastern had issued and outstanding
27,110,234 shares of common stock, par value $1.00 per share. Eastern's shares
are listed for trading on the New York, Boston and Pacific Stock Exchanges.
b. EnergyNorth. EnergyNorth, a New Hampshire corporation, was
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incorporated in 1982. Its predominant subsidiary, ENGI, distributes natural gas
to approximately 72,000 residential, commercial and industrial customers in 27
cities and towns in southern and central New Hampshire, including Nashua,
Manchester, Concord and Laconia. This area encompasses approximately 922 square
miles and has a total population of approximately 470,000. ENGI's service area
in southern and central New Hampshire is contiguous to Colonial Gas's service
area in Massachusetts and is within 30 to 85 miles of the greater Boston area.
ENGI owns approximately 1,113 miles of distribution mains and 702 miles of
service connections in this area. In September1999, ENGI was awarded the
franchise to serve the city of Berlin, New Hampshire, a community of about
12,000 inhabitants which is located in the northern part of the state
approximately 100 miles from the rest of ENGI's service area. ENGI has commenced
service to a state-owned correctional institution and anticipates developing the
system to serve other customers in Berlin and surrounding areas.
Like Eastern's gas utility subsidiaries, ENGI purchases most of its gas
from sources outside New England (chiefly the producing areas of Texas and
Louisiana). All of the pipeline gas delivered to ENGI's principal system in
southern and central New Hampshire is transported on the Tennnessee pipeline
system. ENGI also purchases gas from Canadian sources, which is delivered by
TransCanada PipeLines Ltd., Iroquois Gas Transmission System and Portland
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7 The financial presentation is on an unaudited, adjusted, basis to
include the effect of the acquisition of Colonial Gas, as if the
acquisition of Colonial Gas had occurred January 1, 1998.
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Natural Gas Transmission System. ENGI is subject to the regulatory supervision
of the NHPUC as to gas sales and transportation rates, securities issuances and
other matters.
ENGI is also engaged directly in equipment rental and appliance and
jobbing sales, all of which take place entirely within the state of New
Hampshire.
EnergyNorth's principal non-utility subsidiaries are:
o EnergyNorth Propane, Inc. ("ENPI"), which sells propane to over
15,300 customers in more than 150 communities located primarily
within a 50-mile radius of Concord, New Hampshire. Propane
distribution does not require a regulatory franchise. ENPI
operates from separate headquarters and plant facilities that
it owns in Concord, New Hampshire and has distribution centers
in Bedford and Gilford, New Hampshire. Propane is transported
in bulk supply by trucks to and from ENPI's distribution
centers. ENPI owns a 49% interest in VGS Propane, LLC
("VGSP"), a joint venture with Northern New England Gas
Corporation, which owns the other 51%. VGSP is a Vermont
limited liability company which provides propane service to
approximately 10,000 customers in the state of Vermont. In
August 1999, ENGI exercised an option to offer to sell its
interest in VGSP to Northern New England Gas Corporation.
This transaction is expected to close in early 2000.
o ENI Mechanicals, Inc., which owns all of the outstanding stock
of Northern Peabody, Inc. (NPI) and Granite State Plumbing and
Heating, Inc. (GSPH). NPI and GSPH are mechanical contractors
engaged in the design, construction and service of plumbing,
heating, ventilation, air conditioning and process piping
systems. They serve commercial, industrial and institutional
customers in northern and central New England. NPI and GSPH
operate from separate headquarters and facilities located in
Manchester, New Hampshire and Goffstown, New Hampshire,
respectively.
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o EnergyNorth Realty, Inc., which is engaged primarily in owning
and leasing land and a building located at 1260 Elm Street in
Manchester, New Hampshire, where EnergyNorth and all of its
subsidiaries, except ENPI and ENMI, maintain corporate offices.
o Broken Bridge Corp., which owns undeveloped land located in
Concord, New Hampshire.
o ENI Resources, Inc., which is engaged in an energy services
joint venture.
For the fiscal year ended September 30, 1999, EnergyNorth reported
consolidated operating revenues of $119,172,000, of which $76,617,000 (or 64%)
represented regulated gas sales and transportation, operating income of
$9,621,000, and net income of $4,537,000. At September 30, 1999, EnergyNorth had
$168,325,000 in total assets, including net utility plant of $113,730,000. As of
December 17, 1999, EnergyNorth had issued and outstanding 3,322,903 shares of
common stock, par value $1.00 per share. Its shares are listed and traded on the
New York Stock Exchange ("NYSE").
1.5. Principal Terms of the Amended Merger Agreement. As indicated,
-----------------------------------------------
under the terms of the Amended Merger Agreement, Merger Sub, a wholly-owned
subsidiary of Eastern, will merge with EnergyNorth, as a result of which
EnergyNorth will become a wholly-owned subsidiary of Eastern. The Amended Merger
Agreement sets forth the terms of two different merger structures which would
apply depending upon whether the KeySpan Merger Agreement is terminated prior to
the Effective Time of the Merger. The Effective Time is the date upon which the
Merger is consummated by filing articles of merger with the Secretary of State
of the State of New Hampshire following closing of the transaction. Either
Eastern or EnergyNorth may terminate the Amended Merger Agreement if, among
other things, the Merger has not been consummated by March 31, 2001 (subject to
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extension to September 30, 2001 if specified conditions precedent remain
unsatisfied).
If, as is expected, the Merger and the KeySpan Merger close
contemporaneously, then Merger Sub will be merged with and into EnergyNorth,
with EnergyNorth as the surviving corporation. In such case, each share of
common stock of EnergyNorth issued and outstanding immediately prior to the
Effective Time (other than treasury shares), will be canceled and extinguished
and automatically converted into the right to receive $61.13 in cash, without
interest. This amount is subject to increase if, for any reason, the
consideration to be paid for each share of Eastern common stock in the KeySpan
Merger is increased above $64.00 per share. Based on the number of shares of
EnergyNorth common stock outstanding on December 17, 1999, the total
consideration paid in the Merger (assuming no increase) would be $203,129,060.
The transaction would be fully taxable to EnergyNorth's shareholders in this
case.
If, on the other hand, the KeySpan Merger Agreement is terminated prior
to the Effective Time, EnergyNorth will be merged with and into Merger Sub, with
Merger Sub as the surviving corporation having all the rights, interests, and
obligations of EnergyNorth. Merger Sub will change its name to "EnergyNorth,
Inc." and remain a wholly-owned subsidiary of Eastern. ENGI will remain a
wholly-owned subsidiary of "new" EnergyNorth..
Under this merger structure, holders of EnergyNorth common stock will
receive cash and common stock of Eastern having an expected aggregate value of
approximately $176.9 million based on the number of shares of EnergyNorth common
stock outstanding on December 17, 1999 and the reported share price of Eastern
common stock on the NYSE on such date ($55.6875). The actual value will depend
on the market price of Eastern common stock and the number of shares of
EnergyNorth common stock outstanding on the date the Merger is completed. A
total of 49.9% of the outstanding shares of EnergyNorth common stock will be
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exchanged for cash and the remainder will be exchanged for shares of Eastern
common stock. Each share of EnergyNorth common stock exchanged for cash will
entitle the holder to receive $47.00. 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 $47.00 based on the average of the daily per share weighted
averages of the trading prices of the Eastern common stock reported in the NYSE
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 weighted
average price is not less than $36.00 or higher than $44.00. If this average is
less than $36.00, each share of EnergyNorth common stock not exchanged for cash
will entitle the holder to receive approximately 1.3056 shares of Eastern common
stock. On the other hand, if this average is higher than $44.00, each share of
EnergyNorth common stock not exchanged for cash will entitle the holder thereof
to receive approximately 1.0682 shares of Eastern common stock. Accordingly, if
this average is below $36.00 or above $44.00, the actual value of the number of
Eastern shares received for an EnergyNorth share would be less than or more than
$47.00.
Based on the average of the daily weighted average price per share of
Eastern common stock on the NYSE for the ten trading day period ended on
December 20, 1999 (which was above $44.00) and the number of shares of
EnergyNorth common stock outstanding on September 30, 1999, Eastern would issue
approximately 1,778,000 shares of its common stock in the Merger, and the cash
portion of the consideration would equal approximately $78 million. Based upon
the number of shares of the two companies outstanding on December 17, 1999,
EnergyNorth's shareholders would hold approximately 6.2% of Eastern's
outstanding common stock following the Merger.
The Merger of Eastern and EnergyNorth on a stand-alone basis (that is,
assuming the KeySpan Merger Agreement is terminated before the Effective Time)
has been structured to qualify as a reorganization under Section 368(a) of the
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Internal Revenue Code. Accordingly, an EnergyNorth stockholder who exchanges his
or her shares solely for Eastern common stock will not recognize any gain or
loss. An EnergyNorth stockholder who receives a combination of cash and Eastern
common stock in the Merger will not recognize any loss but will recognize gain,
if any, in an amount equal to the lesser of the amount of the cash received and
the total gain realized by such stockholder in the Merger. An EnergyNorth
stockholder who receives only cash will recognize the full amount of any gain or
loss. Under either Merger structure, the transaction will be accounted for by
Eastern using the purchase method of accounting, under which the assets and
liabilities of EnergyNorth, including intangible assets, will be recorded at
their market values.
ITEM 2. FEES, COMMISSIONS AND EXPENSES.
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The estimated fees and expenses in connection with the proposed
transaction are set forth in Exhibit J hereto.
ITEM 3. APPLICABLE STATUTORY PROVISIONS.
--------------------------------
Sections 9(a) and 10 of the Act are applicable to the acquisition by
Eastern of the voting securities of EnergyNorth. Section 3(a)(1) of the Act is
applicable to Eastern's and EnergyNorth's exemption from registration under the
Act.
3.1. Compliance with Section 10.
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The proposed transaction meets all the substantive requirements of
Section 10 of the Act. Specifically, the Commission should find that the
acquisition complies with subsections (c) and (f) of Section 10 on the basis of
the following:
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a. The Acquisition is Lawful Under Section 8 of the Act and Is
-----------------------------------------------------------
Not Detrimental to the Carrying Out of the Provisions of
--------------------------------------------------------
Section 11.
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ENGI, Boston Gas, Colonial Gas and Essex Gas are all retail gas
distribution companies, with no electric utility assets or operations. Further,
the transaction will not be detrimental to the carrying out of the provisions of
Section 11 which, by its terms, applies only to registered holding companies. In
this case, as discussed below, both Eastern and EnergyNorth will be exempt from
registration under the Act pursuant to the "intrastate" exemption provided in
Section 3(a)(1).
b. The Acquisition Will Serve the Public Interest by Tending
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Toward the Economical and Efficient Development of an
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Integrated Public-Utility System.
---------------------------------
Under Section 10(c)(2), the Commission must affirmatively find that the
acquisition of EnergyNorth by Eastern "will serve the public interest by tending
towards the economical and the efficient development of an integrated
public-utility system . . . ." An "integrated public-utility system" is defined
in Section 2(a)(29), to mean:
(B) As applied to gas utility companies, a system consisting of one or
more gas utility companies which are so located and related that
substantial economies may be effectuated by being operated as a single
coordinated system confined in its operations to a single area or
region, in one or more States, not so large as to impair (considering
the state of the art and the area or region affected) the advantages of
localized management, efficient operation, and the effectiveness of
regulation: Provided, That gas utility companies deriving natural gas
from a common source of supply may be deemed to be included in a single
area or region.
The gas utility operations of ENGI, when combined with those of Boston
Gas, Colonial Gas and Essex Gas, will constitute an integrated gas utility
system within the meaning of Section 2(a)(29)(B) of the Act. As the map attached
as Exhibit E shows, the service areas of ENGI, Colonial Gas, Boston Gas and
Essex Gas are contiguous and confined to a single area or region. Moreover, all
four companies receive their natural gas supplies from substantially the same
sources.
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As a result of the Merger, ENGI will be able to achieve cost reductions
in the corporate and administrative areas through the elimination of redundant
job functions. Specifically, the proposed Merger will provide an opportunity to
consolidate finance, accounting, information services, marketing, human
resources, public and shareholder relations and gas supply activities. Eastern
and ENGI estimate the consolidation of the two companies will result in the
reduction of 62 positions, including 47 management and 15 non-management
positions. The direct wage and salary cost reductions associated with these
positions is approximately $3.3 million annually. It is also estimated that the
elimination of employee benefits associated with these positions would produce
approximately $900,000 of additional annual cost savings.
Moreover, the integration of corporate and administrative functions of
Eastern and EnergyNorth is expected to reduce non-labor costs by approximately
$1.5 million annually through the consolidation of overlapping or duplicative
programs and expenditures relating to insurance, employee benefits
administration, audit and consulting fees, shareholder services,
information-systems expenses, advertising, vehicle expense, legal fees and
banking and financing costs. Such cost savings will be available only because of
the Merger and the resulting ability to coordinate certain corporate governance
activities that are common to the operations of ENGI and Eastern's gas
distribution operations. In total, therefore, it is estimated that operations
and maintenance ("O&M") expense savings of $5.7 million annually are potentially
attainable in the near term as a result of the acquisition of Merger.
In addition, the information technology employed by Eastern will
provide an important tool for increasing the efficiency of ENGI's operations.
Eastern has made significant investments in information technology, including
software applications, hardware and infrastructure, which will be extended to
the operations of ENGI as a result of the Merger. These investments have
enhanced customer service, improved productivity and enabled the implementation
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of comprehensive customer-choice programs. Combining the information processing
needs of ENGI with the gas distribution operations of Eastern will enable
EnergyNorth to avoid incurring duplicate expenditures. ENGI will be able to
avoid planned development and/or modification of a number of systems, including:
(1) software to automate the dispatch function; (2) an enterprise level
reporting and data warehousing system to enhance management reporting; (3) an
upgrade of the telephone system and call center; (4) an upgrade of the
infrastructure to accommodate internet/intranet applications; (5) software for
payroll/human resource functions; (6) software and conversion costs to automate
the mapping functions; (7) development and implementation of disaster-recovery
capability; (8) modifications to existing customer information-system and
gas-supply systems to expand the customer choice program; and (9) replacement of
the customer-information system. It is estimated that ENGI would have to incur
costs of approximately $4.3 million on a stand-alone basis to implement and/or
modify these necessary systems.
c. The Merger's Compliance with Relevant New Hampshire Law.
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By its terms, the Merger will not be consummated unless it is approved
by the NHPUC under applicable provisions of the New Hampshire public utility
code. Eastern will file a copy of the NHPUC's order approving the Merger as
Exhibit D-2 hereto as soon as it is available.
Under applicable New Hampshire corporation laws, the Merger requires
approval by the Board of Directors and by the holders of a majority of all of
the outstanding common stock of EnergyNorth. EnergyNorth intends to seek
shareholder approval for the Merger at its annual meeting to be held in early
2000.
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In addition, there is no basis for making any of the negative findings
that would prevent approval of the proposed acquisition under subsection (b) of
section 10, for the following reasons:
d. The Acquisition Will Not Tend Toward Any Interlocking
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Relations or Undue Concentration of Control of
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Public-Utility Companies.
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Following the Merger, ENGI will be an indirect wholly-owned subsidiary
of Eastern. As usual in holding company systems, Eastern and ENGI may have
officers and directors in common, but that mode of common management of the
integrated system of subsidiaries is not the sort of "interlocking relationship"
that the Act is intended to prevent.
The combined operations of ENGI, Boston Gas, Colonial Gas, and Essex
Gas will operate in Massachusetts and a mostly contiguous area of New Hampshire
and will be subject to effective regulation by the MDTE and NHPUC. Boston Gas,
Colonial Gas, and Essex Gas together currently serve approximately 734,000
retail gas customers in 115 cities and towns in eastern and central
Massachusetts. The acquisition of ENGI will add only 72,000 customers to
Eastern's existing system, representing a 10% increase in terms of the number of
customers served. Eastern and its subsidiaries had total assets of
$1,908,495,000 at September 30, 1999 and adjusted combined revenues of
$1,118,357,000 for the twelve-month period ended December 31, 1998. The
acquisition of EnergyNorth will represent an increase in size of Eastern of less
than 10% based on such financial measurements.
-15-
<PAGE>
e. The Consideration To Be Paid Is Reasonable and Bears a Fair
-----------------------------------------------------------
Relation to the Value of the Utility Assets Underlying the
----------------------------------------------------------
Securities To Be Acquired.
--------------------------
As described in Item 1.5, above,, the total consideration to be paid by
Eastern for EnergyNorth will depend upon whether the KeySpan Merger Agreement is
terminated prior to the Effective Time. The price to be paid by Eastern for
EnergyNorth in the stand-alone Merger structure (i.e., assuming the KeySpan
Merger is terminated) represents a 58% premium over the closing price for
EnergyNorth's shares on July 14, 1999, the day before the Merger was announced.
The purchase price resulted from arms'-length negotiation and was deemed
acceptable by EnergyNorth after EnergyNorth had had discussions with other
potentially interested parties. In addition, the investment banking firm of
Salomon Smith Barney has delivered an opinion to the Board of Directors of
EnergyNorth stating that, based on various financial comparisons, the
consideration in the Merger will be fair to the stockholders of EnergyNorth from
a financial point of view. Salomon Smith Barney's fairness opinion is appended
to the Proxy Statement as Annex B.
In addition, Eastern and EnergyNorth will propose to the NHPUC a rate
plan that will effect an immediate reduction in the retail gas rate charged to
customers of ENGI to reflect expected gas cost savings that would result from
combined operations of ENGI, Colonial Gas, Boston Gas, and Essex Gas. Under New
Hampshire law, retail gas rates are regulated by the NHPUC, which has full power
to examine transactions with affiliates and to allow or disallow intercompany
costs and charges in the rate-setting process.8 Thus, the financial effect of
the Merger on customers of ENGI, is subject to effective regulation by the
NHPUC.
- -------------------
8 See N.H. REV. STAT. ANN. CH. ss.ss.378:27 and 366:3 - 7 (1998).
<PAGE>
f. The Acquisition Will Not Unduly Complicate the Capital
------------------------------------------------------
Structure of Eastern's Holding-Company System and Will Not
----------------------------------------------------------
Be Detrimental to the Public Interest, the Interest of
------------------------------------------------------
Investors or Consumers, or the Proper Functioning of the
--------------------------------------------------------
Holding-Company System.
-----------------------
The Merger consideration will consist of either all cash or a
combination of cash and shares of Eastern's single class of common stock, which
is publicly-traded on the New York, Pacific, and Boston Stock Exchanges. There
will be no preferred or senior securities of Eastern issued in the transaction.
Following the Merger, EnergyNorth will be a wholly-owned subsidiary of Eastern,
as Boston Gas, Colonial Gas and Essex Gas already are. Moreover, the transaction
will be earnings neutral to Eastern's shareholders to the extent that cost
savings related to Merger synergies are retained. The interests of gas consumers
are protected by the jurisdiction of the NHPUC. Finally, as stated above, the
acquisition will serve the public interest by promoting the economical and
efficient development of an integrated gas utility system.
3.2 Exemption under Section 3(a)(1). Section 3(a)(1) provides that
-------------------------------
"unless and except insofar as it finds the exemption detrimental to the public
interest or the interests of investors or consumers" the Commission shall exempt
from registration any holding company and every subsidiary thereof, if:
such holding company, and every subsidiary company thereof which is a
public-utility company from which such holding company derives,
directly, or indirectly, any material part of its income, are
predominantly intrastate in character and carry on their business
substantially in a single State in which such holding company and every
such subsidiary company thereof are organized.9
Following the Merger, EnergyNorth will continue to be a holding company
incorporated in New Hampshire, the same state in which its sole public utility
subsidiary, ENGI, is incorporated and in which ENGI conducts all of its public
utility operations. Accordingly, in its capacity as a holding company,
- -------------------
9 The interstate character of an applicant's non-utility businesses is
not considered in determining whether a holding company is entitled to
an exemption under Section 3(a)(1). See Eastern Gas and Fuel
Associates, 30 S.E.C. 834, 848 (n. 19) (1950).
-17-
<PAGE>
EnergyNorth will be entitled to an exemption under Section 3(a)(1) of the Act.
Following the Merger, ENGI will also be an indirect subsidiary of
Eastern, a holding company organized in Massachusetts, which is the same state
in which Eastern's current public utility subsidiaries are incorporated and in
which they conduct all of their public utility operations. Nevertheless, based
on the information presented below, the Commission should find that: (1) ENGI
will not constitute a "material" public utility subsidiary of Eastern; and, (2)
following the Merger, Eastern and its public utility subsidiaries will be
"predominantly intrastate in character and carry on their business substantially
in a single State," namely, Massachusetts.
a. Eastern Will Not Derive a Material Part of Its income from
----------------------------------------------------------
ENGI.
-----
In recent cases, the Commission has interpreted Section 3(a)(1) of the
Act flexibly in order to permit exempt "intrastate" holding companies to acquire
small out-of-state utilities without loss of their exemptions.10 In determining
whether an out-of-state utility subsidiary is "material" for purposes of Section
3(a)(1), the Commission looks at all sources of a parent holding company's
income.11 Thus, the Commission may determine a public utility subsidiary
company's "materiality" for purposes of Section 3(a)(1) based on various
criteria, including gross revenues, net operating revenue, utility assets,
number of customers and volume of gas or electricity distributed or sold.
Provided in the table below are the gross revenues, net operating
revenues, net income, assets and numbers of customers of Eastern's current
public utility subsidiaries (Boston Gas, Colonial Gas and Essex Gas) and ENGI,
- -------------------
10 See NIPSCO Industries, Inc., Holding Co. Act Release No. 26975, 69 SEC
Docket 245 (February 11, 1999) (hereinafter referred to as "NIPSCO").
11 69 SEC Docket at 255.
-18-
<PAGE>
showing the contribution of ENGI to each category on a pro forma combined basis
(before intercompany eliminations) for the years 1996, 1997, and 1998.
-19-
<PAGE>
<TABLE>
<CAPTION>
COMPARISON OF ENGI TO COMBINED EASTERN GAS DISTRIBUTION UTILITIES
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
Boston Gas Colonial Gas Essex Gas
- ----------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------
Revenues 610.3 700.9 705.5 168.0 187.1 169.9 56.8 53.5 49.9
- ----------------------------------------------------------------------------------------------------------
% of Pro Forma 67% 68% 70% 18% 18% 17% 6% 5% 5%
- ----------------------------------------------------------------------------------------------------------
Net Operating 285.8 302.4 291.2 79.9 84.7 82.7 27.2 26.3 25.0
Revenues
- ----------------------------------------------------------------------------------------------------------
% of Pro Forma 66% 67% 67% 19% 19% 19% 6% 6% 6%
- ----------------------------------------------------------------------------------------------------------
Net Income 36.2 36.6 29.1 13.4 15.7 14.5 5.4 4.0 3.8
- ----------------------------------------------------------------------------------------------------------
% of Pro Forma 61% 58% 55% 23% 25% 27% 9% 6% 7%
- ----------------------------------------------------------------------------------------------------------
Assets 859.2 878.2 877.0 394.2 381.7 358.5 100.4 92.7 89.8
- ----------------------------------------------------------------------------------------------------------
% of Pro Forma 57% 59% 60% 26% 26% 25% 7% 6% 6%
- ----------------------------------------------------------------------------------------------------------
Customers 535 530 525 155 150 144 44 42 42
- ----------------------------------------------------------------------------------------------------------
% of Pro Forma 67% 67% 68% 19% 19% 19% 5% 5% 5%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
Total Eastern Gas ENGI Pro Forma Combined
Distribution
- -------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
Revenues 835.1 941.5 925.3 80.2 94.8 80.2 915.3 1,036.3 1,005.5
- -------------------------------------------------------------------------------------------------------------------
% of Pro Forma 91% 91% 92% 9% 9% 8% 100% 100% 100%
- -------------------------------------------------------------------------------------------------------------------
Net Operating 392.9 413.4 398.9 37.7 39.4 37.8 430.6 452.8 436.7
Revenues
- -------------------------------------------------------------------------------------------------------------------
% of Pro Forma 91% 91% 91% 9% 9% 9% 100% 100% 100%
- -------------------------------------------------------------------------------------------------------------------
Net Income 55.0 56.3 47.4 4.1 6.4 5.4 59.1 62.7 52.8
- -------------------------------------------------------------------------------------------------------------------
% of Pro Forma 93% 90% 90% 7% 10% 10% 100% 100% 100%
- -------------------------------------------------------------------------------------------------------------------
Assets 1,353.8 1,352.6 1,325.3 142.6 136.4 133.5 1,496.4 1,489.0 1,458.8
- -------------------------------------------------------------------------------------------------------------------
% of Pro Forma 90% 91% 91% 10% 9% 9% 100% 100% 100%
- -------------------------------------------------------------------------------------------------------------------
Customers 734 722 711 70 68 66 804 790 777
- -------------------------------------------------------------------------------------------------------------------
% of Pro Forma 91% 91% 92% 9% 9% 8% 100% 100% 100%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTES:
- -----
o Boston Gas, Colonial Gas, and ENGI as of 12/31. Essex Gas as of 12/31/98,
8/31/97 and 8/31/96.
o Colonial Gas income excludes Transgas earnings and merger expenses, and
assets excludes non-utility capital assets.
o Boston Gas net earnings exclude unbilled revenue adoption in 1998.
o ENGI excludes propane gas customers of EN Propane.
-20-
<PAGE>
Eastern will not derive a "material" part of its income from ENGI
regardless of the financial yardstick used to compare size. ENGI's net operating
revenues (the financial measurement which the Commission found to be
"particularly appropriate" in NIPSCO) represents, on a pro forma basis, between
8% and 9% of the combined net operating revenues of Eastern's utility
subsidiaries in the three-year period 1996 - 1998. In NIPSCO, the Commission
considered pro forma percentages of 11.2%, 10.8%, and 10.8% over a three-year
period not to be "material."12 Moreover, in this case, the other financial and
operating comparisons of size are in the same range as the percentages based on
net operating revenue (generally 9% or lower on average for the three years). In
NIPSCO, these percentages were in some cases substantially higher.
In NIPSCO, the Commission also considered the existence of affirmative
state regulation to be a significant factor in its decision to grant an
exemption under Section 3(a)(1) to a holding company seeking to acquire an
out-of-state subsidiary.13 Likewise, in this case, Eastern's agreement to
acquire EnergyNorth is subject to the approval of the NHPUC.
b. After the Acquisition of EnergyNorth, Eastern and its Utility
-------------------------------------------------------------
Subsidiaries Will Remain "Predominantly Intrastate In
-----------------------------------------------------
Character and Carry On Their Business Substantially" in
-------------------------------------------------------
Massachusetts.
--------------
After the Merger, Eastern and its public utility subsidiaries will
remain "predominantly intrastate in character and carry on their business
substantially in a single State," namely, Massachusetts. The only out-of-state
(i.e., non-Massachusetts) utility operations will be those conducted by ENGI. As
the table above shows, Eastern will derive 9% or less, on average, of its pro
forma net utility operating revenues from operations outside of Massachusetts,
which is substantially lower than the 13.2% that the Commission found acceptable
in NIPSCO.
- -------------------
12 69 SEC Docket at 256.
13 Id.
-21-
<PAGE>
ITEM 4. REGULATORY APPROVAL.
--------------------
The NHPUC has jurisdiction over the proposed Merger and certain other
matters in connection therewith. Included with this Application/Declaration as
Exhibit D-1 is a copy of the joint Petition filed by ENGI, Eastern and KeySpan,
dated December 3, 1999, with the NHPUC.14 A final order of the NHPUC approving
the Merger, to be filed as Exhibit D-2, is expected to be issued on or before
May 1, 2000. The proposed Merger is also subject to the satisfaction of the
applicable notification and waiting period requirements under the H-S-R Act. No
other state regulatory commission and no other federal commission (other than
this Commission) has jurisdiction over the proposed transaction.
ITEM 5. PROCEDURE.
----------
Eastern requests that the Commission issue an order approving the
Merger as soon as its rules allow. It is also requested that the Commission's
order confirm that Eastern will continue to be exempt from registration under
the Act pursuant to Section 3(a)(1) of the Act following the Merger, and, as
well, that EnergyNorth will continue to be entitled to exemption under Section
3(a)(1) in its capacity as a holding company.
The applicants (i) waive a recommended decision by an administrative
law judge or other responsible officer of the Commission, (ii) hereby specify
that the Division of Investment Management may assist in the preparation of the
Commission's decision, unless such Division opposes the matters proposed herein,
and (iii) hereby request that there be no 30-day waiting period between the date
of issuance of the Commission's order and the date on which it is to become
effective.
- -------------------
14 The joint Petition seeks approval for Eastern's acquisition of ENGI,
as well as for KeySpan's indirect acquisition of ENGI.
-22-
<PAGE>
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS.
----------------------------------
A. EXHIBITS.
---------
A-1 Declaration of Trust of Eastern, dated as of July 18,
1929, as amended through April 27, 1989 (Incorporated
herein by reference to Exhibit 3.1 to Eastern's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1989) (File No. 1-2297).
A-2 By-laws of Eastern, as amended through February 24,
1999 (Incorporated herein by reference to Exhibit 2.3
to Eastern's Annual Report on Form 10-K for the year
ended December 31, 1998) (File No. 1-2297).
A-3 Articles of Incorporation of EnergyNorth, as amended
February 22, 1996 (Incorporated herein by reference
to Exhibit 3.1 to EnergyNorth's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1996) (File
No. 1-11441).
A-4 By-Laws of EnergyNorth, as amended February 3, 1999
(Incorporated herein by reference to Exhibit 4 to
EnergyNorth's Post-Effective Amendment No. 2 to
Registration Statement on Form S-3, dated November
21, 1996) (File No. 33-58127).
B-1 Agreement and Plan of Reorganization, dated as of
July 14, 1999 (Incorporated herein by reference to
Exhibit 2.0 to EnergyNorth's Annual Report on Form
10-K for the fiscal year ended September 30, 1999)
(File No. 1-11441).
B-2 Amendment No. 1 to Agreement and Plan of
Reorganization, dated as of November 4, 1999
(Incorporated herein by reference to Exhibit 2.1 to
EnergyNorth's Annual Report on Form 10-K for the
fiscal year ended September 30, 1999) (File No.
1-11441).
C Registration Statement on Form S-4, including all
financial statements and exhibits thereto, with
respect to common stock of Eastern (including the
Proxy Statement to be distributed to shareholders of
EnergyNorth in connection with the annual meeting)
(To be filed by amendment).
D-1 Joint Petition of ENGI, Eastern and KeySpan filed
with the New Hampshire Public Utilities Commission,
dated December 3, 1999.
D-2 Copy of order of New Hampshire Public Utilities
Commission. (To be filed by amendment).
E Map of service territories of ENGI, Colonial Gas,
Boston Gas, and Essex Gas. (Paper format filing).
F Opinion of Counsel. (To be filed by amendment).
-23-
<PAGE>
H Proposed Form of Federal Register Notice.
I-1 Organizational Chart of Eastern and Subsidiaries.
(To be filed by amendment).
I-2 Organizational Chart of EnergyNorth and
Subsidiaries. (To be filed by amendment).
J Schedule of Estimated Fees, Commissions and Expenses.
B. FINANCIAL STATEMENTS.
---------------------
FS-1 Consolidated Balance Sheet of Eastern and
Subsidiaries as of December 31, 1998 (Incorporated
herein by reference to Eastern's Annual Report on
Form 10-K for the year ended December 31, 1998) (File
No. 1-2297).
FS-2 Consolidated Statement of Operations of Eastern and
Subsidiaries for the year ended December 31, 1998
(Incorporated herein by reference to Eastern's Annual
Report on Form 10-K for the year ended December 31,
19998) (File No. 1-2297).
FS-3 Consolidated Balance Sheet of Eastern and
Subsidiaries as of September 30, 1999 (Incorporated
herein by reference to Eastern's Quarterly Report on
Form 10-Q for the period ended September 30, 1999)
(File No. 1-2297).
FS-4 Consolidated Statement of Operations of Eastern and
Subsidiaries for the period ended September 30, 1999
(Incorporated herein by reference to Eastern's
Quarterly Report on Form 10-Q for the period ended
September 30, 1999) (File No. 1-2297).
FS-5 Eastern and Colonial Gas Combined Unaudited Pro Forma
Balance Sheet as of June 30, 1999 (Incorporated
herein by reference to Eastern's Current Report on
Form 8-K dated September 15, 1999) (File No. 1-2297).
FS-6 Eastern and Colonial Gas Combined Unaudited Pro Forma
Statement of Operations for the six months and year
ended June 30, 1999 and December 31, 1998
(Incorporated herein by reference to Eastern's
Current Report on Form 8-K dated September 15, 1999)
(File No. 1-2297).
FS-7 Consolidated Balance Sheet of EnergyNorth and
Subsidiaries as of September 30,1999 (Incorporated
herein by reference to EnergyNorth's Annual Report on
Form 10-K for the fiscal year ended September 30,
1999) (File No. 1-11441).
FS-8 Consolidated Statement of Income of EnergyNorth and
Subsidiaries for the fiscal year ended September 30,
1999 (Incorporated herein by reference to
-24-
<PAGE>
EnergyNorth's Annual Report on Form 10-K for the
fiscal year ended September 30, 1999) (File No.
1-11441).
FS-9 Form U-3A-2 Statements filed by EnergyNorth for the
years ended December 31, 1998, December 31, 1997 and
December 31, 1996 (Incorporated herein by reference)
(File No. 69-273).
FS-10 Unaudited Pro Forma Combined Balance Sheet of Eastern
and EnergyNorth as of September 30, 1999 (Included in
Exhibit C hereto).
FS-11 Unaudited Pro Forma Combined Statements of Operations
of Eastern and EnergyNorth for the nine months and
year ended September 30, 1999 and December 31, 1998,
respectively (Included in Exhibit C hereto).
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS.
----------------------------------------
The proposed transaction does not involve a "major federal action" nor
will it "significantly affect the quality of the human environment" as those
terms are used in section 102(2)(C) of the National Environmental Policy Act.
The proposed transaction will not result in changes in the operation of the
applicant or its subsidiaries that will have an impact on the environment.
Eastern is not aware of any federal agency that has prepared or is preparing an
environmental impact statement with respect to the proposed transaction.
-25-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act
of 1935, the undersigned company has duly caused this statement to be signed on
its behalf by the undersigned officer thereunto duly authorized.
EASTERN ENTERPRISES
/s/ Walter J. Flaherty
--------------------------
Name: Walter J. Flaherty
Title: Executive Vice President
and Chief Financial Officer
ENERGYNORTH, INC.
/s/ Michelle L. Chicoine
--------------------------
Name: Michelle L. Chicoine
Title: Executive Vice President
Date: January 5, 2000
EXHIBIT D-1
STATE OF NEW HAMPSHIRE
BEFORE THE
NEW HAMPSHIRE PUBLIC UTILITIES COMMISSION
DG 99-193
RE: ENERGYNORTH NATURAL GAS, INC.
PETITION FOR APPROVAL OF THE ACQUISITION OF ENERGYNORTH NATURAL GAS, INC.,
--------------------------------------------------------------------------
BY EASTERN ENTERPRISES AND KEYSPAN CORPORATION
----------------------------------------------
Eastern Enterprises ("Eastern"), KeySpan Corporation ("KeySpan"),
EnergyNorth, Inc. ("EnergyNorth") and EnergyNorth Natural Gas, Inc. ("ENGI")
(together, the "Joint Petitioners") hereby file this petition requesting that
the New Hampshire Public Utilities Commission (the "Commission"), pursuant to
the provisions of RSA 369:8,II and RSA 374:33, approve: (1) the acquisition by
Eastern of EnergyNorth, the parent company of ENGI, which will be accomplished
through the merger of EnergyNorth and EE Acquisition Company ("Merger Sub"), a
wholly owned subsidiary of Eastern; and (2) the indirect acquisition of
EnergyNorth by KeySpan, which will be accomplished through the simultaneous
merger of Eastern and ACJ Acquisition LLC ("ACJ"), a subsidiary of KeySpan.
As described below, and as supported in detail by the prefiled written
testimony submitted on behalf of the Joint Petitioners, the transactions
described above will result in "no net harm" to the customers of ENGI, and
therefore, the proposed transactions meet the public-interest standard embodied
in RSA 369:8,II and RSA 374:33. In support thereof, the Joint Petitioners state
the following:
1. EnergyNorth is a New Hampshire corporation with a principal place of
business in Manchester, New Hampshire. EnergyNorth is the owner of
<PAGE>
100 percent of the common stock of ENGI, EnergyNorth Propane, Inc.,
ENI Mechanicals, Inc. and EnergyNorth Realty, Inc.
2. Eastern is a Massachusetts business trust established and existing
under a Declaration of Trust dated July 18, 1929, as amended, with a
principal place of business in Weston, Massachusetts. Eastern is a
holding company that owns 100 percent of the common stock of Boston Gas
Company, Colonial Gas Company and Essex Gas Company, which are local
distribution companies serving a total of 735,000 natural gas customers
in Massachusetts. Eastern also owns and operates several unregulated
business enterprises.
3. KeySpan is a New York corporation with a principal place of business in
Brooklyn, New York. KeySpan is a holding company that owns 100 percent
of the common stock of two local distribution companies serving a total
of 1.6 million natural gas customers in New York, New York and Long
Island, New York, under the name of The Brooklyn Union Gas Company and
KeySpan Gas East Corporation d/b/a Brooklyn Union Company of Long
Island (collectively, the "Brooklyn Union Companies"). KeySpan also
owns and operates other regulated electric generation companies in the
state of New York, as well as several unregulated business enterprises.
4. ENGI is a New Hampshire corporation and a public utility as defined in
RSA 362:2, with a principal place of business in Manchester, New
Hampshire. ENGI is the largest natural gas utility in New Hampshire
serving approximately 72,000 customers in 28 cities and towns in the
southern and central part of New Hampshire and the City of Berlin in
the northern part of the state.
<PAGE>
5. On July 14, 1999, Eastern and EnergyNorth entered into an Agreement and
Plan of Reorganization (the "EnergyNorth Merger Agreement") that
provides for the creation of Merger Sub and the subsequent merger of
EnergyNorth with and into Merger Sub, subject to the necessary
approvals of government regulatory authorities having jurisdiction. On
November 4, 1999, KeySpan and Eastern entered into an Agreement and
Plan of Merger (the "Eastern Merger Agreement") that provides for the
creation of ACJ as a subsidiary of KeySpan and the subsequent merger of
ACJ with and into Eastern, subject to the necessary approvals of
government regulatory authorities having jurisdiction.
6. On November 4, 1999, in conjunction with the execution of the
Eastern Merger Agreement, Eastern and EnergyNorth amended the
EnergyNorth Merger Agreement (the "EnergyNorth Amendment") to
provide for the merger of Merger Sub with and into EnergyNorth,
subject to the necessary approvals of government regulatory
authorities having jurisdiction and of the shareholders of the
respective companies. If such approvals are obtained, these
agreements would result in EnergyNorth becoming a direct, wholly
owned subsidiary of Eastern and, simultaneously, an indirect
subsidiary of KeySpan. A copy of the EnergyNorth Merger Agreement and
the EnergyNorth Amendment (together, the "Amended EnergyNorth Merger
Agreement") is appended to the prefiled testimony of Walter J.
Flaherty as Attachments WJF-1 and WJF-2, respectively. A copy of
the Eastern Merger Agreement is appended thereto as Attachment WJF-3.
<PAGE>
7. The Amended EnergyNorth Merger Agreement sets forth the following
actions that, in conjunction with the Eastern Merger Agreement, will
result in EnergyNorth becoming an indirect subsidiary of KeySpan:
(a) EnergyNorth's stockholders will vote on the approval of the
merger of EnergyNorth with Merger Sub.
(b) Upon receipt of the necessary regulatory approvals and the
filing of the Articles of Merger, Merger Sub will be merged
with and into EnergyNorth in accordance with the laws of the
State of New Hampshire (the "Reverse Merger"). This type of
merger is known as a "reverse triangular merger" for tax and
reorganization purposes. EnergyNorth will be the surviving
corporation and will continue to operate as "EnergyNorth,
Inc." under the laws of the State of New Hampshire.
(c) As set forth in the Amended EnergyNorth Merger Agreement,
each outstanding share of EnergyNorth common stock will be
extinguished and automatically converted into the right to
receive $61.13 in cash. This conversion will be a taxable
event to the shareholders of EnergyNorth.
(d) Upon the completion of the Reverse Merger, EnergyNorth will
become a wholly owned subsidiary of Eastern. As set forth
above, pursuant to the Eastern Merger Agreement, ACJ will
thereupon be merged with and into Eastern. As a result,
Eastern, and indirectly, EnergyNorth and ENGI, will become
subsidiaries of KeySpan.
8. In the event that the Eastern Merger Agreement with KeySpan terminates
or expires, then the merger of EnergyNorth with and into Merger Sub
<PAGE>
will be accomplished in accordance with the Amended EnergyNorth Merger
Agreement, under the following terms:
(a) EnergyNorth will be merged with and into Merger Sub with
Merger Sub as the surviving corporation operating as
"EnergyNorth, Inc.," under the laws of the State of New
Hampshire (the "Forward Merger"). This type of merger is
known as a "forward triangular merger" for tax and
reorganization purposes.
(b) Each outstanding share of EnergyNorth common stock will be
extinguished and automatically converted into the right to
receive at the effective time of the Forward Merger one of
the following: (i) the per-share cash amount of $47.00; (ii)
a number of shares of Eastern common stock, $1.00 par value,
pursuant to an exchange ratio determined at the time of the
transaction in accordance with the terms of the Amended
EnergyNorth Merger Agreement; or (iii) a combination of cash
and shares of Eastern.
(c) The holders of EnergyNorth common stock are permitted to
indicate the preferred form of payment for their shares
subject to the limitation that 50.1 percent of EnergyNorth
shares will be exchanged for shares of Eastern common stock
with the remaining EnergyNorth shares to be exchanged for
cash. In order to ensure that the merger qualifies as a
tax-free reorganization, shareholder elections would be
subject to the further limitation that, in no event, would
the total value of Eastern shares so exchanged fall below 45
percent of the aggregate consideration used to complete the
transaction.
(d) The completion of the Forward Merger will cause EnergyNorth,
and its subsidiary ENGI, to become wholly owned subsidiaries
of Eastern.
<PAGE>
10. Consummation of the merger between EnergyNorth and Merger Sub is
subject to certain conditions, which include regulatory approval by the
Commission, as set forth in Article 6 of the Amended EnergyNorth Merger
Agreement. Accordingly, Article 6.1(b) specifies that, with regard to
rates and the recovery of costs associated with the merger (including
the acquisition premium and transaction and integration costs), the
Commission's approval is required upon terms and conditions that are
not less favorable than those set forth by the Commission in Re:
---
Northern Utilities, Inc., Docket No. DF 98-040, Order No.
------------------------
22,983 (1998) ("Northern Utilities").
11. In Northern Utilities, the Commission approved a stipulation
-------------------
between the parties that granted the right to request recovery of
merger-related costs in a future proceeding on the condition that the
benefits of the merger to customers are demonstrated to equal or
exceed such costs. Northern Utilities at 4, 7. In approving the
-------------------
stipulation, the Commission ruled that customers would not be
harmed as a result of the merger because, among other things,
the conditions set forth therein: (1) required Northern to
substantiate savings resulting from the merger before seeking to
include any part of the acquisition premium in rates; and (2)
deferred a determination regarding capital structure issues until
the time of any such request. Id. at 7.
---
12. In New England Electric System, DE 99-035, Order No. 23,308
-----------------------------
(1999) ("New England Electric"), the Commission stated that the
----------------------
mandate in RSA 369:8, which requires that mergers will "not adversely
affect the rates, terms, service, or operation of the public
utility within the state" embodies the same standard reflected in
RSA 374:33, which authorizes the Commission to approve mergers that
are "lawful, proper and in the public interest." New England
-----------
Electric, slip op. at 16. Thus, proposed mergers must meet a "no
-------- ---- --
<PAGE>
net harm" test in order to be approved by the Commission. Id. The
--
Commission stated that, in applying the no net harm test, it must
"assess the benefits and risks of the proposed merger and
determine what the overall effect on the public interest will be,
giving the transaction . . . approval if the effect is at worst
neutral from the public interest perspective." Id. Accordingly,
the Commission's standard will be met where an applicant for
approval of a merger demonstrates that customers would be no worse
off with the merger than without the merger. Id. at 17.
--
13. Pursuant to the Commission's findings in Northern Utilities
-------------------
and New England Electric, the Joint Petitioners file herewith
----------------------
a merger proposal that meets and exceeds the Commission's no
net harm standard. Specifically, the Joint Petitioners propose:
(1) to provide customers with immediate gas-cost savings through
a 2.2 percent burner-tip price reduction; (2) to work with the
Commission to develop a mechanism for identifying and quantifying
other cost savings that are achievable only as a direct result of
the merger; and (3) to have the opportunity to request, in a future
proceeding before the Commission, the recovery of merger-related
costs required to accomplish the transaction if such costs are
demonstrated to be offset by merger-related savings.
14. The proposed transactions and the expected benefits are discussed in
detail in the accompanying testimony of Walter J. Flaherty, Executive
Vice President and Chief Financial Officer of Eastern, Michelle L.
Chicoine, Executive Vice President of EnergyNorth and President and
Chief Operating Officer of ENGI, Joseph F. Bodanza, Senior Vice
President, Treasurer and Chief Financial Officer of Boston Gas, William
R. Luthern, Vice President of Gas Resources for Boston Gas and Craig G.
Matthews, President and Chief Operating Officer of KeySpan.
<PAGE>
15. As discussed in the testimony of William R. Luthern, ENGI's
customers will benefit substantially from increased supply options
and enhanced purchasing power as a result of the mergers described
above. The ability to dispatch across Eastern's combined distribution
system will increase flexibility, enable the optimization of
existing gas-supply resources, encourage and facilitate more
efficient purchasing capability and secure the ability to exercise
broader system control. The expanded supply portfolio will also
increase the overall reliability of ENGI's distribution system.
These benefits will result in an immediate 2.2 percent burner-tip
rate reduction for customers of ENGI. As described below, the
potential for additional cost reductions resulting from KeySpan's
acquisition of Eastern is addressed in the testimony of Craig G.
Matthews.
16. As discussed in the testimony of Michelle L. Chicoine and Joseph F.
Bodanza, the merger will result in the creation of economies of
scale and the elimination of redundant resources, thereby
producing operations and maintenance expense cost savings that
could not be achieved in the absence of the merger. In addition,
as a result of the merger, Eastern will be able to extend certain
resources of Boston Gas Company to ENGI, including information-systems
technology and customer-service enhancements, allowing ENGI to avoid
substantial investment in similar systems, which would be required
in the absence of the merger. Moreover, Eastern's ability to
achieve these and other cost reductions is enhanced because the
service territory of ENGI is contiguous with the service territory
of Colonial Gas Company (a gas distribution subsidiary of Eastern).
<PAGE>
17. As discussed in the testimony of Walter J. Flaherty, approval of the
merger in accordance with the terms of Northern Utilities will
-------------------
provide ENGI with the opportunity to request, in the future,
recovery of merger-related costs upon a finding by the Commission
that identified and quantified cost savings resulting from the
merger warrant such recovery. Because the recovery of merger-related
costs through merger-related savings would leave ENGI's customers
no worse off with the merger than without, the merger will result
in "no net harm" to ENGI's customers. In fact, as described in
the supporting testimony filed with this petition, the merger will
provide numerous benefits to ENGI's customers, including an
immediate reduction in burner-tip prices and future efficiencies
that will result in long-term cost savings and service-quality
improvements for customers. Thus, the overall effect of the proposed
merger will directly benefit customers.
18. As described in the testimony of Craig G. Matthews, Eastern's merger
with KeySpan will cause EnergyNorth to become an indirect
subsidiary of KeySpan. KeySpan's acquisition of Eastern,
however, will not diminish any commitment advanced by Eastern with
regard to the effect of the merger on the rates, terms, service and
operations of ENGI. KeySpan is similarly committed to continued
investment in ENGI's distribution system, continued support of
community interests and to maintaining a local presence to
provide safe, reliable and cost-effective service to ENGI customers.
Moreover, Eastern's merger with KeySpan may present the opportunity
to achieve incremental cost savings and enhancements to reliability
and customer service beyond those identified and provided by
Eastern. Because KeySpan's merger with Eastern will have no effect
<PAGE>
on the rates, terms, service and operations of ENGI, KeySpan's
indirect acquisition of EnergyNorth will result in no net harm to
ENGI's customers.
19. As further described in the testimonies of Messrs. Matthews and
Flaherty, the Joint Petitioners seek approval of the acquisition of
ENGI both directly and indirectly by Eastern and KeySpan, respectively.
However, the KeySpan-Eastern merger is not contingent upon the
Eastern-EnergyNorth transaction, and therefore, the Commission's
decision in this proceeding would affect only EnergyNorth's
participation in the transaction and would not affect KeySpan's
acquisition of Eastern.
WHEREFORE, the Joint Petitioners respectfully request that the Commission:
a. Determine that the proposed acquisition of EnergyNorth by
Eastern, which will be accomplished through the merger of
EnergyNorth and Merger Sub, and that the terms thereof will
result in "no net harm" to ENGI's customers;
b. Determine that the proposed acquisition of EnergyNorth by
KeySpan through its acquisition of Eastern, which will be
accomplished through the merger of Eastern and ACJ, and that
the terms thereof will result in "no net harm" to ENGI's
customers;
c. Approve the above-described transactions as filed in
accordance with RSA 369:8,II(b)(2), or, alternatively, RSA
374:33;
d. Determine that the ENGI may, in a future proceeding before
the Commission, request the recovery of merger-related costs
if it is able to substantiate that merger-related savings
meet or exceed such costs, consistent with the Commission's
findings in Northern Utilities; and
------------------
<PAGE>
e. Issue such other and further orders as may be necessary and
just and reasonable.
Respectfully submitted,
JOINT PETITIONERS:
EASTERN ENTERPRISES
KEYSPAN CORPORATION
ENERGYNORTH, INC.
ENERGYNORTH NATURAL GAS, INC.
By Their Attorneys,
-----------------------------------
Steven V. Camerino, Esq.
McLane, Graf, Raulerson & Middleton, P.A.
15 North Main Street
Concord, New Hampshire 03301
(603) 226-0400
-----------------------------------
Robert J. Keegan, Esq.
Robert N. Werlin, Esq.
Cheryl M. Kimball, Esq.
Keegan, Werlin & Pabian, LLP
21 Custom House Street
Boston, Massachusetts 02110
(617) 951-1400
and
<PAGE>
EASTERN ENTERPRISES
By its Attorney,
-----------------------------------
L. William Law, Jr., Esq.
Senior Vice President and General Counsel
Eastern Enterprises
9 Riverside Road
Weston, Massachusetts 02193
(781) 647-2300
and
KEYSPAN CORPORATION
By its Attorneys
-----------------------------------
James C. Hood, Esq.
Robert L. Dewees, Jr., Esq.
Nixon Peabody LLP
889 Elm Street
Manchester, New Hampshire 03101
(603) 628-4000
-----------------------------------
Frederick M. Lowther, Esq.
General Counsel
Steven L. Zelkowitz, Esq.
Senior Vice President and
Deputy General Counsel
Richard A. Visconti, Esq.
Assistant General Counsel
KeySpan Corporation
One MetroTech Center
Brooklyn, New York 11201-3851
(718) 403-2132
Dated: December 3, 1999
EXHIBIT H
PROPOSED FORM OF FEDERAL REGISTER NOTICE
SECURITIES AND EXCHANGE COMMISSION
(Release No. 35- )
-----
Filings under the Public Utility Holding Company Act of 1935, as amended ("Act")
January , 2000
--
Notice is hereby given that the following filing(s) has/have been made
with the Commission pursuant to provisions of the Act and rules promulgated
thereunder. All interested persons are referred to the application(s) and/or
declaration(s) for complete statements of the proposed transaction(s) summarized
below. The application(s) and/or declaration(s) and any amendments thereto
is/are available for public inspection through the Commission's Office of Public
Reference.
Interested persons wishing to comment or request a hearing on the
application(s) and/or declaration(s) should submit their views in writing by
_, 2000 to the Secretary, Securities and Exchange Commission, Washington,
- --------
D.C. 20549, and serve a copy on the relevant applicant(s) and/or declarant(s) at
the address(es) as specified below. Proof of service (by affidavit or, in case
of an attorney at law, by certificate) should be filed with the request. Any
request for hearing shall identify specifically the issues of fact or law that
are disputed. A person who so requests will be notified of any hearing, if
ordered, and will receive a copy of any notice or order issued in the matter.
After , 2000, the application(s) and/or declaration(s), as filed or as
--------
amended, may be granted and/or permitted to become effective.
* * * * * *
EASTERN ENTERPRISES, ET AL. (70-[ ])
- --------------------------- ----
Eastern Enterprises ("Eastern"), an exempt holding company pursuant to
Section 3(a)(1) of the Public Utility Holding Company Act of 1935, as amended
(the "Act"), whose principal offices are at 9 Riverside Road, Weston,
Massachusetts 02493, and EnergyNorth, Inc., also an exempt holding company
pursuant to Section 3(a)(1) of the Act, whose principal offices are at 1260 Elm
Street, P.O Box 329, Manchester, New Hampshire 03105, have filed an
Application/Declaration pursuant to Sections 3(a)(1), 9(a)(2) and 10 of the Act.
Eastern, a Massachusetts voluntary association, currently owns all of
the issued and outstanding common stock of three gas utility companies: Boston
Gas Company ("Boston Gas"), Essex Gas Company ("Essex Gas"), and Colonial Gas
Company ("Colonial Gas"). Each of these companies is organized under the laws of
the Commonwealth of Massachusetts and operates as a gas utility company
exclusively within Massachusetts. EnergyNorth, a New Hampshire corporation, owns
all of the issued and outstanding common stock of one gas utility company:
EnergyNorth Natural Gas, Inc. ("ENGI"), a New Hampshire corporation, which
distributes gas at retail exclusively within New Hampshire. In addition, Eastern
<PAGE>
and EnergyNorth both have subsidiaries which are engaged in various
energy-related businesses.
Eastern is requesting authorization pursuant to Sections 9(a)(2) and 10
of the Act to acquire, by merger, all the issued and outstanding common stock of
EnergyNorth. Eastern also requests that the Commission issue an order under
Section 3(a)(1) of the Act confirming that Eastern and its subsidiary companies,
as such, as well as EnergyNorth in its capacity as a holding company, will
continue to qualify for an exemption under Section 3(a)(1) following the
proposed transaction.
Subject to the receipt of regulatory and shareholder approvals and the
satisfaction of other conditions precedent, Eastern will acquire EnergyNorth
through a merger (the "Merger") of EnergyNorth with a newly-organized subsidiary
of Eastern ("Merger Sub") formed specifically for that purpose. Following the
Merger, Eastern will own all the outstanding common stock of EnergyNorth and
ENGI will remain a wholly-owned subsidiary of EnergyNorth. The Merger has been
structured to close contemporaneously with the proposed acquisition of Eastern
by KeySpan Corporation ("KeySpan"), an exempt holding company pursuant to
Section 3(a)(1) of the Act (the "KeySpan Merger"). The KeySpan Merger was
announced subsequently to the announcement of the Eastern/EnergyNorth Merger.
KeySpan's proposal to acquire Eastern will be the subject of a separate
Application/Declaration under the Act.
Together, Boston Gas, Essex Gas and Colonial Gas together provide gas
service to more than 735,000 residential, commercial, and industrial customers
in Boston and 114 other communities in eastern and central Massachusetts. Each
of these companies is subject to regulation by the Massachusetts Department of
Telecommunications and Energy as to retail rates, transportation rates,
affiliate transactions, securities issuances and other matters. Eastern's
principal non-utility subsidiaries are Midland Enterprises Inc. ("Midland"),
which is primarily engaged, through wholly-owned subsidiaries, in the operation
of a fleet of towboats, tugboats and barges, principally on the Ohio River and
Mississippi River and their tributaries, the Gulf Intracoastal Waterway and the
Gulf of Mexico; Transgas Inc., an unregulated energy trucking company, which
provides over-the-road transportation of liquefied natural gas, propane and
other commodities; and ServicEdge Partners, Inc., which offers heating,
ventilation and air conditioning services, primarily to residential customers in
eastern Massachusetts.
On an unaudited adjusted basis, to take into account financial results
of Colonial Gas, which Eastern acquired in August 1999, Eastern would have had
$1,118,357,000 in gross revenues in 1998, including $835,000,000 from regulated
gas sales and gas transportation. At September 30, 1999, Eastern had adjusted
combined total assets of $1,908,495,000, including adjusted net property and
equipment of $1,269,101,000.1
EnergyNorth's predominant subsidiary, ENGI, provides gas service to
approximately 72,000 residential, commercial and industrial customers in 27
cities and towns in southern and central New Hampshire, including Nashua,
Manchester, Concord and Laconia. This area is contiguous to Colonial Gas's
service area in Massachusetts and is within 30 to 85 miles of the greater Boston
- -------------------
1 The financial presentation is on an unaudited, adjusted, basis to include
the effect of the acquisition of Colonial Gas, as if the acquisition of
Colonial Gas had occurred January 1, 1998.
<PAGE>
area. In September1999, ENGI was awarded the franchise to serve the city of
Berlin, New Hampshire, a community of about 12,000 inhabitants which is located
in the northern part of the state approximately 100 miles from the rest of
ENGI's service area. ENGI is subject to the regulatory supervision of the New
Hampshire Public Utilities Commission ("NHPUC") as to gas sales and
transportation rates, securities issuances and other matters. The Merger is
subject to the approval of the NHPUC. EnergyNorth's principal non-utility
subsidiaries are EnergyNorth Propane, Inc. ("ENPI"), which sells propane to over
15,300 customers primarily within a 50-mile radius of Concord, New Hampshire;
ENI Mechanicals, Inc., which, through subsidiaries of its own, is engaged in the
design, construction and service of plumbing, heating, ventilation, air
conditioning and process piping systems; and EnergyNorth Resources, Inc., which
is engaged in an energy services joint venture.
For the fiscal year ended September 30, 1999, EnergyNorth reported
consolidated operating revenues of $119,172,000, of which $76,617,000
represented regulated gas sales and transportation. At September 30, 1999,
EnergyNorth had $168,325,000 in total assets, including net utility plant of
$113,730,000.
In the Merger, Merger Sub will merge with EnergyNorth, as a result of
which EnergyNorth will become a wholly-owned subsidiary of Eastern. The merger
agreement sets forth the terms of two different merger structures which would
apply depending upon whether the KeySpan Merger agreement is terminated prior to
the effective date of the Merger. Either Eastern or EnergyNorth may terminate
the merger agreement if, among other things, the Merger has not been consummated
by March 31, 2001 (subject to extension to September 30, 2001 if specified
conditions precedent remain unsatisfied).
If, as is expected, the Merger and the KeySpan Merger close
contemporaneously, then Merger Sub will be merged with and into EnergyNorth,
with EnergyNorth as the surviving corporation. In such case, each share of
common stock of EnergyNorth issued and outstanding immediately prior to the
effective date (other than treasury shares), will be canceled and extinguished
and automatically converted into the right to receive $61.13 in cash, without
interest. This amount is subject to increase if, for any reason, the
consideration to be paid for each share of Eastern common stock in the KeySpan
Merger is increased above $64.00 per share.
If, on the other hand, the KeySpan Merger agreement is terminated prior
to the effective date, EnergyNorth will be merged with and into Merger Sub, with
Merger Sub as the surviving corporation having all the rights, interests, and
obligations of EnergyNorth. Merger Sub will change its name to "EnergyNorth,
Inc." and remain a wholly-owned subsidiary of Eastern. ENGI will remain a
wholly-owned subsidiary of "new" EnergyNorth.. In this case, holders of
EnergyNorth common stock may elect to receive cash or Eastern common stock,
subject to proration. A total of 49.9% of the outstanding shares of EnergyNorth
common stock will be exchanged for cash and the remainder will be exchanged for
shares of Eastern common stock. Each share of EnergyNorth common stock exchanged
for cash will entitle the holder to receive $47.00. 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 $47.00 based on the average of the daily
per share weighted averages of the trading prices 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
<PAGE>
the Merger, so long as that weighted average price is not less than $36.00 or
higher than $44.00. If this average is less than $36.00, each share of
EnergyNorth common stock not exchanged for cash will entitle the holder to
receive approximately 1.3056 shares of Eastern common stock. On the other hand,
if this average is higher than $44.00, each share of EnergyNorth common stock
not exchanged for cash will entitle the holder thereof to receive approximately
1.0682 shares of Eastern common stock. Accordingly, if this average is below
$36.00 or above $44.00, the actual value of the number of Eastern shares
received for an EnergyNorth share would be less than or more than $47.00.
Eastern states that the proposed Merger meets all the substantive
requirements of Section 10(c) and (f) of the Act and that there is no basis for
the Commission to make any adverse findings under Section 10(b). Specifically,
Eastern states that the gas utility operations of ENGI, when combined with those
of Boston Gas, Colonial Gas and Essex Gas, will constitute an integrated gas
utility system within the meaning of Section 2(a)(29)(B) of the Act, and that,
as a result of the Merger, ENGI will be able to achieve cost reductions in the
corporate and administrative areas through the elimination of redundant job
functions and coordination of operations. In total, it is estimated that
operations and maintenance expense savings of $5.7 million annually are
potentially attainable in the near term as a result of the Merger. In addition,
the Merger will allow ENGI to utilize Eastern's information systems and software
technology. It is estimated that ENGI would have to incur costs of approximately
$4.3 million on a stand-alone basis to implement and/or modify these necessary
systems.
Eastern also requests that the Commission issue an order confirming
that Eastern and its subsidiary companies as such, will continue to qualify for
an exemption under Section 3(a)(1) of the Act following the Merger,
notwithstanding that ENGI is incorporated and operates exclusively in New
Hampshire. In this regard, Eastern represents that it will not derive any
material part of its income from ENGI and that Eastern and its public-utility
subsidiaries following the Merger will remain predominantly intrastate in
character and carry on their business substantially in a single state (i.e.,
Massachusetts).
EXHIBIT J
SCHEDULE OF ESTIMATED FEES AND EXPENSES IN
CONNECTIONWITH THE PROPOSED TRANSACTION
(In Thousands)
------------
Investment Banking Fees $3,775
Legal and Regulatory 1,200
Accounting Fees 125
Filing Fees 85
Printing 100
Proxy Solicitation 25
Exchange Agent 50
Miscellaneous 110
---------
$5,470
