<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
FILED BY THE REGISTRANT [X] FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]
- --------------------------------------------------------------------------------
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
EASTERN UTILITIES ASSOCIATES
(Name of Registrant as Specified In Its Charter)
EASTERN UTILITIES ASSOCIATES
(Name of Person(s) Filing Proxy Statement)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
LOGO
ONE LIBERTY SQUARE
P.O. BOX 2333, BOSTON, MA 02107
March 25, 1998
To Our Shareholders:
We extend our personal invitation to join us at the Annual Meeting of
Shareholders on May 18, 1998.
The formal Notice of Meeting and Proxy Statement appear on the following
pages and contain details of the business to be conducted at the Annual Meeting.
It is important that you promptly sign and return the enclosed proxy card
for the annual election of Trustees.
We appreciate your attention to this important action and look forward to
seeing you at our Annual Meeting.
Sincerely,
DONALD G. PARDUS
Chairman of the Board
<PAGE> 3
LOGO
ONE LIBERTY SQUARE
P.O. BOX 2333, BOSTON, MA 02107
NOTICE OF ANNUAL MEETING
March 25, 1998
To Our Shareholders:
Notice is hereby given that the Annual Meeting of the Shareholders of
Eastern Utilities Associates, a voluntary association formed under a Declaration
of Trust dated April 2, 1928, as amended, will be held in the Enterprise Room on
the 5th floor of the State Street Bank and Trust Company, 225 Franklin Street,
Boston, Massachusetts, on Monday, May 18, 1998, at 9:30 a.m., for the following
purposes:
1. To elect eleven (11) Trustees of the Association for the ensuing year.
2. To transact such other business as may properly come before the
meeting.
Only Common Shareholders of record on the transfer books of the Association
at the close of business March 20, 1998 will be entitled to vote at the meeting
of which notice is hereby given and at any and all adjournments thereof. In the
election of Trustees, the holders of common shares have the right of cumulative
voting as provided in Article 28 of the Declaration of Trust, as amended.
You are urged to sign, date and return the enclosed proxy at your earliest
convenience to Proxy Services, Boston EquiServe, P.O. Box 9377, Boston,
Massachusetts 02205-9952. An envelope is enclosed for that purpose.
You are invited to be present at the meeting and in the event you do
attend, any proxy previously signed may be revoked and your shares voted in
person at the meeting.
By Order of the Trustees,
CLIFFORD J. HEBERT, JR.
Treasurer and Secretary
<PAGE> 4
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
MAY 18, 1998
March 25, 1998
The accompanying proxy is solicited on behalf of the Trustees of Eastern
Utilities Associates for use at the Annual Meeting of the Shareholders to be
held in the Enterprise Room on the 5th floor of the State Street Bank and Trust
Company, 225 Franklin Street, Boston, Massachusetts, on Monday, May 18, 1998 for
the purposes set forth in the foregoing Notice of Annual Meeting and at any and
all adjournments thereof. This Proxy Statement and form of proxy were sent to
Shareholders on or about March 25, 1998.
The person giving such a proxy may revoke it at any time before it is
voted, by a later dated proxy delivered pursuant to this solicitation, by other
written revocation received by the Secretary, or by oral revocation in person at
the meeting.
An Annual Report, including financial statements, accompanies this
statement.
There are outstanding 20,435,997 common shares, the holders of which are
entitled, for each share held of record at the close of business on March 20,
1998, to one vote per share in person or by proxy, on all matters acted on at
the meeting, except that, as provided in Article 28 of the Declaration of Trust,
as amended, the election of Trustees will be by cumulative voting, namely, each
holder of common shares will be entitled to as many votes as will equal the
number of his shares multiplied by the number of Trustees to be elected, and he
may cast all of such votes in person or by proxy for a single candidate or
distribute them among any two or more candidates as he shall elect. The only
candidates eligible for election as Trustees will be those who have been
nominated by notice given in writing to the Secretary at least twenty-four (24)
hours prior to the time fixed for the calling to order of the meeting at which
the vote is to be taken.
The Association's Declaration of Trust provides that a quorum for the
meeting shall consist of the representation in person or by proxy at the meeting
of shareholders entitled to a majority or more of the votes that could be cast
at the meeting. The election of Trustees is by plurality vote, such that the 11
nominees with the highest vote totals will be elected. Withheld votes as to a
particular nominee affect vote totals for that nominee. Broker non-votes will
not affect the outcome of the election. If an individual has signed a proxy card
but has not voted on a particular matter, such proxy will be voted in favor of
management's recommendation with respect to such matter in accordance with the
discretion granted to the proxies.
<PAGE> 5
ELECTION OF TRUSTEES AND OWNERSHIP OF COMMON SHARES
It is proposed to elect eleven (11) Trustees to serve for the ensuing year
until the next Annual Meeting of the Shareholders or until succeeding Trustees
have been chosen and qualified. Unless otherwise directed, the persons named on
the accompanying proxy will vote for the election of the eleven nominees listed
below as Trustees of the Association. If, for any reason, any of the nominees
should become unavailable to serve, the persons named on the accompanying proxy
will vote for such other nominees as a majority of the Trustees may approve. In
addition, the persons named on the accompanying proxy may cast, at their
discretion, any or all votes cumulatively among any number of such nominees.
All of the nominees in the following table are at present Trustees of the
Association and were elected to their present term of office at the Annual
Meeting of Shareholders held on May 19, 1997.
Each of the nominees has served in the capacity indicated in the list for
more than five years, with the exception of Russell A. Boss, who was Chief
Operating Officer of A.T. Cross Company until April 1993, Paul J. Choquette,
Jr., who was President of Gilbane Building Company until December 1997 and Jacek
Makowski, who was Chairman and Chief Executive Officer of J. Makowski Company
prior to 1996.
In addition to their principal occupations in the following table, the
nominees are trustees or directors of publicly held companies as follows: Mr.
Boss is a Director of A.T. Cross Company and Brown & Sharpe Manufacturing Co.;
Mr. Choquette is a Director of Fleet Financial Group and Carlisle Companies,
Inc.; Mr. Freeman is a Trustee or Director of a A.H. Belo Corporation, Amica
Mutual Insurance Company, Amica Life Insurance Company and various registered
mutual funds for which Scudder, Stevens & Clark is investment advisor; Mr.
Liebenow is a Director of Quaker Fabric Corporation; Mr. Marple is a Trustee of
various registered mutual funds for which Scudder, Stevens & Clark is investment
advisor; Ms. Stapleton is a Director of Colonial Gas Company; and Mr. Thorndike
is a Director of Courier Corporation, Data General Corporation and Bradley Real
Estate Inc. and a Trustee of the Putnam Funds. In February 1994, Mr. Thorndike
accepted appointment as a successor trustee of private trusts in which he has no
beneficial interest, and concurrently become, serving until October 1994,
Chairman of the Board of two privately owned corporations controlled by such
trusts that filed voluntary petitions for relief under Chapter 11 of the United
States Bankruptcy Code in August 1994.
Two Trustees also are directors of subsidiaries of the Association having
registered securities outstanding as follows: Mr. Pardus, Blackstone Valley
Electric Company and Eastern Edison Company; and Mr. Stevens, Blackstone Valley
Electric Company and Eastern Edison Company.
2
<PAGE> 6
The table below also sets forth the information concerning beneficial
ownership by the nominees, by each of the executive officers named in the
Summary Compensation Table on page 4 and by all Trustees and executive officers
as a group.
<TABLE>
<CAPTION>
COMMON
SHARES OF THE
ASSOCIATION
BENEFICIALLY
AGE AT OWNED AT
DECEMBER 31, TRUSTEE JANUARY 2,
NAME 1997 PRINCIPAL OCCUPATION SINCE 1998(A)
---- ------------ -------------------- ------- -------------
<S> <C> <C> <C> <C>
Russell A. Boss (F,P) 59 President and Chief Executive 1989 1,000(b)
Officer, A.T. Cross Company
(writing instruments
manufacturer), Lincoln, Rhode
Island
John D. Carney 53 Executive Vice President of the -- 10,734(c)
Association
Paul J. Choquette, Jr. (C,F) 59 Chairman and Chief Executive 1992 2,137(f)
Officer of Gilbane Building
Company (building construction),
Providence, Rhode Island
Peter S. Damon (A,C) 62 President and Chief Executive 1991 1,190(d)
Officer, Bank of Newport,
Newport, Rhode Island
Peter B. Freeman (F,P) 65 Corporate Director and Trustee, 1979 2,500
Providence, Rhode Island
Clifford J. Hebert, Jr. 50 Treasurer and Secretary -- 11,879(c)
Larry A. Liebenow (A,C) 54 President and Chief Executive 1994 1,000
Officer of Quaker Fabric
Corporation (upholstery
manufacturer), Fall River,
Massachusetts
Jacek Makowski (F,P) 67 Chairman, Poseidon Resources 1995 200
Corporation (origination and
development of major capital
projects), Stamford, Connecticut
Wesley W. Marple, Jr. (A,C) 65 Professor of Business 1976 1,885(e)
Administration, Northeastern
University, Boston, Massachusetts
Donald G. Pardus 57 Chairman of the Board of Trustees 1982 49,725(c)
and Chief Executive Officer of
the Association
Robert G. Powderly 50 Executive Vice President of the -- 14,789(c)
Association
Margaret M. Stapleton (A,P) 61 Vice President, John Hancock 1977 1,577
Mutual Life Insurance Company,
Boston, Massachusetts
John R. Stevens 57 President and Chief Operating 1990 28,068(c)
Officer of the Association
W. Nicholas Thorndike (A,F) 64 Corporate Director and Trustee, 1991 2,146
Brookline, Massachusetts
Trustees and executive officers as a group..................................................... 128,832(g)
</TABLE>
- ---------------
(A), (C), (F), and (P) indicate member of Audit, Compensation and
Nominating, Finance or Pension Trust Committees, respectively.
(a) Unless otherwise indicated, beneficial ownership is based on sole
investment and voting power. Each nominee's ownership represents less than
three-tenths of one percent of the outstanding common shares of the
Association.
(Footnoes continued on following page)
3
<PAGE> 7
(b) In addition, Mr. Boss owns 5 shares of Blackstone Valley Electric Company's
4.25% Preferred Stock.
(c) Jointly owned with spouse except for 1,725, 2,280, 5,821, 2,235, and 2,347
shares held under the Association's Employees' Savings Plan for Messrs.
Carney, Hebert, Pardus, Powderly and Stevens, respectively, as to which
each has voting power, and 6,534, 6,140, 22,876, 7,583 and 17,796 shares
held under the Eastern Utilities Associates Restricted Stock Plan by
Messrs. Carney, Hebert, Pardus, Powderly and Stevens, respectively, as to
which each has voting power. Also included are 2,475, 3,459, 498, 4,721 and
3,424 shares individually owned by Messrs. Carney, Hebert, Pardus, Powderly
and Stevens.
(d) Jointly owned with spouse, except for 200 shares held individually.
(e) In addition, Mr. Marple's spouse owns 263 common shares. Mr. Marple
disclaims any beneficial interest in such shares.
(f) In addition, Mr. Choquette's spouse owns 150 common shares. Mr. Choquette
disclaims any beneficial interest in such shares.
(g) Represents approximately six-tenths of one percent of total outstanding
common shares.
As of December 31, 1997, there were no beneficial owners of 5% or more of
the Association's outstanding common shares.
COMPENSATION AND OTHER TRANSACTIONS
SUMMARY COMPENSATION TABLE
Information is set out below as to compensation paid by the Association and
its subsidiaries for the years 1995, 1996 and 1997, to each of the five highest
paid executive officers of the Association whose aggregate cash compensation for
1997 exceeded $100,000.
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
----------------------------------------------- ------------
OTHER RESTRICTED
FISCAL INCENTIVE ANNUAL STOCK ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) AWARDS(2) COMPENSATION(3)
- --------------------------- ------ ------ --------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Donald G. Pardus......... 1997 $428,525 $167,112 $12,747 $232,617 $13,775
Chairman and Chief 1996 $412,025 -- $12,383 -- $12,976
Executive Officer 1995 $400,025 $ 85,000 $13,696 $319,401 $13,519
John R. Stevens.......... 1997 $334,325 $133,665 $11,763 $232,617 $10,726
President and Chief 1996 $321,425 -- $ 8,636 -- $10,104
Operating Officer 1995 $312,025 $ 68,000 $ 7,300 $202,561 $10,513
Robert G. Powderly....... 1997 $184,025 $ 50,663 $10,240 $116,322 $ 5,560
Executive Vice President 1996 $176,025 -- $10,210 -- $ 5,321
1995 $168,025 $ 32,787 $ 9,790 $ 71,024 $ 4,960
John D. Carney........... 1997 $179,525 $ 50,663 $10,502 $ 87,235 $ 5,624
Executive Vice President 1996 $169,525 -- $10,018 -- $ 5,108
1995 $155,775 $ 32,787 $ 4,025 $ 72,749 $ 4,233
Clifford J. Hebert, Jr. ... 1997 $136,025 $ 28,071 -- $116,322 $ 4,078
Treasurer and Secretary.. 1996 $129,525 -- -- -- $ 3,846
1995 $121,025 $ 17,402 -- $ 37,835 $ 3,557
</TABLE>
- ---------------
(1) Represents amount reimbursed for tax liability accruing as a result of
personal use of company-owned automobiles.
(2) Aggregate amount and value (including the value reflected in the table under
"Restricted Stock Awards") of shares held under the Association's Restricted
Stock Plan to the officers listed above are as follows: Mr. Pardus, 22,876
shares, $552,018; Mr. Stevens, 17,796 shares, $435,178; Mr. Powderly, 7,583
4
<PAGE> 8
shares, $187,346; Mr. Carney, 6,534 shares, $159,984; and Mr. Hebert, 6,140
shares, $154,157. Dividends are paid on these shares.
(3) Contributions made under the Association's Employees' Savings Plan and term
life insurance premiums.
The Employee's Retirement Plan of Eastern Utilities Associates and its
Affiliated companies (the "Pension Plan") is a tax-qualified defined benefit
plan available to employees who have completed one year of service and have
attained the age of twenty-one. All of the officers referred to in the preceding
Summary Compensation Table participate in the Pension Plan. Trustees who are not
also employees of the Association and its subsidiaries (the "EUA System") are
not covered by the Pension Plan. The benefits of participants become fully
vested after five years of service. Annual lifetime benefits are determined
under formulas applicable to all employees, regardless of position, and the
amounts depend on length of credited service and salaries prior to retirement.
Benefits are equal to one and six-tenths percent of salaries (averaged over the
four years preceding retirement) for each year of credited service up to
thirty-five, reduced for each year by one and two-tenths percent of the
participants' estimated age sixty-five Social Security benefit, plus
seventy-five hundredths percent of salaries for each year of credited service in
excess of thirty-five years up to the Pension Plan maximum of forty years.
Any contributions to provide benefits under the Pension Plan are made by
the EUA System in amounts determined by the Pension Plan's actuaries to meet the
funding standards established by the Employee Retirement Income Security Act of
1974. Any contributions are actuarially determined and cannot appropriately be
allocated to individual participants. The annual benefits shown in the table
below are straight life annuity amounts, without reduction for primary Social
Security benefits as described above. Federal law limits the annual benefits
payable from qualified pension plans in the form of a life annuity, after
reduction for Social Security benefits, to $120,000 for 1997 and $130,000 for
1998 plus adjustments for increases in the cost of living. The number of years
of service credited at present under the Pension Plan to Messrs. Pardus,
Stevens, Carney, Powderly and Hebert are thirty-five, thirty-two, thirty-one,
eighteen and twenty-one, respectively.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
AVERAGE ---------------------------------------------------------------
ANNUAL SALARY 15 20 25 30 35 40
------------- -- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C>
$100,000........................ $ 24,000 $ 32,000 $ 40,000 $ 48,000 $ 56,000 $ 59,750
200,000........................ $ 48,000 $ 64,000 $ 80,000 $ 96,000 $112,000 $119,500
300,000........................ $ 72,000 $ 96,000 $120,000 $144,000 $168,000 $179,250
400,000........................ $ 96,000 $128,000 $160,000 $192,000 $224,000 $239,000
500,000........................ $120,000 $160,000 $200,000 $240,000 $280,000 $298,750
600,000........................ $144,000 $192,000 $240,000 $288,000 $336,000 $358,500
</TABLE>
The Association has a Key Executive Plan for certain officers of the
Association and its subsidiaries. This plan provides for the annual payment of
supplemental retirement benefits equal to 25% of the officer's base salary when
he retires, for a period of fifteen (15) years following the date of retirement.
In addition, in the event of the death of the participant prior to retirement an
amount equal to 200% of the officer's base salary at that time will be paid to
his beneficiary. A grantor trust has been established by the Association to help
ensure the performance of its payment obligations under the Key Executive Plan.
Any amount not covered by trust payments or otherwise will be paid from funds
available to the EUA System.
The Association maintains non-qualified, unfunded retirement plans (the
"Restoration Plans") to restore benefits under the qualified plans' formulas
which are not covered under the qualified plan trusts due to federal limitations
on either earnings, contributions or benefits. Payments or contributions which
exceed the applicable federal limitations are made outside the qualified plans
in the same manner and under the same conditions as are applicable to benefits
payable from, or contributions payable to, the qualified plans. A grantor trust
has been established by the Association to help ensure the performance of its
payment obligations under these plans. Any amounts not covered by trust payments
or otherwise will be paid from funds available to the EUA System.
5
<PAGE> 9
CHANGE-IN-CONTROL ARRANGEMENTS
Severance agreements with executive officers of the Association and certain
of its affiliates provide that an officer's rate of compensation, benefits,
position, responsibilities and other conditions of employment will not be
reduced during the term of the agreement, which is thirty-six months commencing
upon the date on which a Change in Control, as defined in the agreements, of the
Association occurs. If within thirty-six months after a Change in Control the
officer's employment is terminated for any reason other than Cause, as defined
in the agreements, the Association will, (i) pay the officer within five
business days a lump-sum cash amount generally equal to the present value of the
additional wages and retirement benefits that the executive would have received
in return for completing an additional three years of service, (ii) continue or
vest certain fringe benefits and common share grants, (iii) reimburse legal fees
and expenses incurred as a result of the termination or to enforce the
provisions of the severance agreement and (iv) reimburse for a portion of the
taxes on certain of the foregoing payments, including any amount contributing a
"parachute payment" under the Internal Revenue Code. If the officer leaves the
employ of the Association or a subsidiary following a reduction in his position,
compensation, responsibilities, authority or other benefits existing prior to
the Change in Control, or suffers a relocation of regular employment of more
than fifty miles, such departure will be deemded to be a termination for reasons
other than Cause.
COMPENSATION OF TRUSTEES
Each non-management Trustee of the Association receives, as a standard
arrangement, a retainer fee for all services as a Trustee in the amount of
$16,000 annually, with an additional $850 fee for each Trustees' or Committee
meeting attended. In addition, each committee chairperson receives an annual
retainer fee in the amount of $2,500. Upon leaving the Board, each
non-management Trustee who has attained the age of sixty and who has served as a
member of the Board of Trustees for a least five years is entitled to an annual
amount, equal to the then current annual retainer paid to active Trustees, for
as many full years as that Trustee has served as a Trustee. In the event of a
change in control of the Association, a grantor trust has been established by
the Association to ensure the performance of its payment obligations under this
retirement plan.
REPORT OF THE COMPENSATION AND NOMINATING COMMITTEE
ON COMPENSATION OF EXECUTIVE OFFICERS
The compensation philosophy of the Board of Trustee's Compensation and
Nominating Committee (the "Committee") and the Association is to be competitive
with prevailing utility industry compensation norms when satisfactory results
are achieved and surpass market norms when exceptional results are reached.
(Since the total compensation for any executive is still below the $1 million
threshold at which tax deductions are limited under the Internal Revenue Code,
the Committee has not had to address issues relative thereto.) The Committee is
composed entirely of independent, non-employee Trustees.
Compensation of executive officers, including the Chief Executive Officer
("CEO"), is a mix of three components, base salary, annual cash incentives and
long-term incentives ("Stock Grants"). In recent years, the Association has
moved toward placing a greater percentage of compensation at risk through the
use of annual cash incentives and Stock Grants. The incentives are designed to
retain the talent required to manage the Association's business through the
transition to competition and to enhance shareholder value. In 1997, the
Association also added a special retention stock grant component to the
compensation mix in an effort to enhance the probability of retaining certain
key management professionals for the next two years.
BASE SALARY
The Committee, working with an independent compensation consultant,
annually reviews the base salary of the CEO and the four other executive
officers named in the Summary Compensation Table on page 4. Each executive
officer, including those named above, is assigned a salary range which is
established using compensation data for comparable officer positions in other
utilities. These other utilities: 1) generally have the same level of annual
revenue as the Association; 2) operate in generally the same geographic areas as
the Association; and 3) have other characteristics similar to the Association.
None of the comparative utilities are
6
<PAGE> 10
included in the Standard & Poor's 26 Electric Utility Index ("S&P Electric
Utility Index") because their level of annual revenue is less than those
utilities included in that Index.
Each salary range has a minimum amount, a position value (reasonably
equivalent to market value) and an excess amount which is 10% above the position
value. Base salary is limited to no more than the excess amount. Although no
specific measure of corporate performance is used in determining base salary,
the Committee sets the base salaries for each of the officers listed in the
Summary Compensation Table after considering all of the following factors: 1)
the financial and operational performance of the Association; 2) observed
individual performance; 3) time in current position; 4) existing base salary
relative to position value and excess amount; and, 5) except for the CEO, input
of the CEO. Generally, the base salary of the CEO and the four other officers
approximates the averages for similar positions in the comparable utilities
described above. Base salary increases for 1997 were based on the factors
outlined above.
ANNUAL CASH INCENTIVES
The Association has had an Annual Cash Incentive Plan since 1987. The 1997
version of the Plan applicable to officers, other than the CEO and COO,
contained two Performance Objectives which were approved by the Committee in
early 1997. One Objective measures Core Electric Business Earnings Per Average
Common Share against a target. A Threshold Core Electric Business Earnings Per
Share must be reached before any Annual Cash Incentive is paid. The second
Performance Objective measures the Cost of Service Per Customer against a peer
group of 20 New England utilities. Each Performance Objective represents 40% of
the Performance Objectives.
The 1997 Core Electric Business Earnings Per Average Common Share exceeded
the Threshold amount necessary for an incentive award, but was less than the
1997 target. Performance under the Cost of Service Per Customer Objective
exceeded the 1997 target.
With respect to the peer group of 20 New England utilities used for the
Cost of Service Per Customer Performance Objective, none are included in the S&P
Electric Utility Index. This peer group was selected because it includes
virtually all of the electric utilities located in the same geographic area as
the Association (New England).
The remaining 20% of the total Objectives was discretionary. The officer
group had as its primary goal, the successful negotiation and regulatory
approval of comprehensive settlement agreements that will permit restructuring
and the transition to competition on a regional basis. Significant success was
accomplished in this effort and discretionary awards were made for 1997.
The Committee also considers and sets Annual Cash Incentive Awards to the
CEO and the COO. Four Performance Objective were utilized for 1997 Awards:
System Earnings Per Average Common Share (20% weight); Total Return Versus the
S&P Electric Utility Index (20% weight); Cost of Service Per Customer (20%
weight) and Discretion (40% weight).
A Threshold System Earnings Per Average Common Share must be met before any
Annual Cash Incentive Awards can be made to the CEO and COO. System Earnings Per
Average Common Share exceeded the Threshold amount necessary for an incentive
award, but was less than target. Total Return significantly exceeded the S&P
Electric Utility Index, while Performance under the Cost of Service Per Customer
Objective exceeded the 1997 target.
Discretionary awards to the CEO and COO for 1997 were to be based on
several factors, including performance measured against a series of six specific
goals designed primarily to measure financial and operational performance. The
1997 goals related to Price/Earnings Ratio, maximizing the value of EUA Cogenex,
year-end profitability of diversified operations, and three Qualitative
measures. Five of the six goals were met in 1997.
LONG-TERM INCENTIVES (STOCK GRANT PLAN)
The Association established a restricted stock grant plan in 1989 which, as
amended since then, is now the Eastern Utilities Associates Restricted Stock
Plan. The purpose of the plan is to assist the Association in
7
<PAGE> 11
securing, retaining and motivating key executives and to recognize their efforts
on behalf of the Association through awards of common shares of the Association.
Such grants may be awarded every third year and the currently outstanding awards
vest on the fifth anniversary of the date of the grant if the executive has
continued in the employment of the Association through that date. Restricted
stock grant awards were made in 1995 to the Executives listed in the Summary
Compensation Table on page 4 and additional restricted stock grants are expected
to be granted in early 1998. In addition, Special Retention Stock Grants were
awarded in 1997 (See below).
SPECIAL RETENTION STOCK GRANTS
In 1997, the Association recognized that it was vulnerable to the loss of
certain key management and professionals to new competitors due to the rapid
transition to a competitive utility environment in New England. The Association
was particularly concerned about losing those individuals involved in
implementing the Association's own restructuring plans over the next two years.
As a result, in late 1997, the Committee authorized the awarding of Special
Retention Stock Grants as a means of retaining these key individuals through
1999. These awards were made to 26 individuals, including the five executives
named in the Summary Compensation Table on page 4. In order to vest in the
Special Retention Stock Grant, individuals are required to stay in the employ of
the Association for a period of two years.
Compensation and Nominating Committee
Paul J. Choquette, Jr.
Larry A. Liebenow
Wesley W. Marple, Jr.
W. Nicholas Thorndike
8
<PAGE> 12
CORPORATE PERFORMANCE GRAPH
The following table compares total shareholder returns over the last five
fiscal years to the Standard & Poors 500 Stock Index ("S&P 500") and the S&P
Electric Utility Index. Total return values for the S&P 500, S&P Electric
Utility Index and Eastern Utilities Associates were calculated based on
cumulative total return values assuming reinvestment of dividends.
TOTAL RETURN SUMMARY
BASED ON INITIAL INVESTMENT OF $100
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG EASTERN UTILITIES ASSOCIATES, THE S&P 500 INDEX
AND THE S&P ELECTRIC UTILITY INDEX
LOGO
<TABLE>
Cumulative Total Return
12/92 12/93 12/94 12/95 12/96 12/97
<S> <C> <C> <C> <C> <C> <C>
Eastern Utils Assoc 100.00 119.21 99.69 114.74 92.02 151.74
S&P 500 100.00 110.08 111.53 153.54 188.68 251.64
S&P Electric Utility Index 100.00 112.60 97.89 128.32 128.11 161.73
</TABLE>
* $100 invested on 12/31/92 in stock or index -- including reinvestment of
dividends.
Fiscal Year ending December 31.
THE FOREGOING REPORT OF THE COMMITTEE AND THE CORPORATE PERFORMANCE GRAPH
THAT APPEARS IMMEDIATELY AFTER SUCH REPORT SHALL NOT BE DEEMED TO BE SOLICITING
MATERIAL OR TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE
SECURITIES ACT OF 1933 OR THE SECURITIES EXCHANGE ACT OF 1934 OR INCORPORATED BY
REFERENCE IN ANY DOCUMENT SO FILED.
COMMITTEES
In addition to eleven meetings of the Trustees, the following number of
meetings were held in 1997 by each of the four standing Committees of the
Association: Audit Committee (two); Compensation and Nominating Committee
(four); Finance Committee (five); and Pension Trust Committee (four). Each of
the Trustees, except Mr. Choquette, attended at least 75% of the total number of
meetings of the Trustees and of
9
<PAGE> 13
Committees on which he or she served. All members of the Committees are
non-management Trustees; the Chief Executive Officer of the Association serves
as Secretary of each Committee.
The general function of each standing Committee is outlined below.
The Audit Committee recommends the selection or retention of independent
auditors, consults with them with respect to the plan of audit, reviews with
them their audit report and consults with them and with the Association's
internal audit staff as to the adequacy of internal controls.
The Finance Committee monitors and reviews financial matters, including
financial forecasts. It makes recommendations to the Trustees with respect to
changes in dividend policy, the capital structures of the Association and of its
subsidiaries, and other financial issues.
The Pension Trust Committee reviews recommendations as to amendments to the
Retirement Plan and the Employees' Savings Plan, monitors the performance of the
investment managers for each plan's trust fund, determines overall objectives of
the trust funds, reviews the annual actuarial report, reviews the
appropriateness of certain actuarial assumptions and makes recommendations to
the Trustees.
The Compensation and Nominating Committee reviews the compensation of the
Chairman, the President, the Executive Vice Presidents and the Treasurer and
Secretary and the amount of fees to be paid to Trustees, monitors the Annual
Cash Incentive Plan and the Restricted Stock Plan, considers candidates
(including candidates recommended by Shareholders) to fill vacancies among the
Trustees, reviews membership on Committees of the Trustees and makes
recommendations to the Trustees. Shareholder recommendations should be submitted
in writing to the Chairman or the Secretary of the Association. This Committee
would recommend a successor to the Chief Executive Officer if that office became
vacant and would also deliberate on any plan in which officers or Trustees as a
class would be eligible to receive any additional compensation or related
benefit such as deferred compensation or stock options. All members are non-
employee Trustees and none has any direct or indirect material interest in or
relationship with the Association outside of his or her position as Trustee.
AUDITORS
Coopers & Lybrand L.L.P. Certified Public Accountants, are the
Association's auditors. Audit services of Coopers & Lybrand L.L.P. for 1997
included the examination, reporting and certification of the consolidated
financial statements of the Association contained in the Annual Report to
Shareholders and services related to certain filings with the Securities and
Exchange Commission.
Representatives of Coopers & Lybrand L.L.P. will be present at the Annual
Meeting, will have an opportunity to make a statement, and will be available to
answer appropriate questions.
OTHER MATTERS
Management does not intend to bring before the meeting any matters other
than those specified and has no 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 meeting or any adjournment thereof, the persons named
in the enclosed form of proxy, including any substitutes, are expected to vote
said proxy in accordance with their judgment on such matters.
EXPENSES
The expenses in connection with the solicitation of the enclosed form of
proxy will be borne by the Association. In order to obtain the requisite quorum
at the Annual Meeting, it may be necessary to solicit proxies by telephone,
telegraph or personal interview. The Association does not expect to pay any
compensation for the solicitation of proxies, but will pay brokers and other
persons holding shares in their names, or in the names of nominees, their
expenses, nominal in amount, for sending proxy material to principals and
obtaining their proxies.
10
<PAGE> 14
SHAREHOLDER PROPOSALS
The 1999 Annual Meeting of Shareholders is tentatively scheduled to be held
on or about May 17, 1999. Proposals of Shareholders intended to be presented at
the meeting must be received by the Association on or before November 24, 1998.
THE ASSOCIATION WILL FURNISH WITHOUT CHARGE A COPY OF ITS ANNUAL REPORT ON FORM
10-K, INCLUDING FINANCIAL STATEMENTS AND SCHEDULES THERETO, REQUIRED TO BE FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION FOR FISCAL YEAR 1997 UPON WRITTEN
REQUEST TO CLIFFORD J. HEBERT, JR., TREASURER AND SECRETARY, EASTERN UTILITIES
ASSOCIATES, P.O. BOX 2333, BOSTON, MASSACHUSETTS 02107.
11
<PAGE> 15
EUA24 DETACH HERE
EASTERN UTILITIES ASSOCIATES
THIS PROXY IS SOLICITED ON BEHALF OF THE TRUSTEES
PROXY
The undersigned hereby constitutes and appoints Wesley W. Marple, Jr.,
Donald G. Pardus and John R. Stevens, or any one or more of them, as Attorney,
with full power of substitution and revocation, to appear and vote all common
shares of Eastern Utilities Associates standing in the name of the undersigned
at the close of business on March 20, 1998, with all the powers which the
undersigned would possess if then and there present, at the Annual Meeting of
the Shareholders of the Association to be held in the Enterprise Room on the 5th
floor of the State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts, on Monday, May 18, 1998 at 9:30 A.M., and at any and all
adjournments thereof, and especially (but without limiting the general
authorization hereby given) to vote at said Annual Meeting (1) to elect
Trustees, as provided in the Proxy Statement and in accordance with any
specification made on the back hereof, and (2) with discretionary authority with
respect to any other matters which may properly come before the meeting, hereby
revoking any and all proxies heretofore given by the undersigned with respect to
such shares.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE) [SEE REVERSE
SIDE]
<PAGE> 16
EUA24 DETACH HERE
PLEASE MARK
[X] VOTES AS IN
THIS EXAMPLE
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MAKE, THIS PROXY WILL BE
VOTED FOR THE ELECTION OF ALL OF THE NOMINEES LISTED BELOW.
1. Election of Trustees
NOMINEES: R.A. Boss, P.J. Choquette, Jr., P.S. Damon, P.B. Freeman,
L.A. Liebenow, J. Makowski, W.W. Marple, Jr., D.G. Pardus,
M.M. Stapleton, J.R. Stevens, W.N. Thorndike.
FOR WITHHELD
ALL [ ] [ ] FROM ALL
NOMINEES NOMINEES
PLEASE MARK, SIGN, DATE AND RETURN
THE PROXY CARD PROMPTLY USING THE
- ------------------------------------------ ENCLOSED ENVELOPE.
Withhold vote from the nominees that I/we
have written on the above line, or cumulate Please sign exactly as your name
votes as I/we have instructed on the above appears. When shares are held by
line. by joint tenants, both 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.
MARK HERE FOR ADDRESS CHANGE AND
NOTE AT LEFT [ ]
Signature: Date: Signature: Date:
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