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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 [ ]
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Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[X] 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)
(Name of Person(s) Filing Proxy Statement)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No fee required. (Pursuant to Section 14A-2(A)(5) of Securities Exchange
Act of 1934)
[ ] 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:
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[Eastern Utilities LOGO]
April 16, 1999
To Our Shareholders:
We extend our personal invitation to join us at the Annual Meeting of
Shareholders on Monday, May 17, 1999.
At the meeting you will be asked to vote upon a proposal to approve an
Agreement and Plan of Merger dated as of February 1, 1999 by and among New
England Electric System ("NEES"), Research Drive LLC (the "Merger Subsidiary"),
a wholly owned subsidiary of NEES, and Eastern Utilities Associates ("EUA"). The
merger agreement provides that the Merger Subsidiary will be merged with and
into EUA; that EUA, as the surviving corporation, will become a wholly owned
subsidiary of NEES; and that each then outstanding common share of EUA (other
than shares held by EUA as treasury stock and any shares held by NEES or any
subsidiary of NEES) will be converted into the right to receive $31.00 in cash
(payable without interest), subject to upward adjustment to a maximum of $31.495
in the event that the closing of the merger does not occur within six months of
the date on which EUA shareholders approved the merger, calculated at the rate
of $0.003 for each day the merger is delayed past the end of the six month
period. The merger and certain related matters are described in detail in the
enclosed Notice of Annual Meeting and Proxy Statement. A copy of the merger
agreement is attached to the Proxy Statement as Annex I.
After careful consideration, the Board of Trustees (the "Board") has
approved the merger agreement and unanimously recommends that all shareholders
vote "FOR" approval of the merger agreement. The Board believes the merger is
fair and in the best interests of EUA and its shareholders. The Board has
received a written opinion dated February 1, 1999 of Salomon Smith Barney Inc.,
EUA's financial advisor, to the effect that, as of such date and based upon and
subject to certain matters stated in such opinion, the consideration to be
received in the merger by the holders of EUA's common shares was fair, from a
financial point of view, to such holders. A copy of the written opinion of EUA's
financial advisor is attached to the Proxy Statement as Annex II and should be
read carefully in its entirety.
The affirmative vote of holders of a two-thirds majority of the common
shares outstanding as of the record date will be necessary for approval of the
merger agreement and the transactions contemplated thereby. Accordingly, it is
important that you promptly sign and return the enclosed proxy card. The annual
election of Trustees will also occur at the Annual Meeting. 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.
We appreciate your prompt attention to this important action and look
forward to seeing you at the Annual Meeting.
Sincerely,
DONALD G. PARDUS
Chairman of the Board
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE FILL IN, SIGN AND DATE
THE ENCLOSED PROXY AND PROMPTLY RETURN IT IN THE POSTAGE-PAID RETURN ENVELOPE.
PLEASE DO NOT SEND ANY SHARE CERTIFICATES WITH YOUR PROXY CARD.
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[Eastern Utilities LOGO]
NOTICE OF ANNUAL MEETING
April 16, 1999
To Our Shareholders:
Notice is hereby given that the Annual Meeting of the Shareholders of
Eastern Utilities Associates ("EUA"), a voluntary association formed under a
Declaration of Trust dated April 2, 1928, as amended, will be held in the Board
Room on the 33rd floor of the State Street and Bank Trust Company, 225 Franklin
Street, Boston, Massachusetts, on Monday, May 17, 1999, at 9:30 a.m.
local time, for the following purposes:
1. To consider and vote upon the approval of an Agreement and Plan of
Merger dated as of February 1, 1999 (the "Merger Agreement") by and
among EUA, New England Electric System ("NEES"), a Massachusetts
business trust, and Research Drive LLC (the "Merger Subsidiary"), a
Massachusetts limited liability company that is wholly owned by NEES;
and the consummation of the merger contemplated thereby in accordance
with the terms of the Merger Agreement and the provisions of
Massachusetts General Laws ("MGL") Chapter 182, Section 2, MGL Chapter
156C, Sections 59 and 62, and Article 37 of this Association's
Declaration of Trust and the filing of a Certificate of Merger (the
"Certificate") with the Massachusetts Secretary of State in accordance
with MGL Chapter 156C, Section 61 and Article 38 of EUA's Declaration
of Trust, thereby adding the Certificate to the documents constituting
the Declaration of Trust, as amended, on file with the Massachusetts
Secretary of State. The Merger Agreement provides that the Merger
Subsidiary will be merged with and into EUA (the "Merger"); that EUA,
as the surviving corporation, will become a wholly owned subsidiary of
NEES; and that each then outstanding common share of EUA (other than
shares held by EUA as treasury stock, and shares held by NEES or any
subsidiary of NEES) will be converted into the right to receive $31.00
in cash (payable without interest), subject to upward adjustment to a
maximum of $31.495 in the event that the closing of the Merger does not
occur within six months of the date on which shareholders approved the
Merger, calculated at the rate of $0.003 for each day the Merger is
delayed past the end of the six month period;
2. To elect eleven Trustees of EUA for the ensuing year;
3. Vote on any shareholder proposal properly presented to the meeting; and
4. To transact such other business as may properly come before the
meeting.
Only holders of EUA common shares of record on the transfer books of
EUA at the close of business on April 14, 1999 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 EUA common shares have the right of
cumulative voting as provided in Article 28 of the Declaration of Trust, as
amended. Holders of EUA common shares are not entitled to dissenters' rights in
connection with the Merger.
You are urged to sign, date and return the enclosed proxy promptly to
Innisfree M&A Incorporated, FDR Station, P.O. Box 5143, New York, New York
10126-1037. 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 Board of Trustees,
CLIFFORD J. HEBERT, JR.
Treasurer and Secretary
PLEASE DO NOT SEND ANY SHARE CERTIFICATES WITH YOUR PROXY CARD.
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PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS OF
EASTERN UTILITIES ASSOCIATES
The accompanying proxy is solicited on behalf of the Board of Trustees
(the "Board") of Eastern Utilities Associates ("EUA") for use at the Annual
Meeting of Shareholders to be held commencing at 9:30 a.m. (local time) in the
Board Room on the 33rd floor of the State Street and Bank Trust Company, 225
Franklin Street, Boston, Massachusetts, on Monday, May 17, 1999 for the purposes
set forth in the foregoing Notice of Annual Meeting and at any and all
adjournments thereof. An Annual Report, including financial statements, has been
sent to shareholders prior to the mailing of this Proxy Statement. This Proxy
Statement and form of proxy were first sent to shareholders on or about April
17, 1999.
At the Annual Meeting, the holders of EUA common shares (the "Common
Shares") outstanding on the record date will be asked to consider and vote upon
a proposal to approve an Agreement and Plan of Merger dated as of February 1,
1999 (the "Merger Agreement") by and among New England Electric System ("NEES"),
a Massachusetts business trust, Research Drive LLC (the "Merger Subsidiary"), a
Massachusetts limited liability company which is wholly owned by NEES, and EUA.
The Merger Agreement provides that the Merger Subsidiary will be merged with and
into EUA (the "Merger"), that EUA, as the surviving corporation, will become a
wholly owned subsidiary of NEES, and that each then outstanding Common Share of
EUA (other than shares held by EUA as treasury stock and shares held by NEES or
any subsidiary of NEES (collectively, the "Excluded Shares")) will be converted
into the right to receive $31.00 in cash (payable without interest), subject to
upward adjustment to a maximum of $31.495 in the event that the closing of the
Merger does not occur within six months of the date on which shareholders
approved the Merger, calculated at the rate of $0.003 for each day the Merger is
delayed past the end of the six month period (the "Merger Consideration"). In
addition, at the Annual Meeting shareholders will also be asked to consider and
vote upon the election of eleven Trustees, any shareholder proposal properly
presented to the meeting, and any other business as may properly come before the
meeting.
The Board has fixed the close of business on April 14, 1999 as the
record date for determination of holders of record of Common Shares entitled to
notice and to vote at the meeting. There were outstanding 20,435,997 Common
Shares on the record date, the holders of which are entitled 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 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 proposal set forth in the Notice of Annual Meeting for approval
and adoption of the Merger Agreement, however, will require the affirmative vote
of two-thirds of all Common Shares outstanding on the record date. Broker
non-votes will not be deemed to be voted on such matter but will be the
equivalent of a negative vote on the Merger proposal. The election of Trustees
is by plurality vote, such that the eleven 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 a shareholder has signed a proxy card but has not indicated how such
shareholder's Common Shares are to be voted, the Common Shares represented by
the proxy card will be voted "FOR" approval of the Merger Agreement and the
Merger, and "FOR" the Board's nominees for Trustees. The proxy card also confers
discretionary authority on the individuals appointed by the Board and named on
the proxy card to vote the Common Shares represented thereby on any other matter
which is properly presented for action at the Annual Meeting.
The date of this Proxy Statement is April 16, 1999.
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TABLE OF CONTENTS
<TABLE>
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Page
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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS.......................................4
SUMMARY..........................................................................................5
The Parties.............................................................................5
The Annual Meeting......................................................................5
The Merger..............................................................................5
Shareholder Approval of the Merger......................................................6
Effective Time..........................................................................6
Effects of the Merger...................................................................6
Surrender of Certificates and Payment for Shares........................................6
Background of the Merger................................................................6
Recommendation of the Board of Trustees and Reasons for the Merger......................6
Opinion of EUA's Financial Advisor......................................................7
Conditions To The Merger................................................................7
Rights To Terminate and Amendments......................................................7
Accounting Treatment....................................................................7
United States Federal Income Tax Consequences...........................................7
Regulatory Matters......................................................................7
Interests of Certain Persons in the Merger..............................................8
Market Prices and Dividends on EUA's Common Shares......................................8
Special Dividend........................................................................8
No Dissenters' Rights...................................................................8
Incorporation by Reference; Available Documents.........................................8
MARKET PRICES OF THE COMMON SHARES AND DIVIDEND HISTORY..........................................9
Special Dividend........................................................................9
THE ANNUAL MEETING..............................................................................10
Date, Time and Place...................................................................10
Matters to be Considered...............................................................10
Voting and Record Date.................................................................10
Proxies and Revocation of Proxies......................................................10
Costs of Solicitation..................................................................11
Surrender of Certificates and Payment for Shares after Completion of the Merger........11
No Dissenters' Rights..................................................................11
THE MERGER......................................................................................12
General................................................................................12
Background.............................................................................12
Recommendation of the Board of Trustees and Reasons for the Merger.....................15
Opinion of EUA's Financial Advisor.....................................................16
The Merger Agreement...................................................................20
Accounting Treatment...................................................................28
United States Federal Income Tax Consequences..........................................28
Certain Effects of The Merger..........................................................29
REGULATORY MATTERS..............................................................................30
Federal Power Act......................................................................30
Nuclear Regulatory Commission..........................................................30
SEC Approval Pursuant to 1935 Act......................................................30
State Regulatory Approvals.............................................................31
Antitrust Considerations...............................................................31
Other Regulatory Matters...............................................................31
</TABLE>
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<TABLE>
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Page
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INTERESTS OF CERTAIN PERSONS IN THE MERGER......................................................32
Executive Severance Agreements.........................................................32
Benefit Enhancements For Certain Trustees and Executive Officers.......................32
Indemnification for the Benefit of Trustees and Executive Officers.....................33
Restricted Stock Plan..................................................................34
CERTAIN INFORMATION CONCERNING EUA..............................................................35
SELECTED CONSOLIDATED FINANCIAL DATA OF EUA.....................................................36
CERTAIN INFORMATION CONCERNING NEES AND NATIONAL GRID...........................................37
New England Electric System............................................................37
National Grid..........................................................................37
ELECTION OF TRUSTEES AND OWNERSHIP OF SHARES....................................................38
COMPENSATION AND OTHER TRANSACTIONS.............................................................41
Summary Compensation Table.............................................................41
Pension Plan Table.....................................................................42
Change-In-Control Arrangements.........................................................43
Compensation of Trustees...............................................................43
REPORT OF THE COMPENSATION AND NOMINATING COMMITTEE ON COMPENSATION OF EXECUTIVE OFFICERS.......44
Base Salary............................................................................44
Annual Cash Incentives.................................................................44
Long-Term Incentives (Stock Grant Plan)................................................45
Special Retention Stock Grants.........................................................46
CORPORATE PERFORMANCE GRAPH.....................................................................47
COMMITTEES......................................................................................48
AUDITORS........................................................................................48
OTHER MATTERS...................................................................................48
DEADLINE FOR SHAREHOLDER PROPOSALS FOR 2000 ANNUAL MEETING......................................49
AVAILABLE INFORMATION...........................................................................49
INCORPORATION BY REFERENCE......................................................................49
</TABLE>
ANNEX I: Agreement and Plan of Merger dated as of February 1, 1999
ANNEX II: Opinion of Salomon Smith Barney Inc. dated February 1, 1999
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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Certain matters discussed in this proxy statement constitute forward-
looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995. The forward-looking statements relate to anticipated
financial performance, management's plans and objectives for future operations,
business prospects, outcome of regulatory proceedings, market conditions and
other matters. The Private Securities Litigation Reform Act of 1995 provides a
safe harbor for forward-looking statements in certain circumstances. The
following discussion is intended to identify statements and certain factors that
could cause future outcomes to differ materially from those set forth in the
forward-looking statements.
Forward-looking statements include the information concerning possible
or assumed future results of operations of EUA set forth under "Summary-The
Merger," "The Merger," "Opinion of EUA's Financial Advisor" and "The
Merger-Recommendation of the Board of Trustees and Reasons for the Merger" and
other statements in this proxy statement identified by words such as "will
likely result," "anticipate," "estimate," "expect," "intend," "project,"
"believe," and "objective," and include, in particular, the statements as to (1)
the business, financial condition, earnings and prospects of EUA and NEES
expected in the future, (2) the beliefs and the basis for those beliefs set
forth under "The Merger-Recommendation of the Board of Trustees and Reasons for
the Merger" and (3) the estimates, projections and forecasts analyzed by EUA's
financial advisor in connection with its opinion as set forth under "The
Merger-Opinion of EUA's Financial Advisor." Readers are cautioned not to place
undue reliance on such forward-looking statements, which involve known and
unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of EUA to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors may affect EUA's operations, markets,
products, services and prices. In addition to any assumptions and other factors
referred to specifically in connection with such forward-looking statements,
factors that could cause EUA's actual results to differ materially from those
contemplated in any forward-looking statement include, among others, the
following and related matters: developments which could entitle NEES to
terminate the Merger Agreement, including regulatory matters; or conditions
imposed by regulatory bodies in considering the Merger; adverse regulatory
treatment; the loss of any significant customers; changes in business strategy
or development plans; the speed and degree to which competition enters the
electric utility industry, state and federal legislative and regulatory
initiatives that increase competition, affect cost or investment recovery or
have an impact on rate structures, industrial, commercial and residential growth
in the service territory of EUA; the impact of general economic changes in New
England; changing fuel prices; distribution facility performance and possible
power shortages; changes in accounting rules and interpretations which may have
an adverse impact on the statements of financial position and reported earnings
of EUA's subsidiaries; adverse changes in electric load and customer growth; the
weather and other natural phenomena; the timing and extent of changes in
interest rates; and the development of opportunities for growth by EUA's
subsidiaries. EUA does not assume any obligation to update such forward-looking
statements to reflect actual results, changes in assumptions or changes in other
factors affecting such forward-looking statements.
4
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SUMMARY
The following is a brief summary of information contained elsewhere in
this Proxy Statement. Although this summary sets forth the material features of
the proposed Merger, it is not all-inclusive and is qualified in its entirety by
reference to the more detailed information set forth elsewhere in this Proxy
Statement and the documents in the Annexes attached to this Proxy Statement.
Certain capitalized terms used in this summary are defined elsewhere in this
Proxy Statement. You are urged to read this Proxy Statement and the Annexes
attached hereto in their entirety. This summary does not cover information
included elsewhere in this Proxy Statement with respect to the election of
Trustees to be acted upon at the Annual Meeting in addition to the proposed
Merger.
THE PARTIES
Eastern Utilities Associates is a Boston-based, Massachusetts business
trust and public utility holding company whose subsidiaries include electric
transmission, generation and distribution utilities in southeastern
Massachusetts and northern and south coastal Rhode Island. These utilities
provide electric service to approximately 300,000 customers. Its principal
executive offices are located at One Liberty Square, P.O. Box 2333, Boston,
Massachusetts 02109 and its telephone number at such offices is (617) 357-9590.
See "CERTAIN INFORMATION CONCERNING EUA."
New England Electric System is a Massachusetts business trust and a
public utility holding company. The principal subsidiaries of NEES include New
England Power Company, which is engaged in the transmission and generation of
electricity, and four electricity delivery companies in Massachusetts, Rhode
Island and New Hampshire. The company announced on December 14, 1998, that it
will merge with The National Grid Group plc ("National Grid"), which is based in
Coventry, England. Upon completion of that merger, NEES will become a wholly
owned subsidiary of National Grid. NEES' principal executive offices are located
at 25 Research Drive, Westborough, Massachusetts 01582 and its telephone number
at such offices is (508) 389-2000. See "CERTAIN INFORMATION CONCERNING NEES AND
NATIONAL GRID."
Research Drive LLC is a newly formed Massachusetts limited liability
company wholly owned by NEES and formed for purposes of the Merger. Its
principal executive offices are located at 25 Research Drive, Westborough,
Massachusetts 01582 and its telephone number at such offices is (508) 389-2000.
THE ANNUAL MEETING
Meeting Date; Purposes. The Annual Meeting of Shareholders of EUA will
be held in the Board Room on the 33rd floor of the State Street and Bank Trust
Company, 225 Franklin Street, Boston, Massachusetts on Monday, May 17, 1999, at
9:30 a.m. local time. At the Annual Meeting, shareholders will (1) vote on a
proposal to approve the Merger Agreement, (2) elect eleven Trustees, (3) vote on
any shareholder proposal properly presented to the meeting, and (4) transact
such other business as may properly come before the meeting. See "THE ANNUAL
MEETING."
Record Date; Shares Entitled To Vote. The Board has fixed the close of
business on April 14, 1999 as the record date for the determination of
shareholders entitled to notice of and to vote, either in person or by proxy, at
the Annual Meeting and any adjournments or postponements thereof. As of the
record date there were 20,435,997 Common Shares outstanding. See "THE ANNUAL
MEETING."
THE MERGER
The Merger Agreement provides that the Merger Subsidiary will be merged
with and into EUA, that EUA, as the surviving corporation, will become a wholly
owned subsidiary of NEES, and that each
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then outstanding Common Share of EUA (other than the Excluded Shares) will be
converted into the right to receive $31.00, in cash (payable without interest),
subject to upward adjustment to a maximum of $31.495 in the event that the
closing of the Merger does not occur within six months of the date on which
shareholders approved the Merger, calculated at the rate of $0.003 for each day
the Merger is delayed past the end of the six month period. As a result of the
Merger, EUA will become a wholly owned subsidiary of NEES. A copy of the Merger
Agreement is attached hereto as Annex I and incorporated by reference into this
Proxy Statement. See "THE MERGER--The Merger Agreement."
SHAREHOLDER APPROVAL OF THE MERGER
The affirmative vote of at least two-thirds of the outstanding Common
Shares of EUA is required to approve the Merger. See "THE ANNUAL MEETING--Voting
and Record Date."
EFFECTIVE TIME
The Merger will become effective at such time as a Certificate of
Merger required under Massachusetts General Laws Chapters 182 and 156C is filed
with the Secretary of State of the Commonwealth of Massachusetts or such later
time as is specified in the Certificate of Merger (the "Effective Time"). See
"THE MERGER--The Merger Agreement--Closing; Effective Time."
EFFECTS OF THE MERGER
Pursuant to the Merger, holders of Common Shares (other than the
Excluded Shares) will be entitled to receive the Merger Consideration for Common
Shares owned by them. After consummation of the Merger, EUA will become a wholly
owned subsidiary of NEES and the former holders of Common Shares will no longer
possess any interest in EUA. No later than the consummation of the Merger, EUA
will terminate the registration of Common Shares under Section 12 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). See "THE
MERGER--The Merger Agreement--Certain Effects of the Merger."
SURRENDER OF CERTIFICATES AND PAYMENT FOR SHARES
From and after the Effective Time, each holder of an outstanding
certificate which immediately prior to the Effective Time represented Common
Shares (other than the Excluded Shares) shall cease to have any rights as a
holder of Common Shares and such holder's sole right shall be to receive in
exchange for such holder's certificates, upon surrender to the Exchange Agent,
the Merger Consideration. A letter of transmittal for use in surrendering stock
certificates and obtaining payment for surrendered shares will be mailed to such
holders promptly following the Effective Time. Certificates should not be
surrendered until the letter of transmittal and instructions are obtained and
then should be surrendered only in accordance with such instructions. See "THE
ANNUAL MEETING -- Surrender of Certificates and Payment for Shares after
Completion of the Merger."
BACKGROUND OF THE MERGER
The terms of the Merger Agreement resulted from arm's length
negotiations between representatives of NEES and EUA. See "THE
MERGER-Background."
RECOMMENDATION OF THE BOARD OF TRUSTEES AND REASONS FOR THE MERGER
The Board believes that the Merger at this time would be fair to and in
the best interests of EUA and its shareholders. THE BOARD OF EUA UNANIMOUSLY
RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER. See "THE
MERGER-Recommendation of the Board of Trustees and Reasons for the Merger."
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OPINION OF EUA'S FINANCIAL ADVISOR
In connection with the Merger, EUA's Board received an opinion of
Salomon Smith Barney Inc. ("Salomon Smith Barney"), EUA's financial advisor, as
to the fairness of the Merger Consideration from a financial point of view to be
received in the Merger by the holders of EUA's Common Shares. The full text of
the written opinion dated February 1, 1999 of Salomon Smith Barney is attached
to this Proxy Statement as Annex II and should be read carefully in its
entirety. The opinion of Salomon Smith Barney is directed to EUA's Board and
does not constitute a recommendation to any shareholder with respect to any
matter relating to the Merger. See "THE MERGER -- Opinion of EUA's Financial
Advisor."
CONDITIONS TO THE MERGER
The obligations of EUA, NEES and the Merger Subsidiary to consummate
the Merger are subject to the satisfaction of certain conditions, including,
among others, the following: (1) the approval by the shareholders of EUA of the
Merger Agreement and the Merger, (2) no provision of any applicable law or
regulation and no judgment, injunction, order or decree shall prohibit the
consummation of the Merger, and (3) complying with the regulatory requirements
set forth under "Regulatory Matters." See also "THE MERGER-The Merger
Agreement--Conditions to the Merger."
RIGHTS TO TERMINATE AND AMENDMENTS
The Merger Agreement may be terminated prior to the closing of the
transactions contemplated thereby under certain circumstances. Under certain of
such circumstances, EUA would be required to pay NEES a termination fee of $20
million, plus reimbursement of expenses up to $5 million. Under certain other
such circumstances, NEES would be required to pay EUA a termination fee of $10
million, plus reimbursement of expenses up to $5 million. See "THE MERGER-The
Merger Agreement-Termination Fees."
ACCOUNTING TREATMENT
It is expected that the Merger will be accounted for as a purchase in
accordance with generally accepted accounting principles. See "THE
MERGER-Accounting Treatment."
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The conversion of Common Shares into the right to receive the Merger
Consideration pursuant to the Merger Agreement will be treated as a taxable sale
of such shares for United States federal income tax purposes and may also be a
taxable transaction under applicable state, local, foreign, and other tax laws.
See "THE MERGER--United States Federal Income Tax Consequences" for a discussion
of these and other consequences material to United States residents.
REGULATORY MATTERS
Under the Merger Agreement, the parties' respective obligations to
consummate the transactions contemplated by the Merger Agreement are subject to
obtaining approvals of various federal and state regulatory agencies, including
the Federal Energy Regulatory Commission, the Nuclear Regulatory Commission, the
Securities and Exchange Commission ("SEC") pursuant to the Public Utility
Holding Company Act of 1935 (the "1935 Act"), and the regulatory agencies in the
states in which EUA operates. In addition, prior to completing the Merger, the
applicable waiting period under federal antitrust law, the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, must expire or terminate. See
"REGULATORY MATTERS."
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INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain of the current and former Trustees and executive officers of
EUA may benefit from certain "change in control" provisions in their employment
agreements and certain compensation and retirement benefit arrangements, from an
agreement of NEES in the Merger Agreement to provide indemnification and
maintain liability insurance coverage for up to six years following consummation
of the merger and possibly from enhancements to their benefits which the Board
of EUA is permitted to make prior to the Effective Time. See "THE MERGER --
Interest of Certain Persons in the Merger."
MARKET PRICES AND DIVIDENDS ON EUA'S COMMON SHARES
On January 29, 1999, the last day of trading prior to the announcement
of the Merger, the high and low sales prices of the Common Shares on the New
York Stock Exchange were $30 and $297/16. On April 13, 1999, the most recent
practicable date prior to the printing of this Proxy Statement, the closing
sales price of the Common Shares on the NYSE was $29. On December 4, 1998, the
last trading day prior to certain regional utility merger announcements, the
closing per share sales price for the EUA Common Shares was $253/16.
SPECIAL DIVIDEND
The Merger Agreement provides that if the Effective Time does not occur
between a record date and payment date of a regular quarterly dividend, the
Board may declare a special dividend not in excess of an amount equal to the
product of $0.0045 per Common Share multiplied by the number of days between the
last payment date of a regular quarterly dividend and the record date of such
special dividend. See "MARKET PRICES OF THE COMMON SHARES AND DIVIDEND HISTORY."
NO DISSENTERS' RIGHTS
Shareholders of EUA will not be entitled to any dissenters' or
appraisal rights in connection with the Merger.
INCORPORATION BY REFERENCE; AVAILABLE DOCUMENTS
EUA's Annual Report on Form 10-K for the fiscal year ended December 31,
1998 (as amended by Form 10-K/A filed on or about April 16, 1999) and its
Current Report on Form 8-K filed with the Securities and Exchange Commission
("SEC") on February 5, 1999 are hereby incorporated by reference in this Proxy
Statement. In addition, any other documents subsequently filed by EUA under the
Exchange Act, after the date of this Proxy Statement and prior to the Annual
Meeting are also incorporated by reference herein. See "INCORPORATION BY
REFERENCE."
EUA will provide without charge to each person, including any
beneficial owner, to whom this Proxy Statement is delivered, upon written or
oral request of any such person, a copy of any and all documents that are
incorporated herein by reference. Requests should be directed to Clifford J.
Hebert, Jr., Treasurer and Secretary, Eastern Utilities Associates, One Liberty
Square, P.O. Box 2333, Boston, Massachusetts 02109.
- --------------------------------------------------------------------------------
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<PAGE> 12
MARKET PRICES OF THE COMMON SHARES AND DIVIDEND HISTORY
The Common Shares are listed and principally traded on the New York
Stock Exchange ("NYSE") under the symbol "EUA." The high and low sales prices
per Common Share for the periods indicated are listed below:
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
Fiscal Year 1999
First Quarter..............................$31 5/8 $26 1/2
Second Quarter (through April 13, 1999).... 29 1/4 28 1/4
Fiscal Year 1998
First Quarter.............................. 27 11/16 23 11/16
Second Quarter............................. 27 3/8 24 7/16
Third Quarter.............................. 26 15/16 24 5/16
Fourth Quarter............................. 28 1/4 24 5/8
Fiscal Year 1997
First Quarter.............................. 19 5/8 17 1/4
Second Quarter............................. 18 1/2 16 3/8
Third Quarter.............................. 19 15/16 18 7/16
Fourth Quarter............................. 26 5/8 20 1/8
</TABLE>
The high and low per Common Share sales prices on January 29, 1999, the
last full trading day before EUA's announcement of the Merger, were $30 and
$29 7/16. EUA urges shareholders to obtain current quotations of the market
price of the Common Shares. On April 13, 1999, the most recent practicable date
prior to the printing of this Proxy Statement, the closing sales price of the
Common Shares on the NYSE was $29. On December 4, 1998, the last trading day
prior to these regional utility merger announcements, the closing per share
sales price for the EUA Common Shares was $25 3/16. (On December 7, 1998, BEC
Energy and Commonwealth Energy System announced their proposed merger; on
December 14, 1998, NEES and National Grid announced their proposed merger).
Information with respect to dividends paid on Common Shares during the
past two fiscal years and the fiscal quarter ended March 31, 1999 is as follows:
For the Quarters Ended:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C>
March 31 $0.415 December 31 $0.415 December 31 $0.415
September 30 $0.415 September 30 $0.415
June 30 $0.415 June 30 $0.415
March 31 $0.415 March 31 $0.415
</TABLE>
SPECIAL DIVIDEND
The Merger Agreement provides that if the Effective Time does not occur
between a record date and payment date of a regular quarterly dividend, the
Board may declare a special dividend not in excess of an amount equal to the
product of $0.0045 per Common Share multiplied by the number of days between the
last payment date of a regular quarterly dividend and the record date of such
special dividend.
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<PAGE> 13
THE ANNUAL MEETING
DATE, TIME AND PLACE
This Proxy Statement is being furnished to holders of Common Shares in
connection with the solicitation of proxies by the Board of EUA for use at the
Annual Meeting to be held in the Board Room on the 33rd floor of the State
Street and Bank Trust Company, 225 Franklin Street, Boston, Massachusetts, on
Monday, May 17, 1999, at 9:30 a.m. local time, or any adjournment thereof.
MATTERS TO BE CONSIDERED
The Annual Meeting has been called by the Board of EUA for the purpose
of asking shareholders to (1) vote on a proposal to approve and adopt the Merger
Agreement, (2) elect eleven Trustees, (3) vote upon any properly presented
shareholder proposal, and (4) transact such other business as may properly come
before the Annual Meeting or any adjournment or postponement thereof.
It is not expected that any matter not referred to herein will be
presented for action at the Annual Meeting. If any other matters are properly
brought before the Annual Meeting, including a motion to adjourn the meeting for
the purpose of soliciting additional proxies, the persons named in the proxies
or authorized substitutes will have discretion to vote on such matters and on
matters incident to the conduct of the Annual Meeting in accordance with their
best judgment, except that shares represented by proxies which have been voted
"Against" approval of the Merger Agreement will not be used to vote "For"
adjournment of the Annual Meeting for the purpose of soliciting additional votes
"For" approval of the Merger Agreement.
VOTING AND RECORD DATE
The Board has fixed April 14, 1999 as the record date for determining
shareholders of record entitled to receive notice of and to vote at the Annual
Meeting. Accordingly, only holders of record of Common Shares as of the record
date will be entitled to notice of and to vote at the Annual Meeting. As of the
record date, there were 20,435,997 Common Shares outstanding and entitled to
vote.
Each holder of record of Common Shares on the record date is entitled
to cast one vote per share, exercisable in person or by properly executed proxy,
with respect to the approval of the Merger and any other matter properly
submitted for the vote of EUA's shareholders at the Annual Meeting. The
presence, in person or by proxy, of a majority of EUA's outstanding Common
Shares are necessary to constitute a quorum at the Annual Meeting. The
affirmative vote of two-thirds of outstanding Common Shares by votes cast in
person or by proxy is required for the approval of the Merger. The election of
Trustees is by plurality vote, such that the eleven nominees with the highest
vote total will be elected. Withheld votes as to a particular nominees affect
vote totals for that nominee.
PROXIES AND REVOCATION OF PROXIES
All Common Shares that are represented at the Annual Meeting by
properly executed proxies received prior to or at the Annual Meeting and not
duly and timely revoked will be voted at the Annual Meeting in accordance with
the choices marked therein by the shareholders. Unless a contrary choice is
marked, the shares will be voted FOR approval of the Merger and "FOR" each of
the nominees for Trustee. Execution and delivery of a proxy card will not affect
a shareholder's right to attend the Annual Meeting and vote in person.
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is voted. Proxies may be revoked by (i)
filing with the Secretary of EUA at or before the taking
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<PAGE> 14
of the vote at the Annual Meeting, a written notice of revocation bearing a
later date than the proxy; (ii) duly executing a later dated proxy relating to
the same shares and delivering it to the Secretary of EUA before the taking of
any vote at the Annual Meeting; or (iii) attending the Annual Meeting and voting
in person (although attendance at the Annual Meeting will not in itself
constitute a revocation of a proxy). Any written notice of revocation or
subsequent proxy should be sent so as to be delivered to Clifford J. Hebert Jr.,
Treasurer and Secretary, at Eastern Utilities Associates, One Liberty Square,
Post Office Box 2333, Boston, Massachusetts 02109, or hand-delivered to EUA at
or before the taking of the vote at the Annual Meeting.
COSTS OF SOLICITATION
This solicitation is by the Board of EUA. All expenses of this
solicitation, including the cost of preparing and mailing this Proxy Statement,
will be borne by EUA. In addition to solicitation by mail, arrangements will be
made with brokers and other custodians, nominees and fiduciaries to forward
proxy solicitation materials to beneficial owners of Common Shares held of
record by such brokers, custodians, nominees and fiduciaries, and EUA may
reimburse such brokers, custodians, nominees and fiduciaries for their
out-of-pocket and other reasonable clerical expenses in connection therewith.
Innisfree M&A Incorporated has been retained to assist EUA in the solicitation
of proxies, primarily from brokers, banks and other nominees, at a cost of
$12,500, plus reimbursement of reasonable out-of-pocket expenses.
SURRENDER OF CERTIFICATES AND PAYMENT FOR SHARES AFTER COMPLETION OF THE MERGER
Prior to the Effective Time of the Merger, NEES or the Merger
Subsidiary will designate a bank or trust company to act as paying agent to
effect the payment of the Merger Consideration. NEES or the Merger Subsidiary
will make available to the paying agent available funds in amounts and at the
time necessary for the payment of the Merger Consideration upon surrender of the
shareholder's share certificate. Promptly after the Effective Time of the
Merger, the paying agent will mail to each holder of record of EUA Common Shares
at the Effective Time of the Merger (1) a letter of transmittal (which will
specify that delivery will be effected, and risk of loss and title to the share
certificate will pass, only upon actual delivery of the share certificate to the
paying agent) and (2) instructions for use in effecting the surrender of the
share certificate in exchange for the Merger Consideration.
Upon surrender of a share certificate to the paying agent for
cancellation, together with a duly executed letter of transmittal and such other
documents as the paying agent may require, the holder of such share certificate
will be entitled to receive the Merger Consideration in exchange for each common
share represented by the certificate so surrendered. In the event of a transfer
of ownership of canceled shares which is not registered in the transfer records
of EUA, the Merger Consideration may be given to a transferee if the certificate
representing such share is presented to the paying agent, accompanied by all
documents required to evidence and effect such transfer and by evidence
satisfactory to the paying agent that any applicable stock transfer taxes have
been paid. Until surrendered, each share will be deemed at any time after the
Effective Time of the Merger to represent only the right to receive the Merger
Consideration upon surrender of such share. No interest will be paid or will
accrue on the Merger Consideration payable to holders of shares. SHAREHOLDERS
SHOULD NOT FORWARD ANY SHARE CERTIFICATES WITH THEIR PROXY CARDS. A LETTER OF
TRANSMITTAL WITH INSTRUCTIONS FOR THE SURRENDER OF SHARE CERTIFICATES WILL BE
MAILED TO SHAREHOLDERS PROMPTLY AFTER THE EFFECTIVE TIME OF THE MERGER.
NO DISSENTERS' RIGHTS
Shareholders of EUA will not be entitled to any dissenters' or
appraisal rights in connection with the Merger.
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<PAGE> 15
THE MERGER
GENERAL
The Merger Agreement provides that the Merger Subsidiary will be merged
with and into EUA, that EUA, as the surviving entity, will become a wholly owned
subsidiary of NEES, and that each then outstanding Common Share of EUA (other
than Excluded Shares) will be converted into the right to receive $31.00 in cash
(payable without interest), subject to upward adjustment in the event that the
closing of the Merger does not occur within six months of the date on which
shareholders approved the Merger, calculated at the rate of $0.003 for each day
the Merger is delayed past the end of the six month period.
Pursuant to the requirements of EUA's Declaration of Trust, the
affirmative vote of at least two-thirds of the outstanding Common Shares of EUA
is required to approve the Merger. The Merger will become effective at such time
as a Certificate of Merger required under MGL Chapters 182 and 156C is filed
with the Massachusetts Secretary of State or such later time as is specified in
the Certificate of Merger. There are numerous conditions to closing, including
but not limited to the approval of EUA shareholders, the accuracy of
representations and warranties, the performance of obligations required to be
performed prior to closing, and the receipt of all requisite regulatory and
other approvals and consents. See "--The Merger Agreement--Conditions to the
Closing" and "Regulatory Matters."
BACKGROUND
The electric utility industry in both Massachusetts and Rhode Island,
the states in which EUA provides electric services, has been in a state of
transition from a traditional rate regulated environment to a competitive
environment. This transition was driven by legislation passed in both states,
primarily the Utility Restructuring Act of 1996, enacted in Rhode Island in
August, 1996 and the Electric Industry Restructuring Act enacted in
Massachusetts in November, 1997.
In 1997, EUA system companies negotiated major settlement agreements at
the Federal and State levels which complied with the legislation and defined
plans to bring the benefits of competition to customers, while preserving
shareholder value by ensuring recovery of past investments and commitments in
generation resources, commonly referred to as "stranded costs."
Under the terms of the settlement agreements, EUA agreed to divest its
entire generating portfolio and use the net proceeds to reduce the amount of
stranded costs billed to customers.
During 1998, to implement the settlement agreements executed in 1997,
EUA entered into sales contracts to sell its non-nuclear generation facilities
and purchase power contracts and expects that all such transactions will be
completed by the end of the second quarter of 1999. In addition, EUA has signed
a purchase and sale agreement for its 2.9% interest in the Seabrook nuclear
unit. EUA has been unable to obtain purchase and sale commitments for its 4.0%
ownership interest in the Millstone 3 nuclear unit or its 2.5% ownership in the
Vermont Yankee nuclear unit. EUA will continue its efforts to dispose of its
interests in these latter nuclear units.
As the process of disposing of generating facilities commenced, it
became clear that EUA's asset base would be significantly reduced, as would the
earnings capability of EUA. As a result, EUA's Board determined that unless EUA
pursued other options, it would become a relatively small regulated transmission
and distribution company with a very uncertain future in the competitive
environment.
12
<PAGE> 16
From late 1996 to early 1999, management and the Board continued to
evaluate the various strategic options available to EUA as the transition to
competition was taking place. Among the options considered during this time
period were: remaining a relatively small, independent transmission and
distribution company; growing the company in size by acquiring other smaller
electric and/or gas companies within the region; looking for a merger partner of
similar size; and looking for a merger partner of larger size. In evaluating all
options, EUA had as its objective, achieving the greatest benefits for
shareholders, customers and employees.
EUA believed that the option of remaining independent presented
unacceptable risks in a competitive environment and the potential loss of
shareholder value. The option of acquiring other smaller companies in the region
led to a conclusion that such acquisitions could be costly in terms of price, as
well as resources, and result in a company that was still relatively small in a
competitive environment.
A special meeting of the Board was held on May 29, 1998. The sole
purpose of this meeting was to review in detail EUA's strategic options.
Following this special meeting, Donald G. Pardus, EUA's Chairman of the Board
was instructed to open communication with selected electric utilities in the
region in an attempt to determine their interest in discussing some type of
business combination.
From June 1998 through October 1998, EUA's Chairman had informal
conversations with respect to business combinations with senior executives of
four electric utilities in the region.
In early December 1998, EUA's Chairman was contacted by the chairman of
a regional electric utility company (Company A) with whom previous informal
conversations had taken place. EUA's Chairman was asked if EUA was still
interested in entering into discussions with Company A with respect to a
possible business combination. EUA's Chairman indicated that EUA was continually
reviewing its options and that, subject to Board concurrence, EUA would be
interested in entering into such discussions. The Board agreed and EUA entered
into a confidentiality agreement with Company A shortly thereafter and a due
diligence process began.
Shortly after the telephone call from Company A, EUA's Chairman
contacted Richard P. Sergel, the President and Chief Executive Officer of NEES,
and suggested that a meeting take place to explore NEES' interest in discussing
a possible business combination with EUA. Mr. Sergel and other NEES
representatives had previously contacted Mr. Pardus to express NEES' interest in
discussing some form of business combination. EUA and NEES have similar
regulatory profiles and have adjoining service territories. Both are registered
public utility holding companies subject to the jurisdiction of the SEC under
the 1935 Act. They are the only investor owned utilities with retail electric
company subsidiaries in Rhode Island and they both have retail electric
subsidiaries in Massachusetts.
A meeting between Mr. Sergel and Mr. Pardus took place on December 10,
1998. A follow-up meeting took place on December 16 and was attended by Alfred
D. Houston, NEES' Chairman, Mr. Sergel, Mr. Pardus and John R. Stevens, EUA's
President. On December 18 and December 21, confidentiality agreements were
signed with NEES and with NEES' prospective parent, National Grid, respectively.
A due diligence process commenced immediately.
In addition, during the period December 7, 1998 through January 13,
1999, and as the due diligence process was taking place, EUA's Chairman had four
face-to-face meetings and 10 telephone conversations with the Chairman of
Company A and four face-to-face meetings and five telephone conversations with
the Chief Executive Officer of NEES.
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<PAGE> 17
On January 13, 1999, NEES submitted to EUA a proposal to acquire EUA,
which included an indicative price and was subject to the negotiation of a
satisfactory merger agreement.
On January 14, 1999, Company A submitted to EUA a proposal to acquire
EUA, which also included an indicative price and was subject to the negotiation
of a satisfactory merger agreement.
Company A and NEES both anticipated that EUA Cogenex Corp. ("Cogenex"),
EUA's energy services subsidiary, would be sold in a separate transaction, and
therefore did not include a value for Cogenex in their proposals.
The EUA Board met on January 19, 1999 and, with input from EUA
executives and its financial advisors, considered the proposals received from
Company A and NEES. The Board instructed the Chairman and EUA's financial
advisors to go back to Company A and to NEES and inform them that Cogenex would
not be disposed of in a separate transaction; therefore, their proposals must be
modified to include a valuation for Cogenex. Both Company A and NEES were
requested to present their best revised proposal by the close of business on
January 26, 1999.
Significant due diligence took place with respect to Cogenex between
January 19, 1999 and January 26, 1999. In addition, during the period January
19, 1999 through January 28, 1999, EUA's Chairman had eight telephone
conversations with the Chairman or his associates of Company A and one
face-to-face meeting and two telephone conversations with the Chief Executive
Officer of NEES. During this period, there were also frequent discussions
between EUA's financial advisors and the financial advisors for Company A and
NEES.
On January 26, 1999, NEES presented its revised proposal which included
a valuation for Cogenex. Following presentation of NEES' January 26, 1999
proposal, negotiations continued with NEES and its financial advisors in an
effort to enhance the proposal.
On the evening of January 28, 1999, Company A presented its revised
proposal. EUA, through Salomon Smith Barney, asked Company A to increase its
offer and to timely provide definitive terms and documentation for a
transaction. Company A did not increase its offer or provide definitive terms
and documentation before the EUA Board meetings on January 31 and February 1,
1999. Two face-to-face meetings were held on January 29, 1999 between the
Chairman of EUA and the Chief Executive Officer of NEES.
On January 31, 1999 and February 1, 1999, the EUA Board held a special
meeting to review and consider the proposals received from Company A and NEES.
The price in the NEES proposal was higher than the proposal by Company A and, in
the view of the Board, the regulatory approvals required for a transaction with
NEES were more likely to be obtained, thus making it more likely that a merger
transaction could be consummated. In addition, Company A's terms included a
condition that a proposed transaction be subject to further due diligence review
of EUA by Company A. After presentations by Mr. Pardus and Mr. Stevens and the
Board's legal and financial advisors, and a full discussion and analysis by the
Board, the Board unanimously (1) determined that it was in the best interests of
EUA shareholders, its employees and its customers for EUA to enter into a
business combination with NEES; (2) determined that the terms of the Merger were
fair to, and in the best interests of EUA shareholders, and (3) authorized,
approved and adopted the proposed agreement and plan of merger and the
transaction contemplated by the Merger Agreement and the execution and delivery
of the Merger Agreement. EUA was advised that NEES obtained the consent of
National Grid to enter into the Merger Agreement and on the morning of February
1, 1999, at the conclusion of the EUA Board meeting and prior to the opening of
markets, EUA and NEES executed and delivered the Merger Agreement.
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<PAGE> 18
RECOMMENDATION OF THE BOARD OF TRUSTEES AND REASONS FOR THE MERGER
In determining to approve and recommend shareholders' approval of the
Merger, and in reaching its determination that the Merger is fair to and in the
best interests of the EUA shareholders, the Board held discussions and consulted
with EUA's executive officers and its legal and financial advisors. The Board
considered a number of factors, including, without limitation, the following:
1. the Board's review and analysis of EUA's business, current
and future financial condition, current earnings and earnings
prospects, as well as the competitive business environment and changing
regulatory environment facing a relatively small company such as EUA;
2. historical market prices of EUA's Common Shares;
3. a review of the possible alternatives to a sale of EUA,
including the prospects of continuing to operate as a small independent
transmission and distribution company or acquiring other smaller
distribution companies in the New England region; the value to
shareholders of such alternatives and the timing and likelihood of
actually achieving additional value from these alternatives; and the
possibility that EUA's future performance might lead to a share price
having a lower value than the Merger Consideration;
4. the per share consideration of $31.00 to be paid in the
Merger represents a premium for the Common Shares of approximately 23%
over the per share price of the Common Shares on December 4, 1998, the
last trading day before certain regional merger announcements began
affecting EUA's share price (on December 7, 1998, BEC Energy and
Commonwealth Energy System announced their proposed merger; on December
14, 1998, NEES and National Grid announced their proposed merger);
5. the financial presentation of Salomon Smith Barney,
including its opinion dated February 1, 1999 to the Board as to the
fairness of the Merger Consideration from a financial point of view to
the holders of Common Shares as described below in "Opinion of EUA's
Financial Advisor;"
6. the terms of the Merger Agreement, including the right of
the Board to terminate the Merger Agreement prior to its approval by
the holders of Common Shares in the exercise of its fiduciary duty in
connection with receipt by EUA of a proposal superior to that given by
NEES; and
7. the likelihood of consummation of the Merger, including an
assessment of the risks associated with obtaining necessary Federal and
State regulatory approvals and the possibility of the Merger not being
consummated even if approved by shareholders. Because of NEES'
demonstrated success in dealing in these regulatory arenas, their
proposal was considered to be less risky than a possible transaction
with Company A.
In determining to recommend the approval of the Merger, the
Board also considered that the Merger was in the best interests of
EUA's employees, customers and the communities that EUA serves. In view
of the wide variety of factors considered in connection with its
evaluation of the proposed Merger, the Board did not find it
practicable to, and did not, quantify or otherwise attempt to assign
relative weights to the foregoing factors. The Board viewed its
position and
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<PAGE> 19
recommendation as being based on the totality of the information
presented to and considered by it. While the foregoing discussion of
the information and factors considered by the Board is not intended to
be all-inclusive, it does constitute a summary of all material
information considered by the Board in determining to recommend
approval of the Merger.
THE BOARD HAS UNANIMOUSLY DETERMINED THAT THE MERGER IS FAIR TO AND IN
THE BEST INTERESTS OF SHAREHOLDERS AND HAS APPROVED THE MERGER. THE BOARD
UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS OF EUA VOTE FOR APPROVAL OF THE MERGER.
OPINION OF EUA'S FINANCIAL ADVISOR
Salomon Smith Barney was retained by EUA to act as its financial
advisor in connection with the proposed Merger. In connection with such
engagement, EUA requested that Salomon Smith Barney evaluate the fairness, from
a financial point of view, of the consideration to be received in the Merger by
the holders of EUA's Common Shares. At a meeting of the Board held on January
31, 1999 to evaluate the proposed Merger, Salomon Smith Barney delivered to the
Board an oral opinion, which opinion was subsequently confirmed by delivery of a
written opinion dated February 1, 1999 (the date of execution of the Merger
Agreement), to the effect that, as of the date of its opinion and based upon and
subject to certain matters stated in the opinion, the Merger Consideration was
fair, from a financial point of view, to the holders of EUA's Common Shares.
In arriving at its opinion, Salomon Smith Barney reviewed the Merger
Agreement and held discussions with certain senior officers, directors and other
representatives and advisors of EUA and certain senior officers and other
representatives and advisors of NEES concerning the business, operations and
prospects of EUA and its subsidiaries. Salomon Smith Barney examined certain
publicly available business and financial information relating to, as well as
certain financial forecasts and other information and data for, EUA and its
subsidiaries which were provided to or otherwise discussed with Salomon Smith
Barney by EUA management. Salomon Smith Barney reviewed the financial terms of
the Merger as set forth in the Merger Agreement in relation to, among other
things: current and historical market prices and trading volumes of EUA's Common
Shares; the historical and projected earnings and other operating data of EUA
and its subsidiaries; and the capitalization and financial condition of EUA and
its subsidiaries. Salomon Smith Barney considered, to the extent publicly
available, the financial terms of other transactions recently effected which
Salomon Smith Barney considered relevant in evaluating the Merger and analyzed
certain financial, stock market and other publicly available information
relating to the businesses of other companies whose operations Salomon Smith
Barney considered relevant in evaluating those of EUA. In addition to the
foregoing, Salomon Smith Barney conducted such other analyses and examinations
and considered such other financial, economic and market criteria as Salomon
Smith Barney deemed appropriate in arriving at its opinion. Salomon Smith Barney
noted that its opinion was necessarily based upon information available, and
financial, stock market and other conditions and circumstances existing and
disclosed, to Salomon Smith Barney as of the date of its opinion.
In rendering its opinion, Salomon Smith Barney assumed and relied,
without independent verification, upon the accuracy and completeness of all
financial and other information and data publicly available or furnished to or
otherwise reviewed by or discussed with Salomon Smith Barney. With respect to
financial forecasts and other information and data provided to or otherwise
reviewed by or discussed with Salomon Smith Barney, EUA management advised
Salomon Smith Barney that such forecasts and other information and data were
reasonably prepared on bases reflecting the best currently available estimates
and judgments of EUA management as to the future financial performance of EUA
and its subsidiaries. Salomon Smith Barney did not make and was not provided
with an independent evaluation or appraisal of the assets or liabilities,
contingent or otherwise, of EUA or its subsidiaries nor did Salomon Smith Barney
make any physical inspection of the properties or assets of EUA or its
subsidiaries. In connection with its
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<PAGE> 20
engagement, Salomon Smith Barney was not requested to, and did not, solicit
third party indications of interest in all or a part of EUA. Salomon Smith
Barney was requested, however, in connection with prior financial advisory
services to EUA to solicit third party indications of interest in Cogenex, a
subsidiary of EUA. Salomon Smith Barney was not requested to consider, and its
opinion does not address, the relative merits of the Merger as compared to any
alternative business strategies that might exist for EUA or its subsidiaries or
the effect of any other transaction in which EUA or its subsidiaries might
engage. Although Salomon Smith Barney evaluated the Merger Consideration from a
financial point of view, Salomon Smith Barney was not asked to and did not
recommend the specific consideration payable in the Merger, which was determined
through negotiation between EUA and NEES. No other instructions or limitations
were imposed by EUA on Salomon Smith Barney with respect to the investigations
made or procedures followed by Salomon Smith Barney in rendering its opinion.
THE FULL TEXT OF THE WRITTEN OPINION OF SALOMON SMITH BARNEY DATED
FEBRUARY 1, 1999, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND
LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED TO THIS DOCUMENT AS ANNEX II
AND SHOULD BE READ CAREFULLY IN ITS ENTIRETY. THE OPINION OF SALOMON SMITH
BARNEY IS DIRECTED TO THE EUA BOARD AND RELATES ONLY TO THE FAIRNESS OF THE
MERGER CONSIDERATION FROM A FINANCIAL POINT OF VIEW, DOES NOT ADDRESS ANY OTHER
ASPECT OF THE MERGER OR RELATED TRANSACTIONS AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY SHAREHOLDER AS TO HOW SUCH SHAREHOLDER SHOULD VOTE ON ANY
MATTER RELATING TO THE PROPOSED MERGER. THE SUMMARY OF THE OPINION OF SALOMON
SMITH BARNEY SET FORTH IN THIS DOCUMENT IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In preparing its opinion, Salomon Smith Barney performed a variety of
financial and comparative analyses, including those described below. The summary
of such analyses does not purport to be a complete description of the analyses
underlying Salomon Smith Barney's opinion. The preparation of a fairness opinion
is a complex analytic process involving various determinations as to the most
appropriate and relevant methods of financial analyses and the application of
those methods to the particular circumstances and, therefore, such an opinion is
not readily susceptible to summary description. Accordingly, Salomon Smith
Barney believes that its analyses must be considered as a whole and that
selecting portions of its analyses and factors, without considering all analyses
and factors, could create a misleading or incomplete view of the processes
underlying such analyses and opinion.
No company, transaction or business used in Salomon Smith Barney's
analyses as a comparison is identical to EUA, NEES or the Merger, nor is an
evaluation of the results of such analyses entirely mathematical; rather, it
involves complex considerations and judgments concerning differences in
financial and operating characteristics and other factors that could affect the
acquisition, public trading or other values of the companies, transactions or
business segments being analyzed. In its analyses, Salomon Smith Barney made
numerous assumptions with respect to EUA, NEES, industry performance, general
business, economic, market and financial conditions and other matters, many of
which are beyond the control of EUA and NEES. The estimates contained in Salomon
Smith Barney's analyses and the valuation ranges resulting from any particular
analysis are not necessarily indicative of actual values or predictive of future
results or values, which may be significantly more or less favorable than those
suggested by such analyses. In addition, analyses relating to the value of
businesses or securities do not purport to be appraisals or to reflect the
prices at which businesses or securities actually may be sold. Accordingly, such
analyses and estimates are inherently subject to substantial uncertainty.
Salomon Smith Barney's opinion and analyses were only one of many
factors considered by the Board in its evaluation of the Merger and should not
be viewed as determinative of the views of the Board or management with respect
to the Merger Consideration or the proposed Merger.
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Introduction. Salomon Smith Barney derived an aggregate equity
reference range for EUA by (i) deriving an implied equity reference for EUA's
core business based on a selected companies analysis, selected merger and
acquisition transactions analysis and discounted cash flow analysis and (ii)
adding to the resulting equity reference range (x) the aggregate equity
reference range derived for EUA's unregulated businesses (Cogenex, EUA Ocean
State Corporation, Separation Technologies, Inc., EUA Bioten and EUA
Transcapacity) based on certain assumptions provided by EUA management regarding
the prospects and salability of these businesses and (y) the net after-tax cash
proceeds, as estimated by EUA management, from the sale and securitization of
certain of EUA's generation assets (the "Net Generation Proceeds"). Salomon
Smith Barney also performed a premium analysis in which the range of premiums
paid or proposed to be paid in selected transactions was applied to the
aggregate equity reference range derived for EUA based on the selected companies
analysis. The Merger Consideration was then compared against the aggregate
equity reference ranges derived for EUA based on the selected companies
analysis, selected merger and acquisition transactions analysis, discounted cash
flow analysis and premium analysis.
Selected Companies Analysis. Using publicly available information,
Salomon Smith Barney analyzed the market values and trading multiples of six
selected publicly traded companies in the utilities industry, consisting of: (1)
BEC Energy, (2) Central Hudson Gas & Electric Corporation, (3) Central Maine
Power Company, (4) Rochester Gas & Electric Corporation, (5) The United
Illuminating Company; and (6) Unitil Corporation (collectively, the "Selected
Companies").
All multiples were based on closing stock prices on January 29, 1999.
Estimated financial data for the Selected Companies were based on research
analysts' estimates. Salomon Smith Barney compared market values as multiples of
estimated calendar 1999 and 2000 price to earnings and price to book value as of
September 30, 1998. Salomon Smith Barney then applied a range of selected
multiples derived for the Selected Companies to corresponding financial data for
EUA's core business in order to derive an implied equity reference range for
EUA's core business which, when added to the Net Generation Proceeds and the
implied equity reference range for EUA's unregulated businesses, resulted in an
aggregate equity reference range for EUA of approximately $20.50 to $26.25 per
share.
Selected Merger and Acquisition Transactions Analysis. Using publicly
available information, Salomon Smith Barney analyzed the implied purchase prices
multiples paid in 15 selected transactions in the electric utilities industry,
consisting of (acquiror/target): (1) National Grid/NEES, (2) BEC
Energy/Commonwealth Energy System, (3) ScottishPower plc/PacifiCorp, (4) AES
Corporation/CILCORP Inc., (5) CalEnergy Company, Inc./MidAmerican Energy
Holdings Company, (6) Consolidated Edison, Inc./Orange and Rockland Utilities,
Inc., (7) Western Resources, Inc./Kansas City Power & Light Company, (8)
American Electric Power Company, Inc./Central and South West Corporation, (9)
WPS Resources Corporation/Upper Peninsula Energy Corporation, (10) LG&E Energy
Corp./KU Energy Corporation, (11) Enron Corp./Portland General Corporation, (12)
Wisconsin Energy Corporation/ESELCO, Inc., (13) Brooklyn Union Gas Company/Long
Island Lighting Company, (14) WPL Holdings, Inc./IES Industries, Inc., and (15)
WPL Holdings, Inc./Interstate Energy Corporation (collectively, the "Selected
Transactions").
All multiples for the Selected Transactions were based on information
available at the time of announcement of the relevant transaction. Salomon Smith
Barney compared purchase prices as multiples of estimated one-year forward
earnings and most recently reported book value. Salomon Smith Barney then
applied a range of selected multiples derived for the Selected Transactions to
corresponding financial data for EUA's core business in order to derive an
implied equity reference range for EUA's core business which, when added to the
Net Generation Proceeds and the implied equity reference range for EUA's
unregulated businesses, resulted in an aggregate equity reference range for EUA
of approximately $25.00 to $30.75 per share.
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Discounted Cash Flow Analysis. Salomon Smith Barney performed a
discounted cash flow analysis of the projected free cash flow of EUA's core
business for fiscal years 1999 through 2003, based on internal estimates of EUA
management. The stand-alone discounted cash flow analysis of EUA's core business
was performed by (1) adding (x) the present value of the projected free cash
flow of EUA's core business over the five-year period from 1999 to 2003 and (y)
the present value of the estimated terminal value of EUA's core business in year
2003 and (2) subtracting the current net debt of EUA's core business. In order
to derive a terminal value for EUA's core business, Salomon Smith Barney assumed
a level of indebtedness, net of excess cash, for EUA's core business as of
December 31, 2003 equal to EUA management's estimate of the indebtedness, net of
excess cash, of EUA's core business as of December 31, 1999. For purposes of
this terminal value calculation, Salomon Smith Barney adjusted the projected
earnings for EUA's core business in 2003 to reflect the estimated interest
expense consistent with this level of adjusted indebtedness. Salomon Smith
Barney derived an implied equity reference range for EUA's core business at the
end of the five-year period by applying a range of selected terminal value
multiples of 10.5x to 14.0x to the adjusted 2003 earnings, which was then added
to the adjusted 2003 debt. The cash flows and terminal values of EUA's core
business were then discounted to present value using selected discount rates
ranging from 6.5% to 7.5% to derive an implied equity reference range for EUA's
core business which, when added to the Net Generation Proceeds and the implied
equity reference range for the unregulated businesses, resulted in an aggregate
equity reference range for EUA of approximately $18.50 to $24.50 per share.
Premium Analysis. Salomon Smith Barney analyzed the premiums paid or
proposed to be paid in the Selected Transactions. The range of premiums paid or
proposed to be paid in the Selected Transactions based on the closing stock
price of the acquired company one month prior to public announcement of these
transactions was approximately 20% to 30%. Salomon Smith Barney then applied
this range to the aggregate equity reference range for EUA implied by the
analysis described above under the caption "Selected Companies Analysis," which
resulted in an implied equity reference range for EUA of approximately $25.00 to
$34.00 per share.
Other Factors. In rendering its opinion, Salomon Smith Barney
considered other factors, including a review of: (1) the historical and
projected financial results of EUA, (2) the history of trading prices and volume
of EUA's Common Shares, and (3) the relationship between movements in EUA's
Common Shares and movements in the common stock of selected regional peer
companies and movements in the Standard & Poor's Utilities Index.
Miscellaneous. Pursuant to the terms of Salomon Smith Barney's
engagement, EUA has agreed to pay Salomon Smith Barney for its services in
connection with the Merger an aggregate financial advisory fee based on a
percentage of the total consideration payable in connection with the Merger. The
fee payable to Salomon Smith Barney is currently estimated to be approximately
$4.2 million. EUA also has agreed to reimburse Salomon Smith Barney for
reasonable travel and other out-of-pocket expenses incurred by Salomon Smith
Barney in performing its services, including the reasonable fees and expenses of
its legal counsel, and to indemnify Salomon Smith Barney and related persons
against certain liabilities, including liabilities under the federal securities
laws, arising out of Salomon Smith Barney's engagement.
Salomon Smith Barney has advised EUA that, in the ordinary course of
business, Salomon Smith Barney and its affiliates may actively trade or hold the
securities of EUA and NEES for their own account or for the account of customers
and, accordingly, may at any time hold a long or short position in such
securities. Salomon Smith Barney has in the past provided investment banking
services to EUA unrelated to the proposed Merger, for which services Salomon
Smith Barney has received compensation. In addition, Salomon Smith Barney and
its affiliates, including Citigroup Inc. and its affiliates, may maintain
relationships with EUA, NEES and their respective affiliates.
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Salomon Smith Barney is an internationally recognized investment
banking firm and was selected by EUA based on its experience, expertise and
familiarity with EUA and its business. Salomon Smith Barney regularly engages in
the valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes.
THE MERGER AGREEMENT
The following summarizes the material terms of the Merger Agreement, a
copy of which is attached hereto as Annex I and is incorporated by reference
herein. All references to and summaries of the Merger Agreement contained in
this Proxy Statement are qualified in their entirety by reference to the Merger
Agreement. Shareholders are urged to review the Merger Agreement in its entirety
prior to voting with respect to the approval of the Merger at the Annual
Meeting.
General. EUA, NEES and the Merger Subsidiary have entered into the
Merger Agreement which provides for the merger of the Merger Subsidiary with and
into EUA. Upon the Merger, EUA, the "surviving entity," will become a wholly
owned subsidiary of NEES.
Closing; Effective Time. The closing of the Merger will take place in
New York City two business days after the last of the conditions set forth in
the Merger Agreement is satisfied or waived, or at such other time as the
parties may agree (the "Closing Date"). The Effective Time of the Merger will be
the later of (i) the filing of the certificate of merger with the Massachusetts
Secretary of State; or (ii) at such later time as is specified in the
certificate of merger (such date and time being referred to herein as the
"Effective Time"). Such filing will be made as soon as practicable after the
Closing.
Merger Consideration. From and after the Effective Time, holders of
each Common Share issued and outstanding immediately prior to the Effective Time
will be entitled to receive cash in the amount (the "Per Share Amount") of
$31.00 payable, without interest, to the holder of such Common, in exchange for
and upon the surrender of the certificate evidencing each Common Share which
will be canceled. If six months after the date on which the shareholders of EUA
approve the Merger (the "Adjustment Date") the Closing Date has not occurred,
the Per Share Amount will be increased by an amount equal to $0.003 for each day
after the Adjustment Date up to and including the day which is one day prior to
the earlier of the Closing Date and the "Extended Termination Date" (which is
April 30, 2000, assuming that on December 31, 1999 all conditions to Closing
were fulfilled or capable of being fulfilled, other than the condition relating
to governmental regulatory and other consents and approvals). Each one percent
of the issued and outstanding membership interests in the Merger Subsidiary
shall be converted into one transferable certificate of participation or share
of EUA. All Common Shares that are owned by EUA as treasury shares and any
Common Shares owned by NEES or any other wholly owned Subsidiary of NEES will be
canceled and retired and no cash or other consideration will be delivered in
their exchange.
Exchange of Shares. The Merger Agreement provides that as soon as
practicable after the Effective Time, the paying agent for the Merger will mail
transmittal instructions and a form of letter of transmittal to each person who
was a holder of record of a certificate or certificates immediately prior to the
Effective Time. The transmittal instructions will describe the instructions for
effecting the surrender of the certificates in exchange for the Merger
Consideration. At any time after the Effective Time, each certificate will be
deemed to represent only the right to receive the Merger Consideration subject
to and upon the surrender of such certificate as contemplated by the Merger
Agreement. One year after the Effective Time, any portion of the exchange fund
which remains undistributed to the shareholders of EUA shall be delivered to the
surviving entity. Neither NEES, the Merger Subsidiary nor the surviving
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entity shall be liable to any former holder of Common Shares for the Merger
Consideration delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
Representations and Warranties. The Merger Agreement contains various
customary representations and warranties on the part of EUA relating to, among
other things: (1) EUA's organization and qualification to do business and
similar corporate matters, (2) EUA's capital shares and the capital stock of its
subsidiaries, (3) EUA's authority to enter into and perform its obligations
under the Merger Agreement, (4) the absence of conflict of the Merger Agreement
and the transactions contemplated by the Merger Agreement with EUA's Declaration
of Trust and the comparable charter documents of EUA's subsidiaries, certain
agreements and applicable law, (5) certain regulatory consents and approvals
required in connection with the Merger Agreement and the transactions
contemplated by the Merger Agreement, (6) certain filings with the SEC and the
financial statements contained in such filings, and certain reports and filings
filed with the state and federal regulatory agencies, (7) absence of certain
changes or events, (8) legal proceedings and litigation involving EUA and its
subsidiaries, (9) information to be included or incorporated in this Proxy
Statement to shareholders, (10) compliance with laws, (11) tax matters, (12)
employee benefit matters, (13) labor and employee matters, (14) environmental
matters, (15) regulation of EUA as a utility under state and federal law, (16)
EUA's insurance policies, (17) interests of EUA's subsidiaries in nuclear
facilities, (18) the vote required by EUA's shareholders in connection with
approval of the Merger Agreement and the transactions contemplated by it, (19)
the opinion of EUA's financial advisor, Salomon Smith Barney, (20) no ownership
by EUA of NEES Common Shares, (21) that state anti-takeover statutes do not
apply to the Merger, (22) Year 2000 readiness, and (23) representations by
certain affiliates of EUA.
The Merger Agreement also contains various customary representations
and warranties on the part of NEES relating to among other things: (1) NEES's
organization and qualification to do business and similar corporate matters, (2)
NEES's capital stock and outstanding options, (3) NEES's authority to enter into
and perform its obligations under the Merger Agreement, (4) the absence of
conflict of the Merger Agreement and the transactions contemplated by the Merger
Agreement with the Agreement and Plan of Merger between NEES and National Grid
and the NEES Declaration of Trust and the comparable charter documents of the
Merger Subsidiary and certain agreements and applicable law, (5) certain
regulatory consents and approvals, (6) accuracy of information supplied by NEES
and the Merger Subsidiary to be included or incorporated in this Proxy
Statement, (7) compliance with laws, (8) financing the Merger Consideration, (9)
no vote required by NEES's shareholders in connection with approval of the
Merger Agreement and the transactions contemplated by it, (10) no ownership by
NEES of EUA's common shares, and (11) the Agreement and Plan of Merger between
NEES and National Grid.
Business of EUA Pending the Merger. The Merger Agreement provides that,
until the Effective Time, EUA and each of its subsidiaries will conduct their
respective businesses in the ordinary course in a manner consistent with good
utility practice using commercially reasonable efforts to preserve intact in all
material respects their present business organizations and reputation and,
without the prior written consent of NEES, will not: (1) amend or propose to
amend EUA's Declaration of Trust, in the case of EUA, and the certificate or
articles of incorporation or organization or bylaws (or other comparable charter
documents), in the case of EUA's subsidiaries; (2) declare, set aside or pay any
dividends on, or make other distributions in respect of, any of its capital
stock or share capital other than the declaration and payment of (a) regular
quarterly dividends on Common Shares with usual record and payment dates
comparable to the same period in the prior fiscal year, (b) dividends on
preferred stock in accordance with the terms of such stock, (c) if the Effective
Time does not occur between a record date and payment date of a regular
quarterly dividend, a special dividend on Common Shares with respect to the
quarter in which the Effective Time occurs with a record date on or prior to the
date on which the Effective Time occurs, which does not exceed an amount equal
to the product of $0.0045 multiplied by the number of days between the last
payment date of a regular quarterly dividend and the record date of such special
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dividend, and (d) dividends and distributions (including liquidating
distributions) by a direct or indirect subsidiary of EUA to its parent; (3)
split, combine, subdivide, reclassify or take similar action with respect to any
of its capital stock or share capital or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock or comprised in its share capital; (4) adopt a
plan of complete or partial liquidation or resolutions providing for or
authorizing such liquidation or a dissolution, merger, consolidation,
restructuring, recapitalization or other reorganization; (5) directly or
indirectly redeem, repurchase or otherwise acquire any shares of its capital
stock or any option with respect thereto with certain exceptions; (6) issue,
deliver or sell, or authorize or propose the issuance, delivery or sale of, any
shares of its capital stock or any option with respect thereto; (7) acquire or
agree to acquire (by merging or consolidating with, or by purchasing a
substantial equity interest in or substantial portion of the assets of, or by
any other manner) any business or any corporation, partnership, association or
other business organization or division thereof; (8) sell, lease, securitize,
grant any security interest in or otherwise dispose of or encumber any of its
assets or properties, other than dispositions in the ordinary course of its
business consistent with past practice and having an aggregate value of less
than $1,000,000 for each disposition and $5,000,000 in the aggregate; (9) incur
or guarantee any indebtedness or enter into any "keep well" or other agreement
to maintain any financial condition of another person or enter into any
arrangement having the economic effect of any of the foregoing, other than (a)
short-term indebtedness in the ordinary course of business consistent with past
practice with certain limitations, (b) long-term indebtedness in connection with
the refinancing of existing indebtedness either at its stated maturity or at a
lower cost of funds, or (c) guarantees or "keep well" agreements in favor of
wholly owned subsidiaries of EUA in connection with the subsidiaries' business
not aggregating more than $1,000,000; (10) make any capital expenditures or
commitments during any fiscal year in excess of certain amounts, except as
required by law or as reasonably deemed necessary by EUA after consultation with
NEES, following a catastrophic event, such as a major storm; (11) enter into,
adopt, amend (except as may be required by applicable law) or terminate any EUA
employee benefit plan, or other agreement, arrangement, plan or policy between
EUA or one of its subsidiaries and one or more of its trustees, directors,
officers, employees or former employees, or increase compensation or benefits
except for normal increases in the ordinary course of business; (12) pay,
discharge or satisfy any material claims, liabilities or obligations, other than
the payment, discharge or satisfaction, in the ordinary course of business
consistent with past practice; (13) except in the ordinary course of business
consistent with past practice or as expressly permitted by the Merger Agreement,
modify, amend, terminate or fail to use commercially reasonable efforts to renew
any material contract to which EUA or any of its subsidiaries is a party or
waive, release or assign any material rights or claims or enter into any new
material contracts; (14) make equity contributions or loan money to
non-affiliates or to its non-utility subsidiaries; (15) engage in any activities
which would cause a change in its status, or that of its subsidiaries, under the
Public Utilities Holding Company Act (the "1935 Act"); (16) make any changes in
their accounting methods, policies or procedures, except as required by law,
rule, regulation or applicable generally accepted accounting principles; (17)
make or rescind any material express or deemed election relating to taxes, (18)
make a request for a tax ruling or enter into a tax closing agreement with a
taxing authority, (19) settle or compromise any material claim, action, suit,
litigation, proceeding, arbitration, investigation, audit, or controversy
relating to taxes or (20) change in any material respect any of its methods of
reporting income, deductions or accounting for federal income tax purposes from
those employed in the preparation of its federal income tax return for the
taxable year ending December 31, 1997, except as may be required by applicable
law; (21) willfully take or fail to take any action that would or is reasonably
likely to result in a material breach of any provision of the Merger Agreement
or make any of the representations and warranties thereunder untrue in any
material respect on and as of the Closing Date; (22) terminate, amend, modify or
waive any provision of any confidentiality or standstill agreement to which it
is a party and will enforce the provisions of any such agreement; or (23) take
or fail to take any action that could be reasonably expected to result in (a) a
material breach of any provision of the Merger Agreement, or (b) make any of the
representations and warranties thereunder untrue in any material respect on and
as of the Closing Date.
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Certain Other Covenants of EUA. The Merger Agreement includes various
other covenants, including, but not limited to, covenants that EUA and each of
its subsidiaries will, prior to the Closing Date: (1) take all necessary action
and make all necessary amendments to its stock-based plans so that all such
plans will be in a form that allows the plans to function after the Effective
Time and after any merger of EUA and its subsidiaries into NEES or its
subsidiaries; (2) consult with NEES as to the strategy for all negotiations with
collective bargaining representatives and will keep NEES informed; (3) maintain
insurance in such amounts and against such risks and losses as are customary for
companies engaged in their respective businesses; (4) consult with NEES prior to
implementing any changes in its or any of its subsidiaries' rates or charges,
standards of service or accounting or executing any agreement with respect
thereto that is otherwise permitted under the Merger Agreement; (5) cause its
subsidiaries to, make all such filings in the ordinary course of business
consistent with past practice or as required by a governmental authority or
regulatory agency with appropriate jurisdiction; (6) together with NEES, file or
cause to be filed with the Federal Trade Commission and the Department of
Justice any notifications required to be filed by its respective "ultimate
parent" company under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, and cooperate and use its best efforts to promptly prepare and file
all necessary applications, notices, petitions, filings and other documents
with, and to use all commercially reasonable efforts to obtain all necessary
permits, consents, approvals and authorizations of, all governmental authorities
necessary or advisable to obtain the required statutory approvals and the
approvals of the state utility commissions necessary to consummate the Merger;
(7) confer with NEES on a regular and frequent basis with respect to EUA's
business and operations and other matters relevant to the Merger to the extent
permitted by law and will promptly advice NEES of any material change or event;
(8) provide NEES and its representatives with full access to all facilities,
operations, officers, employees, agents and accountants of EUA and its
subsidiaries and associates and their respective assets, properties, books and
records and all other information and data concerning the business and
operations of EUA and its subsidiaries as NEES or any of its representatives
reasonably may request; (9) promptly advise NEES, orally and in writing, of any
material change, event, transaction or circumstance, that causes or will or may
be likely to cause any covenant or agreement of EUA under the Merger Agreement
to be breached; (10) use all commercially reasonable efforts to cure, before the
Closing, any material violation or breach, of any representation, warranty,
covenant or agreement made by EUA; (11) use its reasonable best efforts to
prepare and mail this proxy statement and related proxy materials to the
shareholders of EUA and call and hold the shareholder meeting as promptly as
practicable and to take all other action necessary or advisable to secure the
vote or consent of shareholders required by applicable law, unless otherwise
necessary under the applicable fiduciary duties of the Board of EUA, as
determined by such Board in good faith after consultation with and based upon
the advice of legal counsel; (12) take or cause to be taken all commercially
reasonable steps necessary or desirable and proceed diligently and in good faith
to satisfy each condition to the other's obligations contained in the Merger
Agreement and to consummate and make effective the Merger and other transactions
contemplated by the Merger Agreement.
EUA's Year 2000 Program. The Merger Agreement also requires EUA to
engage a qualified Year 2000 ("Y2K") consultant to conduct a detailed assessment
of the adequacy and state of completion of its Y2K program, including but not
limited to assessment and testing of its customer, accounting, and operational
systems. EUA has contracted a Y2K consultant, and, in accordance with the Merger
Agreement, will have the Y2K consultant update its initial assessment at the end
of each fiscal quarter of 1999. EUA will also allow designated NEES personnel
and representatives access to the Y2K consultant's personnel, reports and
recommendations and access to EUA's personnel, documents, and information
related to the Y2K issue.
Business of NEES Pending the Merger. The Merger Agreement provides that
until the Effective Time, NEES will: (1) confer with EUA on a regular and
frequent basis with respect to any matter having,
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or which, insofar as can be reasonably foreseen, could reasonably be expected to
have, a NEES material adverse effect or materially impair the ability of NEES to
consummate the Merger and other transactions contemplated hereby; (2) notify EUA
in writing of, and will use all commercially reasonable efforts to cure before
the Closing, any event, transaction or circumstance, as soon as practical after
it becomes known to NEES, that causes or will or may be likely to cause any
covenant or agreement of NEES under the Merger Agreement to be breached or that
renders or will render untrue in any material respect any representation or
warranty of NEES contained in the Merger Agreement; (3) take or cause to be
taken all commercially reasonable steps necessary or desirable and proceed
diligently and in good faith to satisfy each condition to its obligations
contained in the Merger Agreement and to consummate and make effective the
Merger and other transactions contemplated by the Merger Agreement; and (4)
cause the Merger Subsidiary to (a) perform its obligations under the Merger
Agreement in accordance with its terms, and (b) not engage directly or
indirectly in any business or activities of any type or kind and not enter into
any agreements or arrangements with any person, or be subject to or bound by any
obligation or undertaking, which is inconsistent with the Merger Agreement.
The Merger Agreement further provides that until the Effective Time,
NEES will not, nor will it permit any of its subsidiaries to: (1) willfully take
or fail to take any action that would or is reasonably likely to result in a
material breach of any of its covenants or agreements contained in the Merger
Agreement or cause any of its representations and warranties under the Merger
Agreement to be untrue in any material respect on and as of the Closing Date;
(2) take or fail to take any action that could be reasonably expected to cause
or is likely to cause a breach of its covenants or agreements under the Merger
Agreement, or that would materially render untrue any of its representations or
warranties in the Merger Agreement; or (3) acquire or agree to acquire by
merging or consolidating with, or by purchasing a substantial portion of the
assets of or equity in, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof, or
otherwise acquire or agree to acquire any assets if the entering into of a
definitive agreement relating to or the consummation of such acquisition, merger
or consolidation could reasonably be expected to materially delay the
consummation of the Merger.
Certain Covenants of NEES Regarding Labor Agreements, Workforce Matters
and Employee Benefits. The Merger Agreement also includes various other
covenants, including, but not limited to, covenants that NEES shall, or shall
cause the surviving entity and/or its subsidiaries to: (1) honor, all collective
bargaining agreements of EUA or its subsidiaries in effect as of the Effective
Time until their expiration; (2) make any workforce reductions on a fair and
equitable basis; (3) honor and guarantee the obligations of the surviving entity
and its subsidiaries under all EUA employee benefit plans; (4) give certain
affected employees full credit for purposes of eligibility, vesting, benefit
accrual and determination of the level of benefits under any employee benefit
plans or arrangements maintained by NEES or the surviving entity in effect as of
the Closing Date for such affected employees' service with EUA or any subsidiary
of EUA; and (5) pay any such affected employee whose employment is terminated by
NEES or the surviving entity within twelve months of the Closing Date a
severance benefit package equivalent to the severance benefit package that would
be provided under the NEES standard severance plan.
No Solicitation of Proposals. The Merger Agreement provides that, prior
to the Effective Time, neither EUA, nor its subsidiaries, will knowingly
initiate, solicit or encourage, directly or indirectly, any inquiry or proposal
or offer, or engage in negotiations with, or provide confidential information to
any third party relating to a business combination proposal. The Merger
Agreement further provides that EUA will notify NEES of any such inquiries
relating to a business combination proposal. However, prior to the shareholder
approval of the Merger, the Board of EUA may furnish information and conduct
discussion and negotiations with respect to such a proposal if: (1) the Board
determines, in good faith based upon the advice of its outside legal counsel
with respect to the Board's fiduciary duties, that taking
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such action is necessary for the Board to act in a manner consistent with its
fiduciary duties under applicable law; (2) the Board reasonably concludes, in
good faith after consultation with its financial advisors, that the party making
such proposal (A) has adequate financing sources and (B) such proposal is likely
to be more favorable to shareholders of EUA than the Merger with NEES; (3) prior
to furnishing nonpublic information or entering into negotiations, EUA notifies
NEES in writing of such furnishing of information or negotiations (identifying
the party making the proposal and the material terms of such proposal) and
enters into a confidentiality agreement with such third party; and (4) EUA keeps
NEES promptly informed of the status and all material information with respect
to such discussions or negotiations. EUA may have to pay a termination fee to
NEES if it accepts an alternative business combination proposal under certain
circumstances. See "--Termination Fees" below.
Conditions to the Closing. The Merger Agreement provides that the
respective obligations of the parties to the Merger Agreement to consummate the
transactions contemplated thereby are subject to the fulfillment or waiver of,
among others, the following conditions: (1) the Merger Agreement will have been
approved by the requisite vote of EUA's shareholders; (2) any waiting period
applicable to such transactions under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act") will have terminated or
expired; (3) no court of competent jurisdiction or other competent governmental
authority shall have enacted, issued, promulgated, enforced or entered any law
or order which is then in effect and has the effect of making illegal or
otherwise restricting, preventing or prohibiting consummation of the Merger or
other transactions contemplated by the Merger Agreement; and (4) the necessary
EUA and NEES statutory approvals and approvals from the Massachusetts Department
of Telecommunications and Energy and the Rhode Island Public Utilities
Commission pertaining to the recovery of costs associated with the Merger shall
have been obtained prior to the Effective Time.
The obligation of NEES and the Merger Subsidiary to effect the Merger
is further subject to the following conditions: (1) the representations and
warranties made by EUA shall be true and correct as so made on and as of the
Closing Date; (2) EUA shall have performed and complied with, in all material
respects, each agreement, covenant and obligation required by the Merger
Agreement to be so performed or complied with prior to the Closing; (3) no
material adverse effect shall have occurred and no facts or circumstances shall
exist which in the aggregate could reasonably be expected to have an material
adverse effect; and (4) all consents required of EUA shall have been obtained by
EUA, except where the failure to receive such required consents could not
reasonably be expected to have a material adverse effect, or delay or prevent
the consummation of the Merger and other transactions contemplated by the Merger
Agreement.
The obligation of EUA to effect the Merger is further subject to the
following conditions: (1) certain representations and warranties made by NEES
and the Merger Subsidiary shall be true and correct as so made on and as of the
Closing Date; (2) all consents which NEES is required to obtain shall have been
obtained by NEES, except where the failure to receive such required consents
could not reasonably be expected to have a material adverse effect on NEES, or
delay or prevent the consummation of the Merger and other transactions
contemplated by the Merger Agreement; and (3) NEES and the Merger Subsidiary
shall have performed and complied with, in all material respects, each
agreement, covenant and obligation required by the Merger Agreement to be so
performed or complied with prior to the Closing.
Indemnification. The Merger Agreement provides that NEES to the extent,
if any, not provided by an existing right on indemnification or other agreement
or policy and, to the fullest extent permitted by applicable law, shall, or
shall cause the surviving entity to indemnify, defend and hold harmless each
person who is now, or has been at any time, or who becomes prior to the
Effective Time (i) an officer, trustee or director of EUA or any subsidiary of
EUA or (ii) an employee of EUA or any subsidiary of EUA covered or to the extent
of the coverage extended as of the date of the Merger Agreement against all
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losses, expenses (including reasonable attorney's fees and expenses), claims,
damages or liabilities or amounts paid in settlement, arising out of actions or
omissions occurring at or prior to the Effective Time that are, in whole or in
part, (1) based on or arising out of the fact that such person is or was a
director, trustee, officer or employee of EUA or any subsidiary of EUA, and (2)
based on or arise out of or pertain to the transactions contemplated by the
Merger Agreement, in each case, to the extent permitted by the EUA Declaration
of Trust or certain indemnification agreements. In addition, the Merger
Agreement provides that NEES and the surviving entity will cause an extended
reporting period to be maintained in effect for current policies of directors'
and officers' liability insurance or shall provide tail coverage for the benefit
of such persons who are currently covered by such policies of EUA on terms no
less favorable than the terms of such current insurance coverage and will make
proper provisions for any successors and assigns of the surviving entity, as
applicable, to assume NEES' indemnification obligations set forth in the Merger
Agreement. To the fullest extent permitted by law, from and after the Effective
Time, all rights to indemnification in favor of the employees, agents,
directors, trustees and officers of EUA and EUA's subsidiaries with respect to
their activities as such prior to the Effective Time, as provided in EUA
Declaration of Trust or the respective certificates of incorporation and by-laws
or similar governing documents in effect on the date of the Merger Agreement
will survive the Merger and shall continue in full force and effect for a period
of not less than six years from the Effective Time.
Termination. The Merger Agreement may be terminated, and the Merger and
other transactions contemplated thereby may be abandoned, at any time prior to
the Effective Time, notwithstanding approval by the shareholders of EUA, under
the following circumstances specified therein, including: (1) by mutual written
agreement of the Board of Directors of NEES and the Board of EUA, respectively;
(2) by EUA or NEES, by written notice to the other, if the Closing Date shall
not have occurred on or before December 31, 1999 (the "Initial Termination
Date") provided that if on the Initial Termination Date certain governmental,
regulatory and other consents and approvals have not yet been obtained, the
Initial Termination Date shall be extended to April 30, 2000 (the "Extended
Termination Date"); (3) by NEES, by written notice to EUA, if EUA shareholder
approval is not obtained at a duly held meeting, including any adjournments
thereof; (4) by EUA or NEES, if any applicable state or federal law or
applicable law of a foreign jurisdiction or any order, rule or regulation is
adopted or issued that has the effect of prohibiting the Merger or other
transactions contemplated thereby, or if any court of competent jurisdiction or
any governmental authority shall have issued a nonappealable final order,
judgment or ruling or taken any other action having the effect of permanently
restraining, enjoining or otherwise prohibiting the Merger or other transactions
contemplated thereby; (5) by EUA upon ten days' prior notice to NEES if the
Board of EUA determines in good faith, that termination of the Merger Agreement
is necessary for the Board of EUA to act in a manner consistent with its
fiduciary duties to shareholders under applicable law by reason of an
unsolicited alternative business combination proposal meeting certain
requirements and following further negotiations with NEES to make such
adjustments in the terms and conditions of the Merger Agreement as would enable
EUA to proceed with the Merger or other transactions contemplated thereby on
such adjusted terms; (6) by EUA, by written notice to NEES, if there has been
any material breach of any representation or warranty, or any material breach of
any covenant or agreement, of NEES and such breach has not been remedied within
twenty days after receipt of notice of such breach in writing from EUA; (7) by
EUA, by written notice to NEES, if NEES fails to deliver or cause to be
delivered the amount of cash to the paying agent at a time when all conditions
to NEES's obligation to close have been satisfied or otherwise waived in writing
by NEES; (8) by NEES, by written notice to EUA, if there is any material breach
of any representation or warranty, or any material breach of any covenant or
agreement, of EUA and such breach shall not have been remedied within twenty
days after receipt of notice of such breach in writing from NEES; (9) by NEES,
by written notice to EUA, if the Board of EUA (a) withdraws or modifies in any
manner adverse to NEES its approval of the Merger and other transactions
contemplated thereby, or its recommendation to its shareholders regarding the
approval of the Merger Agreement, the Merger and other transactions contemplated
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thereby, (b) approves or recommends or takes no position with respect to an
alternative business combination proposal, or (c) resolves to take any such
actions.
Termination Fees. The Merger Agreement provides that EUA will
pay NEES a termination fee of $20 million, plus all documented out-of-pocket
expenses and fees incurred by NEES in connection with the Merger not in excess
of $5 million if the event the Merger Agreement is terminated: (1) by EUA if the
Board of EUA determines in good faith, that termination of the Merger Agreement
is necessary for the Board of EUA to act in a manner consistent with its
fiduciary duties to shareholders under applicable law by reason of an
unsolicited alternative business combination proposal meeting the requirements
of certain sections and clauses of the Merger Agreement; or (2) any party has
made a business combination proposal that has not been withdrawn and EUA enters
into a definitive agreement within two years of such termination, and the Merger
Agreement is terminated (A) by NEES because shareholder approval is not obtained
by EUA; (B) by NEES because there has been a material breach of EUA's
representations and warranties or a failure to perform and comply with its
covenants under the Merger Agreement and such breach or failure has not been
cured; (C) by NEES because the Board of EUA withdraws or modifies its approval
of the Merger or its recommendations to its shareholders in a manner adverse to
NEES or approves, recommends or takes no position with respect to an alternative
business combination proposal; or (D) by EUA because the Merger has not been
consummated on or before the Initial Termination Date, or if extended, the
Extended Termination Date.
The Merger Agreement provides that NEES will pay EUA a termination fee
of $10 million, plus all documented out-of-pocket expenses and fees incurred by
EUA in connection with the Merger not in excess of $5 million, if the Merger
Agreement is terminated by either NEES or EUA because the Closing shall not have
occurred before the Initial Termination Date, or, if extended, the Extended
Termination Date, and at the time of such termination: (1) the NEES or EUA
required governmental, regulatory and other approvals shall not have been
obtained and become final orders; (2) if the date of termination is any date
other than a date which is on or after the Extended Termination Date, all
closing conditions other than the conditions (a) relating to obtaining required
governmental, regulatory and other approvals and (b) requiring NEES and the
Merger Subsidiary to perform its obligations under the Merger Agreement, as
certified by an officer's certificate, shall have been fulfilled or are capable
of being fulfilled as of such date; and (3) the Merger contemplated by the
National Grid Merger Agreement between NEES and National Grid has not yet been
consummated.
Expenses. The Merger Agreement provides that, with the exception of the
termination fees and the fees in connection with the filings required under the
HSR Act and the 1935 Act which are to be paid by NEES, all other costs and
expenses incurred in connection with the Merger and other transactions
contemplated hereby, whether or not the Merger is consummated, shall be paid by
the party incurring such cost or expense.
Amendment or Waiver. The Merger Agreement provides that the terms and
provisions thereof may be modified, supplemented or amended only by a written
instrument executed by the Board of Directors of NEES and the Board of EUA to
the extent permitted by law. Similarly, compliance with any term or provision of
the Merger Agreement may be waived only by a written instrument executed by
Directors or Trustees of the respective parties entitled to the benefits of such
term or provision.
Transition Steering Team. The Merger Agreement provides that NEES and
EUA will, subject to limitations imposed by applicable law, create a special
transition steering team that will develop recommendations concerning the future
structure and operations of the Association after the Effective Time.
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Advisory Board. The Merger Agreement provides that following the
consummation of the Merger and the closing of the merger contemplated by the
National Grid Merger Agreement, NEES shall cause all of the members of the EUA
Board to be appointed to serve for a period of two years on an advisory board to
be formed pursuant to the National Grid Merger Agreement. Up to eleven persons
who served as non-executive members of NEES's board of directors prior to the
NEES - National Grid merger will also be appointed to the advisory board. The
function of the advisory board will to be to advise the NEES board of directors
with respect to general business as well as opportunities and activities in the
surviving entities' market area and to maintain and develop customer
relationships.
ACCOUNTING TREATMENT
It is expected that the Merger will be accounted for as a purchase in
accordance with generally accepted accounting principles.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of United States federal income tax
consequences of the Merger that are material to United States resident holders
of Common Shares. The discussion is for general information only and does not
purport to consider all aspects of United States federal income taxation that
may be relevant to holders of Common Shares. The discussion is based on
provisions of the Internal Revenue Code of 1986, as amended (the "Internal
Revenue Code"), existing regulations promulgated thereunder, and administrative
and judicial interpretations thereof, all as in effect as of the date hereof and
all of which are subject to change (possibly with retroactive effect). The
discussion applies only to holders that hold such Common Shares as capital
assets, and does not apply to Common Shares received pursuant to the exercise of
an employee option or otherwise as compensation, to Common Shares held as part
of a "straddle," "hedge," "conversion transaction," "synthetic security," or
other integrated investment, or to certain types of holders (including, without
limitation, financial institutions, insurance companies, tax-exempt
organizations, and broker-dealers) that may be subject to special rules. This
discussion does not address the Unites States federal income tax consequences to
a holder of Common Shares that, for federal income tax purposes, is a
non-resident alien individual, a foreign corporation, a foreign partnership, or
a foreign estate or trust, nor does it consider the effect of any foreign,
state, local or other tax laws.
BECAUSE INDIVIDUAL CIRCUMSTANCES MAY DIFFER, EACH HOLDER OF COMMON
SHARES SHOULD CONSULT SUCH HOLDER'S TAX ADVISOR TO DETERMINE THE TAX
CONSEQUENCES OF THE MERGER TO SUCH HOLDER, INCLUDING THE APPLICATION AND EFFECT
OF FOREIGN, STATE, LOCAL AND OTHER TAX LAWS.
The conversion of Common Shares into the right to receive the Merger
Consideration pursuant to the Merger Agreement will be treated as a taxable sale
of such shares for United States federal income tax purposes (and may also be a
taxable transaction under applicable state, local, foreign, and other tax laws).
In general, for United States federal income tax purposes a shareholder will
recognize capital gain or loss equal to the difference between the amount of
cash received and such holder's adjusted tax basis in such holder's Common
Shares surrendered therefor. Such capital gain or loss will be long-term capital
gain or loss if the holder's holding period for shares is more than one year as
of the date of the sale of such shares.
Payment of the Merger Consideration pursuant to the Merger may be
subject to "backup withholding" at a rate of 31% unless a holder of Common
Shares (1) provides its correct taxpayer identification number ("TIN") (which,
for an individual shareholder, is such holder's social security number) and any
other required information to the paying agent, or (2) is a corporation or comes
within certain exempt categories and, when required, demonstrates this fact, and
otherwise complies with
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applicable requirements of the backup withholding rules. A holder of Common
Shares that does not provide a correct TIN may be subject to penalties imposed
by the Internal Revenue Service. Any amount paid as backup withholding does not
constitute an additional tax and will be creditable against the holder's United
States federal income tax liability. Each holder of Common Shares should consult
with such holder's tax advisor as to such holder's qualification for exemption
from backup withholding and the procedure for obtaining such exemption.
CERTAIN EFFECTS OF THE MERGER
At the effective time of the Merger, (1) the Merger Subsidiary will
merge with and into EUA and the separate corporate existence of the Merger
Subsidiary will cease, (2) EUA will be the surviving entity in the Merger and
its corporate existence will be under the laws of The Commonwealth of
Massachusetts, (3) the surviving entity will be a wholly owned subsidiary of
NEES. EUA's Declaration of Trust, as in effect immediately prior to the
effective time of the Merger, will be the Declaration of Trust of the surviving
entity until thereafter amended as provided by law and such Declaration of
Trust.
As a result of the Merger, the Common Shares of EUA will no longer be
publicly traded. Following the Merger, persons who were shareholders of EUA
immediately prior to the Merger will no longer have an opportunity to continue
their interests in EUA as an ongoing business entity and therefore will not
share in its future earnings and potential growth.
Trading in the Common Shares of EUA on the NYSE and the Pacific Stock
Exchange ("PSE") will cease immediately following the effective time of the
Merger. At such effective time, the Common Shares will be delisted from the NYSE
and the PSE. Registration of the Common Shares under the Exchange Act also will
be terminated, as will the ongoing disclosure requirements thereunder with
respect to the Common Shares.
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REGULATORY MATTERS
Set forth below is a summary of the regulatory requirements affecting
the proposed Merger.
FEDERAL POWER ACT
Section 203 of the Federal Power Act provides that no public utility
shall sell or otherwise dispose of its jurisdictional facilities or directly or
indirectly merge or consolidate such facilities with those of any other person
or acquire any security of any other public utility without first having
obtained authorization from the Federal Energy Regulatory Commission ("FERC").
The approval of FERC is required in order to consummate the Merger. Under
Section 203 of the Federal Power Act, FERC will approve a merger if it finds the
Merger to be "consistent with the public interest." EUA and NEES plan to file an
application with FERC in April 1999 requesting that it approve the Merger under
Section 203 of the Federal Power Act.
NUCLEAR REGULATORY COMMISSION
Montaup Electric Co. ("Montaup"), an indirect wholly owned generation
and transmission subsidiary of EUA, is a minority, non-operating owner licensee
of certain nuclear power plant facilities. The Nuclear Regulatory Commission
("NRC") exercises regulatory authority over those facilities and is required to
approve transfers of control of the licenses under the Atomic Energy Act of
1954. The Merger would involve an indirect transfer of such control (as the
ultimate entity controlling the license would change from EUA to NEES), and the
NRC has held that it must approve such indirect transfers. It is contemplated
that subsequent to the Merger, Montaup will be merged into New England Power
Company ("NEP"), a wholly-owned subsidiary of NEES, which would involve a direct
transfer of the licenses from Montaup to NEP, and also require NRC approval.
Accordingly, Montaup and NEP intend to jointly apply to the NRC by May 1999 to
obtain approval of both such indirect and direct transfers of the licenses.
SEC APPROVAL PURSUANT TO 1935 ACT
NEES and EUA are both public utility holding companies registered under
Section 5 of the 1935 Act. Section 9(a) of the 1935 Act provides that it is
unlawful, without prior approval of the Securities and Exchange Commission
("SEC"), for any person to acquire any security of any public utility company if
that person already owns 5% or more of the voting securities of another public
utility company, or will by virtue of that transaction come to own 5% or more of
the voting securities of two or more public utility companies.
As a result of the Merger, NEES will be deemed to acquire directly or
indirectly all of the Common Shares of EUA. Accordingly, in order to consummate
the Merger, NEES is required to obtain prior SEC approval under Section 9(a) of
1935 Act. The Company expects that NEES will file an application for approval of
the Merger by May 1999. Under the applicable standards of the 1935 Act, the SEC
is directed to approve a proposed acquisition unless it finds that (1) the
acquisition would tend towards detrimental interlocking relations or a
detrimental concentration of control, (2) the consideration to be paid in
connection with the acquisition is not reasonable, (3) the acquisition would
unduly complicate the capital structure of the applicant's holding company
system or would be detrimental to the proper functioning of the applicant's
holding company system, or (4) the acquisition would violate applicable state
law. In order to approve a proposed acquisition, the SEC also must find that the
acquisition would tend towards the development of an integrated public utility
system and would otherwise conform to the 1935 Act's integration and corporate
simplification standards.
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STATE REGULATORY APPROVALS
The formal approval of the Massachusetts Department of
Telecommunications and Energy ("MDTE") and the Rhode Island Public Utilities
Commission ("RIPUC") is not required for the Merger to be consummated; however,
EUA and NEES will seek regulatory approval from both of these agencies with
respect to a rate plan that addresses the costs of acquisition and acquisition
premium.
EUA and NEES plan to file rate plans with the MDTE and RIPUC in April 1999.
The New Hampshire Public Utilities Commission ("NHPUC") has
jurisdiction to review the Merger. However, if Montaup represents to the NHPUC
that the Merger will not adversely affect its rates, terms, service, or
operation, formal NHPUC approval will not be required. Montaup plans to file a
letter with the NHPUC at least 30 days prior to the closing of the Merger,
assuming shareholder approval of the Merger, representing that the Merger will
not adversely affect the rates, terms, service or operation of Montaup within
New Hampshire.
Similarly, the Maine Public Utilities Commission ("MPUC") has limited
jurisdiction over foreign electric companies. If Montaup and EUA's Newport
Electric Corp. ("Newport") subsidiary provide MPUC with foreign electric utility
certificates from the MDTE and RIPUC demonstrating regulatory oversight of the
companies, then the Merger would not be subject to MPUC approval. Montaup and
Newport plan to file such certificates with MPUC prior to consummation of the
Merger.
In accordance with Connecticut law, the Connecticut Department of
Public Utility Control (the "CDPUC") may be required to approve the Merger. NEES
and Montaup plan to file an appropriate application for approval or exemption
from regulation by May 1999 with the CDPUC. In accordance with Vermont law, the
Company does not believe that approval of the Vermont Public Service Board (the
"VPSB") will be required for the Merger.
ANTITRUST CONSIDERATIONS
The HSR Act, and the rules and regulations thereunder provide that
certain transactions (including the Merger) may not be consummated until certain
information has been submitted to the Antitrust Division of the Department of
Justice (the "Antitrust Division") and the Federal Trade Commission (the "FTC")
and specified HSR Act waiting period requirements have been satisfied. EUA and
NEES intend to provide their respective pre-merger notification filings pursuant
to the HSR Act in April 1999. The expiration or earlier termination of the HSR
Act waiting period would not preclude the Antitrust Division or the FTC from
challenging the Merger on antitrust grounds. EUA and NEES believe that the
Merger will not violate Federal antitrust laws. If the Merger is not consummated
within 12 months after the expiration or earlier termination of the HSR Act
waiting period, EUA and NEES would be required to submit new information to the
Antitrust Division and the FTC, and a new HSR Act waiting period would have to
expire or be earlier terminated before the Merger could be consummated.
OTHER REGULATORY MATTERS
EUA does not believe that any other material regulatory approvals are
required in connection with the Merger. EUA and NEES have agreed in the Merger
Agreement to use all commercially reasonable efforts to obtain all regulatory
approvals and certifications required for the Merger, but there can be no
assurance as to when or if such approvals and certifications will be obtained or
that such approvals and certifications will be obtained on terms or conditions
that will not have a material adverse effect on the business, operations,
properties, assets, condition, prospects or results of EUA following the Merger.
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INTERESTS OF CERTAIN PERSONS IN THE MERGER
EXECUTIVE SEVERANCE AGREEMENTS
EUA entered into Executive Severance Agreements with each of its
executive officers - Donald G. Pardus, Chairman and Chief Executive Officer,
John R. Stevens, President and Chief Operating Officer, Robert G. Powderly,
Executive Vice-President, John D. Carney, Executive Vice President, and Clifford
J. Hebert, Jr., Treasurer and Secretary, in 1991, and extended the Executive
Severance Agreements for these executive officers with certain modifications in
1995. These agreements remain in effect for the three-year period following a
"change in control," as defined in the agreements. The Merger constitutes such a
change of control.
Under these agreements, EUA is obligated to pay the executive officer
severance benefits if, during the "Protection Period," either (1) EUA terminates
the executive officer's employment without cause (as defined in the Executive
Severance Agreement), or (2) the executive terminates his covered employment for
good reason (as defined in the agreement). The "Protection Period" is the
three-year period beginning on the date of a change in control, but may be
triggered prior to that time if the executive officer's employment is terminated
in anticipation of or in connection with a change in control. NEES has not
offered either of Messrs. Pardus or Stevens continuation of employment in their
current positions, and since neither is expected to remain with the surviving
company following the Merger, each will become entitled to severance benefits
upon their anticipated termination of employment on or about the Effective Time
of the Merger. NEES has indicated that following the Merger it expects to seek
to retain the services of Messrs. Powderly and Carney, but neither of these
officers are party to any new agreement with NEES with respect to such continued
employment.
Benefits that may be payable under the Executive Severance Agreements
consist of (i) 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)
continuation or vesting of certain fringe benefits and common share grants,
(iii) reimbursement of legal fees and expenses incurred as a result of the
termination or to enforce the provisions of the severance agreement and (iv)
reimbursement for a portion of the taxes on certain of the foregoing payments,
including any amount constituting a "parachute payment" under the Internal
Revenue Code.
In accordance with the terms of the Executive Severance Agreements, it
is presently estimated (based on currently available information and without
taking into consideration potential benefit enhancements for certain trustees
and executive officers described below) that the executives would be entitled to
lump sum cash benefits upon termination of employment in the circumstances
described above approximately in the following amounts: Mr. Pardus $3,814,293,
Mr. Stevens $3,098,062, Mr. Powderly, $1,259,535, Mr. Carney $1,510,397, Mr.
Hebert $1,186,239. In addition, it is estimated (based on currently available
information (including applicable tax rates) and without taking into
consideration potential benefit enhancement for certain officers and trustees
noted below) that the tax reimbursement payment in respect of parachute
payments, upon termination of employment made in the circumstances described
above, may be as follows: Mr. Pardus $2,020,693, Mr. Stevens $1,646,808, Mr.
Powderly $634,236, Mr. Carney $773,084, and Mr. Hebert $610,028.
BENEFIT ENHANCEMENTS FOR CERTAIN TRUSTEES AND EXECUTIVE OFFICERS
The Merger Agreement expressly reserves to EUA's Board the right to
make certain benefit enhancements for the executive officers prior to the
Closing Date. Enhancements, if any, will be made in the sole discretion of the
Board upon recommendation of the Compensation and Nominating Committee.
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Changes that the Board may consider only for Messrs. Pardus and Stevens
consist of the following: (1) paying each a merger completion bonus of up to
$500,000, (2) eliminating present value discounting for the lump sum severance
payment under the Executive Severance Agreement, (3) adding an additional five
years of coverage under the Key Executive Plan and (4) providing lifetime
retiree medical and life insurance coverage.
Changes that the Board may consider for all the executive officers
consist of adding up to five years of age and service when calculating benefits
for these executive officers under the Retirement and Savings Restoration Plan
for Members of the Employees' Retirement Plan of Eastern Utilities Associates
and its Subsidiary Companies and Eastern Utilities Associates Employees' Savings
Plan, and the Supplemental Retirement Plan for Certain Officers of Eastern
Utilities Associates and its Affiliated Companies.
The Trustees' Retirement Plan provides a retirement benefit for each
non-employee member of the Board who terminates service after completing at
least five years of service and attaining at least sixty years of age. The
retirement benefit consists of continued payment of the then current retainer
fee being paid for as many full years as the individual had been a member of the
Board. In connection with a change in control, the Merger Agreement allows for
the Board to adopt one or more of the following enhancements: (1) provide that
all members of the Board will be fully vested upon terminating service with the
Board regardless of the number of years of service or age, (2) provide a minimum
ten year period for the continued payment of the then current retainer, and (3)
pay the retirement benefit in a single lump sum payment. See "COMPENSATION AND
OTHER TRANSACTIONS--Compensation of Trustees." None of the Trustees of EUA are
expected to continue as such following the Merger, although following the
consummation of the Merger, NEES is expected to cause all of the members of the
EUA Board to be appointed to serve for a period of two years on an advisory
board to be formed pursuant to the National Grid Merger Agreement. NEES has
indicated to the Company that advisory board members will be paid a $10,000
annual retainer fee and a $3,500 per meeting fee. The function of the advisory
board will to be to advise the NEES board of directors with respect to general
business as well as opportunities and activities in the surviving entities'
market area and to maintain and develop customer relationships.
As of the date of this Proxy Statement neither the Board or its
Compensation and Nominating Committee had taken any action with respect to any
such enhancements. Assuming shareholder approval of the Merger, the Board
intends to retain a consultant to assist in evaluating the various benefits
enhancements and make recommendations with respect to the possible
implementation of any such enhancements.
INDEMNIFICATION FOR THE BENEFIT OF TRUSTEES AND EXECUTIVE OFFICERS
Trustees, officers and presently covered current or former employees of
EUA will be indemnified to the fullest extent permitted by applicable law
against any claim arising prior to the Merger relating to (1) the fact that such
person is or was a director, officer or employee of EUA or any of its
subsidiaries and (2) the Merger Agreement or the transactions contemplated by
the Merger Agreement. For a period of six years following the Merger, NEES and
EUA, as the surviving entity, shall, at NEES's election; (1) cause to be
maintained an extended reporting period for EUA's current Director and Officer
liability insurance on terms no less favorable than the terms of such current
coverage or (2) provide tail coverage for six (6) years for acts prior to the
effective time of the Merger on terms no less favorable than the terms of such
current insurance coverage. See "THE MERGER--The Merger Agreement--
Indemnification."
33
<PAGE> 37
RESTRICTED STOCK PLAN
The EUA Restricted Stock Plan allows for grants of restricted shares to
key employees of EUA and its subsidiaries. Restricted share grants vest after
completing five years of employment (or two years of employment with respect to
the 1997 retention bonus grants) or, if earlier, upon a change in control. The
Merger will constitute such a change in control. The number and value (based on
a $31.00 per share price to be paid in the Merger and exclusive of upward
adjustment) of Common Shares held by the executive officers and currently
subject to restrictions that will expire upon completion of the Merger (if not
earlier) are as follows: Mr. Pardus, 43,841 shares, $1,359,071; Mr. Stevens,
34,565 shares, $1,071,515; Mr. Powderly, 13,412 shares, $415,772; Mr. Carney,
12,363 shares, $383,253; and Mr. Hebert, 9,834 shares, $304,854.
34
<PAGE> 38
CERTAIN INFORMATION CONCERNING EUA
EUA, a voluntary association formed under a Declaration of Trust dated
April 2, 1928, as amended, is a registered holding company under the federal
Public Utility Holding Company Act of 1935 whose directly or indirectly wholly
owned subsidiaries include Blackstone Valley Electric Co. ("Blackstone");
Eastern Edison Co. ("Eastern Edison"); Newport Electric Corp. ("Newport"); EUA
Energy Investment Corp.; EUA Ocean State Corp.; EUA Service Corp.; EUA Energy
Services, Inc.; EUA Cogenex Corp., and Montaup Electric Co. ("Montaup").
Together, these companies are known as the EUA System. Blackstone, a registered
retail electric utility organized under the laws of the State of Rhode Island in
1912 operates in northern Rhode Island. Eastern Edison, a registered retail
electric utility company, was organized under the laws of The Commonwealth of
Massachusetts in 1883 and operates in southeastern Massachusetts. EUA owns
directly all of the shares of common stock of Blackstone, Eastern Edison, and
Newport, a retail electric utility which operates in south coastal Rhode Island.
Eastern Edison owns all of the permanent securities of Montaup, a generation and
transmission company, which currently supplies electricity to Eastern Edison,
Blackstone, Newport and two unaffiliated utilities for resale.
Further information concerning EUA's business, operations, products,
management and certain other matters, in addition to that provided herein, is
incorporated by reference herein. See "INCORPORATION BY REFERENCE."
35
<PAGE> 39
SELECTED CONSOLIDATED FINANCIAL DATA OF EUA
The following selected consolidated financial data as of and for each
of the five years ended December 31, 1998 are derived from consolidated
financial statements of EUA. The following selected data should be read in
conjunction with EUA's consolidated financial statements incorporated by
reference herein. EUA's financial statements for the four years in the period
ended December 31, 1997 were audited by Coopers and Lybrand L.L.P. (now known as
PriceWaterhouseCoopers LLP following a merger with Price Waterhouse LLP). EUA's
financial statements for the year ended December 31, 1998 were audited by
PriceWaterhouseCoopers LLP, independent public accountants. The selected
financial data set forth below does not purport to be complete and should be
read in conjunction with, and are qualified in their entirety by, EUA's annual
reports, including the notes thereto, to which the reader should refer and may
obtain from EUA or the SEC.
(In thousands except Common Share Data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating Revenues ............................... $ 538,801 $ 568,513 $ 527,068 $ 463,363 $ 564,278
Operating Income (1) ............................. 61,639 58,807 55,841 71,728 73,795
Consolidated Net Earnings (1) .................... 34,710 37,960 30,614 32,626 47,370
BALANCE SHEET DATA:
Plant in Service ................................. 1,000,243 1,079,361 1,067,056 1,037,662 1,020,859
Construction Work in Progress .................... 5,151 5,538 3,839 7,570 8,389
Gross Utility Plant .............................. 1,005,394 1,084,899 1,070,895 1,045,232 1,029,248
Accumulated Depreciation
and Amortization .............................. 353,780 376,722 350,861 324,146 304,034
Net Utility Plant .............................. 651,614 708,177 720,079 721,086 725,214
Total Assets ................................ 1,302,638 1,270,752 1,257,029 1,206,130 1,234,049
CAPITALIZATION:
Long-Term Debt - Net ............................. 310,346 332,802 406,337 434,871 455,412
Redeemable Preferred Stock - Net ................. 27,995 27,612 27,035 26,255 25,390
Non- Redeemable Preferred Stock - Net ............ 6,900 6,900 6,900 6,900 6,900
Common Equity .................................... 373,674 373,467 371,813 375,229 365,443
Total Capitalization ........................ 718,915 740,781 812,085 843,255 853,145
Short-Term Debt ............................ 63,574 61,484 51,848 39,540 31,678
COMMON SHARE DATA:
Consolidated Basic and Diluted Earnings
per Average Common Share (1) ................... $ 1.70 $ 1.86 $ 1.50 $ 1.61 $ 2.41
Average Number of Shares Outstanding ............. 20,435,997 20,435,997 20,436,217 20,238,961 19,671,970
Return on Average Common Equity (%) .............. 9.3 10.2 8.2 8.8 13.6
Market Price - High ($) .......................... 28 1/4 26 5/8 24 1/4 25 27 3/8
- Low ($) ........................... 23 11/16 16 3/8 14 3/4 21 1/2 21 3/8
- Year-End ($) ...................... 28 1/4 26 1/4 17 3/8 23 5/8 22
Dividends paid per Share ($) ..................... 1.66 1.66 1.645 1.585 1.515
Book value per Share ($) ......................... 18.29 18.27 18.19 18.36 18.33
</TABLE>
(1) Information with respect to details of one-time impact to earnings is set
forth in "Management's Discussion and Analysis of Financial Condition and
Results of Operation" included in EUA's Form 10-K for the year ended December
31, 1998 and incorporated by reference into this Proxy Statement. See
"INFORMATION INCORPORATED BY REFERENCE".
36
<PAGE> 40
CERTAIN INFORMATION CONCERNING NEES AND NATIONAL GRID
NEW ENGLAND ELECTRIC SYSTEM
NEES is a Massachusetts business trust and a public utility holding
company. The principal subsidiaries of NEES include New England Power Company,
which is engaged in the transmission and generation of electricity, and four
electricity delivery companies:
- Massachusetts Electric Company
- The Narragansett Electric Company
- Granite State Electric Company
- Nantucket Electric Company
NEES also controls a number of subsidiaries engaged in various
energy-related businesses, and also, through a subsidiary, has equity
investments or joint ownership interests in various power plants throughout New
England. New England Power Service Company, another subsidiary of NEES, provides
support services for NEES affiliates. The states in which NEES's subsidiaries
serve retail customers are: Massachusetts, Rhode Island and New Hampshire. The
principal executive offices of NEES are located in Westborough, Massachusetts.
Research Drive LLC, the Merger Subsidiary, is a newly formed
Massachusetts limited liability company wholly owned by NEES and formed for
purposes of the Merger. Its principal executive offices are located at 25
Research Drive, Westborough, Massachusetts 01582 and its telephone number at
such offices is (508) 389-2000.
NATIONAL GRID
National Grid is a public limited company incorporated under the laws
of England and Wales with registration number 2367004. National Grid through its
principal subsidiary, The National Grid Company plc, owns, operates and
maintains the high voltage electricity transmission system in England and Wales,
which connects generators with major customers and regional electricity
companies. National Grid also owns and operates interconnectors which enable
electricity to be transferred between the England and Wales market and Scotland
and France. National Grid is listed on the London Stock Exchange and sponsored
American Depository Receipts of its capital stock trade on the NYSE.
The principal executive offices of National Grid are located in
Conventry, United Kingdom.
Except as described in this Proxy Statement, none of NEES, the Merger
Subsidiary or National Grid Group has had any transactions with EUA or any of
its executive officers, directors or affiliates that would require disclosure
under the rules of the SEC, and has had negotiations or transactions with EUA or
its affiliates concerning a merger, consolidation or acquisition, a tender offer
or other acquisition of securities, an election of directors or a sale or other
transfer of a material amount of assets other than the Merger.
37
<PAGE> 41
ELECTION OF TRUSTEES AND OWNERSHIP OF SHARES
It is proposed to elect eleven 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 EUA. 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
EUA and were elected to their present term of office at the Annual Meeting of
shareholders held on May 18, 1998.
Each of the nominees has served in the capacity indicated in the list
for more than five years, with the exception of 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 Providence Journal Company, 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 and Cabot Industrial Trust. In
February 1994, Mr. Thorndike accepted appointment as a successor trustee of
private trusts in which he has no beneficial interest, and concurrently became,
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 EUA 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.
The table on the following page 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 41 and by all Trustees
and executive officers as a group.
38
<PAGE> 42
<TABLE>
<CAPTION>
COMMON
SHARES OF
EUA
BENEFICIALLY
AGE AT OWNED AT
DECEMBER 31, TRUSTEE JANUARY 1,
NAME 1998 PRINCIPAL OCCUPATION SINCE 1999(a)
---- ------------ -------------------- ------- ------------
<S> <C> <C> <C> <C>
Russell A. Boss (C,F) 60 President and Chief Executive Officer, 1989 1,000(b)
A.T. Cross Company (writing
instruments manufacturer), Lincoln,
Rhode Island
John D. Carney 54 Executive Vice President of the -- 16,842(c)
Association
Paul J. Choquette, Jr., (C,F) 60 Chairman and Chief Executive Officer of 1992 2,643(f)
Gilbane Building Company
(building construction),
Providence Rhode Island
Peter S. Damon (A,C) 63 Vice Chairman, Financial Services, 1991 1,458(d)
Bank of Newport, Newport, Rhode
Island
Peter B. Freeman (F,P) 66 Corporate Director and Trustee, 1979 2,500
Providence, Rhode Island
Clifford J. Hebert, Jr. 51 Treasurer and Secretary -- 15,881(c)
Larry A. Liebenow (C,P) 55 President and Chief Executive Officer 1994 1,000
of Quaker Fabric Corporation
(upholstery manufacturer), Fall
River, Massachusetts
Jacek Makowski (A,P) 68 Chairman, Poseidon Resources Corporation 1995 200
(origination and development of major
capital projects), Stamford, Connecticut
Wesley W. Marple, Jr. (A,F) 66 Professor of Business Administration, 1976 2,585(e)
Northeastern University, Boston,
Massachusetts
Donald G. Pardus 58 Chairman of the Board of Trustees 1982 71,258(c)
and Chief Executive Officer of the
Association
Robert G. Powderly 51 Executive Vice President of the -- 21,018(c)
Association
Margaret M. Stapleton (A,P) 62 Vice President, John Hancock Mutual 1977 1,685
Life Insurance Company, Boston,
Massachusetts
John R. Stevens 58 President and Chief Operating Officer 1990 37,467(c)
of EUA
W. Nicholas Thorndike (A,F) 65 Corporate Director and Trustee, 1991 2,146
Brookline, Massachusetts
Trustees and executive officers as a group......................................................................177,483(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 four-tenths of one percent of the outstanding common shares of
EUA.
(b) In addition, Mr. Boss owns 5 shares of Blackstone Valley Electric
Company's 4.25% Preferred Stock.
39
<PAGE> 43
(c) Jointly owned with spouse except for 2,004, 2,588, 6,388, 2,549 and
2,677 shares held under EUA's Employee's Savings Plan for Messrs.
Carney, Hebert, Pardus, Powderly and Stevens, respectively, as to which
each has voting power, and 12,363, 9,834, 43,841, 13,412 and 34,565
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, 4,775 and 93 shares individually owned by Messrs. Carney,
Hebert, Powderly and Stevens.
(d) Jointly owned with spouse, except for 400 shares held individually.
(e) In addition, Mr. Marple's spouse owns 363 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 nine-tenths of one percent of total
outstanding common shares.
The following table sets forth information regarding beneficial
ownership of Common Shares held by Neuberger Berman, LLC and Neuberger Berman
Management, Inc. (together, "Neuberger") as of December 31, 1998 based on a
Schedule 13-G filing made by Neuberger with the SEC dated February 10, 1999.
Such filing stated that Neuberger had sole voting power with respect to 478,800
such shares beneficially held, shared voting power with respect to 591,900 such
shares beneficially held and shared dispositive power with respect to all such
shares, and that such shares are held either in individual client accounts or by
various Neuberger Berman mutual funds for which Neuberger Berman, LLC and
Neuberger Berman Management, Inc. serve as sub-advisor and investment manager,
respectively.
<TABLE>
<CAPTION>
NUMBER OF COMMON PERCENT OF
NAME AND ADDRESS SHARES BENEFICIALLY HELD OUTSTANDING COMMON SHARES
---------------- ------------------------ -------------------------
<S> <C> <C>
Neuberger Berman, LLC 1,079,900 5.28%
Neuberger Berman Management, Inc.
605 Third Avenue
New York, New York 10158-3698
</TABLE>
40
<PAGE> 44
COMPENSATION AND OTHER TRANSACTIONS
SUMMARY COMPENSATION TABLE
Information is set out below as to compensation paid by EUA and its
subsidiaries for the years 1996, 1997 and 1998, to each of the five highest paid
executive officers of EUA whose aggregate cash compensation for 1998 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
Chairman and Chief Executive Officer
..................................... 1998 $443,525 $351,311 $14,100 $511,106 $14,865
..................................... 1997 $428,525 $167,112 $12,747 $232,617 $13,775
..................................... 1996 $412,025 -- $12,383 $12,976
John R. Stevens
President and Chief Operating Officer
..................................... 1998 $346,025 $296,026 $16,696 $408,811 $11,462
..................................... 1997 $334,325 $133,665 $11,763 $232,617 $10,726
..................................... 1996 $321,425 -- $ 8,636 -- $10,104
Robert G. Powderly
Executive Vice President
..................................... 1998 $191,025 $145,743 $10,726 $142,105 $ 5,907
..................................... 1997 $184,025 $ 51,249 $10,240 $116,322 $ 5,560
..................................... 1996 $176,025 -- $10,210 -- $ 5,321
John D. Carney
Executive Vice President
..................................... 1998 $187,525 $145,743 $11,302 $142,105 $ 6,085
..................................... 1997 $179,525 $ 51,249 $10,502 $ 87,235 $ 5,624
..................................... 1996 $169,525 -- $10,018 -- $ 5,108
Clifford J. Hebert, Jr.
Treasurer and Secretary
..................................... 1998 $148,025 $138,140 -- $90,056 $ 4,699
..................................... 1997 $136,025 $ 28,417 -- $116,322 $ 4,078
..................................... 1996 $129,525 -- -- -- $ 3,846
</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") as of December 31, 1998 of shares
granted under EUA's Restricted Stock Plan to the officers listed above
are as follows: Mr. Pardus, 43,841 shares, $1,063,124; Mr. Stevens,
34,565 shares, $843,990; Mr. Powderly, 13,412 shares, $329,451; Mr.
Carney, 12,363 shares, $302,089; and Mr. Hebert, 9,834 shares,
$244,213. Dividends are paid on these shares. Restrictions on awards
made in 1998 and 1997 expire after five and two years, respectively,
provided that all restrictions expire upon the occurrence of a
change-of-control event, including the proposed Merger discussed
elsewhere in this Proxy Statement.
(3) Contributions made under EUA's Employees' Savings Plan and term life
insurance premiums.
41
<PAGE> 45
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 EUA 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 $130,000 for 1999 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-six, thirty-three, thirty-two, nineteen and twenty-two,
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>
EUA has a Key Executive Plan for certain officers of EUA 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.
EUA 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 EUA 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.
42
<PAGE> 46
CHANGE-IN-CONTROL ARRANGEMENTS
Severance agreements with executive officers of EUA 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 EUA 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, EUA
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 EUA 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 deemed to be a termination for reasons other than Cause.
COMPENSATION OF TRUSTEES
Each non-management Trustee of EUA receives, as a standard arrangement,
a retainer fee for all services as a Trustee in the amount of $19,000 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 for a
least ten 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 EUA, a grantor
trust has been established by EUA to ensure the performance of its payment
obligations under this retirement plan.
43
<PAGE> 47
REPORT OF THE COMPENSATION AND NOMINATING COMMITTEE ON
COMPENSATION OF EXECUTIVE OFFICERS
The compensation philosophy of the Board's Compensation and Nominating
Committee (the "Committee") and EUA 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, EUA 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 shareholder value. In 1997, EUA 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 41. 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 EUA; 2) operate in generally the same geographic areas as EUA; and 3)
have other characteristics similar to EUA. None of the comparative utilities are
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 EUA; 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 1998 were based on the factors outlined above.
ANNUAL CASH INCENTIVES
EUA has had an Annual Cash Incentive Plan since 1987. The 1998 version
of the Plan applicable to officers, other than the CEO and COO, contained
Performance Objectives which were approved by the Committee in early 1998. One
Objective measures Earnings Per Average Common Share against a target. A
Threshold 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.
The 1998 Earnings Per Average Common Share exceeded the Threshold
amount necessary for an incentive award, but was less than their 1998 target.
Performance under the Cost of Service Per Customer Objective approximated the
target.
44
<PAGE> 48
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
EUA (New England).
The final Objective was discretionary. The officer group had as its
primary goals, the successful implementation of the comprehensive settlement
agreements, including implementation of mandated rate reductions, activities
associated with the sale of generation facilities and purchase power contracts,
development of an overall plan for utilizing the cash proceeds form the sale of
generating facilities, continuation of cost control efforts and enhancement of
shareholder value.
In considering this Objective, the Committee recognized that the
accomplishments with respect to implementing the difficult restructuring plans,
sale of generating a facilities and purchased power contracts and the
enhancement of shareholder value were significantly above what could have been
anticipated.
The Committee's discretionary awards to Messrs. Powderly, Carney and
Hebert reflect these outstanding accomplishments. These awards are included in
the amounts reflected in the Summary Compensation Table on page 41.
The Committee also considers and sets Annual Cash Incentive Awards for
the CEO and the COO. Four Performance Objectives were utilized for 1998 Awards:
System Earnings Per Average Common Share; Total Return Versus the S& P Electric
Utility Index; Cost of Service Per Customer and Discretion.
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 slightly exceeded the Threshold amount necessary for an
incentive award. Total Return was equal to the S&P Electric Utility Index, while
Performance under the Cost of Service Per Customer Objective approximated the
1998 target.
Discretionary awards to the CEO and COO for 1998 were to be based on
the same factors outlined above, plus additional factors, including maintaining
year-end 1997 Price/Earning Ratio, concluding purchase and sale agreements for
generating assets, critical evaluation and planning of certain diversified
business activities and seeking out opportunities to enhance shareholder value.
The Committee's discretionary awards to the CEO and COO reflect the
same outstanding accomplishments addressed above. These amounts are included in
the Summary Compensation Table on page 41.
LONG-TERM INCENTIVES (STOCK GRANT PLAN)
EUA established a restricted stock grant plan in 1989 which, as amended
since then, is now the Eastern Utilities Association restricted Stock Plan. The
purpose of the plan is to assist EUA in securing, retaining and motivating key
executives and to recognize their efforts on behalf of EUA through awards of
common shares of EUA. Such grants generally 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 EUA through that
date. Restricted stock grant awards were made in early 1998 to the Executives
listed in the Summary Compensation Table on page 41. In addition, Special
Retention Stock Grants were awarded in 1997 (See below).
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SPECIAL RETENTION STOCK GRANTS
In 1997, EUA 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. EUA was particularly
concerned about losing those individuals involved in implementing EUA'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 21 individuals, including the five
executives named in the Summary Compensation Table on page 41. In order to vest
in the special Retention Stock Grant, individuals are required to stay in the
employ of EUA for a period of two years.
COMPENSATION AND NOMINATING COMMITTEE
RUSSELL A. BOSS PAUL J. CHOQUETTE, JR.
PETER S. DAMON LARRY A. LIEBENOW
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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
[PERFORMANCE GRAPH]
- --------------------------------------------------------------------------------
12/93 12/94 12/95 12/96 12/97 12/98
- --------------------------------------------------------------------------------
Eastern Utilities Associates $100 $ 84 $ 96 $ 77 $127 $146
- --------------------------------------------------------------------------------
S&P Electric Companies $100 $ 87 $114 $114 $114 $166
- --------------------------------------------------------------------------------
S&P 500 $100 $101 $139 $171 $229 $294
- --------------------------------------------------------------------------------
* $100 invested on December 31, 1993 in stock or index, including reinvestment
of dividends. Fiscal Year ended 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.
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<PAGE> 51
COMMITTEES
In addition to eleven meetings of the Trustees, the following number of
meetings were held in 1998 by each of the four standing Committees of EUA: Audit
Committee (two); Compensation and Nominating Committee (two); Finance Committee
(four); and Pension Trust Committee (eight). Each of the Trustees, except Mr.
Makowski, attended at least 75% of the total number of meetings of the Trustees
and of Committees on which he or she served. All members of the Committees are
non-management Trustees; the Chief Executive Officer of EUA 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 EUA'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 EUA 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 EUA. 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 EUA outside of his or her position as Trustee.
AUDITORS
PriceWaterhouseCoopers LLP, certified public accountants, are EUA's
auditors. Representatives of PriceWaterhouseCoopers LLP 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.
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DEADLINE FOR SHAREHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
If the Merger has not been consummated by such date, November 25, 1999
will be the date by which proposals of shareholders of EUA intended to be
presented at the 2000 Annual Meeting of Shareholders of NEES must be received by
EUA for inclusion in EUA's proxy statement and form of proxy relating to that
meeting.
If the Merger has not been consummated by such date, February 9, 2000
is the deadline for giving timely notice of a shareholder proposal to be
submitted outside the processes of Rule 14a-8 under the federal securities laws.
Management proxies will be authorized to exercise discretionary voting authority
with respect to any shareholder proposal not included in such proxy materials
for the Annual Meeting of EUA unless EUA receives notice of such proposal by
February 9, 2000 and the conditions set forth in Rule 14a-4(c)(2)(i)-(iii) under
the Exchange Act are met.
AVAILABLE INFORMATION
EUA is subject to the informational requirements of the Exchange Act,
and in accordance therewith files reports, proxy statements and other
information with the SEC. Copies of such reports, proxy statements and other
information can be inspected and copied at the public reference facilities
maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the SEC at 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661, and 7 World Trade Center,
13th Floor, New York, New York 10048. Copies of such material can be obtained at
prescribed rates from the Public Reference Section of the SEC, 450 Fifth Street,
N.W., Washington, D.C. 20549. Certain documents filed electronically with the
SEC by EUA can be obtained at the Commission's Internet site located at
www.sec.gov.
INCORPORATION BY REFERENCE
This Proxy Statement incorporates by reference certain documents filed
by EUA with the SEC which are not presented herein or delivered herewith. These
documents (other than the exhibits to such documents, unless such exhibits are
specifically incorporated by reference into such documents) are available
without charge upon oral or written request to Clifford J. Hebert, Jr.,
Treasurer and Secretary, Eastern Utilities Associates, P.O. Box 2333, Boston,
Massachusetts 02109. In order to ensure timely delivery of these documents, any
request should be made by May 10, 1999.
EUA's Annual Report on Form 10-K for the year ended December 31, 1998
(as amended by Form 10-K/A filed on or about April 16, 1999) and its Current
Report on Form 8-K filed with the SEC on February 5, 1999, which have been filed
with the SEC by EUA pursuant to the Exchange Act, are hereby incorporated herein
by reference. In addition, any other documents subsequently filed by EUA
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date
of this Proxy Statement and prior to the date of the Annual Meeting shall also
be deemed to be incorporated herein by reference and to be a part hereof from
the date of filing of such documents. All information appearing in this Proxy
Statement or in any document incorporated herein by reference is not necessarily
complete and is qualified in its entirety by the information and financial
statements (including notes thereto) appearing in the documents incorporated
herein by reference and should be read together with such information and
documents.
Any statement contained in a document incorporated or deemed to be
incorporated herein by reference shall be deemed to be modified or superseded
for purposes of this Proxy Statement to the extent that a statement contained
herein or in any other subsequently filed document that is deemed to be
incorporated herein by reference modifies or supersedes such statement. Any such
statement so modified
49
<PAGE> 53
or superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Proxy Statement.
No person is authorized to give any information or to make any
representations other than those contained or incorporated by reference in this
Proxy Statement and, if given or made, such information or representations
should not be relied upon as having been authorized. This Proxy Statement does
not constitute an offer to sell, or a solicitation of a proxy, in any
jurisdiction to or from any person to whom or from whom it is unlawful to make
such an offer or solicitation in such jurisdiction. The delivery of this Proxy
Statement shall not, under any circumstances, create any implication that there
has been no change in the information set forth herein or incorporated herein by
reference or in the affairs of EUA since the date of this Proxy Statement. If,
however, any material change occurs during the period that the Proxy Statement
is required to be delivered, this Proxy Statement will be amended or
supplemented accordingly.
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ANNEX I
AGREEMENT AND PLAN OF MERGER
dated as of February 1, 1999
by and among
NEW ENGLAND ELECTRIC SYSTEM,
RESEARCH DRIVE LLC
and
EASTERN UTILITIES ASSOCIATES
<PAGE> 55
<PAGE> 56
TABLE OF CONTENTS
Page
No.
ARTICLE I
THE MERGER ....................... 1
1.01 The Merger ................................................. 1
1.02 Effective Time ............................................. 1
1.03 Effects of the Merger ...................................... 2
ARTICLE II
CONVERSION OF SHARES ................... 2
2.01 Conversion of Capital Stock ................................ 2
2.02 Surrender of Shares ........................................ 3
2.03 Withholding Rights ......................................... 4
ARTICLE III
THE CLOSING ....................... 4
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF EUA .......... 5
4.01 Organization and Qualification ............................. 5
4.02 Capital Stock .............................................. 6
4.03 Authority .................................................. 7
4.04 Non-Contravention; Approvals and Consents .................. 7
4.05 SEC Reports, Financial Statements and Utility Reports ...... 8
4.06 Absence of Certain Changes or Events ....................... 9
4.07 Legal Proceedings .......................................... 9
4.08 Information Supplied ....................................... 9
4.09 Compliance ................................................. 10
4.10 Taxes ...................................................... 10
4.11 Employee Benefit Plans; ERISA .............................. 12
4.12 Labor Matters .............................................. 14
4.13 Environmental Matters ...................................... 15
4.14 Regulation as a Utility .................................... 17
4.15 Insurance .................................................. 17
4.16 Nuclear Facilities ......................................... 18
4.17 Vote Required .............................................. 18
4.18 Opinion of Financial Advisor ............................... 18
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Page
No.
4.19 Ownership of NEES Common Shares ............................ 18
4.20 State Anti-Takeover Statutes ............................... 18
4.21 Year 2000 .................................................. 19
4.22 EUA Associates ............................................. 19
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF NEES .......... 19
5.01 Organization and Qualification ............................. 19
5.02 Authority .................................................. 20
5.03 Capital Stock .............................................. 20
5.04 Non-Contravention; Approvals and Consents .................. 20
5.05 Information Supplied ....................................... 21
5.06 Compliance ................................................. 21
5.07 Financing .................................................. 22
5.08 No Vote Required ........................................... 22
5.09 Ownership of EUA Shares .................................... 22
5.10 Merger with The National Grid Group plc .................... 22
ARTICLE VI
COVENANTS ........................ 22
6.01 Covenants of EUA ........................................... 22
6.02 Covenants of NEES .......................................... 28
6.03 Additional Covenants by NEES and EUA ....................... 29
ARTICLE VII
ADDITIONAL AGREEMENTS ................... 30
7.01 Access to Information ...................................... 30
7.02 Proxy Statement ............................................ 31
7.03 Approval of Shareholders ................................... 31
7.04 Regulatory and Other Approvals ............................. 31
7.05 Employee Benefit Plans ..................................... 32
7.06 Labor Agreements and Workforce Matters ..................... 34
7.07 Post Merger Operations ..................................... 34
7.08 No Solicitations ........................................... 35
7.09 Directors' and Officers' Indemnification and Insurance ..... 36
7.10 Expenses ................................................... 37
7.11 Brokers or Finders ......................................... 37
7.12 Anti-Takeover Statutes ..................................... 38
7.13 Public Announcements ....................................... 38
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Page
No.
7.14 Restructuring of the Merger ................................ 38
ARTICLE VIII
CONDITIONS ....................... 39
8.01 Conditions to Each Party's Obligation to Effect the
Merger ................................................... 39
8.02 Conditions to Obligation of NEES and LLC to Effect the
Merger ................................................... 39
8.03 Conditions to Obligation of EUA to Effect the Merger ....... 40
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER ............. 41
9.01 Termination ................................................ 41
9.02 Effect of Termination ...................................... 43
9.03 Termination Fees ........................................... 43
9.04 Amendment .................................................. 44
9.05 Waiver ..................................................... 44
ARTICLE X
GENERAL PROVISIONS .................... 44
10.01 Non-Survival of Representations, Warranties, Covenants
and Agreements ........................................... 44
10.02 Notices .................................................... 44
10.03 Entire Agreement; Incorporation of Exhibits ................ 46
10.04 No Third Party Beneficiary ................................. 46
10.05 No Assignment; Binding Effect .............................. 46
10.06 Headings ................................................... 47
10.07 Invalid Provisions ......................................... 47
10.08 Governing Law .............................................. 47
10.09 Enforcement of Agreement ................................... 47
10.10 Certain Definitions ........................................ 47
10.11 Counterparts ............................................... 48
10.12 WAIVER OF JURY TRIAL ....................................... 48
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GLOSSARY OF DEFINED TERMS
The following terms, when used in this Agreement, have the
meanings ascribed to them in the corresponding Sections of this Agreement listed
below:
"1935 Act" -- Section 4.05(b)
"Adjustment Date" -- Section 2.01(c)
"Affected Employees" -- Section 7.05(a)
"affiliate" -- Section 10.11(a)
"Agreement" -- Preamble
"Alternative Proposal" -- Section 7.08
"beneficially" -- Section 10.10(b)
"business day" -- Section 10.10(c)
"Canceled Shares" -- Section 2.02(b)
"Certificates" -- Section 2.02(b)
"Closing" -- Article III
"Closing Agreement" -- Section 4.10(j)
"Closing Date" -- Article III
"Code" -- Section 2.03
"Confidentiality Agreement" -- Section 7.01
"Constituent Entities" -- Section 1.01
"Contracts" -- Section 4.04(a)
"control," "controlling," "controlled by"
and "under common control with" -- Section 10.10(a)
"DOE" -- Section 4.05(b)
"Effective Time" -- Section 1.02
"Environmental Claim" -- Section 4.13(f)(i)
"Environmental Laws" -- Section 4.13(f)(ii)
"Environmental Permits" -- Section 4.13(b)
"ERISA" -- Section 4.11(a)
"ERISA Affiliate" -- Section 4.11(c)
"EUA" -- Preamble
"EUA Associates" -- Section 4.01(b)
"EUA Employee Agreements" -- Section 7.05(d)(ii)
"EUA Executives" -- Section 7.05(d)(ii)
"EUA Shares" -- Preamble
"EUA Disclosure Letter" -- Section 4.01(a)
"EUA Employee Benefit Plans" -- Section 4.11(a)
"EUA Financial Statements" -- Section 4.05(a)
"EUA Nuclear Facilities" -- Section 4.16
"EUA Material Adverse Effect" -- Section 4.01(a)
"EUA Required Consents" -- Section 4.04(a)
"EUA Required Statutory Approvals" -- Section 4.04(b)
"EUA SEC Reports" -- Section 4.05(a)
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<PAGE> 60
"EUA Shareholders' Approval" -- Section 7.03
"EUA Shareholders' Meeting" -- Section 7.03
"EUA Significant Subsidiary" -- Section 7.08
"EUA Shares" -- Preamble
"EUA Trust Agreement" -- Section 1.03
"EUA Voting Debt -- Section 4.02(d)
"Evaluation Material" -- Section 7.01(a)
"Exchange Act" -- Section 4.05(a)
"Exchange Fund" -- Section 2.02(a)
"Extended Termination Date" -- Section 9.01(b)
"FCC" -- Section 4.05(b)
"FERC" -- Section 4.05(b)
"Final Order" -- Section 8.01(d)
"Governmental Authority" -- Section 4.04(a)
"Hazardous Materials" -- Section 4.13(f)(iii)
"HSR Act" -- Section 7.04(a)
"Indemnified Liabilities" -- Section 7.09(a)
"Indemnified Party" -- Section 7.09(a)
"Indemnified Parties" -- Section 7.09(a)
"Information Systems" -- Section 4.21
"Initial Termination Date" -- Section 9.01(b)
"IRS" -- Section 4.10(m)
"knowledge" -- Section 10.11(d)
"laws" -- Section 4.04(a)
"Lien" -- Section 4.02(b)
"LLC" -- Preamble
"Massachusetts Secretary" -- Section 1.02
"Merger" -- Preamble
"Merger Consideration" -- Section 2.01(b)(ii)
"MGL" -- Section 1.01
"National Grid Group" -- Section 5.10
"National Grid Merger Agreement" -- Section 5.10
"NEES" -- Preamble
"NEES Disclosure Letter" -- Section 5.03
"NEES Material Adverse Effect" -- Section 5.01
"NEES-EUA Regulatory Approvals" -- Section 7.04(b)
"NEES-EUA Regulatory Proceedings" -- Section 7.04(c)
"NEES Required Consents" -- Section 5.04(a)
"NEES Required Statutory Approvals" -- Section 5.04(b)
"NEES-NGG Regulatory Approvals" -- Section 7.04(c)
"NEES-NGG Regulatory Proceedings" -- Section 7.04(c)
"NEES-NGG Required Statutory Approvals" -- Section 7.04
"NEES-NGG Transactions" -- Section 7.04
"NEES Shares" -- Section 5.03
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"NEES Trust Agreement" -- Section 5.01
"NGG Circular" -- Section 7.02
"NRC" -- Section 4.05(b)
"Options" -- Section 4.02(a)
"orders" -- Section 4.04(a)
"Out-of-Pocket Expenses" -- Section 9.03(a)
"Paying Agent" -- Section 2.02(a)
"PBGC" -- Section 4.11(g)
"person" -- Section 10.11(e)
"Per Share Amount" -- Section 2.01(b)(ii)
"Post Closing Plans" -- Section 7.05(b)
"Proxy Statement" -- Section 4.08(a)
"Release" -- Section 4.13(f)(iv)
"Representatives" -- Section 10.11(f)
"SEC" -- Section 4.05(a)
"Securities Act" -- Section 4.05(a)
"Subsidiary" -- Section l0.11(g)
"Surviving Entity" -- Section 1.01
"Tax Ruling" -- Section 4.10(j)
"Taxes" -- Section 4.10
"Tax Return" -- Section 4.10
"US GAAP" -- Section 4.05(a)
"Yankee Companies" -- Section 4.16
"Y2K Consultant" -- Section 6.01(o)
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This AGREEMENT AND PLAN OF MERGER, dated as of February 1, 1999
(this "AGREEMENT"), is made and entered into by and among NEW ENGLAND ELECTRIC
SYSTEM, a Massachusetts business trust ("NEES"), RESEARCH DRIVE LLC ("LLC"), a
Massachusetts limited liability company which is directly and indirectly wholly
owned by NEES, and EASTERN UTILITIES ASSOCIATES, a Massachusetts business trust
("EUA").
WHEREAS, the Board of Directors of NEES, the Board of Trustees of
EUA and the members of LLC have each determined that it is advisable and in the
best interests of their respective shareholders and members to consummate, and
have approved, the business combination transaction provided for herein in which
LLC would merge with and into EUA, with EUA being the surviving entity (the
"MERGER"), pursuant to the terms and conditions of this Agreement, as a result
of which NEES will own, directly or indirectly, all of the issued and
outstanding common shares of EUA (the "EUA SHARES");
WHEREAS, NEES, LLC and EUA desire to make certain
representations, warranties and agreements in connection with the Merger and
also to prescribe various conditions to the Merger;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
ARTICLE I
THE MERGER
1.01 THE MERGER. Upon the terms and subject to the conditions of
this Agreement, at the Effective Time (as defined in SECTION 1.02), LLC shall be
merged with and into EUA in accordance with Section 2 of Chapter 182 and Section
59 of Chapter 156C of the Massachusetts General Laws ("MGL"). At the Effective
Time, the separate existence of LLC shall cease and EUA shall continue as the
surviving entity in the Merger. EUA, after the Effective Time, is sometimes
referred to herein as the "SURVIVING ENTITY" and EUA and LLC are sometimes
referred to herein as the "CONSTITUENT ENTITIES". The effect and consequences of
the Merger shall be as set forth in Article II.
1.02 EFFECTIVE TIME. Subject to the provisions of this Agreement,
on the Closing Date (as defined in Article III), a certificate of merger shall
be executed and filed by EUA and LLC with the Secretary of the Commonwealth of
Massachusetts (the "MASSACHUSETTS SECRETARY"). The Merger shall become
effective at the time of the filing of the certificate of merger relating to the
Merger with the Massachusetts Secretary, or at such later time as is specified
in the certificate of merger (such date and time being referred to herein as the
"EFFECTIVE TIME").
<PAGE> 63
1.03 EFFECTS OF THE MERGER. At the Effective Time, the Agreement
and Declaration of Trust of EUA (the "EUA TRUST AGREEMENT") as in effect
immediately prior to the Effective Time shall be the agreement and declaration
of trust of the Surviving Entity, until thereafter amended as provided by law
and such agreement and declaration of trust. Subject to the foregoing, the
additional effects of the Merger shall be as provided in the applicable
provisions of Section 2 of Chapter 182 of the MGL and Section 62 of the Limited
Liability Company Act of Massachusetts.
ARTICLE II
CONVERSION OF SHARES
2.01 CONVERSION OF CAPITAL STOCK. At the Effective Time, by virtue
of the Merger and without any action on the part of the holder thereof:
(a) MEMBERSHIP INTERESTS OF LLC. Each one percent of the
issued and outstanding membership interests in LLC shall be converted into one
transferable certificate of participation or share of the Surviving Entity.
(b) CONVERSION OF EUA SHARES.
(i) CANCELLATION OF TREASURY SHARES AND SHARES
OWNED BY NEES AND SUBSIDIARIES. All EUA Shares that are owned by EUA as treasury
shares and any EUA Shares owned by NEES or any other wholly owned Subsidiary (as
defined in SECTION 10.11) of NEES shall be canceled and retired and shall cease
to exist and no cash or other consideration shall be delivered in exchange
therefor.
(ii) CONVERSION OF EUA SHARES. Each EUA Share
issued and outstanding immediately prior to the Effective Time (other than
shares to be canceled in accordance with SECTION 2.01(b)(i)) shall be canceled
and converted in accordance with the provisions of this SECTION 2.01 into the
right to receive cash in the amount (the "PER SHARE AMOUNT") of $31.00 as such
amount may hereafter be adjusted in accordance with SECTION 2.01(c) hereof (the
"MERGER CONSIDERATION"), payable, without interest, to the holder of such EUA
Share, upon surrender, in the manner provided in SECTION 2.02 hereof, of the
certificate formerly evidencing such share.
(c) ADJUSTMENT IN AMOUNT OF MERGER CONSIDERATION. In the
event that the Closing Date shall not have occurred on or prior to the date that
is the six (6) month anniversary of the date on which EUA Shareholders' Approval
is obtained (the "ADJUSTMENT DATE"), the Per Share Amount shall be increased,
for each day after the Adjustment Date up to and including the day which is one
day prior to the earlier of the Closing Date and the Extended Termination Date,
by an amount equal to $0.003
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2.02 SURRENDER OF SHARES. (a) DEPOSIT WITH PAYING AGENT. Prior to
the Effective Time, NEES shall designate a bank or trust company reasonably
acceptable to EUA to act as agent (the "PAYING AGENT") for the benefit of the
holders of EUA Shares in connection with the Merger to receive the funds to
which holders of EUA Shares shall become entitled pursuant to SECTION
2.01(b)(ii) (the "EXCHANGE FUND"). From time to time at, immediately prior to or
after the Effective Time, NEES or LLC shall make or cause to be made available
to the Paying Agent immediately available funds in amounts and at the times
necessary for the payment of the Merger Consideration upon surrender of
Certificates (as defined in SECTION 2.02(b)) in accordance with SECTION 2.02(b),
it being understood that any and all interest or other income earned on funds
made available to the Paying Agent pursuant to this SECTION 2.02(a) shall belong
to and shall be paid (at the time provided for in SECTION 2.02(e)) as directed
by NEES or LLC. Any such funds deposited with the Paying Agent by NEES shall be
invested by the Paying Agent as directed by NEES or LLC.
(b) EXCHANGE PROCEDURE. As soon as practicable after the
Effective Time, the Paying Agent shall mail to each holder of record of a
certificate or certificates (the "CERTIFICATES") which immediately prior to the
Effective Time represented outstanding EUA Shares (the "CANCELED SHARES") that
were canceled and became instead the right to receive the Merger Consideration
pursuant to SECTION 2.01(b)(ii): (i) a letter of transmittal in such form as
NEES and EUA may reasonably agree (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
actual delivery of the Certificates to the Paying Agent) and (ii) instructions
for effecting the surrender of the Certificates in exchange for the Merger
Consideration. Upon surrender of a Certificate or Certificates to the Paying
Agent for cancellation (or to such other agent or agents as may be appointed by
NEES and are reasonably acceptable to EUA), together with a duly executed letter
of transmittal and such other documents as the Paying Agent shall require, the
holder of such Certificate shall be entitled to receive the Merger Consideration
in exchange for each EUA Share formerly evidenced by such Certificate which such
holder has the right to receive pursuant to SECTION 2.01(b)(ii). In the event
of a transfer of ownership of Canceled Shares which is not registered in the
transfer records of EUA, the Merger Consideration in respect of such Canceled
Shares may be given to the transferred thereof if the Certificate or
Certificates representing such Canceled Shares is presented to the Paying Agent,
accompanied by all documents required to evidence and effect such transfer and
by evidence satisfactory to the Paying Agent that any applicable stock transfer
taxes have been paid. At any time after the Effective Time, each Certificate
shall be deemed to represent only the right to receive the Merger Consideration
subject to and upon the surrender of such Certificate as contemplated by this
SECTION 2.02. No interest shall be paid or will accrue on the Merger
Consideration payable to holders of Certificates pursuant to
SECTION 2.01(b)(ii).
(c) NO FURTHER OWNERSHIP RIGHTS IN EUA SHARES. The Merger
Consideration paid upon the surrender of Certificates in accordance with the
terms of SECTION 2.01(b)(ii) shall be deemed to have been paid at the Effective
Time in full satisfaction of all fights pertaining to EUA Shares represented
thereby. From and after the Effective Time, the share transfer books of EUA
shall be closed and there shall be no further registration of transfers thereon
of EUA Shares which were outstanding immediately prior to the Effective Time.
If, after the Effective Time,
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Certificates are presented to NEES for any reason, they shall be canceled and
exchanged as provided in this SECTION 2.02.
(d) LOST, STOLEN OR DESTROYED CERTIFICATES. In the event
any owner of any Certificate shall claim that such Certificate shall have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
owner of such Certificate and delivery of that affidavit to the Paying Agent
and, if required by NEES or LLC, the posting by such person of a bond in
customary amount as indemnity against any claim that may be made against NEES,
EUA or the Surviving Entity with respect to such Certificate, the Paying Agent
will issue in exchange for such lost, stolen or destroyed Certificate the Merger
Consideration payable upon due surrender of, and deliverable pursuant to this
SECTION 2.02 in respect of, EUA Shares to which such Certificate relates.
(e) TERMINATION OF EXCHANGE FUND. Any portion of the
Exchange Fund which remains undistributed to the shareholders of EUA for one (1)
year after the Effective Time shall be delivered to the Surviving Entity, upon
demand, and any Shareholders of EUA who have not theretofore complied with this
ARTICLE II shall thereafter look only to the Surviving Entity (subject to
abandoned property, escheat and other similar laws) as general creditors for
payment of their claim for the Merger Consideration payable upon due surrender
of the Certificates held by them. None of NEES, LLC or the Surviving Entity
shall be liable to any former holder of EUA Shares for the Merger Consideration
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
2.03 WITHHOLDING RIGHTS. Each of the Surviving Entity and NEES
shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of EUA Shares such amounts as
it is required to deduct and withhold with respect to the making of such payment
under the Internal Revenue Code of 1986, as amended (the "CODE"), or any other
provision of state, local or foreign tax law. To the extent that amounts are so
withheld by the Surviving Entity or NEES , as the case may be, such withheld
amounts shall be treated for all purposes of this Agreement as having been paid
to the holder of EUA Shares in respect of which such deduction and withholding
was made by the Surviving Entity or NEES, as the case may be.
ARTICLE III
THE CLOSING
The closing of the Merger and other transactions contemplated hereby
(the "CLOSING") will take place at the offices of Skadden, Arps, Slate, Meagher
& Flom LLP, 919 Third Avenue, New York, New York 10022, at 10:00 a.m., local
time, on the second business day following satisfaction or waiver (where
applicable) of the conditions set forth in ARTICLE VIII (other than those
conditions that by their nature are to be fulfilled at the Closing, but subject
to the fulfillment or waiver of such conditions), unless another date, time or
place is agreed to in writing by the parties hereto (the "CLOSING DATE").
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF EUA
EUA represents and warrants to NEES and LLC as follows:
4.01 ORGANIZATION AND QUALIFICATION. (a) EUA is a voluntary
association duly organized, validly existing and in good standing under the laws
of the Commonwealth of Massachusetts and has full power, authority and legal
right to own its property and assets and to transact the business in which it is
engaged. Each of EUA's Subsidiaries is a corporation duly organized or
incorporated, validly existing and in good standing under the laws of its
jurisdiction of organization or incorporation and ha s full corporate power and
authority to conduct its business as and to the extent now conducted and to own,
use and lease its assets and properties, except where failure to be so organized
or incorporated, existing and in good standing or to have such power and
authority, individually or in the aggregate, could not reasonably be expected to
have an EUA Material Adverse Effect. As used in this Agreement, the term "EUA
MATERIAL ADVERSE EFFECT" means a material adverse effect on the business,
assets, results of operations, condition (financial or otherwise) or prospects
of EUA and its Subsidiaries taken as a whole. Each of EUA and its Subsidiaries
is duly qualified, licensed or admitted to do business and is in good standing
in each jurisdiction in which the ownership, use or leasing of its assets and
properties, or the conduct or nature of its business, makes such qualification,
licensing or admission necessary, except where failure to be so qualified,
licensed or admitted and in good standing, individually o r in the aggregate,
could not reasonably be expected to have an EUA Material Adverse Effect. SECTION
4.01 of the letter dated the date hereof and delivered to NEES and LLC by EUA
concurrently with the execution and delivery of this Agreement (the "EUA
DISCLOSURE LETTER") sets forth (i) the name and jurisdiction of incorporation or
organization of each Subsidiary of EUA, (ii) such Subsidiary's authorized
capital stock, (iii) the number of issued and outstanding shares of capital
stock of such Subsidiary and (iv) the number of shares of such Subsidiary held
of record by EUA. EUA has previously delivered to NEES correct and complete
copies of the EUA Trust Agreement and the certificate or articles of
organization or incorporation and bylaws (or other comparable charter documents)
of its Subsidiaries.
(b) SECTION 4.01 of the EUA Disclosure Letter sets forth
a description as of the date hereof, of all EUA Associates, including (i) the
name of each such entity and EUA's interest therein and (ii) a brief description
of the principal line or lines of business conducted by each such entity. For
purposes of this Agreement "EUA ASSOCIATES" shall mean any corporation or other
entity (including partnerships and other business associations) that is not a
Subsidiary of EUA in which EUA and/or one or more of its Subsidiaries, directly
or indirectly, owns an equity interest (other than short-term investments in the
ordinary course of business) if such corporation or other entity (including
partnerships and other business associations) contributes five percent or more
of EUA's consolidated revenues, assets, income or costs.
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4.02 CAPITAL STOCK. (a) The authorized equity securities of EUA
consists of 36,000,000 EUA Shares, of which 20,435,997 shares were issued and
outstanding as of the close of business on January 29, 1999. As of the close of
business on January 29, 1999, no EUA Shares were held in the treasury of EUA.
Since such date there has been no change in the sum of the issued and
outstanding EUA Shares. All of the issued and outstanding EUA Shares are duly
authorized, validly issued, fully paid and nonassessable. Except pursuant to
this Agreement and except as described in SECTION 4.02 of the EUA Disclosure
Letter, on the date hereof there are no outstanding subscriptions, options,
warrants, rights (including share appreciation fights), preemptive rights or
other contracts, commitments, understandings or arrangements, including any
right of conversion or exchange under any outstanding security, instrument or
agreement (together, "OPTIONS"), obligating EUA or any of its Subsidiaries to
issue or sell any shares of equity securities of EUA or to grant, extend or
enter into any Option with respect thereto. The EUA Disclosure Letter sets forth
all capital stock authorized, issued and outstanding at subsidiary levels as of
the close of business on January 29, 1999.
(b) Except as disclosed in EUA SEC Reports filed prior to
the date of this Agreement or SECTION 4.02 of the EUA Disclosure Letter, all of
the outstanding shares of capital stock of each Subsidiary of EUA are duly
authorized, validly issued, fully paid and nonassessable and are owned,
beneficially and of record, by EUA or a Subsidiary, which is wholly owned,
directly or indirectly, by EUA, free and clear of any liens, claims, mortgages,
encumbrances, pledges, security interests, equities and charges of any kind
(each a "LIEN"). Except as disclosed in EUA SEC Reports filed prior to the date
of this Agreement or SECTION 4.02 of the EUA Disclosure Letter, there are no (i)
outstanding Options obligating EUA or any of its Subsidiaries to issue or sell
any shares of capital stock of any Subsidiary of EUA or to grant, extend or
enter into any such Option or (ii) voting trusts, proxies or other commitments,
understandings, restrictions or arrangements in favor of any person other than
EUA or a Subsidiary which is wholly owned, directly or indirectly, by EUA with
respect to the voting of, or the right to participate in, dividends or other
earnings on any capital stock of any Subsidiary of EUA.
(c) Except as disclosed in EUA SEC Reports filed prior to
the date of this Agreement or SECTION 4.02 of the EUA Disclosure Letter, there
are no outstanding contractual obligations of EUA or any Subsidiary of EUA to
repurchase, redeem or otherwise acquire any EUA Shares or any capital stock of
any Subsidiary of EUA or to provide funds to, or make any investment (in the
form of a loan, capital contribution or otherwise) in, any Subsidiary of EUA or
any other person.
(d) As of the date of this Agreement, no bonds,
debentures, notes or other indebtedness of EUA or any Subsidiary of EUA having
the right to vote (or which are convertible into or exercisable for securities
having the right to vote) (together "EUA VOTING DEBT") on any matters on which
Shareholders may vote are issued or outstanding nor are there any outstanding
Options obligating EUA or any of its Subsidiaries to issue or sell any EUA
Voting Debt or to grant, extend or enter into any Option with respect thereto.
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4.03 AUTHORITY. EUA has full power and authority to enter into this
Agreement, to perform its obligations hereunder and, subject to obtaining EUA
Shareholders' Approval (as defined in SECTION 7.03(b)) and EUA Required
Statutory Approvals (as defined in SECTION 4.04(b)), to consummate the Merger
and other transactions contemplated hereby. The execution, delivery and
performance of this Agreement by EUA and the consummation by EUA of the Merger
and other transactions contemplated hereby have been duly authorized by all
necessary action on the part of EUA, subject to obtaining EUA Shareholders'
Approval with respect to the consummation of the Merger and the other
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by EUA and constitutes a legal, valid and binding
obligation of EUA enforceable against EUA in accordance with its terms, except
as enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally and by general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
4.04 NON-CONTRAVENTION; APPROVALS AND CONSENTS. (a) The execution
and delivery of this Agreement by EUA do not, and the performance by EUA of its
obligations hereunder and the consummation of the Merger and other transactions
contemplated hereby will not, conflict with, result in a violation or breach of,
constitute (with or without notice or lapse of time or both) a default under,
result in or give to any person any right of payment or reimbursement,
termination, cancellation, modification or acceleration of, or result in the
creation or imposition of any Lien upon any of the assets or properties of EUA
or any of its Subsidiaries or any of the terms, conditions or provisions of (i)
the EUA Trust Agreement or the certificates or articles of incorporation or
organization or bylaws (or other comparable charter documents) of EUA's
Subsidiaries, or (ii) subject to the obtaining of EUA Shareholders' Approval,
EUA Required Consents, EUA Required Statutory Approvals and the taking of any
other actions described in this SECTION 4.04, (x) any statute, law, rule,
regulation or ordinance (together, "LAWS"), or any judgment, decree, order,
writ, permit or license (together, "ORDERS"), of any court, tribunal,
arbitrator, authority, agency, commission, official or other instrumentality of
the United States, any foreign country or any domestic or foreign state, county,
city or other political subdivision (a "GOVERNMENTAL AUTHORITY") applicable to
EUA or any of its Subsidiaries or any of their respective assets or properties,
or (y) subject to obtaining the third-party consents set forth in SECTION 4.04
of the EUA Disclosure Letter (the "EUA REQUIRED CONSENTS"), any note, bond,
mortgage, security agreement, indenture, license, franchise, permit, concession,
contract, lease or other instrument, obligation or agreement of any kind
(together, "CONTRACTS") to which EUA or any of its Subsidiaries is a party or by
which EUA or any of its Subsidiaries or any of their respective assets or
properties is bound, excluding from the foregoing clauses (x) and (y) such
conflicts, violations, breaches, defaults, payments or reimbursements,
terminations, cancellations, modifications, accelerations and creations and
impositions of Liens which, individually or in the aggregate, could not
reasonably be expected to have an EUA Material Adverse Effect.
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(b) No declaration, filing or registration with, or
notice to or authorization, consent or approval of, any Governmental Authority
is necessary for the execution and delivery of this Agreement by EUA or the
consummation by EUA of the Merger and other transactions contemplated hereby
except as described in SECTION 4.04 of the EUA Disclosure Letter or the failure
of which to obtain could not reasonably be expected to result in an EUA Material
Adverse Effect (the "EUA REQUIRED STATUTORY APPROVALS," it being understood
that references in this Agreement to "obtaining" such EUA Required Statutory
Approvals shall mean making such declarations, filings or registrations; giving
such notices; obtaining such authorizations, consents or approvals; and having
such waiting periods expire as are necessary to avoid a violation of law).
4.05 SEC REPORTS, FINANCIAL STATEMENTS AND UTILITY REPORTS. (a) EUA
delivered to NEES prior to the execution of this Agreement a true and complete
copy of each form, report, schedule, registration statement, registration
exemption, if applicable, definitive proxy statement and other document
(together with all amendments thereof and supplements thereto) filed by EUA or
any of its Subsidiaries with the Securities and Exchange Commission (the "SEC")
under the Securities Act of 1933, as amended, and the rules and regulations
thereunder (the "SECURITIES ACT") and the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder (the "EXCHANGE ACT") since
December 31, 1995 (as such documents have since the time of their filing been
amended or supplemented, the "EUA SEC REPORTS"), which are all the documents
(other than preliminary materials) that EUA and its Subsidiaries were required
to file with the SEC under the Securities Act and the Exchange Act since such
date. As of their respective dates, EUA SEC Reports (i) complied as to form in
all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and (ii) did not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. Each of the audited
consolidated financial statements and unaudited interim consolidated financial
statements (including, in each case, the notes, if any, thereto) included in EUA
SEC Reports (the "EUA FINANCIAL STATEMENTS") complied as to form in all material
respects with the published rules and regulations of the SEC with respect
thereto, were prepared in accordance with U.S. generally accepted accounting
principles ("US GAAP") applied on a consistent basis during the periods involved
(except as may be indicated therein or in the notes thereto and except with
respect to unaudited statements as permitted by Form 10-Q of the SEC) and fairly
present (subject, in the case of the unaudited interim financial statements, to
normal, recurring year-end audit adjustments (which are not expected to be,
individually or in the aggregate, materially adverse to EUA and its Subsidiaries
taken as a whole)) the consolidated financial position of EUA and its
consolidated subsidiaries as at the respective dates thereof and the
consolidated results of their operations and cash flows for the respective
periods then ended. Except as set forth in Section 4.05 of the EUA Disclosure
Letter, each Subsidiary of EUA is treated as a consolidated subsidiary of EUA in
EUA Financial Statements for all periods covered thereby.
(b) All filings (other than immaterial filings) required
to be made by EUA or any of its Subsidiaries since December 31, 1995, under the
Public Utility Holding Company Act
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of 1935 (the "1935 ACT"), the Federal Power Act, the Atomic Energy Act of 1954,
the Communications Act of 1934, and applicable state laws and regulations, have
been filed with the SEC, the Federal Energy Regulatory Commission (the "FERC"),
the Department of Energy (the "DOE"), the Nuclear Regulatory Commission (the
"NRC"), the Federal Communications Commission (the "FCC") or any appropriate
state public utility commissions (including, without limitation, to the extent
required, the state public utility regulatory agencies of Massachusetts, Rhode
Island, New Hampshire, Maine, Vermont and Connecticut as the case may be,
including all forms, statements, reports, agreements (oral or written) and all
documents, exhibits, amendments and supplements appertaining thereto, including
but not limited to all rates, tariffs, franchises, service agreements and
related documents and all such filings complied, as of their respective dates,
in all material respects with all applicable requirements of the appropriate
statute s and the rules and regulations thereunder.
4.06 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in
SECTION 4.06 of the EUA Disclosure Letter or as disclosed in EUA SEC Reports
filed prior to the date of this Agreement since December 31, 1997, EUA and each
of EUA's Subsidiaries have conducted its business only in the ordinary course of
business consistent with past practice and there has not been, and no fact or
condition exists which, individually or in the aggregate, has or could
reasonably be expected to have an EUA Material Adverse Effect.
4.07 LEGAL PROCEEDINGS. Except as disclosed in EUA SEC Reports
filed prior to the date of this Agreement or in SECTION 4.07 of the EUA
Disclosure Letter and except for environmental matters which are governed by
SECTION 4.13, (i) there are no actions, claims, hearings, suits, arbitrations or
proceedings pending or, to the knowledge of EUA or any of its Subsidiaries,
threatened against, specifically relating to or affecting, and, to the knowledge
of EUA or any of its Subsidiaries, there are no Governmental Authority
investigations or audits pending or threatened against, specifically relating to
or affecting, EUA or any of its Subsidiaries or any of their respective assets
and properties which, individually or in the aggregate, could reasonably be
expected to have an EUA Material Adverse Effect and (ii) neither EUA nor any of
its Subsidiaries is subject to any order of any Governmental Authority which,
individually or in the aggregate, could reasonably be expected to have an EUA
Material Adverse Effect.
4.08 INFORMATION SUPPLIED. (a) The proxy statement relating to EUA
Shareholders' Meeting, as amended or supplemented from time to time (as so
amended and supplemented, the "PROXY STATEMENT"), and any other documents to be
filed by EUA with the SEC (including, without limitation, under the 1935 Act) or
any other Governmental Authority in connection with the Merger and other
transactions contemplated hereby will comply as to form in all material respects
with the requirements of the Exchange Act, the Securities Act and the 1935 Act,
as applicable, and will not, on the date of their respective filings or, in the
case of the Proxy Statement, at the date it is mailed to Shareholders of EUA and
at the time of EUA Shareholders' Meeting (as defined in SECTION 7.03), contain
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in light of the circumstances
under which they are made, not misleading.
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(b) Notwithstanding the foregoing provisions of this
SECTION 4.08, no representation or warranty is made by EUA with respect to
statements made or incorporated by reference in the Proxy Statement based on
information supplied by NEES or LLC for inclusion or incorporation by reference
therein.
4.09 COMPLIANCE. Except as set forth in SECTION 4.09 of the EUA
Disclosure Letter, or as disclosed in EUA SEC Reports filed prior to the date
hereof, neither EUA nor any of EUA's Subsidiaries is in violation of, is, to the
knowledge of EUA, under investigation with respect to any violation of, or has
been given notice or been charged with any violation of, any law, statute,
order, rule, regulation, ordinance or judgment (including, without limitation,
any applicable environmental law, ordinance or regulation) of any Governmental
Authority, except for possible violations which, individually or in the
aggregate, could not reasonably be expected to have an EUA Material Adverse
Effect. Except as set forth in SECTION 4.09 of the EUA Disclosure Letter or as
disclosed in EUA SEC Reports filed prior to the date hereof, EUA and EUA's
Subsidiaries have all permits, licenses, franchises and other governmental
authorizations, consents and approvals necessary to conduct their businesses as
presently conducted except for such failures which could not reasonably be
expected to have an EUA Material Adverse Effect. Neither EUA nor any of EUA's
Subsidiaries is in breach or violation of, or in default in the performance or
observance of any term or provision of, (i) the EUA Trust Agreement, in the case
of EUA, or articles of incorporation or organization or by-laws, in the case of
EUA's Subsidiaries, or (ii) any contract, commitment, agreement, indenture,
mortgage, loan agreement, note, lease, bond, license, approval or other
instrument to which it is a party or by which EUA or any Subsidiary of EUA is
bound or to which any of their respective property is subject, except for
possible violations, breaches or defaults which, individually or in the
aggregate, could not reasonably be expected to have an EUA Material Adverse
Effect.
4.10 TAXES. Except as disclosed in SECTION 4.10 of the EUA
Disclosure Letter:
(a) FILING OF TIMELY TAX RETURNS. EUA and each of its
Subsidiaries have timely filed all Tax Returns required to be filed by each of
them under applicable law. All Tax Returns were (and, as to Tax Returns not
filed as of the date hereof, will be) true, complete and correct;
(b) PAYMENT OF TAXES. EUA and each of its Subsidiaries
have, within the time and in the manner prescribed by law, paid (and until the
Closing Date will pay within the time and in the manner prescribed by law) all
Taxes that are currently due and payable except for those contested in good
faith and for which adequate reserves have been taken;
(c) TAX RESERVES. EUA and its Subsidiaries have
established (and until the Closing Date will maintain) on their books and
records adequate reserves for all Taxes and for any liability for deferred
income taxes in accordance with GAAP;
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(d) EXTENSIONS OF TIME FOR FILING TAX RETURNS. Neither
EUA nor any of its Subsidiaries has requested any extension of time within which
to file any Tax Return, which Tax Return has not since been filed;
(e) WAIVERS OF STATUTE OF LIMITATIONS. Neither EUA nor
any of its Subsidiaries has in effect any extension, outstanding waivers or
comparable consents regarding the application of the statute of limitations with
respect to any Taxes or Tax Returns;
(f) EXPIRATION OF STATUTE OF LIMITATIONS. The Tax Returns
of EUA, each of its Subsidiaries and any affiliated, consolidated, combined or
unitary group that includes EUA or any of its Subsidiaries either have been
examined and settled with the appropriate Tax authority or closed by virtue of
the expiration of the applicable statute of limitations for all years through
and including 1993;
(g) AUDIT, ADMINISTRATIVE AND COURT PROCEEDINGS. No
audits or other administrative proceedings or court proceedings are presently
pending or threatened with regard to any Taxes or Tax Returns of EUA or any of
its Subsidiaries (other than those being contested in good faith and for which
adequate reserves have been established) and no issues have been raised in
writing by any Tax authority in connection with any Tax or Tax Return;
(h) TAX LIENS. There are no Tax liens upon any asset of
EUA or any of its Subsidiaries except liens for Taxes not yet due.
(i) POWERS OF ATTORNEY. No power of attorney currently in
force has been granted by EUA or any of its Subsidiaries concerning any Tax
matter;
(j) TAX RULINGS. Neither EUA nor any of its Subsidiaries
has, during the five year period prior to the date of this Agreement, received a
Tax Ruling (as defined below) or entered into a Closing Agreement (as defined
below) with any taxing authority. "TAX RULING", as used in this Agreement, shall
mean a written ruling of a taxing authority relating to Taxes. "CLOSING
AGREEMENT", as used in this Agreement, shall mean a written and legally binding
agreement with a taxing authority relating to Taxes;
(k) AVAILABILITY OF TAX RETURNS. EUA and its
Subsidiaries have made available to NEES complete and accurate copies, covering
all years ending on or after December 31, 1993, of (i) all Tax Returns, and any
amendments thereto, filed by EUA or any of its Subsidiaries, (ii) all audit
reports received from any taxing authority relating to any Tax Return filed by
EUA or any of its Subsidiaries and (iii) any Closing Agreements entered into by
EUA or any of its Subsidiaries with any taxing authority.
(1) TAX SHARING AGREEMENTS. No agreements relating to the
allocation or sharing of Taxes exist between or among EUA and any of its
Subsidiaries and neither EUA nor any of its Subsidiaries (i) has been a member
of an affiliated group filing a consolidated federal income tax return (other
than a group the common parent of which was EUA) or (ii) has
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any liability for Taxes of any Person (other than EUA or its Subsidiaries) under
United States Treasury Regulation Section 1.1502-6 (or any provision of state,
local), or foreign law, as a transferee or successor, by contract or otherwise;
(m) CODE SECTION 481 ADJUSTMENTS. Neither EUA nor any of
its Subsidiaries is required to include in income any adjustment pursuant to
Code Section 481(a) by reason of a voluntary change in accounting method
initiated by EUA or any of its Subsidiaries, and, the Internal Revenue Service
("IRS") has not proposed any such adjustment or change in accounting method;
(n) CODE SECTIONS 6661 AND 6662. All transactions that
could give rise to an understatement of federal income tax, and within the
meaning of Code Section 6662 have been adequately disclosed (or, with respect to
Tax Returns filed following the Closing, will be adequately disclosed) on the
Tax Returns of EUA and its Subsidiaries in accordance with Code Section
6662(d)(2)(B);
(o) INTERCOMPANY TRANSACTIONS. Neither EUA nor any of its
Subsidiaries has engaged in any intercompany transactions within the meaning of
Treasury Regulations ss. 1.1502-13 for which any income or gain will remain
unrecognized as of the close of the last taxable year prior to the Closing Date;
and
(p) FOREIGN TAX RETURNS. Neither EUA nor any of its
Subsidiaries is required to file a foreign tax return.
"TAXES" as used in this Agreement, shall mean any federal, state,
county, local or foreign taxes, charges, fees, levies, or other assessments,
including all net income, gross income, premiums, sales and use, ad valorem,
transfer, gains, profits, windfall profits, excise, franchise, real and personal
property, gross receipts, capital stock, production, business and occupation,
employment, disability, payroll, license, estimated, stamp, custom duties,
severance or withholding taxes, other taxes or similar charges of any kind
whatsoever imposed by any governmental entity, whether imposed directly on a
Person or resulting under Treasury Regulation Section 1.1502-6 (or any similar
provision of state, local or foreign law), as a transferee or successor, by
contract or otherwise and includes any interest and penalties on or additions to
any such taxes or in respect of a failure to comply with any requirement
relating to any Tax Return. "TAX RETURN" as used in this Agreement, shall mean a
report, return or other information required to be supplied to a governmental
entity with respect to Taxes including, where permitted or required, combined,
unitary or consolidated returns for any group of entities.
4.11 EMPLOYEE BENEFIT PLANS; ERISA. (a) Each "employee benefit
plan" (as defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA")), bonus, deferred compensation, share option or
other written agreement relating to employment or fringe benefits for employees,
former employees, officers, trustees or directors of EUA or any of its
Subsidiaries effective as of the date hereof or providing benefits as of the
date hereof to current employees, former employees, officers, trustees or
directors of EUA or pursuant
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to which EUA or any of its subsidiaries has or could reasonably be expected to
have any liability (collectively, the "EUA EMPLOYEE BENEFIT PLANS") is listed in
SECTION 4.11(a) of the EUA Disclosure Letter, is in material compliance with
applicable law, and has been administered and operated in all material respects
in accordance with its terms. Each EUA Employee Benefit Plan which is intended
to be qualified within the meaning of Section 401(a) of the Code has received a
favorable determination letter from the IRS as to such qualification and, to
the knowledge of EUA, no event has occurred and no condition exists which could
reasonably be expected to result in the revocation of, or have any adverse
effect on, any such determination.
(b) Complete and correct copies of the following
documents have been made available to NEES as of the date of this Agreement: (i)
all EUA Employee Benefit Plans and any related trust agreements or insurance
contracts, (ii) the most current summary descriptions of each EUA Employee
Benefit Plan subject to ERISA, (iii) the three most recent Form 5500s and
Schedules thereto for each EUA Employee Benefit Plan subject to such reporting,
(iv) the most recent determination of the IRS with respect to the qualified
status of each EUA Employee Benefit Plan that is intended to qualify under
Section 401(a) of the Code, (v) the most recent accountings with respect to
each EUA Employee Benefit Plan funded through a trust and (vi) the most recent
actuarial report of the qualified actuary of each EUA Employee Benefit Plan with
respect to which actuarial valuations are conducted.
(c) Except as set forth in SECTION 4.11(c) of the EUA
Disclosure Letter, neither EUA nor any Subsidiary maintains or is obligated to
provide benefits under any EUA Employee Benefit Plan (other than as an
incidental benefit under a Plan qualified under Section 401(a) of the Code)
which provides health or welfare benefits to retirees or other terminated
employees other than benefit continuations as required pursuant to Section 601
of ERISA. Each EUA Employee Benefit Plan subject to the requirements of Section
601 of ERISA has been operated in material compliance therewith. EUA has not
contributed to a nonconforming group health plan (as defined in Code Section
5000(c)) and no person under common control with EUA within the meaning of
Section 414 of the Code ("ERISA AFFILIATE") has incurred a tax liability under
Code Section 5000(a) that is or could reasonably be expected to be a liability
of EUA's.
(d) Except as set forth in SECTION 4.11(d) of the EUA
Disclosure Letter, each EUA Employee Benefit Plan covers only employees who are
employed by EUA or a Subsidiary (or former employees or beneficiaries with
respect to service with EUA or a Subsidiary).
(e) Except as set forth in SECTION 4.11(e) of the EUA
Disclosure Letter, neither EUA, any Subsidiary, any ERISA Affiliate nor any
other corporation or organization controlled by or under common control with any
of the foregoing within the meaning of Section 4001 of ERISA has, within the
five-year period preceding the date of this Agreement, at any time contributed
to any "multiemployer plan," as that term is defined in Section 4001 of ERISA.
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(f) No event has occurred, and there exists no condition
or set of circumstances in connection with any EUA Employee Benefit Plan, under
which EUA or any Subsidiary, directly or indirectly (through any indemnification
agreement or otherwise), could be subject to any liability under Section 409 of
ERISA, Section 502(i) of ERISA, Title IV of ERISA or Section 4975 of the Code
except for instances of non-compliance which, individually or in the aggregate,
could not reasonably be expected to have an EUA Material Adverse Effect.
(g) Neither EUA nor any ERISA Affiliate has incurred any
liability to the Pension Benefit Guaranty Corporation (the "PBGC") under Section
302(c)(ii), 4062, 4063, 4064 or 4069 of ERISA, or otherwise that has not been
satisfied in full and no event or condition exists or has existed which could
reasonably be expected to result in any such material liability. As of the date
of this Agreement, no "reportable event" within the meaning of Section 4043 of
ERISA has occurred with respect to any EUA Employee Benefit Plan that is a
defined benefit plan under Section 3(35) of ERISA.
(h) Except as set forth in SECTION 4.1 l(h) of the EUA
Disclosure Letter, no employer securities, employer real property or other
employer property is included in the assets of any EUA Employee Benefit Plan.
(i) Full payment has been made of all material amounts
which EUA or any affiliate thereof was required under the terms of EUA Employee
Benefit Plans to have paid as contributions to such plans on or prior to the
Effective Time (excluding any amounts not yet due) and no EUA Employee Benefit
Plan which is subject to Part III of Subtitle B of Title I of ERISA has incurred
any "accumulated funding deficiency" within the meaning of Section 302 of ERISA
or Section 412 of the Code, whether or not waived.
(j) Except as set forth in SECTION 4.1 l(i) of the EUA
Disclosure Letter, no amounts payable under any EUA Employee Benefit Plan or
other agreement, contract, or arrangement will fail to be deductible for federal
income tax purposes by virtue of Section 280G or Section 162(m) of the Code.
4.12 LABOR MATTERS. As of the date hereof, except as set forth in
SECTION 4.12 of the EUA Disclosure Letter, neither EUA nor any of its
Subsidiaries is a party to any material collective bargaining agreement or other
labor agreement with any union or labor organization. To the knowledge of EUA,
as of the date hereof, there is no current union representation question
involving employees of EUA or any of its Subsidiaries, nor does EUA know of any
activity or proceeding of any labor organization (or representative thereof) or
employee group to organize any such employees. Except as set forth in SECTION
4.12 of the EUA Disclosure Letter, (i) there is no unfair labor practice,
employment discrimination or other employment-related complaint or proceeding
against EUA or any of its Subsidiaries pending or, to the knowledge of EUA,
threatened, which has or could reasonably be expected to have an EUA Material
Adverse Effect, (ii) there is no strike, dispute, slowdown, work stoppage or
lockout pending, or, to t he knowledge of EUA, threatened, against or involving
EUA or any of its Subsidiaries which has or could reasonably be expected to
have, an EUA Material Adverse Effect and (iii) there is no proceeding,
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claim, suit, or action pending or, to the knowledge of EUA or any of its
Subsidiaries, threatened, nor, to the knowledge of EUA or any of its
Subsidiaries is there any Governmental Authority investigation pending or
threatened, in respect of which any trustee, director, officer, employee or
agent of EUA or any of its Subsidiaries is or may be entitled to claim
indemnification from EUA or any of its Subsidiaries pursuant to the EUA Trust
Agreement, in the case of EUA, and their respective articles of incorporation
and by-laws, in the case of EUA's Subsidiaries, or as provided in the
indemnification agreements listed in SECTION 4.12 of the EUA Disclosure Letter.
Except as set forth in SECTION 4.12 of the EUA Disclosure Letter, EUA and its
Subsidiaries are in compliance with all federal, state and local laws with
respect to employment practices and labor relations, including, without
limitation, any provisions relating to affirmative action, employment
discrimination, wages, hours, collective bargaining, and t he payment of social
security and similar taxes, safety and health regulations and mass layoffs and
plant closings except for such instances of noncompliance which, individually or
in the aggregate, could not reasonably be expected to have an EUA Material
Adverse Effect.
4.13 ENVIRONMENTAL MATTERS. Except as disclosed in EUA SEC Reports
filed prior to the date of this Agreement or in SECTION 4.13 of the EUA
Disclosure Letter:
(a) (i) Each of EUA and its Subsidiaries is in
compliance with all applicable Environmental Laws (as hereinafter defined),
except where the failure to be in compliance, in the aggregate could not
reasonably be expected to result in an EUA Material Adverse Effect; and
(ii) Neither EUA nor any of its Subsidiaries has
received any written communication from any person or Governmental Authority
that alleges that EUA or any of its Subsidiaries is not in such compliance
(including the materiality qualifier set forth in clause (i) above) with
applicable Environmental Laws.
(b) Each of EUA and its Subsidiaries has obtained all
environmental, health and safety permits and governmental authorizations
(collectively, the "ENVIRONMENTAL PERMITS") necessary for the construction of
their facilities and the conduct of their operations, as applicable, and all
such Environmental Permits are in good standing or, where applicable, a renewal
application has been timely filed and agency approval is expected in the
ordinary course of business, and EUA and its Subsidiaries are in compliance with
all terms and conditions of the Environmental Permits, except where the failure
have such Environmental Permits, file a renewal application for such
Environmental Permits, or to be in compliance with such Environmental Permits,
in the aggregate could not reasonably be expected to result in an EUA Material
Adverse Effect.
(c) There is no Environmental Claim (as hereinafter
defined) that could, individually or in the aggregate, reasonably be expected to
have an EUA Material Adverse Effect pending (i) against EUA or any of its
Subsidiaries; (ii) against any person or entity whose liability for any
Environmental Claim EUA or any of its Subsidiaries has or may have retained or
assumed either contractually or by operation of law; or (iii) against any real
or personal property
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or operations which EUA or any of its Subsidiaries owns, leases or manages, in
whole or in part.
(d) To the knowledge of EUA there have not been any
material Releases (as hereinafter defined) of any Hazardous Material (as
hereinafter defined) that would be reasonably likely to form the basis of any
material Environmental Claim against EUA or any of its Subsidiaries, or against
any person or entity whose liability for any material Environmental Claim EUA or
any of its Subsidiaries has or may have retained or assumed either contractually
or by operation of law, except for any Environmental Claim that, individually
or in the aggregate, could not reasonably be expected to have an EUA Material
Adverse Effect.
(e) To the knowledge of EUA with respect to any
predecessor of EUA or any of its Subsidiaries, there is no material
Environmental Claim pending or threatened, and there has been no Release of
Hazardous Materials that could reasonably be expected to form the basis of any
material Environmental Claim except for any Environmental Claim that,
individually or in the aggregate, could not be reasonably be expected to have an
EUA Material Adverse Effect.
(f) As used in this SECTION 4.13:
(i) "ENVIRONMENTAL CLAIM" means any and all
written administrative, regulatory or judicial actions, suits, demands, demand
letters, directives, claims, liens, investigations, proceedings or notices or
noncompliance, liability or violation by any person or entity (including any
Governmental Authority) alleging potential liability (including, without
limitation, potential responsibility or liability for enforcement, investigator
costs, cleanup costs, governmental response costs, removal costs, remedial
costs, natural resources damages, property damages, personal injuries or
penalties) arising out of, based on or resulting from
(A) the presence, or Release or threatened
Release into the environment, of any
Hazardous Materials at any location, whether
or not owned, operated, leased or managed by
EUA or any of its Subsidiaries; or
(B) circumstances forming the basis of any
violation, or alleged violation, of any
Environmental Law; or
(c) any and all claims by any third party
seeking damages, contribution,
indemnification, cost recovery, compensation
or injunctive relief resulting from the
presence or Release of any Hazardous
Materials;
(ii) "ENVIRONMENTAL LAWS" means all federal,
state and local laws, rules and regulations and binding interpretation thereof,
relating to pollution, the environment (including, without limitation, ambient
air, surface water, groundwater, land surface or subsurface strata) or
protection of human health as it relates to the environment including, without
limitation, laws and regulations relating to Releases or threatened Releases of
Hazardous
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Materials, or otherwise relating to the manufacture, generation, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials;
(iii) "HAZARDOUS MATERIALS" means (A) any
petroleum or petroleum products, radioactive materials, asbestos in any form
that is or could become friable, urea formaldehyde foam insulation, and
transformers or other equipment that contain dielectric fluid containing
polychlorinated biphenyls; and (B) any chemicals, materials or substances which
are now defined as or included in the definition of "HAZARDOUS SUBSTANCES",
"HAZARDOUS WASTES", "HAZARDOUS MATERIALS", "EXTREMELY HAZARDOUS WASTES",
"RESTRICTED HAZARDOUS WASTES", "TOXIC SUBSTANCES", "TOXIC POLLUTANTS", or words
of similar import, under any Environmental Law; and (c) any other chemical,
material, substance or waste, exposure to which is now prohibited, limited or
regulated under any Environmental Law in a jurisdiction in which EUA or any of
its Subsidiaries (x) operates or (y) stores, treats or disposes of Hazardous
Materials; and
(iv) "RELEASE" means any release, spill,
emission, leaking, injection, deposit, disposal, discharge, dispersal, leaching
or migration into the atmosphere, soil, surface water, groundwater or property.
4.14 REGULATION AS A UTILITY. (a) EUA is a public utility holding
company registered under Section 5, and subject to the provisions, of the 1935
Act. SECTION 4.14 of the EUA Disclosure Letter lists the subsidiaries of EUA
that are "PUBLIC UTILITY COMPANIES" within the meaning of Section 2(a)(5) of the
1935 Act and lists the jurisdictions where each such Subsidiary is subject to
regulation as a public utility company or public service company. Except as set
forth above and as set forth in SECTION 4.1 4 of the EUA Disclosure Letter,
neither EUA nor any "SUBSIDIARY COMPANY" or "AFFILIATE" of EUA is subject to
regulation as a public utility or public service company (or similar
designation) by the federal government of the United States, any state in the
United States or any political subdivision thereof, or any foreign country.
(b) As used in this SECTION 4.14, the terms "SUBSIDIARY
COMPANY" and "AFFILIATE" shall have the respective meanings ascribed to them in
SECTION 2(a)(8) and SECTION 2(a)(11), respectively, of the 1935 Act.
4.15 INSURANCE. Except as set forth in SECTION 4.15 of the EUA
Disclosure Letter, each of EUA and its Subsidiaries is, and has been
continuously since January 1, 1994, insured with financially responsible
insurers in such amounts and against such risks and losses as are customary in
all material respects for companies in the United States conducting the business
conducted by EUA and its Subsidiaries during such time period. Except as set
forth in SECTION 4.15 of the EUA Disclosure Letter, neither EUA nor any of its
Subsidiaries has received any notice of cancellation or termination with respect
to any material insurance policy of EUA or any of its Subsidiaries. The
insurance policies of EUA and each of its Subsidiaries are valid and enforceable
policies.
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4.16 NUCLEAR FACILITIES. Montaup Electric Company, a Subsidiary of
EUA, is a minority common stockholder of each of Connecticut Yankee Atomic Power
Company, Maine Yankee Atomic Power Company, Vermont Yankee Nuclear Power
Corporation and Yankee Atomic Electric Company (the "YANKEE COMPANIES") and a
minority joint owner in Millstone 3 and Seabrook 1 (collectively, as described
in SECTION 4.16 of the EUA Disclosure Letter, the "EUA NUCLEAR FACILITIES").
With respect to its ownership of Millstone 3 and Seabrook 1, Montaup Electric
Company holds the required operating licenses from the NRC. With respect to the
Yankee Companies, each Yankee Company holds its own operating license from the
NRC. Because it is a minority stockholder or a minority joint owner, Montaup
Electric Company does not have responsibility for the operation of EUA Nuclear
Facilities. Except as set forth in SECTION 4.16 of the EUA Disclosure Letter or
as disclosed in EUA SEC Reports filed prior to the date hereof, to the knowledge
of EUA , neither EUA nor any of its Subsidiaries is in violation of any
applicable health, safety, regulatory and other legal requirement, including NRC
laws and regulations and Environmental Laws, applicable to EUA Nuclear
Facilities except for such failure to comply as could not reasonably be expected
to have a material adverse effect with respect to EUA Nuclear Facilities and the
ownership interest of EUA therein. To the knowledge of EUA, each of EUA Nuclear
Facilities maintains emergency plans designed to respond to an unplanned
release therefrom of radioactive materials into the environment and insurance
coverages consistent with industry practice. EUA has funded, or has caused the
funding of, its portion of the decommissioning cost of each of the EUA Nuclear
Facilities and the storage of spent nuclear fuel consistent with the most
recently approved plan for each of the EUA Nuclear Facilities and FERC
authorized rates. Except as set forth in SECTION 4.16 of the EUA Disclosure
Letter, to the knowledge of EUA, no EUA Nuclear Facility is as of the date of
this Agreement on the List of Nuclear Power Plants Warranting Increased
Regulatory Attention maintained by the NRC.
4.17 VOTE REQUIRED. The affirmative vote of two-thirds of the
outstanding EUA Shares voting as a single class (with each EUA Share having one
vote per share) with respect to the approval of the Merger and other
transactions contemplated hereby is the only vote of the holders of any class or
series of equity securities of EUA or its Subsidiaries required to approve this
Agreement and approve the Merger and other transactions contemplated hereby.
4.18 OPINION OF FINANCIAL ADVISOR. EUA has received the opinion of
Salomon Smith Barney Inc., dated the date of this Agreement, to the effect that,
as of such date, the Merger Consideration is fair from a financial point of view
to the holders of EUA Shares. A tree and complete copy of the written opinion
will be delivered to NEES promptly after receipt thereof by EUA.
4.19 OWNERSHIP OF NEES COMMON SHARES. Neither EUA nor any of its
Subsidiaries or other affiliates beneficially owns any NEES Common Shares.
4.20 STATE ANTI-TAKEOVER STATUTES. EUA has taken all necessary
actions so that the provisions of Chapters 110C, 110D or 110F of the MGL will
not apply to this Agreement, the Merger or other transactions contemplated
hereby or thereby.
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4.21 YEAR 2000. The Information Systems operated by EUA and its
Subsidiaries which is used in the conduct of their business is capable of
providing or being adapted to provide uninterrupted millennium functionality to
record, store, process and present calendar dates falling on or after January 1,
2000 in substantially the same manner and with the same functionality as such
Information Systems record, store, process and present such calendar dates
falling on or before December 31, 1999 other than such interruptions in
millennium functionality that could not, individually or in the aggregate,
reasonably be expected to result in a EUA Material Adverse Effect. EUA
reasonably believes as of the date hereof that the remaining cost of adaptations
referred to in the foregoing sentence will not exceed the amounts reflected in
the Form 10-Q filed by EUA for the quarter ended September 30, 1998 (excluding
the fees and costs of any Y2K Consultant retained pursuant to Section 6.01(o)
hereof and of the implementation of any recommendations by such Y2K Consultant
actually made by EUA that are not already part of EUA's compliance plan as of
the date hereof). "INFORMATION SYSTEMS" means mainframe and midrange hardware,
operating system software and applications programs; network and desktop (PC)
hardware, operating system software and applications programs; EDI (Electronic
Date Interchange) and FTP (File Transfer Protocol) software; and embedded
systems hardware and applications software.
4.22 EUA ASSOCIATES. The representations and warranties set forth
in SECTIONS 4.04(a), 4.06, 4.07, 4.09, 4.12 and 4.13 are true and correct in all
material respects with regard to EUA Associates.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF NEES
NEES represents and warrants to EUA as follows:
5.01 ORGANIZATION AND QUALIFICATION. NEES is a voluntary
association duly organized, validly existing and in good standing under the laws
of the Commonwealth of Massachusetts and has full power, authority and legal
fight to own its property and assets and to transact the business in which it is
engaged. Each of the NEES Subsidiaries is a corporation duly organized or
incorporated, validly existing and in good standing under the laws of its
jurisdiction of organization or incorporation and has full corporate power and
authority to conduct its business as and to the extent now conducted and to own,
use and lease its assets and properties, except where failure to be so organized
or incorporated, existing and in good standing or to have such power and
authority, individually or in the aggregate, could not reasonably be expected to
have a NEES Material Adverse Effect. As used in this Agreement, the term "NEES
MATERIAL ADVERSE EFFECT" means a material adverse effect on the business,
assets, results of operations, condition (financial or otherwise) or prospects
of NEES and its Subsidiaries taken as a whole. LLC is a limited liability
company validly existing under the laws of the Commonwealth of Massachusetts.
LLC was formed solely for the purpose of engaging in the Merger and other
transactions contemplated hereby, has engaged in no other business activities
(other than in connection with the formation and capitalization of LLC pursuant
to or in accordance with the
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LLC Agreement (as defined below)) and has conducted its operations only as
contemplated hereby and by the LLC Agreement. Each of NEES and its Subsidiaries
is duly qualified, licensed or admitted to do business and is in good standing
in each jurisdiction in which the ownership, use or leasing of its assets and
.properties, or the conduct or nature of its business, makes such qualification,
licensing or admission necessary, except where failure to be so qualified,
licensed or admitted and in good standing, individually or in the aggregate,
could not reasonably be expected to have a NEES Material Adverse Effect. NEES
has previously delivered to EUA correct and complete copies of its Agreement and
Declaration of Trust (the "NEES TRUST AGREEMENT") and the articles of
association of LLC.
5.02 AUTHORITY. Each of NEES and LLC has full power and authority
to enter into this Agreement, and to perform its obligations hereunder, and to
consummate the Merger and other transactions contemplated hereby. The execution,
delivery and performance of this Agreement by each of NEES and LLC and the
consummation by each of NEES and LLC of the Merger and other transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of NEES and all necessary action on the part of LLC. This Agreement
has been duly and validly executed and delivered by each of NEES and LLC and
constitutes a legal, valid and binding obligation of each of NEES and LLC
enforceable against each of NEES and LLC in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally and by general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
5.03 CAPITAL STOCK. The authorized equity securities of NEES
consists of 150,000,000 common shares of NEES (the "NEES SHARES"), of which
59,170,986 shares were issued and outstanding as of the close of business on
January 29, 1999. As of the close of business on January 29, 1999, 5,798,666
NEES Shares were held in the treasury of NEES. All of the issued and outstanding
NEES Shares are duly authorized, validly issued, fully paid and nonassessable.
Except as may be provided by the New England Electric System Companies'
Incentive Share Plan, the New England Electric System Companies Incentive Thrift
Plan I, the New England Electric System Companies Incentive Thrift Plan II, the
New England Electric Companies LongTerm Performance Share Award Plan, and the
New England Electric System Directors' annual retainer shares, and except as set
forth in SECTION 5.03 of the letter dated the date hereof and delivered to EUA
by NEES and LLC concurrently with the execution and delivery of this Agreement
(the "NEES DISCLOSURE LETTER"), on the date hereof there are no outstanding
Options obligating NEES or any of its Subsidiaries to issue or sell any shares
of equity securities of NEES or to grant, extend or enter into any Option with
respect thereto.
5.04 NON-CONTRAVENTION; APPROVALS AND CONSENTS. (a) The execution
and delivery of this Agreement by each of NEES and LLC do not, and the
performance by each of NEES and LLC of its obligations hereunder and the
consummation of the Merger and other transactions contemplated hereby will not,
conflict with, result in a violation or breach of, constitute (with or without
notice or lapse of time or both) a default under, result in or give to any
person any right of payment or reimbursement, termination, cancellation,
modification or acceleration of, or result
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in the creation or imposition of any Lien upon any of the assets or properties
of NEES, or LLC under, any of the terms, conditions or provisions of (i) the
NEES Agreement and Declaration of Trust or the articles of organization of LLC,
(ii) subject to the actions described in paragraph (b) of this Section, (x) any
laws or orders of any Governmental Authority applicable to NEES or LLC or any of
their respective assets or properties, or (y) subject to obtaining the
third-party consents (the "NEES REQUIRED CONSENTS") set forth in SECTION 5.04
of the NEES Disclosure Letter any Contracts to which NEES is a party or by which
NEES or any of its Subsidiaries or any of their respective assets or properties
is bound, excluding from the foregoing clauses (x) and (y) conflicts,
violations, breaches, defaults, terminations, modifications, accelerations and
creations and impositions of Liens which, individually or in the aggregate,
could not reasonably be expected to have a NEES Material Adverse Effect.
(b) No declaration, filing or registration with, or
notice to or authorization, consent or approval of, any Governmental Authority
is necessary for the execution and delivery of this Agreement by NEES or LLC or
the consummation by NEES or LLC of the Merger and other transactions
contemplated hereby except as described in SECTION 5.04 of the NEES Disclosure
Letter or the failure of which to obtain could not reasonably be expected to
result in a NEES Material Adverse Effect (the "NEES REQUIRED STATUTORY
APPROVALS," it being understood that references in this Agreement to "obtaining"
such NEES Required Statutory Approvals shall mean making such declarations,
filings or registrations; giving such notices; obtaining such authorizations,
consents or approvals; and having such waiting periods expire as are necessary
to avoid a violation of law).
5.05 INFORMATION SUPPLIED. (a) The information supplied by NEES or
LLC and included in the Proxy Statement with the written consent of NEES or LLC,
as the case may be, will not, at the date mailed to EUA's Shareholders or at the
time of EUA Shareholder's Meeting, contain any untrue statements of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading
(b) Notwithstanding the foregoing provisions of this
SECTION 5.05, no representation or warranty is made by NEES with respect to
statements made or incorporated by reference in the Proxy Statement based on
information supplied by EUA for inclusion or incorporation by reference therein
or based on information which is not made in or incorporated by reference in
such documents but which should have been disclosed pursuant to this SECTION
5.05.
5.06 COMPLIANCE. Except as set forth in SECTION 5.06 of the NEES
Disclosure Letter, or as disclosed in the NEES Reports filed prior to the date
hereof, NEES is not in violation of, is, to the knowledge of NEES, under
investigation with respect to any violation of, or has been given notice or
been charged with any violation of, any law, statute, order, rule, regulation,
ordinance or judgment (including, without limitation, any applicable
environmental law, ordinance or regulation) of any Governmental Authority,
except for possible violations which, individually or in the aggregate, could
not reasonably be expected to have a NEES Material
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Adverse Effect. Except as set forth in SECTION 5.06 of the NEES Disclosure
Letter or as disclosed in the NEES Reports filed prior to the date hereof, NEES
and its Subsidiaries have all material permits, licenses and other governmental
authorizations, consents and approvals necessary to conduct their businesses as
presently conducted which are material to the operation of the businesses
of NEES. NEES is not in breach or violation of, or in default in the performance
or observance of, any term or provision of , and no event has occurred which,
with lapse of time or action by a third party, could result in a default by NEES
under (i) the NEES Agreement and Declaration of Trust or by-laws or (ii) any
contract, commitment, agreement, indenture, mortgage, loan agreement, note,
lease, bond, license, approval or other instrument to which it is a party or by
which NEES is bound or to which any of their respective property is subject,
except for possible violations, breaches or defaults which, individually or in
the aggregate, could not reasonably be expected to have a NEES Material Adverse
Effect.
5.07 FINANCING. NEES has or will have available, prior to the
Effective Time, sufficient cash in immediately available funds to pay or to
cause LLC to pay the Merger Consideration pursuant to Article II hereof and to
consummate the Merger and other transactions contemplated hereby.
5.08 NO VOTE REQUIRED. No vote of the NEES Shares or of any class
or series of equity securities of NEES or its Subsidiaries is necessary for the
approval of the Merger and other transactions contemplated hereby.
5.09 OWNERSHIP OF EUA SHARES. Neither NEES nor any of its
Subsidiaries or other affiliates beneficially owns any EUA Shares.
5.10 MERGER WITH THE NATIONAL GRID GROUP PLC. NEES has entered into
an Agreement and Plan of Merger dated as of December 11, 1998 by and among The
National Grid Group plc ("NATIONAL GRID GROUP"), NGG Holdings LLC (formerly
known as Iosta LLC) and NEES (the "NATIONAL GRID MERGER AGREEMENT"). Pursuant to
Section 6.01 of the National Grid Merger Agreement, NEES has provided a copy of
this Agreement to National Grid Group, and National Grid Group has given NEES
its written consent to enter into this Agreement and consummate the Merger on
the terms set forth in this Agreement. Prior to the execution of this Agreement,
NEES has provided EUA with a copy of such written consent.
ARTICLE VI
COVENANTS
6.01 COVENANTS OF EUA. At all times from and after the date hereof
until the Effective Time, EUA covenants and agrees as to itself and its
Subsidiaries that (except as expressly contemplated or permitted by this
Agreement or as set forth in Section 6.01 of the EUA Disclosure Letter, or to
the extent that NEES shall otherwise previously consent in writing):
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(a) ORDINARY COURSE. EUA and each of its Subsidiaries
shall conduct their businesses only in, and EUA and each of its Subsidiaries
shall not take any action except in, the ordinary course consistent with good
utility practice. Without limiting the generality of the foregoing, EUA and its
Subsidiaries shall use all commercially reasonable efforts to preserve intact in
all material respects their present business organizations and reputation, to
maintain in effect all existing permits, to keep available the services of their
key officers and employees, to maintain their assets and properties in good
working order and condition, ordinary wear and tear excepted, to maintain
insurance on their tangible assets and businesses in such amounts and against
such risks and losses as are currently in effect, to preserve their
relationships with customers and suppliers and others having significant
business dealings with them and to comply in all material respects with all laws
and orders of all Govern mental Authorities applicable to them.
(b) CHARTER DOCUMENTS. EUA shall not, nor shall it permit
any of its Subsidiaries to, amend or propose to amend the EUA Trust Agreement,
in the case of EUA, and its certificate or articles of incorporation or
organization or bylaws (or other comparable charter documents), in the case of
EUA's Subsidiaries.
(c) DIVIDENDS. EUA shall not, nor shall it permit any of
its Subsidiaries to, (i) declare, set aside or pay any dividends on, or make
other distributions in respect of, any of its capital stock or share capital,
except:
(A) that EUA may continue the declaration and
payment of regular quarterly dividends on
EUA Shares with usual record and payment
dates not, in any fiscal year, in excess of
the dividend for the comparable period in
the prior fiscal year;
(B) that the Subsidiaries of EUA set forth in
Section 6.01(c) of the EUA Disclosure
Letter may continue the declaration and
payment of dividends on preferred stock in
accordance with the terms of such stock,
with the record and payment dates and in the
amounts set forth in Section 6.01(c) of the
EUA Disclosure Letter;
(c) if the Effective Time does not occur between
a record date and payment date of a regular
quarterly dividend, for a special dividend
on EUA Shares with respect to the quarter in
which the Effective Time occurs with a
record date on or prior to the date on which
the Effective Time occurs, which does not
exceed an amount equal to the product of (x)
the number of days between the last payment
date of a regular quarterly dividend and the
record date of such special dividend,
multiplied by (y) $.0045; and
(D) for dividends and distributions (including
liquidating distributions) by a direct or
indirect Subsidiary of EUA to its parent.
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(ii) split, combine, subdivide, reclassify or take similar action with respect
to any of its capital stock or share capital or issue or authorize or propose
the issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock or comprised in its share capital,
(iii) adopt a plan of complete or partial liquidation or resolutions providing
for or authorizing such liquidation or a dissolution, merger, consolidation,
restructuring, recapitalization or other reorganization or (iv) directly or
indirectly redeem, repurchase or otherwise acquire any shares of its capital
stock or any Option with respect thereto except:
(A) in connection with intercompany purchases of
capital stock or share capital,
(B) for the purpose of funding EUA's dividend
reinvestment and share purchase plan in
accordance with past practice, or
(C) subject to EUA's obligations under the
Securities Act and the Exchange Act,
pursuant to EUA's previously announced share
repurchase program provided that the number
of EUA Shares repurchased does not exceed
3,000,000 and the price paid per share does
not exceed 95% of the Per Share Amount.
(d) SHARE ISSUANCES. EUA shall not, nor shall it permit
any of its Subsidiaries to, issue, deliver or sell, or authorize or propose the
issuance, delivery or sale of, any shares of its capital stock or any Option
with respect thereto (other than the issuance by a wholly owned Subsidiary of
its capital stock to its direct or indirect parent corporation, or modify or
amend any right of any holder of outstanding shares of capital stock or Options
with respect thereto).
(e) ACQUISITIONS. EUA shall not, nor shall it permit any
of its Subsidiaries to acquire or agree to acquire (by merging or consolidating
with, or by purchasing a substantial equity interest in or substantial portion
of the assets of, or by any other manner) any business or any corporation,
partnership, association or other business organization or division thereof.
(f) DISPOSITIONS. EUA shall not, nor shall it permit any
of its Subsidiaries to sell, lease, securitize, grant any security interest in
or otherwise dispose of or encumber any of its assets or properties, other than
dispositions in the ordinary course of its business consistent with past
practice and having an aggregate value of less than $1,000,000 for each
disposition and $5,000,000 in the aggregate.
(g) INDEBTEDNESS. EUA shall not, nor shall it permit any
of its Subsidiaries to incur or guarantee any indebtedness (including any debt
borrowed or guaranteed or otherwise assumed, including, without limitation, the
issuance of debt securities or warrants or rights to acquire debt) or enter into
any "keep well" or other agreement to maintain any financial condition of
another Person or enter into any arrangement having the economic effect of any
of the foregoing other than (i) short-term indebtedness in the ordinary course
of business consistent with past practice (such as the issuance of commercial
paper or the use of existing credit
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facilities) in amounts not exceeding the amounts set forth in Section 6.01(g)
of the EUA Disclosure Letter, (ii) long-term indebtedness in connection with the
refinancing of existing indebtedness either at its stated maturity or at a lower
cost of funds (calculating such cost on an aggregate after-tax basis) or (iii)
guarantees or "keep well" agreements in favor of wholly owned Subsidiaries of
EUA in connection with the conduct of the business of such wholly owned
Subsidiaries of EUA not aggregating more than $1,000,000.
(h) CAPITAL EXPENDITURES. Except (i) as required by law
or (ii) as reasonably deemed necessary by EUA after consulting with NEES
following a catastrophic event, such as a major storm, EUA shall not, nor shall
it permit any of its Subsidiaries to make any capital expenditures or
commitments during any fiscal year that is in excess of 110% of (i) the
aggregate amount set forth in SECTION 6.01(h) of the EUA Disclosure Letter with
respect to EUA and its Subsidiaries that are public utility companies within
the meaning of Section 2(a)(5) of the 1935 Act or (ii) the amount set forth in
SECTION 6.01(h) of the EUA Disclosure Letter with respect to each of EUA's
other Subsidiaries.
(i) EMPLOYEE BENEFITS. EUA shall not, nor shall it permit
any of its Subsidiaries to enter into, adopt, amend (except as may be required
by applicable law) or terminate any EUA Employee Benefit Plan, or other
agreement, arrangement, plan or policy between EUA or one of its Subsidiaries
and one or more of its trustees, directors, officers, employees or former
employees, or, except for normal increases in the ordinary course of business,
(a) increase in any manner the compensation or fringe benefits of any trustee,
director or executive officer, (b) increase in any manner the compensation or
fringe benefits of any employee, (c) pay any benefit not required by any plan or
arrangement in effect as of the date hereof or, (d) cause any trustee, director,
officer, employee or former employee of EUA to accrue or receive additional
benefits, accelerate vesting or accelerate the payment of any benefits under any
EUA Employee Benefit Plan, or other agreement, arrangement, plan or policy. EUA,
prior t o the Closing Date, shall take all necessary action and make all
necessary amendments to its stock-based plans so that all such plans will be in
a form that allows the plans to function after the Effective Time and after any
merger of EUA and its Subsidiaries into NEES or its Subsidiaries. EUA, prior to
the Closing Date, shall take all necessary actions, in a manner satisfactory to
NEES, so that on or after the Closing Date, neither EUA, the Surviving Entity
nor their affiliates' stock or securities will be required to be held in, or
distributed pursuant to, any EUA Employee Benefit Plan.
(j) LABOR MATTERS. Notwithstanding any other provision of
this Agreement to the contrary, EUA or its Subsidiaries may negotiate successor
collective bargaining agreements to those referenced in SECTION 4.12 hereof, and
may negotiate other collective bargaining agreements or arrangements as required
by law or for the purpose of implementing the agreements referenced in SECTION
4.12 hereof. EUA will keep NEES informed as to the status of, and will consult
with NEES as to the strategy for, all negotiations with collective bargaining
representatives. EUA and its Subsidiaries shall act prudently and reasonably and
consistent with their obligation under applicable law in such negotiations.
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(k) DISCHARGE OF LIABILITIES. EUA shall not, nor shall it
permit its Subsidiaries to, pay, discharge or satisfy any material claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or satisfaction, in
the ordinary course of business consistent with past practice (which includes
the payment of final and unappeasable judgments) or in accordance with their
terms, of liabilities reflected or reserved against in, or contemplated by, the
most recent consolidated financial statements (or the notes thereto) of such
party included in EUA SEC Reports, or incurred in the ordinary course of
business consistent with past practice.
(1) CONTRACTS. EUA shall not, nor shall it permit its
Subsidiaries, except in the ordinary course of business consistent with past
practice or as set forth in Section 6.01(1) of the EUA Disclosure Letter, (i)
to modify, amend, terminate or fail to use commercially reasonable efforts to
renew any material Contract to which EUA or any of its Subsidiaries is a party
or waive, release or assign any material rights or claims or (ii) to enter into
any new material Contracts except as expressly permitted by SECTIONS 6.01(f),
(g) OR (i) and 7.06 hereof.
(m) EQUITY INVESTMENTS. EUA shall not, nor shall it
permit its Subsidiaries or affiliates to, make equity contributions to
non-affiliates or to its non-utility Subsidiaries.
(n) LOANS. EUA shall not, nor shall it permit its
Subsidiaries or affiliates to, loan money to non-affiliates or to its
non-utility Subsidiaries.
(o) YEAR 2000. EUA, within 15 days of the date of this
Agreement, shall engage a qualified third party ("Y2K CONSULTANT") to conduct a
detailed assessment of the adequacy and state of completion of its Year 2000
Program, including but not limited to assessment and testing of its customer,
accounting, and operational systems. The Y2K Consultant and scope of work of the
Y2K Consultant shall be acceptable to NEES. Such assessment and testing shall be
completed as soon thereafter as practicable. EUA shall have such assessment
updated by the Y2K Consultant at the end of each fiscal quarter of 1999. EUA
shall allow designated NEES personnel and representatives access to the Y2K
Consultant's personnel, reports and recommendations and access to EUA's
personnel, documents, and information related to the Y2K issue. EUA and the
third party shall meet with such designated NEES personnel and representatives
on a periodic basis (but not less frequently than monthly) to update NEES on
EUA's Year 2000 Program. If this Agreement is terminated pursuant to Section
9.01 hereof, NEES shall reimburse EUA for the costs and expenses of the Y2K
Consultant.
(p) INSURANCE. EUA shall, and shall cause its
Subsidiaries to, maintain with financially responsible insurance companies (or
through self-insurance, consistent with past practice) insurance in such amounts
and against such risks and losses as are customary for companies engaged in
their respective businesses.
(q) 1935 ACT. EUA shall not, nor shall it permit any of
its Subsidiaries to, engage in any activities which would cause a change in its
status, or that of its Subsidiaries, under the 1935 Act.
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(r) REGULATORY MATTERS. Subject to applicable law and
except for non-material filings in the ordinary course of business consistent
with past practice, EUA shall consult with NEES prior to implementing any
changes in its or any of its Subsidiaries' rates or charges, standards of
service or accounting or executing any agreement with respect thereto that is
otherwise permitted under this Agreement and shall, and shall cause its
Subsidiaries to, deliver to NEES a copy of each such filing or agreement at
least four (4) business days prior to the filing or execution thereof so that
NEES may comment thereon. EUA shall, and shall cause its Subsidiaries to, make
all such filings (i) only in the ordinary course of business consistent with
past practice or (ii) as required by a Governmental Authority or regulatory
agency with appropriate jurisdiction.
(s) ACCOUNTING. EUA shall not, nor shall it permit any of
its Subsidiaries to make any changes in their accounting methods, policies or
procedures, except as required by law, rule, regulation or applicable generally
accepted accounting principles;
(t) TAX STATUS. Neither EUA nor any of its Subsidiaries
shall (i) make or rescind any material express or deemed election relating to
Taxes, (ii) make a request for a Tax Ruling or enter into a Closing Agreement,
(iii) settle or compromise any material claim, action, suit, litigation,
proceeding, arbitration, investigation, audit, or controversy relating to Taxes
or (iv) change in any material respect any of its methods of reporting income,
deductions or accounting for federal income tax purposes from those employed in
the preparation of its federal income Tax Return for the taxable year ending
December 31, 1997, except as may be required by applicable law.
(u) NO BREACH. EUA shall not, nor shall it permit any of
its Subsidiaries to willfully take or fail to take any action that would or is
reasonably likely to result in (i) a material breach of any provision of this
Agreement or (ii) its representations and warranties set forth in this Agreement
being untrue in any material respect on and as of the Closing Date.
(v) ADVICE OF CHANGES. EUA shall confer with NEES on a
regular and frequent basis with respect to EUA's business and operations and
other matters relevant to the Merger to the extent permitted by law, and shall
promptly advise NEES, orally and in writing, of any material change or event,
including, without limitation, any complaint, investigation or hearing by any
Governmental Authority (or communication indicating the same may be
contemplated) or the institution or threat of material litigation; PROVIDED
that EUA shall not be required to make any disclosure to the extent such
disclosure would constitute a violation of any applicable law or regulation.
(w) NOTICE AND CURE. EUA will notify NEES in writing of,
and will use all commercially reasonable efforts to cure before the Closing, any
event, transaction or circumstance, as soon as practical after it becomes known
to EUA, that causes or will or may be likely to cause any covenant or agreement
of EUA under this Agreement to be breached or that renders or will render untrue
in any material respect any representation or warranty of EUA contained in this
Agreement. EUA also will notify NEES in writing of, and will use all
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commercially reasonable efforts to cure, before the Closing, any material
violation or breach, as soon as practical after it becomes known to EUA, of any
representation, warranty, covenant or agreement made by EUA. No notice given
pursuant to this paragraph shall have any effect on the representations,
warranties, covenants or agreements contained in this Agreement for purposes of
determining satisfaction of any condition contained herein.
(x) FULFILLMENT OF CONDITIONS. Subject to the terms and
conditions of this Agreement, EUA will take or cause to be taken all
commercially reasonable steps necessary or desirable and proceed diligently and
in good faith to satisfy each condition to the other's obligations contained in
this Agreement and to consummate and make effective the Merger and other
transactions contemplated by this Agreement, and EUA will not, nor will it
permit any of its Subsidiaries to, take or fail to take any action that could be
reasonably expected to result in the nonfulfillment of any such condition.
(y) THIRD PARTY STANDSTILL AGREEMENTS. Except as provided
in Section 7.08 hereto, during the period from the date of this Agreement
through the Effective Time, neither EUA nor any of its Subsidiaries shall
terminate, amend, modify or waive any provision of any confidentiality or
standstill agreement to which it is a party. During such period, EUA shall take
all steps necessary to enforce, to the fullest extent permitted under applicable
law, the provisions of any such agreement.
6.02 COVENANTS OF NEES. At all times from and after the date hereof
until the Effective Time, NEES covenants and agrees that (except as expressly
contemplated or permitted by this Agreement or to the extent that EUA shall
otherwise previously consent in writing):
(a) NO BREACH. NEES shall not, nor shall it permit any of
its Subsidiaries to, except as otherwise expressly provided for in this
Agreement, willfully take or fail to take any action that would or is reasonably
likely to result in (i) a material breach of any of its covenants or agreements
contained in this Agreement or (ii) any of its representations and warranties
set forth in SECTIONS 5.01, 5.02, 5.03, 5.04, 5.05, 5.06, 5.07, 5.08 and 5.09 of
this Agreement being untrue in any material respect on and as of the Closing
Date.
(b) ADVICE OF CHANGES. NEES shall confer with EUA on a
regular and frequent basis with respect to any matter having, or which, insofar
as can be reasonably foreseen, could reasonably be expected to have, a NEES
Material Adverse Effect or materially impair the ability of NEES to consummate
the Merger and other transactions contemplated hereby; provided that NEES shall
not be required to make any disclosure to the extent such disclosure would
constitute a violation of any applicable law or regulation.
(c) NOTICE AND CURE. NEES will notify EUA in writing of,
and will use all commercially reasonable efforts to cure before the Closing, any
event, transaction or circumstance, as soon as practical after it becomes known
to NEES, that causes or will or may be likely to cause any covenant or agreement
of NEES under this Agreement to be breached or that renders or will render
untrue in any material respect any representation or warranty of NEES
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contained in this Agreement. NEES also will notify EUA in writing of, and will
use all commercially reasonable efforts to cure before the Closing, any material
violation or breach, as soon as practical after it becomes known to such party,
of any representation, warranty, covenant or agreement made by NEES. No notice
given pursuant to this paragraph shall have any effect on the representations,
warranties, covenants or agreements contained in this Agreement for purposes of
determining satisfaction of any condition contained herein.
(d) FULFILLMENT OF CONDITIONS. Subject to the terms and
conditions of this Agreement, NEES will take or cause to be taken all
commercially reasonable steps necessary or desirable and proceed diligently and
in good faith to satisfy each condition to its obligations contained in this
Agreement and to consummate and make effective the Merger and other transactions
contemplated by this Agreement, and NEES will not, nor will it permit any of its
Subsidiaries to, take or fail to take any action that could be reasonably
expected to result in the nonfulfillment of any such condition.
(e) CONDUCT OF BUSINESS OF LLC. Prior to the Effective
Time, except as may be required by applicable law and subject to the other
provisions of this Agreement, NEES shall cause LLC to (i) perform its
obligations under this Agreement in accordance with its terms, and (ii) not
engage directly or indirectly in any business or activities of any type or kind
and not enter into any agreements or arrangements with any person, or be subject
to or bound by any obligation or undertaking, which is inconsistent with this
Agreement.
(f) CERTAIN MERGERS. NEES shall not, and shall not permit
any of its Subsidiaries to, acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of the assets of or
equity in, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof, or otherwise
acquire or agree to acquire any assets if the entering into of a definitive
agreement relating to or the consummation of such acquisition, merger or
consolidation could reasonably be expected to (i) impose any material delay in
the obtaining of, or significantly increase the risk of not obtaining, any
authorizations, consents, orders, declarations or approvals of any Governmental
Authority necessary to consummate the Merger or the expiration or termination of
any applicable waiting period, (ii) significantly increase the risk of any
Governmental Authority entering an order prohibiting the consummation of the
Merger, (iii) significantly increase the risk of not being able to remove any
such order on appeal or otherwise or (iv) materially delay the consummation of
the Merger.
6.03 ADDITIONAL COVENANTS BY NEES AND EUA.
(a) CONTROL OF OTHER PARTY'S BUSINESS. Nothing contained
in this Agreement shall give NEES, directly or indirectly, the right to control
or direct EUA's operations prior to the Effective Time. Nothing contained in
this Agreement shall give EUA, directly or indirectly, the right to control or
direct NEES' operations prior to the Effective Time. Prior to the Effective
Time, each of EUA and NEES shall exercise, consistent with the terms and
conditions of this Agreement, complete control and supervision over its
respective operations.
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(b) TRANSITION STEERING TEAM. As soon as reasonably
practicable after the date hereof, NEES and EUA shall create a special
transition steering team, with representation from EUA and NEES, that will
develop recommendations concerning the future structure and operations of EUA
after the Effective Time, subject to applicable law. The members of the
transition steering team shall be appointed by the Chief Executive Officers of
NEES and EUA. The functions of the transition steering team shall include (i)
to direct the exchange of information and documents between the parties and
their Subsidiaries as contemplated by SECTION 7.01 and (ii) the development of
regulatory plans and proposals, corporate organizational and management plans,
workforce combination proposals, and such other matters as they deem
appropriate.
ARTICLE VII
ADDITIONAL AGREEMENTS
7.01 ACCESS TO INFORMATION. EUA shall, and shall cause each of its
Subsidiaries to, and shall use commercially reasonable efforts to cause EUA
Associates to, throughout the period from the date hereof to the Effective Time
to the extent permitted by law, (i) provide NEES and its Representatives with
full access, upon reasonable prior notice and during normal business hours, to
all facilities, operations, officers (including EUA's environmental, health and
safety personnel), employees, agents and accountants of EUA and its
Subsidiaries and Associates and their respective assets, properties, books and
records, to the extent EUA or any Subsidiary of EUA or EUA Associate is not
under a legal obligation not to provide access or to the extent that such access
would not constitute a waiver of the attorney client privilege and does not
unreasonably interfere with the business and operations of EUA and its
Subsidiaries and Associates and (ii) furnish promptly to such persons (x) a copy
of each report, statement, schedule and other document filed or received by EUA
or any of its Subsidiaries pursuant to the requirements of federal or state
securities laws and each material report, statement, schedule and other document
filed with any other Governmental Authority, and (y) all other information and.
data (including, without limitation, copies of Contracts, EUA Employee Benefit
Plans, and other books and records) concerning the business and operations of
EUA and its Subsidiaries as NEES or any of its Representatives reasonably may
request. No review pursuant to this SECTION 7.01 or otherwise shall affect any
representation or warranty contained in this Agreement or any condition to the
obligations of the parties hereto. Any such information or material obtained
pursuant to this SECTION 7.01 that constitutes "EVALUATION MATERIAL" (as such
term is defined in the letter agreement dated as of December 18, 1998 between
EUA and NEES (the "CONFIDENTIALITY AGREEMENT")) shall be governed by the terms
of the Confidentiality Agreement. NEES may provide information or materials that
it obtains relating to EUA or any EUA Subsidiary pursuant to this Section 7.01
to National Grid Group; the treatment by National Grid Group of such information
or material shall be governed by the terms of the letter agreement dated as of
December 21, 1998 between EUA and National Grid Group.
7.02 PROXY STATEMENT. As soon as reasonably practicable after the
date of this Agreement, EUA shall prepare and file the Proxy Statement with the
SEC. NEES and EUA shall
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cooperate with each other in the preparation of the Proxy Statement and any
amendment or supplement thereto, and EUA shall promptly notify NEES of the
receipt of any comments of the SEC with respect to the Proxy Statement and of
any requests by the SEC for any amendment or supplement thereto or for
additional information, and shall promptly provide to NEES copies of all
correspondence between EUA or any of its Representatives and the SEC with
respect to the Proxy Statement (except reports from financial ad visors other
than with the consent of such financial advisors). Each of the parties hereto
shall furnish all information concerning itself which is required or customary
for inclusion in the Proxy Statement. EUA shall consult with NEES regarding the
Proxy Statement and have due regard to any comments NEES may make in relation to
the Proxy Statement. EUA shall give NEES and its counsel the opportunity to
review the Proxy Statement and all responses to requests for additional
information by and replies to comments of the SEC before their being filed
with, or sent to, the SEC. Each of EUA and NEES agrees to use its reasonable
best efforts, after consultation with the other parties hereto, to respond
promptly to all such comments of and requests by the SEC. After obtaining the
consent of EUA, which consent shall not be unreasonably withheld, NEES may
provide information supplied to NEES by EUA to National Grid Group for inclusion
of such information in the Super Class 1 circular ("NGG CIRCULAR") to be issued
to shareholders of National Grid Group in connection with approval by such
shareholders of the National Grid Merger Agreement. NEES shall use its best
efforts to provide EUA with a draft of any portion of the NGG Circular with
information relating to EUA prior to the issuance of the NGG Circular.
7.03 APPROVAL OF SHAREHOLDERS. EUA shall, through its Board of
Trustees, duly call, give notice of, convene and hold a meeting of its
shareholders (the "EUA SHAREHOLDERS' MEETING") for the purpose of voting on the
approval of the Merger and other transactions contemplated hereby (the "EUA
SHAREHOLDERS' APPROVAL") as soon as reasonably practicable after the date
hereof; PROVIDED, HOWEVER, subject to the fiduciary duties of its Board of
Trustees and the requirements of applicable law, EUA shall include in the Proxy
Statement the recommendation of the Board of Trustees of EUA that the
Shareholders of EUA approve the Merger and the other transactions contemplated
hereby, and shall use its reasonable best efforts to obtain such approval.
7.04 REGULATORY AND OTHER APPROVALS. (a) HSR FILINGS. Each party
hereto shall file or cause to be filed with the Federal Trade Commission and the
Department of Justice any notifications required to be filed by its respective
"ultimate parent" company under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended (the "HSR Act"), and the rules and regulations promulgated
thereunder with respect to the Merger and other transactions contemplated
hereby. Such parties will use all commercially reasonable efforts to make such
filings in a timely manner and to respond on a timely basis to any requests for
additional information made by either of such agencies.
(b) OTHER REGULATORY APPROVALS. Each party shall
cooperate and use its best efforts to promptly prepare and file all necessary
applications, notices, petitions, filings and other documents with, and to use
all commercially reasonable efforts to obtain all necessary permits, consents,
approvals and authorizations of, all Governmental Authorities necessary or
advisable to
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obtain the EUA Required Statutory Approvals, the NEES Required Statutory
Approvals and the approvals of the state utility commissions referred to in
SECTION 8.01(d) (collectively, the "NEES-EUA REGULATORY APPROVALS"). The
parties agree that they will consult with each other with respect to obtaining
the NEES-EUA Regulatory Approvals; PROVIDED, HOWEVER, that NEES shall have
primary responsibility for the preparation and filing of any related
applications, filings or other material with the SEC, the FERC, the NRC and
state utility commissions. EUA shall have the right to review and approve in
advance drafts of and final applications, filings and other material (including
material with respect to proposed settlements) submitted to or filed with the
SEC, the FERC, the NRC and state utility commissions or parties to such
proceedings before such Governmental Authority, which approval shall not be
unreasonably withheld or delayed.
(c) NEES-NGG REGULATORY PROCEEDINGS. EUA and NEES
acknowledge that, at the same time EUA and NEES will be seeking to obtain the
NEES-EUA Regulatory Approvals, National Grid Group and NEES will be seeking to
obtain the regulatory approvals (the "NEES-NGG REGULATORY APPROVALS") required
to consummate the transactions contemplated by the National Grid Merger
Agreement. NEES and EUA agree to seek to prosecute the proceedings relating to
the NEES-EUA Regulatory Approvals (the "NEES-EUA REGULATORY PROCEEDINGS")
separately from the prosecution by National Grid Group and NEES of the
proceedings relating to the NEES-NGG Regulatory Approvals (the "NEES-NGG
REGULATORY PROCEEDINGS"), but recognize that one or more of the NEES-EUA
Regulatory Proceedings may be consolidated with one or more of the NEES-NGG
Regulatory Proceedings by the relevant Governmental Authority. Upon the request
of EUA, NEES will keep EUA reasonably apprised of the status of the NEES-NGG
Regulatory Proceedings.
7.05 EMPLOYEE BENEFIT PLANS.
(a) For a period of twelve (12) months immediately
following the Closing Date, the compensation, benefits and coverage provided to
those non-union individuals who continue to be employees of the Surviving Entity
(the "AFFECTED EMPLOYEES") pursuant to employee benefit plans or arrangements
maintained by NEES or the Surviving Entity shall be, in the aggregate, not less
favorable (as determined by NEES and the Surviving Entity using reasonable
assumptions and benefit valuation methods) than those provided, in the
aggregate, to such Affected Employees immediately prior to the Closing Date. In
addition to the foregoing, NEES shall, or shall cause the Surviving Entity to,
pay any Affected Employee whose employment is terminated by NEES or the
Surviving Entity within twelve (12) months of the Closing Date a severance
benefit package equivalent to the severance benefit package that would be
provided under the NEES Standard Severance Plan as in effect on the date hereof.
(b) NEES shall, or shall cause the Surviving Entity to,
give the Affected Employees full credit for purposes of eligibility, vesting,
benefit accrual (including, without limitation, benefit accrual under any
defined benefit pension plans) and determination of the level of benefits under
any employee benefit plans or arrangements maintained by NEES or the Surviving
Entity in effect as of the Closing Date for such Affected Employees' service
with EUA or any Subsidiary of EUA (or any prior employer) to the same extent
recognized by EUA or such
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Subsidiary immediately prior to the Closing Date. With respect to any employee
benefit plan or arrangement established by NEES, EUA or the Surviving Entity
after the Closing Date (the "POST CLOSING PLANS"), service shall be credited in
accordance with the terms of such Post Closing Plans.
(c) NEES shall, or shall cause the Surviving Entity to,
(i) waive all limitations as to preexisting conditions, exclusions and waiting
periods with respect to participation and coverage requirements applicable to
the Affected Employees under any welfare benefit plan established to replace any
EUA welfare benefit plans in which such Affected Employees may be eligible to
participate after the Closing Date, other than limitations or waiting periods
that are already in effect with respect to such Affected Employees and that have
not been satisfied as of the Closing Date under any welfare plan maintained for
the Affected Employees immediately prior to the Closing Date, and (ii) provide
each Affected Employee with credit for any copayments and deductibles paid prior
to the Closing Date in satisfying any applicable deductible or out-of-pocket
requirements under any welfare plans that such Affected Employees are eligible
to participate in after the Closing Date.
(d) (i) NEES shall, or shall cause the Surviving
Entity and its Subsidiaries to, honor, and shall guarantee the obligations of
the Surviving Entity and its Subsidiaries under, all EUA Employee Benefit Plans
as in effect on the date hereof; PROVIDED, HOWEVER, that this SECTION 7.05(d)(i)
is not intended to prevent NEES or the Surviving Entity from exercising their
rights with respect to all EUA Employee Benefit Plans solely in accordance with
their terms, including but not limited to the right to alter, terminate or
otherwise amend such EUA Employee Benefit Plans.
(ii) NEES shall, or shall cause the Surviving
Entity and its Subsidiaries to, honor, and shall guarantee the obligations of
the Surviving Entity and its Subsidiaries under, (A) all employment severance,
consulting and retention agreements or arrangements as in effect on the date
hereof, as set forth in SECTION 7.05(d)(ii) of the EUA Disclosure Letter, or as
modified in accordance with SECTION 6.01 (i) of the EUA Disclosure Letter (such
agreements or arrangements, the "EUA EMPLOYEE AGREEMENTS" and the individuals
who are parties to such EUA Employee Agreements, the "EUA EXECUTIVES") and (B)
all EUA Employee Benefit Plans in which such EUA Executives participate;
PROVIDED, HOWEVER, that this SECTION 7.05(d)(i) is not intended to prevent NEES
or the Surviving Entity from exercising their rights with respect to the EUA
Employee Agreements and the EUA Employee Benefit Plans in which such EUA
Executives participate, in each case solely in accordance with their terms,
including but not limited to the right to alter, terminate or otherwise amend
such EUA Employee Agreements and EUA Employee Benefit Plans.
(e) Notwithstanding the foregoing, NEES and the Surviving
Entity and its subsidiaries shall neither be required to or prevented from
merging EUA's benefit plans, agreements, or arrangements into NEES or the
Surviving Entity and its subsidiaries benefit plans, agreements, or arrangements
or from replacing EUA's benefit plans, agreements or arrangements with NEES or
the Surviving Entity and its subsidiaries benefit plans, agreements or
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arrangements.
7.06 LABOR AGREEMENTS AND WORKFORCE MATTERS.
(a) LABOR AGREEMENTS. NEES shall honor, or shall cause
the appropriate subsidiaries of the Surviving Entity to honor, all collective
bargaining agreements of EUA or its subsidiaries in effect as of the Effective
Time until their expiration; PROVIDED, HOWEVER, that this undertaking is not
intended to prevent NEES or the Surviving Entity and its subsidiaries from
exercising their rights with respect to such collective bargaining agreements
and in accordance with their terms, including any right to amend, modify,
suspend, revoke or terminate any such contract, agreement, collective bargaining
agreement or commitment or portion thereof.
(b) WORKFORCE MATTERS. Subject to applicable law and
obligations under applicable collective bargaining agreements, for a period of 2
years following the Effective Time, any reductions in workforce in respect of
employees of the Surviving Entity and its Subsidiaries shall be made on a fair
and equitable basis as determined by the Surviving Entity, with due
consideration to prior experience and skills, and any employee whose employment
is terminated or job is eliminated during such period shall be entitled to
participate on a fair and equitable basis as determined by NEES or the Surviving
Entity in the job opportunity and employment placement programs offered by NEES
or the Surviving Entity or any of their Subsidiaries for which they are
eligible. Any workforce reductions carried out following the Effective Time by
the Surviving Entity and its Subsidiaries shall be done in accordance with all
applicable collective bargaining agreements and all laws and regulations
governing the employment relationship and termination thereof including,
without limitation, the Worker Adjustment and Retraining Notification Act, and
the regulations promulgated thereunder, and any comparable state or local law.
7.07 POST MERGER OPERATIONS.
(a) NEES ADVISORY BOARD. If the Merger is consummated,
then, promptly following the closing of the merger contemplated by the National
Grid Merger Agreement, NEES shall take such action as is necessary to cause all
of the members of the Board of Directors of EUA to be appointed to serve on the
advisory board to be formed pursuant to Section 7.07(e) of the National Grid
Merger Agreement.
(b) CHARITIES. The parties agree that provision of
charitable contribution and community support within the New England region
serves a number of important goals. After the Effective Time, NEES intends to
cause the Surviving Entity to provide charitable contributions and community
support within the New England region at annual levels substantially comparable
to the annual level of charitable contributions and community support provided,
directly or indirectly, by EUA and its public utility subsidiaries within the
New England region during 1998.
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7.08 NO SOLICITATIONS. Prior to the Effective Time, EUA agrees: (a)
that neither it nor any of its Subsidiaries shall, and it shall use its best
efforts to cause its Representatives (as defined in Section 10.10) not to,
knowingly initiate, solicit or encourage, directly or indirectly, any inquiries
or any proposal or offer (including, without limitation, any proposal or offer
to its Shareholders) with respect to a merger, consolidation or other business
combination including EUA or any of its significant Subsidiaries (as defined in
Rule 1-02(W) of Regulation S-X promulgated under the Exchange Act) other than
EUA Cogenex Corporation (an "EUA SIGNIFICANT SUBSIDIARY"), or any acquisition or
similar transaction (including, without limitation, a tender or exchange offer)
involving the purchase of (i) all or any significant portion of the assets of
EUA and its Subsidiaries taken as a whole, (ii) ten percent or more of the
outstanding EUA Shares or (iii) 50% or more of the outstanding shares of the
capital stock of any EUA Significant Subsidiary (any such proposal or offer
being hereinafter referred to as an "ALTERNATIVE PROPOSAL"), or engage in any
negotiations concerning, or provide any confidential information or data to, or
have any other discussions with, any person or group relating to an Alternative
Proposal, or otherwise knowingly facilitate any effort or attempt to make or
implement an Alternative Proposal other than from NEES and its affiliates; (b)
that it will immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any parties with respect to any
Alternative Proposal; and (c) that it will notify NEES immediately if any such
inquiries, proposals or offers are received by, any such information is
requested from, or any such negotiations or discussions are sought to be
initiated or continued with, it or any of such persons; PROVIDED, HOWEVER, that,
prior to receipt of the EUA Shareholders' Approval, nothing contained in this
SECTION 7.08 shall prohibit the Board of Trustees of EUA from (i) furnishing
information to (but only pursuant to a confidentiality agreement in customary
form and having terms and conditions no less favorable to EUA than the
Confidentiality Agreement (as defined in SECTION 7.01)) or entering into
discussions or negotiations with any person or group that makes an unsolicited
Alternative Proposal, if, and only to the extent that, (A) the Board of Trustees
of EUA, based upon advice of outside counsel with respect to fiduciary duties,
determines in good faith that such action is necessary for the Board of
Trustees to act in a manner consistent with its fiduciary duties to Shareholders
under applicable law, (B) the Board of Trustees of EUA has reasonably concluded
in good faith (after consultation with its financial advisors) that the person
or group making such Alternative Proposal will have adequate sources of
financing to consummate such Alternative Proposal and that such Alternative
Proposal is likely to be more favorable to EUA's shareholders than the Merger,
(C) prior to furnishing such information to, or entering into discussions or
negotiations with, such person or group, EUA provides written notice to NEES to
the effect that it is furnishing information to, or entering into discussions or
negotiations with, such person or group, which notice shall identify such person
or group and the material terms of the Alternative Proposal in reasonable
detail, and (D) EUA keeps NEES promptly informed of the status and all material
information with respect to any such discussions or negotiations; and (ii) to
the extent required, complying with Rule 14e-2 promulgated under the Exchange
Act with regard to an Alternative Proposal. Nothing in this SECTION 7.08 shall
(x) permit EUA to terminate this Agreement (except as specifically provided in
ARTICLE IX), (y) permit EUA to enter into any agreement with respect to an
Alternative Proposal for so long as this Agreement remains in effect (it being
agreed that for so long as this Agreement remains in effect, EUA shall not enter
into any agreement with any person or group that provides for, or in
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any way knowingly facilitates, an Alternative Proposal (other than a
confidentiality agreement under the circumstances described above)), or (z)
affect any other obligation of EUA under this Agreement.
7.09 DIRECTORS' AND OFFICERS' INDEMNIFICATION AND INSURANCE.
(a) INDEMNIFICATION. To the extent, if any, not provided
by an existing right of indemnification or other agreement or policy, from and
after the Effective Time, NEES shall, or shall cause the Surviving Entity to, to
the fullest extent permitted by applicable law, indemnify, defend and hold
harmless each person who is now, or has been at any time prior to the date
hereof, or who becomes prior to the Effective Time, (x) an officer, trustee or
director or (y) an employee covered as of the date hereof (to the extent of the
coverage extended as of the date hereof) of EUA or any Subsidiary of EUA (each
an "INDEMNIFIED PARTY," and collectively, the "INDEMNIFIED PARTIES") against (i)
all losses, expenses (including reasonable attorney's fees and expenses),
claims, damages or liabilities or, subject to the first proviso of the next
succeeding sentence, amounts paid in settlement, arising out of actions or
omissions occurring at or prior to the Effective Time (and whether asserted or
claimed prior to, at or after the Effective Time) that are, in whole or in part,
based on or arising out of the fact that such person is or was a director,
trustee, officer or employee of EUA or any Subsidiary of EUA (the "INDEMNIFIED
LIABILITIES"), and (ii) all Indemnified Liabilities to the extent they are based
on or arise out of or pertain to the transactions contemplated by this
Agreement, in each case, to the extent permitted by the EUA Trust Agreement or
the indemnification agreements set forth in SECTION 7.09 of the EUA Disclosure
Letter. In the event of any such loss, expense, claim, damage or liability
(whether or not arising before the Effective Time), (i) NEES shall, or shall
cause the Surviving Entity to, pay the reasonable fees and expenses of counsel
selected by the Indemnified Parties, which counsel shall be reasonably
satisfactory to NEES or the Surviving Entity, as appropriate, promptly after
statements therefor are received and otherwise advance to such Indemnified Party
upon request, reimbursement of documented expenses reasonably incurred, in
either case to the extent not prohibited by the EUA Trust Agreement or the
indemnification agreements set forth in SECTION 7.09 of the EUA Disclosure
Letter upon receipt of an undertaking by or on behalf of such director, trustee
or officer to repay such amounts as and to the extent required by the EUA Trust
Agreement or the indemnification agreements set forth in SECTION 7.09 of the EUA
Disclosure Letter, (ii) the Surviving Entity shall cooperate in the defense of
any such matter and (iii) any determination required to be made with respect to
whether an Indemnified Party's conduct complies with the standards set forth
under the EUA Trust Agreement or the indemnification agreements set forth in
SECTION 7.09 of the EUA Disclosure Letter and the certificate of incorporation
or by-laws or similar governing documents of the Surviving Entity shall be made
by independent counsel mutually acceptable to the Surviving Entity and the
Indemnified Party; PROVIDED, HOWEVER, that the Surviving Entity shall not be
liable for any settlement effected without its written consent (which consent
shall not be unreasonably withheld) and PROVIDED FURTHER that no
indemnification shall be made if such indemnification is prohibited by the EUA
Trust Agreement or the indemnification agreements set forth in SECTION 7.09 of
the EUA Disclosure Letter.
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(b) INSURANCE. For a period of six years after the
Effective Time, NEES and the Surviving Entity at NEES's election, (i) shall
cause to be maintained in effect an extended reporting period for current
policies of directors' and officers' liability insurance for the benefit of such
persons who are currently covered by such policies of EUA on terms no less
favorable than the terms of such current insurance coverage or (ii) shall
provide tail coverage for such persons which provides such persons with
coverage for a period of six years for acts prior to the Effective Time on terms
no less favorable than the terms of such current insurance coverage.
(c) SUCCESSORS. In the event the Surviving Entity or any
of its successors or assigns (i) consolidates with or merges into any other
person or entity and shall not be the continuing or surviving corporation or
entity of such consolidation or merger or (ii) transfers all or substantially
all of its properties and assets to any person or entity, then and in either
such case, proper provisions shall be made so that the successors and assigns of
the Surviving Entity, as applicable, shall assume the obligations set forth in
this SECTION 7.09.
(d) SURVIVAL OF INDEMNIFICATION. To the fullest extent
permitted by law, from and after the Effective Time, all rights to
indemnification as of the date hereof in favor of the employees, agents,
directors, trustees and officers of EUA and EUA's Subsidiaries with respect to
their activities as such prior to the Effective Time, as provided in the EUA
Trust Agreement or the respective certificates of incorporation and by-laws or
similar governing documents in effect on the date hereof, or otherwise in
effect on the date hereof, shall survive the Merger and shall continue in full
force and effect for a period of not less than six years from the Effective
Time.
(e) BENEFIT. The provisions of this SECTION 7.09 are
intended to be for the benefit of, and shall be enforceable by, each Indemnified
Party, his or her heirs and his or her representatives.
(f) AMENDMENT OF THE EUA TRUST AGREEMENT. NEES shall not,
and shall ensure that the Surviving Entity shall not, amend the EUA Trust
Agreement to in any way limit the indemnification provided to the Indemnified
Parties under this SECTION 7.09.
7.10 EXPENSES. Except as set forth in SECTION 9.03, whether or not
the Merger is consummated, all costs and expenses incurred in connection with
the Merger and other transactions contemplated hereby shall be paid by the party
incurring such cost or expense, except that the filing fees in connection with
the filings required under the HSR Act and the 1935 Act shall be paid by NEES.
7.11 BROKERS OR FINDERS. EUA represents, as to itself and its
affiliates, that no agent, broker, investment banker, financial advisor or other
firm or person is or will be entitled to any broker's, finder's or investment
banker's fee or any other commission or similar fee in connection with the
Merger and other transactions contemplated by this Agreement except Salomon
Smith Barney Inc., whose fees and expenses will be paid by EUA in accordance
with EUA's agreement with such firm, and EUA shall indemnify and hold NEES
harmless from and against any and all claims, liabilities or obligations with
respect to any other such fee or commission or expenses
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related thereto asserted by any person on the basis of any act or statement
alleged to have been made by EUA or its affiliates.
7.12 ANTI-TAKEOVER STATUTES. If any "FAIR PRICE", "MORATORIUM",
"BUSINESS COMBINATION", "CONTROL SHARE ACQUISITION" or other form of
anti-takeover statute or regulation shall become applicable to the Merger or
other transactions contemplated hereby, EUA and the members of the Board of
Trustees of EUA shall grant such approvals and take such actions consistent with
their fiduciary duties and in accordance with applicable law as are reasonably
necessary so that the Merger and other transactions contemplated hereby may be
consummated as promptly as practicable on the terms contemplated hereby and
otherwise act to eliminate or minimize the effects of such statute or regulation
on the Merger and other transactions contemplated hereby.
7.13 PUBLIC ANNOUNCEMENTS. Except as otherwise required by law or
the rules of any applicable securities exchange or national market system or any
other Regulatory Authority, so long as this Agreement is in effect, NEES and EUA
will not, and will not permit any of their respective Subsidiaries or
Representatives to, issue or cause the publication of any press release or make
any other public announcement with respect to the Merger and other transactions
contemplated by this Agreement without the consent of the other party, which
consent shall not be unreasonably withheld. NEES and EUA will cooperate with
each other in the development and distribution of all press releases and other
public announcements with respect to the Merger and other transactions
contemplated hereby, and will furnish the other with drafts of any such releases
and announcements as far in advance as practicable.
7.14 RESTRUCTURING OF THE MERGER. It may be preferable to
effectuate a business combination between NEES and EUA by means of an
alternative structure to the Merger. Accordingly, if, prior to satisfaction of
the conditions contained in ARTICLE VIII hereto, NEES proposes the adoption of
an alternative structure that otherwise substantially preserves for NEES and EUA
the economic benefits of the Merger and will not materially delay the
consummation thereof, then the parties shall use their respective best efforts
to effect a business combination among themselves by means of a mutually agreed
upon structure other than the Merger that so preserves such benefits; PROVIDED,
HOWEVER, that prior to closing any such restructured transaction, all material
third party and Governmental Authority declarations, filings, registrations,
notices, authorizations, consents or approvals necessary for the effectuation of
such alternative business combination shall have been obtained and all other
conditions to the parties' obligations to consummate the Merger and other
transactions contemplated hereby, as applied to such alternative business
combination, shall have been satisfied or waived.
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ARTICLE VIII
CONDITIONS
8.01 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER.
The respective obligation of each party to effect the Merger and other
transactions contemplated hereby is subject to the satisfaction or waiver, at or
prior to the Closing, of each of the following conditions:
(a) SHAREHOLDER APPROVAL. EUA Shareholders' Approval
shall have been obtained.
(b) HSR ACT. Any waiting period (and any extension
thereof) applicable to the consummation of the Merger under HSR shall have
expired or been terminated.
(c) INJUNCTIONS OR RESTRAINTS. No court of competent
jurisdiction or other competent Governmental Authority shall have enacted,
issued, promulgated, enforced or entered any law or order (whether temporary,
preliminary or permanent) which is then in effect and has the effect of making
illegal or otherwise restricting, preventing or prohibiting consummation of the
Merger or other transactions contemplated hereby.
(d) GOVERNMENTAL AND REGULATORY AND OTHER CONSENTS AND
APPROVALS. The NEES Required Statutory Approvals and EUA Required Statutory
Approvals shall have been obtained prior to the Effective Time, and shall have
become Final Orders (as hereinafter defined). The Final Orders shall not,
individually or in the aggregate, impose terms and conditions that (i) could
reasonably be expected to have an EUA Material Adverse Effect; (ii) could
reasonably be expected to have a NEES Material Adverse Effect; or (iii)
materially impair the ability of the parties to complete the Merger. The parties
shall have received Final Orders from the Massachusetts Department of
Telecommunications and Energy and the Rhode Island Public Utilities Commission
pertaining to the recovery of costs (including, without limitation, transaction
premium and integration costs) associated with the Merger that are materially
consistent with existing policy and previous orders of such agencies. "FINAL
ORDER" for all purposes of this Agreement means action by the relevant
regulatory authority which has not been reversed, stayed, enjoined, set aside,
annulled or suspended with respect to which any waiting period prescribed by law
before the Merger and other transactions contemplated hereby may be consummated
has expired, and as to which all conditions to be satisfied before the
consummation of such transactions prescribed by law, regulation or order have
been satisfied.
8.02 CONDITIONS TO OBLIGATION OF NEES AND LLC TO EFFECT THE MERGER.
The obligation of NEES and LLC to effect the Merger and other transactions
contemplated hereby is further subject to the satisfaction or waiver at or prior
to the Closing, of each of the following additional conditions (all or any of
which may be waived in whole or in part by NEES and LLC in the sole discretion):
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(a) REPRESENTATIONS AND WARRANTIES. The representations
and warranties made by EUA in this Agreement, in each case made as if none of
such representations or warranties contained any qualification or limitation as
to "materiality" or "EUA Material Adverse Effect", shall be true and correct as
so made as of the Closing Date as though so made on and as of the Closing Date,
except to the extent expressly given as of a specified date, except where the
failure of such representations and warranties to be true and correct as so
made does not have and could not reasonably be expected to have, individually or
in the aggregate, an EUA Material Adverse Effect, and EUA shall have delivered
to NEES a certificate, dated the Closing Date and executed in the name and on
behalf of EUA by its Chairman of the Board, President or any Executive or Senior
Vice President, to such effect.
(b) PERFORMANCE OF OBLIGATIONS. EUA shall have performed
and complied with, in all material respects, each agreement, covenant and
obligation required by this Agreement to be so performed or complied with by EUA
at or prior to the Closing, and EUA shall have delivered to NEES a certificate,
dated the Closing Date and executed in the name and on behalf of EUA by its
Chairman of the Board, President or any Executive or Senior Vice President, to
such effect.
(c) MATERIAL ADVERSE EFFECT. No EUA Material Adverse
Effect shall have occurred and there shall exist no facts or circumstances which
in the aggregate could reasonably be expected to have an EUA Material Adverse
Effect.
(d) EUA REQUIRED CONSENTS. All EUA Required Consents
shall have been obtained by EUA, except where the failure to receive such EUA
Required Consents could not reasonably be expected to (i) have an EUA Material
Adverse Effect, or (ii) delay or prevent the consummation of the Merger and
other transactions contemplated hereby.
8.03 CONDITIONS TO OBLIGATION OF EUA TO EFFECT THE MERGER. The
obligation of EUA to effect the Merger and other transactions contemplated
hereby is further subject to the satisfaction or waiver, at or prior to the
Closing, of each of the following additional conditions (all or any of which may
be waived in whole or in part by EUA in its sole discretion):
(a) REPRESENTATIONS AND WARRANTIES. The representations
and warranties made by NEES and LLC in SECTIONS 5.01, 5.02, 5.03, 5.04, 5.05,
5.07, 5.08 and 5.09 of this Agreement, in each case made as if none of such
representations or warranties contained any qualification or limitation as to
"materiality" or "NEES Material Adverse Effect," shall be tree and correct as so
made as of the Closing Date, except to the extent expressly given as of a
specified date and except where the failure of such representations and
warranties to be so true and correct as so made does not have and could not
reasonably be expected to have, individually or in the aggregate, a NEES
Material Adverse Effect or a material adverse effect on LLC, and NEES and LLC
shall each have delivered to EUA a certificate, dated the Closing Date and
executed in the name and on behalf of NEES by any director of NEES and in the
name and on behalf of LLC by a member of its management committee its Chairman
of the Board, President or any Executive or Senior Vice President to such
effect.
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(b) NEES REQUIRED CONSENTS. All NEES Required Consents
shall have been obtained by NEES, except where the failure to receive such NEES
Required Consents could not reasonably be expected to (i) have a NEES Material
Adverse Effect or (ii) delay or prevent the consummation of the Merger and other
transactions contemplated hereby.
(c) PERFORMANCE OF OBLIGATIONS. NEES and LLC shall have
performed and complied with, in all material respects, each agreement, covenant
and obligation required by this Agreement to be so performed or complied with by
NEES or LLC at or prior to the Closing, and NEES and LLC shall each have
delivered to EUA a certificate, dated the Closing Date and executed in the name
and on behalf of NEES by its Chairman of the Board, President or any Executive
or Senior Vice President, or on behalf of LLC by a member of its management
committee to such effect.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
9.01 TERMINATION. This Agreement may be terminated, and the Merger
and other transactions contemplated hereby may be abandoned, at any time prior
to the Effective Time, whether prior to or after EUA Shareholders' Approval
(except as otherwise provided in SECTION 9.01(c) below):
(a) By mutual written agreement of the Board of Directors
of NEES and Board of Trustees of EUA, respectively;
(b) By EUA or NEES, by written notice to the other, if
the Closing Date shall not have occurred on or before December 31, 1999 (the
"INITIAL TERMINATION DATE"); PROVIDED, HOWEVER, that the right to terminate the
Agreement under this Section 9.01(b) shall not be available to any party whose
failure to fulfill any obligation under this Agreement has been the cause of, or
resulted in, the failure of the Effective Time to occur on or before such date;
and PROVIDED, FURTHER, that if on the Initial Termination Date the conditions
to the Closing set forth in SECTION 8.01(d) shall not have been fulfilled but
all other conditions to the Closing shall be fulfilled or shall be capable of
being fulfilled, then the Initial Termination Date shall be extended for four
(4) months beyond the Initial Termination Date (the "EXTENDED TERMINATION
DATE");
(c) By NEES, by written notice to EUA, if EUA
Shareholders' Approval shall not have been obtained at a duly held meeting of
such Shareholders, including any adjournments thereof;
(d) By EUA or NEES, if any applicable state or federal
law or applicable law of a foreign jurisdiction or any order, rule or regulation
is adopted or issued that has the effect, as supported by the written opinion of
outside counsel for such party, of prohibiting the Merger or other transactions
contemplated hereby, or if any court of competent jurisdiction or any
Governmental Authority shall have issued a nonappealable final order, judgment
or ruling or
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taken any other action having the effect of permanently restraining, enjoining
or otherwise prohibiting the Merger or other transactions contemplated hereby
(provided that the fight to terminate this Agreement under this SECTION 9.01(d)
shall not be available to any party that has not defended such lawsuit or other
legal proceeding (including seeking to have any stay or temporary restraining
order entered by any court or other Governmental Authority vacated or
reversed)).
(e) By EUA upon ten (10) days' prior notice to NEES if
the Board of Trustees of EUA determines in good faith, that termination of this
Agreement is necessary for the Board of Trustees of EUA to act in a manner
consistent with its fiduciary duties to Shareholders under applicable law by
reason of an unsolicited Alliterative Proposal meeting the requirements of
clauses (A) and (B) of SECTION 7.08 having been made; PROVIDED that
(A) The Board of Trustees of EUA shall determine
based on advice of outside counsel with respect to the Board
of Trustees' fiduciary duties that notwithstanding a binding
commitment to consummate an agreement of the nature of this
Agreement entered into in the proper exercise of its
applicable fiduciary duties, and notwithstanding all
concessions which may be offered by NEES in negotiation
entered into pursuant to clause (B) below, it is necessary
pursuant to such fiduciary duties that the trustees
reconsider such commitment as a result of such Alternative
Proposal, and
(B) prior to any such termination, EUA shall,
and shall cause its respective financial and legal advisors
to, negotiate with NEES to make such adjustments in the terms
and conditions of this Agreement as would enable EUA to
proceed with the Merger or other transactions contemplated
hereby on such adjusted terms;
and PROVIDED FURTHER that EUA's ability to terminate this Agreement pursuant to
this SECTION 9.01(e) is conditioned upon the concurrent payment by EUA to NEES
of any amounts owed by it pursuant to SECTION 9.03(a);
(f) By EUA, by written notice to NEES, if (i) there shall
have been any material breach of any representation or warranty, or any material
breach of any covenant or agreement, of NEES hereunder (other than a breach
described in clause (ii)), and such breach shall not have been remedied within
twenty (20) days after receipt by NEES of notice in writing from EUA, specifying
the nature of such breach and requesting that it be remedied; or (ii) NEES shall
fail to deliver or cause to be delivered the amount of cash to the Paying Agent
required pursuant to Section 2.02(a) at a time when all conditions to NEES's
obligation to close have been satisfied or otherwise waived in writing by NEES.
(g) By NEES, by written notice to EUA, if (i) there shall
have been any material breach of any representation or warranty, or any material
breach of any covenant or agreement, of EUA hereunder, and such breach shall not
have been remedied within twenty (20)
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days after receipt by EUA of notice in writing from NEES, specifying the nature
of such breach and requesting that it be remedied; or (ii) the Board of Trustees
of EUA (A) shall withdraw or modify in any manner adverse to NEES its approval
of the Merger and other transactions contemplated hereby or its recommendation
to its shareholders regarding the approval of this Agreement, the Merger and
other transactions contemplated hereby, (B) shall approve or recommend or take
no position with respect to an Alter native Proposal or (C) shall resolve to
take any of the actions specified in clause (A) or (B).
9.02 EFFECT OF TERMINATION. If this Agreement is validly terminated
by either EUA or NEES pursuant to SECTION 9.01, this Agreement shall forthwith
become null and void and there shall be no liability or obligation on the part
of either EUA or NEES (or any of their respective Representatives or
affiliates), except that the provisions of this SECTION 9.02, SECTIONS 7.10,
7.11 and 7.13, SECTION 9.03 and SECTIONS 10.09 and 10.10 shall continue to apply
following any such termination.
9.03 TERMINATION FEES. (a) In the event that (i) this Agreement is
terminated by EUA pursuant to SECTION 9.01(e) or (ii) any person or group shall
have made an Alternative Proposal that has not been withdrawn and this Agreement
is terminated by (A) NEES pursuant to SECTION 9.01(c) or SECTION 9.01(g) or (B)
by EUA pursuant to SECTION 9.01(b) and, in the case of this clause (ii) only, a
definitive agreement with respect to such Alternative Proposal is executed
within two years after such termination, then EUA shall pay to NEES, by wire
transfer of same day funds, either on the date contemplated in SECTION 9.01(e)
if applicable, or otherwise, within five (5) business days after such
termination, a termination fee of $20 million, plus an amount equal to all
documented out-of-pocket expenses and fees incurred by NEES arising out of, or
in connection with or related to, the Merger and other transactions contemplated
hereby, not in excess of $5 million in the aggregate.
(b) In the event that this Agreement is terminated by
either NEES or EUA pursuant to SECTION 9.01(b) and at the time of such
termination (i) the conditions to the Closing set forth in SECTION 8.01(d)
shall not have been fulfilled, (ii) if the date of termination is any date other
than a date which is on or after the Extended Termination Date, all conditions
contained in Article VIII other than SECTIONS 8.01(d) or 8.03(c) shall have been
fulfilled or are capable of being fulfilled as of such date, and (iii) the
merger contemplated by the National Grid Merger Agreement has not yet been
consummated, then NEES shall pay to EUA, by wire transfer of same day funds,
within five (5) business days after such termination, a termination fee of $10
million, plus an amount equal to all documented out-of-pocket expenses and fees
incurred by EUA arising out of, or in connection with or related to, the Merger
and other transactions contemplated hereby, not in excess of $5 million in the
aggregate.
(c) NATURE OF FEES. The parties agree that the agreements
contained in this SECTION 9.03 are an integral part of the Merger and the other
transactions contemplated hereby and constitute liquidated damages and not a
penalty. The parties further agree that if any party is or becomes obligated to
pay a termination fee pursuant to SECTIONS 9.03(a) or (b), the right to receive
such termination fee shall be the sole remedy of the other party with respect to
the facts
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and circumstances giving rise to such payment obligation. If this Agreement is
terminated by a party as a result of a willful breach of a representation,
warranty, covenant or agreement by the other party, including a termination
pursuant to SECTION 9.01(f)(ii), the non-breaching party may pursue any remedies
available to it at law or in equity and shall be entitled to recover any
additional amounts thereunder. Notwithstanding anything to the contrary
contained in this SECTION 9.03, if one party fails to promptly pay to the other
any fee or expense due under this SECTION 9.03, in addition to any amounts paid
or payable pursuant to such Section, the defaulting party shall pay the costs
and expenses (including legal fees and expenses) in connection with any action,
including the filing of any lawsuit or other legal action, taken to collect
payment, together with interest on the amount of any unpaid fee at the publicly
announced prime rate of Citibank, N.A. from the date such fee was required to be
paid.
9.04 AMENDMENT. This Agreement may be amended, supplemented or
modified by action taken by or on behalf of the Board of Directors of NEES or
the Board of Trustees of EUA at any time prior to the Effective Time, whether
prior to or after EUA Shareholders' Approval shall have been obtained, but after
such adoption and approval only to the extent permitted by applicable law. No
such amendment, supplement or modification shall be effective unless set forth
in a written instrument duly executed and delivered by or on behalf of each
party hereto.
9.05 WAIVER. At any time prior to the Effective Time, NEES or EUA,
by action taken by or on behalf of its Board of Directors or Board of Trustees,
respectively, may to the extent permitted by applicable law (i) extend the time
for the performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties of the
other parties hereto contained herein or in any document delivered pursuant
hereto or (iii) waive compliance with any of the covenants, agreements or
conditions of the other parties hereto contained herein. No such extension or
waiver shall be effective unless set forth in a written instrument duly executed
by or on behalf of the party extending the time of performance or waiving any
such inaccuracy or non-compliance. No waiver by any party of any term or
condition of this Agreement, in any one or more instances, shall be deemed to be
or construed as a waiver of the same or any other term or condition of this
Agreement on any future occasion.
ARTICLE X
GENERAL PROVISIONS
10.01 NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS. The representations, warranties, covenants and agreements contained
in this Agreement or in any instrument delivered pursuant to this Agreement
shall not survive the Merger but shall terminate at the Effective Time, except
for the agreements contained in ARTICLE I and ARTICLE II, in SECTIONS 7.05,
7.06, 7.08, 7.09 and 7.10, this ARTICLE X which shall survive the Effective
Time.
10.02 NOTICES. All notices, requests and other communications
hereunder must be in writing and will be deemed to have been duly given only if
delivered personally or by facsimile
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transmission or sent by overnight courier (providing proof of delivery) to the
parties at the following addresses or facsimile numbers:
If to NEES or LLC, to:
New England Electric System
25 Research Drive
Westborough, MA 01582
Attn: Richard P. Sergel
President and Chief Executive Officer
Telephone: (508) 389-2764
Facsimile: (508) 366-5498
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, NY 10022
Attn: Sheldon S. Adler, Esq.
Telephone: (212) 735-3000
Facsimile: (212) 735-2000
If to EUA, to:
Eastern Utilities Associates
One Liberty Square
Boston, MA 02109
Attn: Donald G. Pardus
Chairman and Chief Executive Officer
Telephone: (617) 357-9590
Facsimile: (617) 357-7320
with a copy to:
Winthrop, Stimson, Putnam & Roberts
1 Battery Park Plaza
New York, NY 10004
Attn: David P. Falck
Telephone: (212) 858-1000
Facsimile: (212) 858-1500
All such notices, requests and other communications will (i) if
delivered personally to the address as provided in this Section, be deemed given
upon delivery, (ii) if
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delivered by facsimile transmission to the facsimile number as provided in this
Section, be deemed given when sent, provided that the facsimile is promptly
confirmed by telephone confirmation thereof, and (iii) if delivered by mail in
the manner described above to the address as provided in this Section, be deemed
given one business day after delivery (in each case regardless of whether such
notice, request or other communication is received by any other person to whom a
copy of such notice, request or other communication is to be delivered pursuant
to this Section). Any party from time to time may change its address, facsimile
number or other information for the purpose of notices to that party by giving
notice specifying such change to the other parties hereto.
10.03 ENTIRE AGREEMENT; INCORPORATION OF EXHIBITS. (a) This
Agreement supersedes all prior discussions and agreements, both written and
oral, among the parties hereto with respect to the subject matter hereof, other
than the Confidentiality Agreement, which shall survive the execution and
delivery of this Agreement in accordance with its terms, and contains, together
with the Confidentiality Agreement, the sole and entire agreement among the
parties hereto with respect to the subject matter hereof.
(b) The EUA Disclosure Letter, the NEES Disclosure Letter
and any Exhibit attached to this Agreement and referred to herein are hereby
incorporated herein and made a part hereof for all purposes as if fully set
forth herein.
10.04 NO THIRD PARTY BENEFICIARY. The terms and provisions of this
Agreement are intended solely for the benefit of each party hereto and their
respective successors or permitted assigns, and except as provided in Article II
and SECTIONS 7.04, 7.05(d)(ii) and 7.09 (which is intended to be for the benefit
of the persons entitled to therein, and may be enforced by any of such persons),
it is not the intention of the parties to confer third-party beneficiary rights
upon any other person.
10.05 NO ASSIGNMENT; BINDING EFFECT. Neither this Agreement nor any
right, interest or obligation hereunder may be assigned, in whole or in part, by
operation of law or otherwise, by any party hereto without the prior written
consent of the other parties hereto and any attempt to do so will be void,
except that LLC may assign any or all of its rights, interests and obligations
hereunder to another direct or indirect wholly owned Subsidiary of NEES,
PROVIDED that any such Subsidiary agrees in writing to be bound by all of the
terms, conditions and provisions contained herein and PROVIDED FURTHER that such
assignment (i) does not require a greater vote for EUA's Shareholder Approval,
(ii) does not require a subsequent vote following EUA's Shareholders Meeting, or
(iii) is not reasonably likely to materially delay or prevent EUA, LLC and NEES,
as appropriate, from obtaining EUA Required Statutory Approvals, EUA Required
Consents, EUA Shareholders' Approval, the NEES Required Shareholders' Approvals,
or the NEES Required Consents. Subject to the preceding sentence, this Agreement
is binding upon, inures to the benefit of and is enforceable by the parties
hereto and their respective successors and assigns.
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<PAGE> 108
10.06 HEADINGS. The headings used in this Agreement have been
inserted for convenience of reference only and do not define, modify or limit
the provisions hereof.
10.07 INVALID PROVISIONS. If any provision of this Agreement is held
to be illegal, invalid or unenforceable under any present or future law or
order, and if the rights or obligations of any party hereto under this Agreement
will not be materially and adversely affected thereby, (i) such provision will
be fully severable, (ii) this Agreement will be construed and enforced as if
such illegal, invalid or unenforceable provision had never comprised a part
hereof, and (iii) the remaining provisions of this Agreement will remain in full
force and effect and will not be affected by the illegal, invalid or
unenforceable provision or by its severance herefrom.
10.08 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Massachusetts.
10.09 ENFORCEMENT OF AGREEMENT. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement was not performed in accordance with its specified terms or was
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of competent
jurisdiction, this being in addition to any other remedy to which they are
entitled at law or in equity.
10.10 CERTAIN DEFINITIONS. As used in this Agreement:
(a) except as provided in SECTION 4.14, the term
"AFFILIATE," as applied to any person, shall mean any other person directly or
indirectly controlling, controlled by, or under common control with, that
person; for purposes of this definition, "CONTROL" (including, with correlative
meanings, the terms "CONTROLLING," "CONTROLLED BY" and "UNDER COMMON CONTROL
WITH"), as applied to any person, means the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of
that person, whether through the ownership of voting securities, by contract or
otherwise;
(b) a person will be deemed to "BENEFICIALLY" own
securities if such person would be the beneficial owner of such securities under
Rule 13d-3 under the Exchange Act, including securities which such person has
the right to acquire (whether such right is exercisable immediately or only
after the passage of time);
(c) the term "BUSINESS DAY" means a day other than
Saturday, Sunday or any day on which banks located in the Massachusetts are
authorized or obligated to close;
(d) the term "KNOWLEDGE" or any similar formulation of
"KNOWLEDGE" shall mean, with respect to any party hereto, the actual knowledge
after due inquiry of the executive officers of NEES and its Subsidiaries or EUA
and its Subsidiaries, respectively, set forth in SECTION 10.1l(d) of the NEES
Disclosure Letter or SECTION 10.1l(d) of the EUA Disclosure Letter; PROVIDED
THAT as used in SECTION 4.13 the term "knowledge" shall also include the
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<PAGE> 109
knowledge of the environmental, health and safety personnel of EUA;
(e) the term "PERSON" shall include individuals,
corporations, partnerships, trusts, limited liability companies, other entities
and groups (which term shall include a "GROUP" as such term is defined in
Section 13(d)(3) of the Exchange Act);
(f) the "REPRESENTATIVES" of any entity shall have the
same meaning as set forth in the Confidentiality Agreement;
(g) the term "SUBSIDIARY" means any corporation or other
entity, whether incorporated or unincorporated, in which such party directly or
indirectly owns at least a majority of the voting power represented by the
outstanding capital stock or other voting securities or interests having voting
power under ordinary circumstances to elect a majority of the directors or
similar members of the governing body, or otherwise to direct the management and
policies, or such corporation or entity.
10.11 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument and will become effective
when one or more counterparts have been signed by each party and delivered to
the other parties.
10.12 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING
TO THIS AGREEMENT OR THE TRANSACTION CONTEMPLATED HEREBY (WHETHER BASED ON
CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER
PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
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<PAGE> 110
IN WITNESS WHEREOF, each party hereto has caused this
Agreement to be signed by its officer thereunto duly authorized as of the date
first above written.
NEW ENGLAND ELECTRIC SYSTEM
By: /s/ Richard P. Sergel
------------------------------------
Name: Richard P. Sergel
Title: President and CEO
The name "New England Electric System" means the trustee or trustees for the
time being (as trustee or trustees but not personally) under an Agreement and
Declaration of Trust dated January 2, 1926, as amended, which is hereby referred
to, and a copy of which, as amended, has been filed with the Secretary of the
Commonwealth of Massachusetts. Any agreement, obligation, or liability made,
entered into, or incurred by or on behalf of New England Electric System binds
only its trust estate, and no shareholder , director, trustee, officer, or agent
thereof assumes or shall be held to any liability therefor.
EASTERN UTILITIES ASSOCIATES
By: /s/ Donald G. Pardus
------------------------------------
Name: Donald G. Pardus
Title: Chairman
The name "Eastern Utilities Associates" is the designation of the Trustees of
EUA for the time being in their collective capacity but not personally, under a
Declaration of Trust dated April 2, 1928, as amended, a copy of which amended
Declaration of Trust has been filed in the office of the Secretary of The
Commonwealth of Massachusetts and elsewhere as required by law; and all persons
dealing with EUA must look solely to the trust property for the enforcement of
any claim against EUA, as neither the Trustees nor the officers or shareholders
of EUA assume any personal liability for obligations entered into on behalf of
EUA.
RESEARCH DRIVE LLC
By: /s/ John G. Cochrane
------------------------------------
Name: John G. Cochrane
Title: Manager
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<PAGE> 111
ANNEX II
[SALOMON SMITH BARNEY LETTERHEAD]
February 1, 1999
Board of Trustees
Eastern Utilities Associates
One Liberty Square
Boston, Massachusetts 02109
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of the common shares of Eastern Utilities Associates
("EUA") of the consideration to be received by such holders pursuant to the
terms and subject to the conditions set forth in the Agreement and Plan of
Merger, dated as of February 1, 1999 (the "Merger Agreement"), by and among New
England Electric System ("NEES"), Research Drive LLC, a wholly owned subsidiary
of NEES ("LLC"), and EUA. As more fully described in the Merger Agreement, (i)
LLC will be merged with and into EUA (the "Merger") and (ii) each outstanding
common share of EUA (the "EUA Shares") will be converted into the right to
receive $31.00 in cash (the "Merger Consideration"), subject to adjustment as
specified in the Merger Agreement.
In arriving at our opinion, we reviewed the Merger Agreement and held
discussions with certain senior officers, directors and other representatives
and advisors of EUA and certain senior officers and other representatives and
advisors of NEES concerning the business, operations and prospects of EUA and
its subsidiaries. We examined certain publicly available business and financial
information relating to, as well as certain financial forecasts and other
information and data for, EUA and its subsidiaries which were provided to or
otherwise discussed with us by the management of EUA. We reviewed the financial
terms of the Merger as set forth in the Merger Agreement in relation to, among
other things: current and historical market prices and trading volumes of EUA
Shares; the historical and projected earnings and other operating data of EUA
and its subsidiaries; and the capitalization and financial condition of EUA and
its subsidiaries. We considered, to the extent publicly available, the financial
terms of other transactions recently effected which we considered relevant in
evaluating the Merger and analyzed certain financial, stock market and other
publicly available information relating to the businesses of other companies
whose operations we considered relevant in evaluating those of EUA. In addition
to the foregoing, we conducted such other analyses and examinations and
considered such other financial, economic and market criteria as we deemed
appropriate in arriving at our opinion.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information and data publicly available or furnished to or otherwise reviewed by
or discussed with us. With respect to financial forecasts and other information
and data provided to or otherwise reviewed by or discussed with us, we have been
advised by the management of EUA that such forecasts and other information and
data were reasonably prepared reflecting the best currently available estimates
and judgments of the management of EUA as to the future financial performance of
EUA and its subsidiaries. We have not made or been provided with an independent
evaluation or appraisal of the assets or liabilities (contingent or otherwise)
of EUA or its subsidiaries nor have we made any physical inspection of the
properties or assets of EUA or its subsidiaries. In connection with our
engagement, we were not requested to, and we did not, solicit third party
indications of interest in all or a part of EUA. We were requested, however, in
connection with prior financial advisory services to EUA to solicit third party
indications of interest in Cogenex Corporation, a subsidiary of EUA. We were not
requested to consider, and our opinion does not address, the relative merits of
the Merger as compared to any alternative business strategies that might exist
for EUA or its subsidiaries or the effect of any other transaction in which EUA
or its subsidiaries might engage. Our opinion is necessarily based upon
information available to us, and financial, stock market and other conditions
and circumstances existing and disclosed to us, as of the date hereof.
<PAGE> 112
[SALOMON SMITH BARNEY LETTERHEAD]
The Board of Trustees
Eastern Utilities Associates
February 1, 1999
Page 2
Salomon Smith Barney Inc. has been engaged to render financial advisory services
to EUA in connection with the Merger and will receive a fee for such services, a
significant portion of which is contingent upon consummation of the Merger. We
also will receive a fee upon the delivery of this opinion. In the ordinary
course of our business, we and our affiliates may actively trade or hold the
securities of EUA and NEES for our own account or for the account of our
customers and, accordingly, may at any time hold a long or short position in
such securities. We have in the past provided investment banking services to EUA
unrelated to the proposed Merger, for which services we have received
compensation. In addition, we and our affiliates (including Citigroup Inc. and
its affiliates) may maintain relationships with EUA, NEES and their respective
affiliates.
Our advisory services and the opinion expressed herein are provided for the
information of the Board of Trustees of EUA in its evaluation of the proposed
Merger, and our opinion is not intended to be and does not constitute a
recommendation to any shareholder as to how such shareholder should vote on the
proposed Merger. Our opinion may not be published or otherwise used or referred
to, nor shall any public reference to Salomon Smith Barney Inc. be made, without
our prior written consent.
Based upon and subject to the foregoing, our experience as investment bankers,
our work as described above and other factors we deemed relevant, we are of the
opinion that, as of the date hereof, the Merger Consideration is fair, from a
financial point of view, to the holders of EUA Shares.
Very truly yours,
/s/ Salomon Smith Barney Inc.
- ----------------------------------
SALOMON SMITH BARNEY, INC.
<PAGE> 113
DETACH HERE
EASTERN UTILITIES ASSOCIATES
THIS PROXY IS SOLICITED ON BEHALF OF THE TRUSTEES
The undersigned hereby constitutes and appoints Paul J. Choquette, 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 April 14, 1999, with all the powers which the
undersigned would possess if then and there present, at the Annual Meeting of
the shareholders of EUA to be held in the Board Room on the 33rd floor of the
State Street and Bank Trust Company, 225 Franklin Street, Boston, Massachusetts,
on Monday, May 17, 1999 at 9:30 A.M. local time, and at any and all adjournments
thereof, and especially (but without limiting the general authorization hereby
given) to vote at said Annual Meeting (1) as hereinafter specified by the
undersigned on the proposal listed on the reverse side 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 REVERSE SIDE) SEE REVERSE SIDE
<PAGE> 114
DETACH HERE
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR ITEM 1 AND FOR THE ELECTION OF ALL OF THE NOMINEES LISTED BELOW IN
ITEM 2.
1. PROPOSAL ON APPROVAL AND ADOPTION OF MERGER AGREEMENT WITH NEW ENGLAND
ELECTRIC SYSTEM:
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
2. ELECTION OF TRUSTEES
NOMINEES: R.A. Boss, P.J. Choquette, 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. Thomdike.
FOR WITHHELD
ALL FROM ALL
NOMINEES [ ] NOMINEES [ ]
- --------------------------------------------------------------------------------
Withhold vote from the nominees that I/we have written on the above line,
or cumulate votes as I/we have instructed on the above line.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
Please sign exactly as your name appears. When shares are held 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:____________________
