<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
ESSEX COUNTY GAS COMPANY
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(l) 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:
- --------------------------------------------------------------------------------
[X] 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:
- --------------------------------------------------------------------------------
As filed with the Commission on May 8, 1998.
<PAGE> 2
[ESSEX COUNTY GAS COMPANY LOGO]
May 8, 1998
Dear Stockholders:
You are cordially invited to attend a Special Meeting (the "Special
Meeting") of Stockholders of Essex County Gas Company ("Essex County"), which
will be held on Wednesday, June 24, 1998, at the offices of State Street Bank,
225 Franklin Street (33rd Floor), Boston, Massachusetts. The meeting will start
at 10:00 a.m., Eastern Standard Time.
At this important meeting, you will be asked to approve the Agreement and
Plan of Merger, dated as of December 19, 1997 ("Merger Agreement") with Eastern
Enterprises ("Eastern"). Under the terms of the Merger Agreement, one share of
Essex County common stock will be exchanged for 1.183985 shares of Eastern
common stock, provided that adjustments in the exchange ratio will be made to
assure that the market value of the Eastern common stock to be received in
respect of each share of Essex County common stock is not less than $45 or more
than $50, based upon the average market price of Eastern common stock during a
specified period prior to closing.
The Essex County Board of Directors concluded, after careful consideration
of various options, that approval of the Merger Agreement represents the best
alternative available to Essex County stockholders. The enclosed Proxy
Statement/Prospectus describes in detail the background and reasons for your
Board of Directors' approval of the Merger Agreement.
Your Board of Directors has received the written opinion of its financial
advisor, Furman Selz LLC, that, as of the date of the Proxy Statement/Prospectus
and based on certain factors and assumptions, the exchange ratio in the Merger
Agreement is fair to the holders of Essex County common stock.
YOUR BOARD OF DIRECTORS HAS CAREFULLY REVIEWED AND CONSIDERED THE TERMS AND
CONDITIONS OF THE MERGER AGREEMENT, BELIEVES THAT THEY ARE IN THE BEST INTERESTS
OF ESSEX COUNTY AND ITS STOCKHOLDERS, AND, BY A UNANIMOUS VOTE OF THE DIRECTORS,
HAS APPROVED THE MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL
OF THE MERGER AGREEMENT.
Approval of the Merger Agreement by the stockholders of Essex County is a
condition to consummation of the transaction. The transaction is expected to
close by mid 1998, subject to the receipt of required regulatory approvals.
At the meeting, you will also be asked to consider and vote upon nominees
for the Board of Directors of Essex County and the adoption of a performance and
equity incentive plan for Essex County. The nominees will become directors and
the proposed equity incentive plan will remain in effect until the anticipated
consummation of the merger with Eastern.
Your vote is important no matter how many shares you hold. Even if you plan
to attend the meeting, we urge you to mark, sign and date the enclosed proxy and
return it promptly. You have the option to revoke it at any time, or to vote
your shares personally on request if you attend the meeting. For the Merger
Agreement to be approved, it must have the support of two-thirds of the votes
entitled to be cast by the outstanding shares of Essex County common stock.
PLEASE RETURN YOUR SIGNED PROXY CARD. IF YOU DO NOT RETURN THE PROXY CARD
AND DO NOT VOTE AT THE MEETING, IT WILL HAVE THE SAME EFFECT AS IF YOU VOTED
AGAINST THE MERGER AGREEMENT.
<PAGE> 3
You are urged to review carefully the attached Proxy Statement/Prospectus,
which contains a detailed description of the Merger Agreement.
As soon as practicable after the merger, a letter of transmittal will be
mailed to each holder of record of shares of Essex County common stock. PLEASE
DO NOT SEND YOUR ESSEX COUNTY COMMON STOCK CERTIFICATES WITH THE ENCLOSED PROXY.
THE LETTER OF TRANSMITTAL TO BE MAILED TO YOU LATER WILL INCLUDE INSTRUCTIONS AS
TO THE PROCEDURE TO BE USED IN SENDING IN YOUR ESSEX COUNTY COMMON STOCK
CERTIFICATES.
If you have any questions or need further assistance, please call Ms. Cathy
E. Brown, Clerk, at (978) 556-1323.
Sincerely,
Charles E. Billups
Chairman of the Board
<PAGE> 4
[ESSEX COUNTY GAS COMPANY LOGO]
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 24, 1998
To the Stockholders of Essex County Gas Company:
The Special Meeting of Stockholders (the "Special Meeting") of Essex County
Gas Company, a Massachusetts corporation ("Essex County"), will be held on
Wednesday, June 24, 1998 at 10:00 a.m., Eastern Standard Time, at the offices of
State Street Bank, 225 Franklin Street (33rd Floor), Boston, Massachusetts, for
the following purposes:
1. To consider and vote upon a proposal to approve an Agreement and
Plan of Merger, dated as of December 19, 1997 (the "Merger Agreement") by
and between Essex County and Eastern Enterprises, a Massachusetts business
trust ("Eastern"), providing for the merger (the "Merger") of a
Massachusetts corporation to be formed by and to be the wholly owned
subsidiary of Eastern ("Merger Sub") with and into Essex County, as a
result of which Essex County will be the surviving corporation and each
share of common stock, no par value, of Essex County ("Essex County Common
Stock") issued and outstanding at the effective time of the Merger will be
converted into 1.183985 shares of the common stock, par value $1.00 per
share (including the attached rights), of Eastern ("Eastern Common Stock")
provided that, if the Market Value (as defined herein) of 1.183985 shares
of Eastern Common Stock is less than $45 per share, then each such share of
Essex County Common Stock shall be converted into the right to receive the
number of shares of Eastern Common Stock having a Market Value equal to
$45, and if the Market Value of 1.183985 shares of Eastern Common Stock is
more than $50 per share, then each such share of Essex County Common Stock
shall be converted into the right to receive the number of shares of
Eastern Common Stock having a Market Value equal to $50. Information
concerning the Merger Agreement and the transactions contemplated thereby
is set forth in the accompanying Proxy Statement/Prospectus. A copy of the
Merger Agreement is included as Annex A to the accompanying Proxy
Statement/ Prospectus.
2. To elect a Board of Directors to hold office until the Annual
Meeting of Stockholders in 1999 or until their successors are elected and
qualified.
3. To adopt the 1997 Performance and Equity Incentive Plan.
4. To transact such other business as may properly come before the
Special Meeting or any adjournment(s) thereof.
The Board of Directors has fixed the close of business on May 6, 1998 as
the record date for the determination of holders of Essex County Common Stock
entitled to notice of, and to vote at, the Special Meeting or any adjournment(s)
thereof. Only holders of record of shares of Essex County Common Stock at the
close of business on the record date are entitled to notice of, and to vote at,
the Special Meeting. If you have shares registered in the name of a brokerage
firm or trustee and plan to attend the Special Meeting, please obtain from the
firm or trustee a letter, account statement or other evidence of your beneficial
ownership of those shares to facilitate your admittance to the meeting.
Under applicable law, appraisal rights do not apply to the holders of Essex
County Common Stock in connection with the transactions contemplated by the
Merger Agreement.
YOUR VOTE IS IMPORTANT. The affirmative vote of the holders of at least
two-thirds of the outstanding shares of Essex County Common Stock is required
for approval of the Merger Agreement. Even if you plan to attend the Special
Meeting in person, please sign and return the enclosed proxy card to ensure that
your shares will be represented at the Special Meeting if you are unable to
attend. If you do attend the Special Meeting and wish to vote in person, you may
withdraw your proxy and vote in person.
By Order of the Board of Directors
Cathy E. Brown
Clerk
<PAGE> 5
YOUR VOTE IS IMPORTANT
Your vote is important, regardless of the number of shares you own, and is
necessary to ensure a quorum for the Special Meeting. Therefore, whether you
expect to attend the Special Meeting in person or not, please mark, date, sign,
and return your proxy card promptly in the enclosed postage-paid envelope. This
will also help expedite the counting of votes. If you attend the Special Meeting
and prefer to vote in person, you may revoke your proxy.
<PAGE> 6
ESSEX COUNTY GAS COMPANY
PROXY STATEMENT
------------------------
EASTERN ENTERPRISES
PROSPECTUS
This Proxy Statement/Prospectus relates to the Agreement and Plan of
Merger, dated as of December 19, 1997 (the "Merger Agreement"), by and between
Essex County Gas Company, a Massachusetts corporation ("Essex County"), and
Eastern Enterprises, a Massachusetts business trust ("Eastern"). Under the
Merger Agreement, and subject to the terms and conditions thereof, a
Massachusetts corporation to be formed by and to be a wholly owned subsidiary of
Eastern ("Merger Sub") will merge with and into Essex County (the "Merger"),
with Essex County being the surviving corporation (the "Surviving Company").
In the Merger, each share of common stock, no par value, of Essex County
("Essex County Common Stock") issued and outstanding at the effective time of
the Merger (other than shares owned by Essex County, Eastern or any of their
respective subsidiaries, which will be canceled) will be converted into 1.183985
shares of common stock, par value $1.00 per share (including the attached
rights), of Eastern ("Eastern Common Stock"), provided that, if the Market Value
(as defined herein) of 1.183985 shares of Eastern Common Stock is less than $45
per share, then each such share of Essex County Common Stock shall be converted
into the right to receive the number of shares of Eastern Common Stock having a
Market Value equal to $45, and if the Market Value of 1.183985 shares of Eastern
Common Stock is more than $50 per share, then each such share of Essex County
Common Stock shall be converted into the right to receive the number of shares
of Eastern Common Stock having a Market Value equal to $50. Assuming a
conversion ratio of 1.183985, the Merger will result in former Essex County
stockholders holding approximately 2,043,000 shares of Eastern Common Stock,
representing approximately 9% of all outstanding shares of Eastern Common Stock
following consummation of the Merger giving effect to the shares to be issued in
the Merger and based on the number of shares of Eastern Common Stock outstanding
as of the date of this Proxy Statement/Prospectus.
This Proxy Statement/Prospectus is being furnished to holders of Essex
County Common Stock in connection with the solicitation of proxies by the Board
of Directors of Essex County (the "Essex County Board") for use at the Special
Meeting of Stockholders of Essex County to be held on June 24, 1998, or at any
adjournments or postponements thereof, to approve the Merger Agreement and
certain other matters (the "Special Meeting"). This Proxy Statement/Prospectus
and the accompanying form of proxy are first being mailed to stockholders of
Essex County on or about May 11, 1998.
This Proxy Statement/Prospectus also constitutes a prospectus of Eastern
with respect to the shares of Eastern Common Stock to be issued in the Merger in
exchange for shares of Essex County Common Stock outstanding at the effective
time of the Merger.
Eastern Common Stock is currently traded on the New York Stock Exchange,
Inc. (the "NYSE"), the Pacific Stock Exchange, Inc. (the "PSE") and the Boston
Stock Exchange, Inc. (the "BSE").
NEITHER THE MERGER NOR THE SECURITIES TO BE ISSUED IN THE MERGER HAVE BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Proxy Statement/Prospectus is May 8, 1998.
<PAGE> 7
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS IN
CONNECTION WITH THE SOLICITATION OF PROXIES OR THE OFFERING OF SECURITIES MADE
HEREBY, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY ESSEX COUNTY OR EASTERN. NEITHER THE
DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF THE
SECURITIES OFFERED HEREBY SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF ESSEX COUNTY OR EASTERN SINCE
THE DATE HEREOF OR THAT THE INFORMATION SET FORTH OR INCORPORATED BY REFERENCE
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO PURCHASE, ANY SECURITIES, OR THE SOLICITATION OF A PROXY, IN ANY
JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION OF AN OFFER OR PROXY SOLICITATION.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE CERTAIN DOCUMENTS
CONCERNING ESSEX COUNTY AND EASTERN THAT ARE NOT PRESENTED HEREIN OR DELIVERED
HEREWITH. ESSEX COUNTY AND EASTERN EACH UNDERTAKES TO PROVIDE COPIES OF SUCH
DOCUMENTS (OTHER THAN EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE
SPECIFICALLY INCORPORATED BY REFERENCE), WITHOUT CHARGE, TO ANY PERSON,
INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS PROXY STATEMENT/PROSPECTUS IS
DELIVERED, UPON WRITTEN OR ORAL REQUEST, IN THE CASE OF ESSEX COUNTY, TO ESSEX
COUNTY GAS COMPANY, 7 NORTH HUNT ROAD, AMESBURY, MASSACHUSETTS 01913, ATTENTION:
MS. CATHY E. BROWN, CLERK, (978) 556-1323, AND IN THE CASE OF EASTERN
ENTERPRISES, TO EASTERN ENTERPRISES, 9 RIVERSIDE ROAD, WESTON, MASSACHUSETTS
02193, ATTENTION: L. WILLIAM LAW, JR., ESQ., SECRETARY, (781) 647-2300. IN ORDER
TO ENSURE DELIVERY OF DOCUMENTS PRIOR TO THE SPECIAL MEETING, REQUESTS SHOULD BE
RECEIVED BY JUNE 17, 1998.
This Proxy Statement/Prospectus does not cover any resale of the securities
to be received by stockholders upon consummation of the Merger and no person is
authorized to make any use of this Proxy Statement/Prospectus in connection with
any such resale.
2
<PAGE> 8
AVAILABLE INFORMATION
Essex County and Eastern are subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, file reports and other information with the Securities and
Exchange Commission (the "Commission"). Reports, proxy statements and other
information filed by Essex County and Eastern can be inspected and copied at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's Regional Offices at Seven
World Trade Center, Suite 1300, New York, New York 10048 and CitiCorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of
such material can be obtained by mail from the Public Reference Section of the
Commission at 450 West Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. In addition, reports, proxy statements and other information concerning
Essex County may be inspected at the offices of the Nasdaq Stock Market
("Nasdaq"), 33 Whitehall Street, New York, New York 10004, and such material and
other information concerning Eastern can be inspected at the offices of the
NYSE, 20 Broad Street, New York, New York 10005, the PSE, 301 Pine Street, San
Francisco, California 94104, or the BSE, One Boston Place, Boston, Massachusetts
02108. Certain of such reports, proxy statements and other information filed by
Essex County or Eastern are also available on the Internet at the Commission's
world wide web site at http://www.sec.gov.
Eastern has filed with the Commission a Registration Statement on Form S-4
(together with all amendments, supplements and exhibits thereto, the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Eastern Common Stock to be issued in the
Merger. The information contained herein with respect to Eastern and its
affiliates, including Merger Sub, has been provided by Eastern, and the
information contained herein with respect to Essex County and its affiliates has
been provided by Essex County. This Proxy Statement/Prospectus does not contain
all of the information set forth in the Registration Statement, certain parts of
which have been omitted in accordance with the rules and regulations of the
Commission. For further information, reference is hereby made to the
Registration Statement, copies of which may be obtained from the Commission as
set forth above. Any statements contained herein concerning the provisions of
any document filed as an exhibit to the Registration Statement or otherwise
filed with the Commission are not necessarily complete, and, in each instance,
reference is made to the copy of such document so filed. Each such statement is
qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by Essex County with the Commission pursuant
to the Exchange Act are incorporated herein by reference:
(a) Annual Report on Form 10-K for the fiscal year ended August 31,
1997, as amended.
(b) Quarterly Report on Form 10-Q for the quarter ended November 30,
1997, as amended.
(c) Current Report on Form 8-K dated January 9, 1998.
(d) Quarterly Report on Form 10-Q for the quarter ended February 28,
1998.
The following documents filed by Eastern with the Commission pursuant to
the Exchange Act are incorporated herein by reference:
(a) Annual Report on Form 10-K for the fiscal year ended December 31,
1997.
(b) Quarterly Report on Form 10-Q for the quarter ended March 31,
1998.
(c) The description of Eastern's capital stock contained in its Form
8, Commission File No. 1-2297, filed on May 23, 1991, amending its
Registration Statement on Form 8-A dated November 6, 1950.
All documents filed by Essex County or Eastern pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Proxy
Statement/Prospectus and prior to the date of the Special Meeting shall be
deemed to be incorporated by reference herein and to be a part hereof from the
date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Proxy Statement/Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document that also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Proxy Statement/Prospectus.
3
<PAGE> 9
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
AVAILABLE INFORMATION....................................... 3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. 3
SUMMARY..................................................... 7
The Companies............................................. 7
The Special Meeting....................................... 8
No Vote Required For Eastern Stockholders................. 8
The Merger and the Merger Agreement....................... 8
Comparative Rights Of Essex County And Eastern
Stockholders........................................... 13
Market Price And Dividend Information..................... 14
Selected Historical Financial Information Of Essex
County................................................. 15
Selected Historical Financial Information Of Eastern...... 16
Selected Unaudited Pro Forma Combined Condensed Financial
Data................................................... 17
Comparative Per Share Data................................ 21
FORWARD-LOOKING STATEMENTS.................................. 23
THE COMPANIES............................................... 24
Essex County.............................................. 24
Eastern................................................... 24
Merger Sub................................................ 24
THE SPECIAL MEETING......................................... 24
Purpose of the Special Meeting............................ 24
Date, Place and Time; Record Date......................... 25
Voting Rights............................................. 25
Proxies................................................... 25
VOTING PROCEDURES FOR PARTICIPANTS IN ESSEX COUNTY'S
EMPLOYEE BENEFIT PLANS.................................... 26
NO VOTE REQUIRED FOR EASTERN STOCKHOLDERS................... 26
THE MERGER (PROPOSAL 1)..................................... 26
General Description of the Merger......................... 26
Background of the Merger.................................. 26
Reasons for the Merger; Recommendation of the Essex County
Board of Directors..................................... 28
Opinion of Essex County Financial Advisor................. 28
Interests of Certain Persons in the Merger................ 33
Federal Income Tax Consequences........................... 34
Governmental and Regulatory Approvals..................... 35
Restrictions on Resales by Essex County Affiliates........ 36
Accounting Treatment...................................... 36
Appraisal Rights.......................................... 36
</TABLE>
4
<PAGE> 10
<TABLE>
<CAPTION>
PAGE
<S> <C>
THE MERGER AGREEMENT........................................ 36
Closing; Effective Time of the Merger..................... 36
Manner and Basis of Converting Shares..................... 37
Treatment of Fractional Interests......................... 38
Conditions to the Merger.................................. 38
Representations and Warranties............................ 39
Certain Covenants; Conduct of Business Prior to the
Effective Time......................................... 40
No Solicitation........................................... 40
Employee Benefit Matters.................................. 41
Stock Plans and Stock Options............................. 41
Board of Trustees and Management of Eastern Following the
Merger................................................. 42
Amendment................................................. 42
Termination of the Merger Agreement....................... 42
Expenses and Termination Fee.............................. 43
Indemnification........................................... 44
MARKET PRICE AND DIVIDEND INFORMATION....................... 45
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION.......... 46
PRINCIPAL STOCKHOLDERS OF ESSEX COUNTY AND EASTERN.......... 55
DESCRIPTION OF EASTERN CAPITAL STOCK........................ 56
General................................................... 56
Authorized and Outstanding Capital Stock.................. 56
Common Stock Purchase Rights.............................. 56
Massachusetts Law and Certain Charter and By-Law
Provisions; Anti-Takeover Effects...................... 58
Transfer Agent and Registrar.............................. 60
MANAGEMENT AND OTHER INFORMATION............................ 60
COMPARATIVE RIGHTS OF ESSEX COUNTY AND EASTERN
STOCKHOLDERS.............................................. 60
Authorized Capital Stock.................................. 60
Boards of Directors....................................... 61
Removal of Directors...................................... 61
Special Meetings of Stockholders; Stockholder Action
Without Meeting........................................ 61
Stockholder Proposals and Nominations..................... 62
Dissenters' Rights........................................ 62
Charter Amendments........................................ 63
Dividends and Stock Repurchases........................... 63
Fair Price Charter Provisions............................. 63
Business Combination Statutes............................. 64
Control Share Statute..................................... 65
Proper Factors for Consideration in Evaluating Business
Combinations........................................... 65
Form of Consideration for Capital Stock................... 65
Limitation of Director Liability.......................... 66
Indemnification........................................... 66
</TABLE>
5
<PAGE> 11
<TABLE>
<CAPTION>
PAGE
<S> <C>
ELECTION OF DIRECTORS (PROPOSAL 2).......................... 67
Information About Nominees................................ 67
Nominees for Director..................................... 67
Board of Directors and Committees......................... 68
Directors' Compensation................................... 68
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 70
COMPENSATION OF EXECUTIVE OFFICERS.......................... 71
Cash Compensation......................................... 71
SUMMARY COMPENSATION TABLE.................................. 71
Employee Plans and Agreements............................. 71
COMPENSATION COMMITTEE REPORT OF EXECUTIVE COMPENSATION..... 73
COMPARATIVE TOTAL STOCKHOLDER RETURN........................ 74
ADOPTION OF 1997 PERFORMANCE AND EQUITY INCENTIVE PLAN
(PROPOSAL 3).............................................. 75
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION............................................. 77
CERTAIN TRANSACTIONS........................................ 77
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE..... 77
INDEPENDENT PUBLIC ACCOUNTANTS.............................. 77
EXPENSES.................................................... 77
STOCKHOLDER PROPOSALS....................................... 77
LEGAL MATTERS............................................... 78
EXPERTS..................................................... 78
OTHER MATTERS............................................... 78
ANNEXES:
A -- Agreement and Plan of Merger........................... A-1
B -- Furman Selz, LLC Fairness Opinion...................... B-1
C -- 1997 Performance and Equity Incentive Plan............. C-1
</TABLE>
6
<PAGE> 12
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement/Prospectus. Reference is made to, and this summary is
qualified in its entirety by, the more detailed information contained in or
incorporated by reference in this Proxy Statement/Prospectus, including the
Merger Agreement and the fairness opinion of Furman Selz, LLC ("Furman Selz")
delivered to the Essex County Board on December 19, 1997 (the "Furman Selz
Opinion"), which are included as Annex A and B, respectively, to this Proxy
Statement/Prospectus. Stockholders are urged to read carefully this Proxy
Statement/Prospectus and the Annexes hereto in their entirety.
THE COMPANIES
ESSEX COUNTY
Essex County, a regulated public utility organized under the laws of the
Commonwealth of Massachusetts in 1853, purchases, distributes and sells natural
gas to residential, commercial and light industrial customers in northeastern
Massachusetts. Essex County operates in the cities of Haverhill, Newburyport,
and Amesbury and fourteen other smaller municipalities covering an area of
approximately 280 square miles. The year-round population of Essex County's
service area was approximately 165,000 in the 1990 Census. Essex County's
service area is primarily comprised of residential communities with a number of
small commercial and diversified light industrial businesses.
Essex County's principal executive offices are located at 7 North Hunt
Road, Amesbury, Massachusetts 01913, and its telephone number is (978) 556-1323.
EASTERN
Eastern is an unincorporated voluntary association formed under the laws of
the Commonwealth of Massachusetts or "Massachusetts business trust" established
and existing under the Declaration of Trust, dated July 18, 1929, as amended
from time to time (the "Eastern Charter").
Eastern's principal subsidiaries are Boston Gas Company ("Boston Gas") and
Midland Enterprises Inc. ("Midland"). Boston Gas is a regulated utility that
distributes natural gas in and around Boston, Massachusetts. Midland is engaged
in barge transportation, principally on the Ohio River and Mississippi River
systems. Eastern provides management and staff services to Boston Gas and
Midland.
Boston Gas is engaged in the transportation and sale of natural gas to
approximately 530,000 residential, commercial, and industrial customers in
Boston, Massachusetts and 73 other communities in eastern and central
Massachusetts. Boston Gas also sells natural gas for resale in Massachusetts.
Boston Gas has been in business for 175 years and is the second oldest gas
company in the United States. Since 1929, all of the common stock of Boston Gas
has been owned by Eastern.
Midland, through its wholly owned subsidiaries, is engaged in the operation
of a fleet of barges and towboats, principally on the Ohio River and the
Mississippi River and their tributaries, the Gulf Intracoastal Waterway and the
Gulf of Mexico. Midland transports dry bulk commodities, a major portion of
which is coal. Midland also performs repair work on marine equipment, and
operates two coal dumping terminals, a phosphate rock and phosphate chemical
fertilizer terminal and a marine fuel supply facility.
Eastern's principal executive offices are located at 9 Riverside Road,
Weston, Massachusetts 02193, and its telephone number is (781) 647-2300.
MERGER SUB
Merger Sub will be organized as a gas utility company under the laws of the
Commonwealth of Massachusetts, and will be a wholly owned subsidiary of Eastern
formed solely for the purpose of the Merger. Merger Sub's principal executive
offices will be located at 9 Riverside Road, Weston, Massachusetts 02193, and
its telephone number will be (781) 647-2300.
7
<PAGE> 13
THE SPECIAL MEETING
GENERAL
The Special Meeting will be held on Wednesday, June 24, 1998, at the
offices of State Street Bank and Trust Company, 225 Franklin Street (33rd
floor), Boston, Massachusetts commencing at 10:00 a.m. Eastern Standard Time.
The purpose of the Special Meeting is to consider and vote upon (i) a proposal
to approve the Merger Agreement, (ii) the election of members of the Board of
Directors of Essex County to hold office until the Annual Meeting of
Stockholders of Essex County in 1999 or until their successors are elected and
qualified, (iii) the adoption of the Essex County 1997 Performance and Equity
Incentive Plan (the "1997 Plan"), and (iv) such other matters as may properly be
brought before the Special Meeting. Only holders of record of shares of Essex
County Common Stock at the close of business on May 6, 1998 (the "Record Date")
are entitled to notice of, and to vote at, the Special Meeting. On the Record
Date, 1,725,225 shares of Essex County Common Stock were issued and outstanding.
Each stockholder of record on the Record Date will be entitled to one vote for
each share of Essex County Common Stock on each matter to be acted upon at the
Special Meeting.
QUORUM; VOTE REQUIRED
The presence, in person or by proxy, at the Special Meeting of the holders
of a majority of the shares of Essex County Common Stock outstanding and
entitled to vote is necessary to constitute a quorum at the meeting. The
affirmative vote of the holders of at least two-thirds of the shares of Essex
County Common Stock outstanding and entitled to vote thereon at the Special
Meeting is required under Section 96 of Chapter 164 of the Massachusetts General
Laws (the "MGL") to approve the Merger Agreement. Under Massachusetts law and
the By-laws of Essex County (the "Essex County By-laws"), a favorable vote by a
majority of shares of Essex County Common Stock represented and entitled to vote
on the directors is required to elect the directors, and a favorable vote by a
majority of shares of Essex County Common Stock represented and entitled to vote
is required to adopt the 1997 Plan.
SECURITY OWNERSHIP OF MANAGEMENT
As of the Record Date, the directors and executive officers of Essex County
and their affiliates owned approximately 5.5% of the outstanding shares of Essex
County Common Stock entitled to vote at the Special Meeting. The affirmative
vote of the holders of at least two-thirds of the shares of Essex County Common
Stock outstanding and entitled to vote thereon at the Special Meeting is
required under Chapter 164 of the MGL to approve the Merger Agreement. Each of
the directors and executive officers of Essex County has advised Essex County
that he or she plans to vote or to direct the vote of all such shares of Essex
County Common Stock entitled to vote thereon in favor of approval of the Merger
Agreement.
NO VOTE REQUIRED FOR EASTERN STOCKHOLDERS
Under applicable law, no approval of the Merger Agreement or the
transactions contemplated thereby is required by Eastern's stockholders and no
proxies are being solicited from Eastern's stockholders.
THE MERGER AND THE MERGER AGREEMENT
GENERAL
At the Effective Time (as defined herein), by virtue of the Merger and
without any action on the part of any holder of any capital stock of Essex
County or Merger Sub, each issued and outstanding share of Essex County Common
Stock (other than shares owned by Essex County, Eastern or any of their
respective wholly owned subsidiaries, which shall be cancelled), shall be
converted into the right to receive 1.183985 shares of Eastern Common Stock;
provided that, if the Market Value (as defined below) of 1.183985 shares of
Eastern Common Stock is less than $45 per share, then each such share of Essex
County Common Stock shall be
8
<PAGE> 14
converted into the right to receive the number of shares of Eastern Common Stock
having a Market Value equal to $45; and if the Market Value of 1.183985 shares
of Eastern Common Stock is more than $50 per share, then each such share of
Essex County Common Stock shall be converted into the right to receive the
number of shares of Eastern Common Stock having a Market Value equal to $50 (the
number of shares of Eastern Common Stock into which each share of Essex County
Common Stock is converted pursuant to the Merger Agreement, the "Exchange
Ratio"). "Market Value" of Eastern Common Stock is defined in the Merger
Agreement as the average closing price per share of Eastern Common Stock on the
NYSE for the 10 consecutive trading days prior to and including the fifth
trading day prior to the Closing Date. The Exchange Ratio shall be adjusted to
reflect fully the effect of any stock split, reverse split, stock dividend
(including any dividend or distribution of securities convertible into Eastern
Common Stock), reorganization, recapitalization or other like change with
respect to Eastern Common Stock occurring after the date of the Merger Agreement
and having a record date prior to the Effective Time. See "The Merger
Agreement -- Manner and Basis of Converting Shares".
The following table demonstrates the Market Value of the shares of Eastern
Common Stock each stockholder of Essex County is entitled to receive upon
consummation of the Merger, and the applicable conversion ratio, at various
Market Values of Eastern Common Stock from $34.00 to $50.00 per share at the
time of the Merger.
<TABLE>
<CAPTION>
MARKET VALUE OF
SHARES OF
EASTERN
MARKET VALUE OF COMMON STOCK
EASTERN COMMON TO BE RECEIVED
STOCK AT TIME OF CONVERSION BY ESSEX COUNTY
MERGER RATIO STOCKHOLDERS
- ---------------- ---------- ---------------
<S> <C> <C>
$34.00 1.323529 $45.00
$35.00 1.285714 $45.00
$36.00 1.250000 $45.00
$37.00 1.216216 $45.00
$38.00 1.184211 $45.00
$39.00 1.183985 $46.18
$40.00 1.183985 $47.36
$40.375** 1.183985 $47.80
$41.00 1.183985 $48.54
$41.75 * 1.183985 $49.43
$42.00 1.183985 $49.73
$43.00 1.162791 $50.00
$44.00 1.136364 $50.00
$45.00 1.111111 $50.00
$46.00 1.086957 $50.00
$47.00 1.063830 $50.00
$48.00 1.041667 $50.00
$49.00 1.020408 $50.00
$50.00 1.000000 $50.00
</TABLE>
- ---------------
* Price of Eastern Common Stock on December 19, 1997, the last business day
prior to announcement by the parties to the Merger Agreement.
** Price of Eastern Common Stock on May 7, 1998, the last trading day for which
prices were available prior to the date of this Proxy Statement/Prospectus.
BACKGROUND
For a description of the background of the Merger, including the
circumstances leading up to the execution of the Merger Agreement, see "The
Merger -- Background of the Merger."
9
<PAGE> 15
REASONS FOR THE MERGER; RECOMMENDATION OF THE ESSEX COUNTY BOARD
The Essex County Board believes that the terms of the Merger are fair to,
and in the best interests of, Essex County and its shareholders. Accordingly,
the Essex County Board, by a unanimous vote, has adopted the Merger Agreement
and unanimously recommends that the holders of Essex County Common Stock vote
FOR approval of the Merger Agreement at the Special Meeting. The Essex County
Board believes that the Merger represents a significant strategic opportunity
for Essex County and should offer Essex County and its shareholders better
prospects for the future than would be available to Essex County as a
stand-alone entity. Of particular significance to the Essex County Board was the
fact that the transaction contemplates a significant premium to the market price
of Essex County Common Stock. In considering the recommendation of the Essex
County Board with respect to the Merger Agreement, Essex County stockholders
should be aware that certain officers and directors of Essex County have certain
interests respecting the Merger, apart from their interests as stockholders of
Essex County. See "The Merger -- Background of the Merger", "-- Reasons for the
Merger; Recommendation of the Essex County Board of Directors, and -- Interests
of Certain Persons in the Merger."
OPINION OF ESSEX COUNTY FINANCIAL ADVISOR
Furman Selz has delivered the Furman Selz Opinion, which opinion has been
confirmed in writing as of the date hereof, that as of such dates and based upon
the factors and assumptions described in such opinion, the Exchange Ratio
pursuant to the Merger Agreement is fair to the holders of Essex County Common
Stock. For information regarding the opinion of Furman Selz, see "The
Merger -- Opinion of Essex County Financial Advisor" and the full text of the
Furman Selz Opinion dated the date hereof, which is included as Annex B to this
Proxy Statement/Prospectus.
REGULATORY APPROVALS
The consummation of the Merger is contingent upon receiving approval from
certain state and federal governmental agencies. Under Chapter 164 of the MGL,
the Massachusetts Department of Telecommunications and Energy (the "MDTE") must
approve the Merger and the terms of the Merger Agreement, together with a rate
plan for Essex County, which rate plan will become effective following the
Merger. The MDTE must also approve the issuance of shares of capital stock of
Merger Sub to Eastern.
The Merger is subject to expiration of the waiting period and the review of
the United States Federal Trade Commission (the "FTC") and the United States
Department of Justice (the "DOJ") pursuant to the Hart-Scott-Rodino Antitrust
Improvement Act of 1976, as amended (the "HSR Act"). The waiting period pursuant
to the HSR Act has expired.
The Commission must approve the acquisition by Eastern of the Essex County
Common Stock pursuant to the Merger Agreement, under the Public Utility Holding
Company Act of 1935 ("PUHCA").
CLOSING; EFFECTIVE TIME OF THE MERGER
The closing of the transactions contemplated by the Merger Agreement (the
"Closing") and the effectiveness of the Merger will occur on the second business
day immediately following the date on which the last of the conditions to the
Merger are fulfilled or waived, or at such other time as Essex County and
Eastern agree (the date of such Closing, the "Closing Date"). The Merger will
become effective upon the filing of required merger documents on the Closing
Date with the State Secretary of the Commonwealth of Massachusetts. The time at
which the Merger becomes effective is referred to herein as the "Effective
Time."
In addition to being subject to Essex County stockholder approval of the
Merger Agreement, the Merger is subject to approval by the MDTE, FTC, DOJ and
the Commission. See "-- Regulatory Approvals." There can be no assurance that
the MDTE will issue a favorable order or that any order will be issued prior to
the Special Meeting. Essex County or Eastern may terminate the Merger Agreement
if the Effective Time shall not have occurred on or before December 19, 1998
(the "Initial Termination Date"), provided, however, that, if the required
regulatory approvals are not received and finalized on or before December 19,
1998 and all
10
<PAGE> 16
other conditions to the Closing have been or are capable of being fulfilled, the
Initial Termination Date shall be extended to June 19, 1999. See "The Merger
Agreement -- Conditions to the Merger" and "-- Termination of the Merger
Agreement."
NO SOLICITATION
Prior to the Effective Time, Essex County has agreed not to, and to cause
its subsidiaries and representatives not to, initiate or solicit proposals or
offers from or provide information to or engage in negotiations with third
parties with respect to specified business combinations or similar transactions.
The foregoing limitations are subject to exceptions that would permit Essex
County to engage in discussions with third parties regarding competing
transactions if the Essex County Board determines in good faith that such action
is reasonably likely to result in an Alternative Proposal (as defined herein)
which is a more favorable transaction from the standpoint of Essex County. See
"The Merger Agreement -- No Solicitation."
CONDITIONS TO THE CONSUMMATION OF THE MERGER
The respective obligations of Essex County and Eastern to consummate the
Merger are subject to the satisfaction of certain conditions, including, among
other things, approval of the Merger Agreement by the stockholders of Essex
County at the Special Meeting, the absence of judgments or injunctions
prohibiting the Merger, the listing of the Eastern Common Stock to be issued as
a result of the Merger on the NYSE and the receipt of certain required
regulatory approvals. See "The Merger -- Governmental and Regulatory Approvals."
In addition, the obligation of Eastern to consummate the Merger is subject
to the satisfaction of certain conditions, including, among other things, the
performance by Essex County of its obligations under the Merger Agreement and
the representations and warranties of Essex County being true at the Closing
Date (in each case, subject to certain materiality exceptions). See "The Merger
Agreement -- Conditions to the Merger."
The obligation of Essex County to consummate the Merger is subject to the
satisfaction of certain conditions, including, among other things, the
performance by Eastern of its obligations under the Merger Agreement and the
representations and warranties of Eastern being true at the Closing Date (in
each case, subject to certain materiality exceptions). See "The Merger
Agreement -- Conditions to the Merger."
TERMINATION OF THE MERGER AGREEMENT
Under specified circumstances, the Merger Agreement may be terminated by
either of or both Eastern and Essex County prior to the Closing Date, before or
after approval of the Merger Agreement by the stockholders of Essex County at
the Special Meeting. See "The Merger Agreement -- Termination of the Merger
Agreement."
TERMINATION FEE
If the Merger Agreement is terminated (i) by Essex County for specified
reasons involving a competing business transaction relating to Essex County;
(ii) by Eastern as a result of a third party acquiring securities representing
more than 50% of the voting power of Essex County; (iii) by Eastern or Essex
County as a result of the Essex County stockholders' approval not having been
obtained by September 30, 1998; or (iv) by Eastern as a result of a change in
the Essex County Board's recommendation with respect to approval of the Merger
Agreement, Essex County would be required to pay Eastern a termination fee of
$3.5 million (the "Fee") plus Expenses (as defined herein) of up to $2.5
million. See "The Merger Agreement -- Expenses and Termination Fee."
EMPLOYEE BENEFIT MATTERS; STOCK INCENTIVE PLANS
Subject to certain limitations, the Merger Agreement provides that each of
the Essex County benefit plans enumerated in the Merger Agreement (the "Essex
County Benefit Plans") in effect on December 19,
11
<PAGE> 17
1997 shall remain in effect until Eastern or Essex County as the Surviving
Company otherwise determines after the Effective Time, provided, however, that
Eastern or the Surviving Company or their subsidiaries shall provide benefits
which are no less favorable in the aggregate than those provided under the Essex
County Benefit Plans to employees or former employees of Essex County and any of
its subsidiaries, who are covered by any such Essex County Benefit Plan
immediately prior to the Closing Date (the "Affiliated Employees") for a period
of not less than six months following the Effective Time. See "The Merger
Agreement -- Employee Benefit Matters" and "-- Stock Plans and Stock Options"
for a description of certain other agreements contained in the Merger Agreement
with respect to employee benefit matters.
BOARD OF TRUSTEES AND MANAGEMENT OF EASTERN FOLLOWING THE MERGER
It is not anticipated that the Board of Trustees or management of Eastern
will change as a result of the Merger.
FEDERAL INCOME TAX CONSEQUENCES
Wachtell, Lipton, Rosen & Katz has rendered, for purposes of this
Registration Statement on Form S-4, its opinion concerning the material federal
income tax consequences of the Merger. That opinion, which is set forth below in
the section entitled, "THE MERGER (PROPOSAL 1) -- Federal Income Tax
Consequences of the Merger," and is subject to the discussion set forth therein,
explains that the Merger will constitute a reorganization within the meaning of
section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code") and
that accordingly, no gain or loss will be recognized for federal income tax
purposes by Essex County or Eastern as a result of the Merger and holders of
Essex County Common Stock will not recognize any gain or loss as a result of the
exchange of such shares for Eastern Common Stock pursuant to the Merger (except
to the extent of cash received, if any, in lieu of fractional shares). In
addition, it is a condition to consummation of the Merger that Essex County
receive a confirming opinion of Wachtell, Lipton, Rosen & Katz, its special
counsel, dated as of the Closing Date to the effect that the Merger will qualify
as a reorganization under Section 368(a) of the Code.
ACCOUNTING TREATMENT
Pursuant to the Merger Agreement the Merger is intended to qualify as a
pooling of interests for accounting and financial reporting purposes. It is a
condition to the consummation of the Merger that Essex County and Eastern
receive letters from their independent auditors, Arthur Andersen LLP, dated the
date of the Effective Time, to the effect that the Merger will qualify as a
pooling of interests for accounting and financial reporting purposes. See "The
Merger -- Accounting Treatment."
APPRAISAL RIGHTS
Under applicable law, a stockholder who objects to the Merger Agreement and
the Merger does not have the right to demand separate payment for such
stockholder's shares or an appraisal thereof. See "The Merger -- Appraisal
Rights."
EXCHANGE OF STOCK CERTIFICATES
As soon as practicable after the Effective Time, a letter of transmittal
will be sent to each holder of record of Essex County Common Stock as of the
Effective Time for use in exchanging certificates which, immediately prior to
the Effective Time, represented shares of Essex County Common Stock
("Certificates") for certificates representing shares of Eastern Common Stock.
Certificates should not be surrendered by the holders of Essex County Common
Stock until they have received the letter of transmittal from the Exchange Agent
(as defined herein). See "The Merger Agreement -- Manner and Basis of Converting
Shares."
NO FRACTIONAL SHARES
No fractional shares of Eastern Common Stock will be issued to any holder
of Essex County Common Stock in connection with the Merger. Instead, holders of
Essex County Common Stock who would otherwise
12
<PAGE> 18
be entitled to a fractional share of Eastern Common Stock in the Merger will be
entitled to receive a cash payment in lieu of such fraction, determined in
accordance with the Merger Agreement. See "The Merger Agreement -- Treatment of
Fractional Interests."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of Essex County's management and the Essex County Board
have personal interests with respect to the Merger separate from their interests
as holders of Essex County Common Stock, including the following:
Employment Agreements. Philip H. Reardon, John W. Purdy, James H.
Hastings, Alan R. Neale, Wayne I. Brooks, William T. Beaton and Cathy E. Brown
are parties to employment agreements with Essex County, each of which provides
that if such executive's employment terminates under specified circumstances
after stockholder approval and regulatory approval of the Merger, each such
executives will be entitled to certain benefits.
Stock Option Plan. Essex County maintains a stock option plan, pursuant to
which any unvested options will vest upon consummation of the Merger. See "The
Merger -- Interests of Certain Persons in the Merger."
Vesting of Certain Benefits for Essex County Executive Officers and
Directors. Pursuant to a supplemental executive retirement plan and his
employment agreement, Mr. Reardon will receive certain benefits upon termination
of his employment. Pursuant to the Essex County Board Deferral Plan, certain
directors will receive stock in lieu of deferred director's fees following the
Merger and when such directors cease to be directors of Essex County. In
addition, certain directors will receive a retirement benefit pursuant to a
retirement plan for directors.
See "The Merger -- Interests of Certain Persons in the Merger."
COMPARATIVE RIGHTS OF ESSEX COUNTY AND EASTERN STOCKHOLDERS
Rights of stockholders of Essex County are currently governed by the MGL,
including Chapter 164 and certain provisions of Chapter 156B, the Essex County
Charter and Essex County By-laws. Upon consummation of the Merger, Essex County
stockholders will become stockholders of Eastern and their rights as
stockholders of Eastern will be governed by the MGL, the Eastern Charter and the
Eastern By-laws. There are a number of differences between the rights of Essex
County stockholders and the rights of Eastern stockholders.
See "Comparative Rights of Essex County and Eastern Stockholders" and
"Description of Eastern Capital Stock."
13
<PAGE> 19
MARKET PRICE AND DIVIDEND INFORMATION
Eastern Common Stock is traded on the NYSE, the PSE and BSE under the
symbol "EFU" and the Essex County Common Stock is traded on the Nasdaq under the
symbol "ECGC." The following table sets forth, for the periods indicated, the
range of high and low per share sales prices for Eastern Common Stock as
reported on the NYSE Composite Tape, and, the range of high and low bid
information for Essex County Common Stock as reported on Nasdaq, as well as
information concerning quarterly dividends declared on each such shares.
An application will be made to have the Eastern Common Stock to be issued
as a result of the Merger listed on the NYSE, the PSE and the BSE.
Eastern has declared and paid dividends for each quarter during the 1996
and 1997 fiscal years. Eastern's Board of Trustees' recent practice has been to
review its dividend policy on an annual basis and to make changes, as
appropriate. Eastern does not currently anticipate a change in its dividend
policies or practices as a result of the Merger.
<TABLE>
<CAPTION>
ESSEX COUNTY COMMON STOCK EASTERN COMMON STOCK
------------------------------- --------------------------------
HIGH LOW DIVIDENDS DIVIDENDS
ASKED BID PER SHARE HIGH LOW PER SHARE
------- ------- --------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1996:
First Quarter.............. $ 27.50 $ 25.25 $.40 $37.125 $33.125 $.37
Second Quarter............. 26.25 23.50 .40 36.875 32.375 .37
Third Quarter.............. 27.00 24.00 .40 38.625 30.50 .37
Fourth Quarter............. 27.00 24.00 .40 40.375 34.875 .40
Year ended December 31, 1997:
First Quarter.............. $ 26.00 $ 24.25 $.41 $36.375 $30.50 $.40
Second Quarter............. 26.50 24.25 .41 35.875 30.50 .40
Third Quarter.............. 29.25 25.25 .41 38.1875 34.75 .40
Fourth Quarter............. 50.00 28.25 .41 45.375 36.75 .41
Year ending December 31,
1998:
First Quarter.............. $ 47.25 $ 44.00 .42 $45.625 $40.375 .41
Second Quarter (through May
7, 1998)................ $ 47.25 $ 44.50 $44.75 $40.375
</TABLE>
The following table sets forth the high and low per share and closing sales
prices per share of Essex County and Eastern Common Stock as reported on the
Nasdaq and NYSE, respectively, on December 19, 1997, the last business day prior
to announcement by the parties of the Merger Agreement, and on May 7, 1998, the
last trading day for which prices were available prior to the date of this Proxy
Statement/Prospectus and the equivalent per share value of the Essex County
Common Stock on such dates:
<TABLE>
<CAPTION>
MARKET PRICE PER SHARE
-----------------------------------------------------------------------------
EQUIVALENT PER
ESSEX COUNTY COMMON STOCK EASTERN COMMON STOCK SHARE VALUE
--------------------------- ------------------------------ --------------
DATE HIGH LOW CLOSING HIGH LOW CLOSING
---- ---- --- ------- ---- --- -------
<S> <C> <C> <C> <C> <C> <C> <C>
December 19, 1997..... $39.50 $34.50 $39.00 $42.00 $40.8125 $ 41.75 $49.43
May 7, 1998........... $44.5625 $44.50 $44.50 $41.375 $40.375 $ 40.375 $47.80
</TABLE>
BECAUSE THE MARKET PRICE OF THE EASTERN COMMON STOCK THAT HOLDERS OF ESSEX
COUNTY COMMON STOCK WILL RECEIVE IN THE MERGER MAY INCREASE OR DECREASE PRIOR TO
THE MERGER, ESSEX COUNTY STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET
QUOTATIONS.
14
<PAGE> 20
SELECTED HISTORICAL FINANCIAL INFORMATION OF ESSEX COUNTY
The annual financial information set forth below has been derived from the
audited consolidated financial statements of Essex County. The data for the six
month periods ended February 28, 1998 and 1997 has been derived from the
unaudited consolidated financial statements of Essex County. The information
should be read in connection with, and is qualified in its entirety by reference
to, Essex County's financial statements and notes thereto incorporated by
reference herein. See "Incorporation of Certain Documents by Reference." The
interim data reflect all adjustments that, in the opinion of management of Essex
County, are necessary to present fairly such information for the interim
periods. The results of operations for the three-month periods are not
necessarily indicative of the results expected for a full year or any other
interim period.
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED AUGUST 31, ENDED FEBRUARY 28,
----------------------------------------------- -------------------
1997 1996 1995 1994 1993 1998 1997
------- ------- ------- ------- ------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Operating revenues.............. $53,535 $49,929 $45,049 $48,536 $45,016 $32,062 $31,363
Operating earnings(2)........... $ 6,722 $ 6,669 $ 5,909 $ 5,794 $ 5,766 $ 4,842 $ 4,285
Income available for common
stock......................... $ 3,967 $ 3,836 $ 3,180 $ 3,302 $ 2,880 $ 3,423 $ 2,871
Shares of common stock
outstanding, weighted average
diluted....................... 1,714 1,671 1,632 1,595 1,507 1,756 1,702
Basic earnings per share........ $ 2.38 $ 2.36 $ 2.00 $ 2.12 $ 1.95 $ 2.02 $ 1.74
Diluted earnings per share...... $ 2.31 $ 2.29 $ 1.95 $ 2.07 $ 1.91 $ 1.96 $ 1.70
Cash dividends declared per
common share.................. $ 1.63 $ 1.59 $ 1.55 $ 1.51 $ 1.47 $ .83 $ .81
Ratio of earnings to fixed
charges(1).................... 2.87x 2.83x 2.54x 2.83x 2.45x 4.01x 3.57x
BALANCE SHEET DATA:
TOTAL ASSETS.................... $92,746 $89,772 $86,582 $83,511 $76,535 $98,012 $96,953
======= ======= ======= ======= ======= ======= =======
Long-term debt
(excluding current
portion)................... $29,350 $20,370 $21,343 $22,413 $22,890 $28,199 $28,799
Redeemable preferred stock.... -- -- 336 350 364 -- --
Common stock equity........... 35,409 33,023 30,709 28,870 26,985 38,544 35,289
------- ------- ------- ------- ------- ------- -------
TOTAL CAPITALIZATION:........... $64,759 $53,393 $52,388 $51,633 $50,239 $66,743 $64,088
======= ======= ======= ======= ======= ======= =======
</TABLE>
- ---------------
(1) In computing the ratio of earnings to fixed charges, "earnings" are defined
as income before income taxes and fixed charges. "Fixed charges" consist of
interest, including the amount capitalized, interest on the obligation under
the supplemental fuel inventory, amortization of debt expense and the
estimated interest portion (one third) of rental payments.
(2) Operating earnings include the provision (benefit) for federal and state
income taxes in all periods presented.
See accompanying Notes to Selected Historical and
Unaudited Pro Forma Combined Condensed Financial Data
15
<PAGE> 21
SELECTED HISTORICAL FINANCIAL INFORMATION OF EASTERN
The annual financial information set forth below has been derived from the
audited consolidated financial statements of Eastern. The data for the three
month periods ending March 31, 1998 and 1997 has been derived from the unaudited
consolidated financial statements of Eastern. The information should be read in
connection with, and is qualified in its entirety by reference to, Eastern's
financial statements and notes thereto incorporated by reference herein. See
"Incorporation of Certain Documents by Reference."
<TABLE>
<CAPTION>
THREE MONTHS
FISCAL YEAR ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------------------------------------------- -----------------------
1997 1996 1995 1994 1993 1998 1997
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Operating revenues....... $ 970,204 $1,007,342 $ 949,412 $ 924,850 $ 869,215 $ 342,919 $ 376,920
Operating earnings....... $ 106,314 $ 121,394 $ 113,734 $ 97,375 $ 77,389 $ 54,409 $ 52,977
Earnings from continuing
operations before
extraordinary items.... $ 51,950 $ 60,665 $ 60,381 $ 38,907 $ 26,022 $ 30,923 $ 28,223
Shares of common stock
outstanding, weighted
average diluted........ 20,468 20,384 20,246 20,780 22,510 $ 20,585 $ 20,418
Basic earnings per share
from continuing
operations before
extraordinary items.... $ 2.55 $ 2.99 $ 2.99 $ 1.87 $ 1.16 $ 1.51 $ 1.39
Diluted earnings per
share from continuing
operations before
extraordinary items.... $ 2.54 $ 2.98 $ 2.98 $ 1.87 $ 1.15 $ 1.50 $ 1.38
Cash dividends declared
per common share....... $ 1.61 $ 1.51 $ 1.42 $ 1.40 $ 1.40 $ 0.41 $ 0.40
Ratio of earnings to
fixed charges(1)....... 2.9x 3.3x 2.8x 2.4x 2.0x 6.1 5.3
BALANCE SHEET DATA:
TOTAL ASSETS............. $1,434,357 $1,421,615 $1,377,342 $1,339,319 $1,363,191 $1,373,834 $1,393,005
========== ========== ========== ========== ========== ========== ==========
Long-term debt
(excluding current
portion)............. $ 342,142 $ 347,313 $ 357,675 $ 365,488 $ 328,939 $ 292,787 $ 346,081
Common stock equity.... 449,061 427,990 395,764 374,134 363,738 $ 470,029 $ 449,504
---------- ---------- ---------- ---------- ---------- ---------- ----------
TOTAL CAPITALIZATION..... $ 791,203 $ 775,303 $ 753,439 $ 739,622 $ 692,677 $ 762,816 $ 795,585
========== ========== ========== ========== ========== ========== ==========
</TABLE>
- ---------------
(1) In computing the ratio of earnings to fixed charges, "earnings" are defined
as income before income taxes and fixed charges. "Fixed charges" consist of
interest, including the amount capitalized, interest on the obligation under
the supplemental fuel inventory, amortization of debt expense and the
estimated interest portion (one third) of rental payments.
See accompanying Notes to Selected Historical and
Unaudited Pro Forma Combined Condensed Financial Data
16
<PAGE> 22
SELECTED UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
The following selected unaudited pro forma combined condensed financial
data presents the combined financial data of Eastern and Essex County, including
their respective subsidiaries, after giving effect to the Merger, assuming the
Merger had been effective for all periods presented. The selected unaudited pro
forma combined condensed financial data as of December 31, 1997 and for each of
the three years then ended and as of March 31, 1998 and 1997 and the three
months then ended was derived from and should be read in conjunction with the
unaudited pro forma combined balance sheet and unaudited pro forma combined
statements of operations, including the notes thereto, which are included
elsewhere herein. The selected unaudited pro forma combined condensed balance
sheets as of March 31, 1998 and 1997 and as of December 31, 1997, 1996 and 1995
present, under the pooling-of-interests accounting method, the combined
condensed consolidated balance sheets of Eastern as of March 31, 1998, and 1997
and as of December 31, 1997, 1996 and 1995 and Essex County as of February 28,
1998 and 1997 and as of November 30, 1997 and August 31, 1996 and 1995,
respectively. The selected unaudited pro forma combined condensed financial data
should also be read in conjunction with the historical financial statements of
both Eastern and Essex County which are incorporated herein by reference. The
selected unaudited pro forma combined condensed financial data is presented for
illustration purposes only in accordance with the assumptions set forth below,
and is not necessarily indicative of the operating results or financial position
that would have occurred if the Merger had been consummated nor is it
necessarily indicative of future operating results or financial position of the
combined enterprise. The selected unaudited pro forma combined condensed
financial data does not reflect all adjustments to conform accounting practices
or any adjustments to reflect any cost savings or other synergies anticipated as
a result of the Merger.
17
<PAGE> 23
EASTERN ENTERPRISES
SELECTED UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
<TABLE>
<CAPTION>
THREE MONTHS
FISCAL YEAR ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------------------- ------------------------
1997 1996 1995 1998 1997
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS(1)
Revenues................... $1,024,631 $1,057,271 $ 994,461 $ 365,947 $ 400,141
Operating expenses(2)...... 908,560 927,035 873,123 306,419 341,472
---------- ---------- ---------- ---------- ----------
Operating earnings......... 116,071 130,236 121,338 59,528 58,669
Other expense, net......... 32,480 27,968 31,510 5,280 8,672
---------- ---------- ---------- ---------- ----------
Income from continuing
operations before income
taxes................... 83,591 102,268 89,828 54,248 49,997
Provision for income
taxes................... 27,237 37,753 26,248 20,809 18,643
---------- ---------- ---------- ---------- ----------
Income before extraordinary
item.................... 56,354 64,515 63,580 33,439 31,354
Extraordinary item, net of
tax..................... -- -- (6,500) (1,465) --
---------- ---------- ---------- ---------- ----------
Net earnings............... 56,354 64,515 57,080 31,974 31,354
Preferred Stock
dividends............... -- (14) (19) -- --
---------- ---------- ---------- ---------- ----------
Net earnings available to
common stockholders..... $ 56,354 $ 64,501 $ 57,061 $ 31,974 $ 31,354
========== ========== ========== ========== ==========
Earnings per common
share(3)(4):
Basic earnings per share
before extraordinary
item.................... $ 2.52 $ 2.91 $ 2.88 $ 1.49 $ 1.41
Extraordinary item, net of
tax..................... -- -- (0.29) (.07) --
---------- ---------- ---------- ---------- ----------
Basic earnings per share... $ 2.52 $ 2.91 $ 2.59 $ 1.42 $ 1.41
========== ========== ========== ========== ==========
Diluted earnings per share
before extraordinary
item.................... $ 2.50 $ 2.88 $ 2.87 $ 1.48 $ 1.40
Extraordinary items, net of
tax..................... -- -- (0.29) (.07) --
---------- ---------- ---------- ---------- ----------
Diluted earnings per
share................... $ 2.50 $ 2.88 $ 2.58 $ 1.41 $ 1.40
========== ========== ========== ========== ==========
Cash dividends declared per
share................... $ 1.61 $ 1.51 $ 1.42 $ .41 $ .40
========== ========== ========== ========== ==========
BALANCE SHEET DATA(1)
Total assets............... $1,532,169 $1,511,387 $1,463,924 $1,471,116 $1,489,958
========== ========== ========== ========== ==========
Capitalization
Long-term debt.......... $ 370,873 $ 367,683 $ 379,019 $ 321,508 $ 374,880
Shareholders' equity.... 484,201 461,013 426,809 507,843 484,794
---------- ---------- ---------- ---------- ----------
Total capitalization
(excluding short-term
debt)................... $ 855,074 $ 828,696 $ 805,828 $ 829,351 $ 859,674
========== ========== ========== ========== ==========
</TABLE>
See accompanying Notes to Selected Historical and
Unaudited Pro Forma Combined Condensed Financial Data
18
<PAGE> 24
NOTES TO SELECTED HISTORICAL AND UNAUDITED
PRO FORMA COMBINED CONDENSED FINANCIAL DATA
(1) EASTERN AND ESSEX COUNTY HISTORICAL FISCAL YEARS AND ACCOUNTING POLICIES
Eastern's historical fiscal year ends on December 31 while Essex County's
historical fiscal year ends on August 31. For purposes of combining Essex
County's historical financial information with Eastern's in the pro forma
combined statements of operations herein, the financial information of Eastern
for the fiscal years ended December 31, 1997, 1996 and 1995 and the three months
ended March 31, 1998 and 1997 have been combined with Essex County's financial
information for the twelve months ended November 30, 1997 and August 31, 1996
and 1995 and the three months ended February 28, 1998 and 1997, respectively. As
a result, Essex County's financial information for the three months ended
November 30, 1996 are excluded from the pro forma data. Essex County's operating
revenues and net loss available to common shareholders for the three months
ended November 30, 1996 were $8.1 million and $(0.3) million, respectively.
The unaudited pro forma combined condensed financial data do not include
all adjustments (see note (2)) to conform the accounting policies of Essex
County to those followed by Eastern. The nature and extent of such adjustments,
if any, will be based upon further analysis and are not expected to be material.
However, certain amounts in the historical financial statements of Eastern and
Essex County have been reclassified to present consistent pro forma financial
information. There were no material intercompany transactions between Eastern
and Essex County during the periods presented.
(2) MERGER-RELATED EXPENSES
Eastern and Essex County will incur investment banking, legal, accounting
and other transaction costs as a result of the Merger. Based on information
currently available, these costs will total approximately $4.6 million and will
be expensed in the period incurred consistent with Eastern's historical
accounting treatment of such costs. In the three months ended February 28, 1998,
Essex County incurred $0.7 million of Merger expenses which were capitalized as
deferred charges. Accordingly, a pro forma adjustment has been made to reflect
the expensing of such costs in the unaudited pro forma combined statement of
operations for the three months ended March 31, 1998. Costs incurred by Essex
County related to the Merger prior to November 30, 1997 were not material. Since
the Merger has not been consummated, the Merger expenses can only be estimated
at this time, and are subject to revision as further information becomes
available.
(3) EARNINGS PER SHARE
The pro forma net earnings per share reflect (i) the weighted average
number of Eastern common shares that would have been outstanding if the Merger
occurred at the beginning of the periods presented upon the conversion of each
outstanding share of Essex County Common Stock into 1.183985 shares of Eastern
Common Stock, as provided in the Merger Agreement and (ii) the dilutive impact
of stock options using the treasury stock method.
(4) EXCHANGE RATIO
As provided for in the Merger Agreement, each issued and outstanding share
of Essex County Common Stock shall be converted into the right to receive
1.183985 shares of Eastern Common Stock provided that, if the Market Value (as
defined) of 1.183985 shares of Eastern Common Stock is less than $45 per share,
then each such share of Essex County Common Stock shall be converted into the
right to receive the number of shares of Eastern Common Stock having a Market
Value equal to $45; and if the Market Value of 1.183985 shares of Eastern Common
Stock is more than $50 per share, then each such share of Essex County Common
Stock shall be converted into the right to receive the number of shares of
Eastern Common Stock having a Market Value equal to $50. Accordingly, if the
Market Value of Eastern Common Stock is below $38.01 per share, there will be an
increase in the exchange ratio and if the Market Value of Eastern Common Stock
is above $42.23, there will be a decrease in the exchange ratio. Any increase in
the exchange ratio will cause a corresponding decrease in the pro forma combined
per share amounts and any decrease in the exchange ratio will cause a
corresponding increase in the pro forma per share amounts. For example, if
Eastern's stock price
19
<PAGE> 25
NOTES TO SELECTED HISTORICAL AND UNAUDITED
PRO FORMA COMBINED CONDENSED FINANCIAL DATA -- (CONTINUED)
was at either its most recent 52-week low ($34.00) or 52-week high ($45.62), the
recalculated combined pro forma earnings per share in the latest fiscal year and
interim period would be as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1997 MARCH 31, 1998
-------------------- --------------------
52-WEEK 52-WEEK 52-WEEK 52-WEEK
LOW HIGH LOW HIGH
------- ------- ------- -------
<S> <C> <C> <C> <C>
Basic earnings per share................... $ 2.50 $ 2.54 $ 1.41 $ 1.44
Diluted earnings per share................. $ 2.48 $ 2.52 $ 1.40 $ 1.42
Book value per share....................... $21.40 $21.77 $22.37 $22.77
</TABLE>
20
<PAGE> 26
COMPARATIVE PER SHARE DATA
The following table sets forth for the Essex County Common Stock and
Eastern Common Stock selected historical per share data and the corresponding
unaudited pro forma per share amounts as of and for the periods indicated,
giving effect to the Merger. The data presented are based upon the consolidated
financial statements and related notes of each of Essex County and Eastern
incorporated by reference into this Proxy Statement/Prospectus and the unaudited
pro forma combined balance sheet and income statements, including the notes
thereto, appearing elsewhere herein. This information should be read in
conjunction with, and is qualified in its entirety by, the historical
consolidated financial statements and related notes of each of Essex County and
Eastern incorporated by reference herein and the unaudited pro forma combined
financial statements and related notes thereto contained elsewhere herein. The
assumptions used in the preparation of this table appear under "Unaudited Pro
Forma Financial Information." The comparative per share data are not necessarily
indicative of the results of the future operations of the combined organization
or the actual results that would have occurred if the Merger had been
consummated at the beginning of the periods indicated.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS
AUGUST 31, ENDED FEBRUARY 28,
------------------------ ------------------
1997 1996 1995 1998 1997
------ ----- ----- ------- -------
<S> <C> <C> <C> <C> <C>
ESSEX COUNTY -- HISTORICAL
Earnings per common share:
Basic...................................... $ 2.38 $2.36 $2.00 $ 2.02 $ 1.74
Diluted.................................... 2.31 2.29 1.95 1.96 1.70
Cash dividends declared per share............. 1.63 1.59 1.55 .83 .81
Book value per share at period end............ $21.01 22.40
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
------------------------ ----------------
1997 1996 1995 1998 1997
------ ----- ----- ------ ------
<S> <C> <C> <C> <C> <C>
EASTERN -- HISTORICAL
Earnings per common share:
Basic...................................... $ 2.55 $2.99 $2.67 $ 1.44 $ 1.39
Diluted.................................... 2.54 2.98 2.66 1.43 1.38
Cash dividends declared per share............. 1.61 1.51 1.42 .41 .40
Book value per share at period end............ $22.03 $23.02
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995 1998 1997
------ ----- ----- ------ ------
<S> <C> <C> <C> <C> <C>
EASTERN -- AND ESSEX COUNTY --
PRO FORMA COMBINED(1)(4)
Earnings per common share:
Basic...................................... $ 2.52 $2.91 $2.59 $ 1.42 $ 1.41
Diluted.................................... 2.50 2.88 2.58 1.41 1.40
Cash dividends declared per share............. 1.61 1.51 1.42 .41 .40
Book value per share at period end............ $21.62 $22.61
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995 1998 1997
------ ----- ----- ------ ------
<S> <C> <C> <C> <C> <C>
ESSEX COUNTY -- EQUIVALENT PRO FORMA
PER SHARE DATA IMPUTED TO
EXISTING SHAREHOLDERS(1)(2)(3)(4)
Earnings per common share:
Basic...................................... $ 2.98 $3.45 $3.07 $ 1.68 $ 1.66
Diluted.................................... 2.96 3.41 3.05 1.67 1.66
Cash dividends declared per share............. 1.91 1.79 1.68 .49 .47
Book value per share at period end............ $25.60 $26.77
</TABLE>
- ---------------
(1) The pro forma combined and the equivalent pro forma combined information
(excluding the book value per share information) presents the combination of
Eastern for the fiscal years ended December 31, 1997, 1996 and 1995 and the
three months ended March 31, 1998 and 1997 combined with Essex County for
the twelve months ended November 30, 1997 and the fiscal year ended August
31, 1996 and 1995 and the three months ended February 28, 1998 and 1997,
respectively. The book value per share information as of
21
<PAGE> 27
December 31, 1997 and March 31, 1998 is calculated based on the Eastern balance
sheet as of December 31, 1997 and March 31, 1998 and Essex County's balance
sheet as of November 30, 1997 and February 28, 1998, respectively.
(2) Equivalent pro forma per share data is calculated by multiplying the
respective unaudited pro forma combined data by the exchange ratio of
1.183985 shares of Eastern Common Stock for each of Essex County Common
Stock. See Note (4) below.
(3) Pro forma combined cash dividends declared per share represents the
historical dividends of Eastern for all periods presented. Eastern's current
cash dividends declared per share is $0.41 per common share per quarter.
After giving effect to the number of shares to be outstanding after the
Merger, assuming an exchange ratio of 1.183985 (see Note 4 below), the pro
forma payout ratio of the combined company is approximately 65% based upon
Eastern's current dividend policy. Additionally, the equivalent cash
dividend per share of Essex's Common Stock based upon Eastern's current
annual dividend policy is $1.94.
(4) As provided for in the Merger Agreement, each issued and outstanding share
of Essex County Common Stock shall be converted into the right to receive
1.183985 shares of Eastern Common Stock provided that, if the Market Value
(as defined) of 1.183985 shares of Eastern Common Stock is less than $45 per
share, then each such share of Essex County Common Stock shall be converted
into the right to receive the number of shares of Eastern Common Stock
having a Market Value equal to $45; and if the Market Value of 1.183985
shares of Eastern Common Stock is more than $50 per share, then each such
share of Essex County Common Stock shall be converted into the right to
receive the number of shares of Eastern Common Stock having a Market Value
equal to $50. Accordingly, if the Market Value of Eastern Common Stock is
below $38.01 per share, there will be an increase in the exchange ratio and
if the Market Value of Eastern Common Stock is above $42.23, there will be a
decrease in the exchange ratio. Any increase in the exchange ratio will
cause a corresponding decrease in the pro forma combined per share amounts
and an increase in the equivalent pro forma per share amounts and any
decrease in the exchange ratio will cause a corresponding increase in the
pro forma per share amounts and a decrease in the equivalent pro forma per
share amounts. For example, if Eastern's stock price was at either its most
recent 52-week low ($34.00) or 52-week high ($45.62), the recalculated
combined pro forma earnings per share in the latest fiscal year and interim
period would be as follows:
<TABLE>
<CAPTION>
FISCAL YEAR THREE MONTHS
ENDED DECEMBER 31, 1997 ENDED MARCH 31, 1998
------------------------ --------------------
52-WEEK 52-WEEK 52-WEEK 52-WEEK
LOW HIGH LOW HIGH
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Basic earnings per share................... $ 2.50 $ 2.54 $ 1.41 $ 1.44
Diluted earnings per share................. $ 2.48 $ 2.52 $ 1.40 $ 1.42
Book value per share....................... $21.40 $21.77 $22.37 $22.77
</TABLE>
Additionally, the recalculated Essex County -- equivalent pro forma per
share data in the latest fiscal year and interim period would be as
follows:
<TABLE>
<CAPTION>
FISCAL YEAR THREE MONTHS
ENDED DECEMBER 31, 1997 ENDED MARCH 31, 1998
------------------------ --------------------
52-WEEK 52-WEEK 52-WEEK 52-WEEK
LOW HIGH LOW HIGH
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Basic earnings per share................... $ 3.31 $ 2.78 $ 1.87 $ 1.58
Diluted earnings per share................. $ 3.28 $ 2.76 $ 1.85 $ 1.56
Book value per share....................... $28.32 $23.86 $29.61 $24.96
</TABLE>
22
<PAGE> 28
FORWARD-LOOKING STATEMENTS
This Proxy Statement/Prospectus includes forward-looking statements within
the meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. All statements other than statements of historical facts included or
incorporated by reference in this Proxy Statement/Prospectus, including, without
limitation, statements regarding Essex County's, Eastern's or the Surviving
Company's future financial position, business strategy, budgets, projected costs
and plans and objectives of management for future operations, are
forward-looking statements. Although Essex County and Eastern believe their
expectations reflected in such forward-looking statements are based on
reasonable assumptions, no assurance can be given that such expectations will
prove to have been correct. Important factors that could cause actual results to
differ materially from the expectations reflected in the forward-looking
statements herein include the effect of strategic initiatives on earnings and
cash flow, temperatures above or below normal in Boston Gas' or Essex County's
service areas, changes in market conditions for barge transportation, adverse
weather and operating conditions on the inland waterways, changes in economic
conditions including interest rates and the value of the dollar versus other
currencies, regulatory and court decisions, developments with respect to
Eastern's and Essex County's previously disclosed environmental liabilities and
Eastern's previously disclosed liabilities under the Federal Coal Industry
Retiree Health Benefit Act of 1992, the pace of deregulation of retail natural
gas markets in the United States, other actions taken by regulatory authorities,
timing and extent of changes in commodity prices for natural gas and interest
rates, conditions of the capital markets and equity markets during the periods
covered by the forward-looking statements, all of which are difficult to predict
and generally beyond the control of Eastern, Essex County and Merger Sub. All
written or oral forward-looking statements attributable to Essex County, Eastern
or Merger Sub, or persons acting on their behalf, are expressly qualified in
their entirety by the foregoing cautionary statements.
23
<PAGE> 29
THE COMPANIES
ESSEX COUNTY
Essex County, a regulated public utility organized under the laws of the
Commonwealth of Massachusetts in 1853, purchases, distributes and sells natural
gas to residential, commercial and light industrial customers in northeastern
Massachusetts. Essex County operates in the Cities of Haverhill, Newburyport and
Amesbury and 14 other smaller municipalities in Massachusetts covering an area
of approximately 280 square miles. The year-round population of Essex County's
service area was approximately 165,000 in the 1990 Census. Essex County's
service area is primarily comprised of residential communities, with a number of
small commercial and diversified light industrial businesses.
EASTERN
Eastern is a Massachusetts business trust established and existing under
the Eastern Charter.
Eastern's principal subsidiaries are Boston Gas and Midland. Boston Gas is
a regulated utility that distributes natural gas in and around Boston,
Massachusetts. Midland is engaged in barge transportation, principally on the
Ohio River and Mississippi River systems. Eastern provides management and staff
services to Boston Gas and Midland.
Boston Gas is engaged in the transportation and sale of natural gas to
approximately 530,000 residential, commercial and industrial customers in Boston
and 73 other communities in eastern and central Massachusetts. Boston Gas also
sells natural gas for resale in Massachusetts. Boston Gas has been in business
for 175 years and is the second oldest gas company in the United States. Since
1929, all of the common stock of Boston Gas has been owned by Eastern.
Midland, through its wholly owned subsidiaries, is engaged in the operation
of a fleet of barges and towboats, principally on the Ohio River and Mississippi
River and their tributaries, the Gulf Intracoastal Waterway and the Gulf of
Mexico. Midland transports dry bulk commodities, a major portion of which is
coal. Midland also performs repair work on marine equipment and operates two
coal dumping terminals, a phosphate rock and phosphate chemical fertilizer
terminal and a marine fuel supply facility.
MERGER SUB
Merger Sub will be organized as a gas utility company under the laws of the
Commonwealth of Massachusetts, and will be a wholly owned subsidiary of Eastern
formed solely for the purpose of the Merger.
THE SPECIAL MEETING
PURPOSE OF THE SPECIAL MEETING
The purpose of the Special Meeting is to consider and vote upon (i) a
proposal to approve the Merger Agreement, (ii) the election of members of the
Essex County Board to hold office until the Annual Meeting of stockholders of
Essex County in 1999 or until their successors are elected and qualified, (iii)
to adopt the 1997 Plan, and (iv) such other matters as may properly be brought
before the Special Meeting. The Essex County Board is not aware, as of the date
of mailing of this Proxy Statement/Prospectus, of any other matters that may
properly come before the Special Meeting. If any such other matters properly
come before the Special Meeting, it is the intention of the persons named in the
Essex County proxy to vote such proxies in accordance with their best judgment
on such matters.
THE ESSEX COUNTY BOARD, BY A UNANIMOUS VOTE OF THE DIRECTORS, HAS APPROVED
THE MERGER AGREEMENT, HAS AUTHORIZED THE EXECUTION AND DELIVERY OF THE MERGER
AGREEMENT, AND UNANIMOUSLY RECOMMENDS THAT ESSEX COUNTY STOCKHOLDERS VOTE FOR
APPROVAL OF THE MERGER AGREEMENT.
24
<PAGE> 30
In considering the recommendation of the Essex County Board with respect to
the Merger Agreement, stockholders should be aware that certain members of Essex
County's management and the Essex County Board have certain interests in the
Merger that are in addition to the interests of stockholders of Essex County
generally and that could potentially represent conflicts of interest. The Essex
County Board was aware of these interests and considered them, among other
matters, in adopting the Merger Agreement. See "The Merger -- Interests of
Certain Persons in the Merger."
DATE, PLACE AND TIME; RECORD DATE
The Special Meeting is scheduled to be held on June 24, 1998, at 10:00
a.m., Eastern Standard Time, at the offices of State Street Bank and Trust
Company, 225 Franklin Street (33rd Floor), Boston, Massachusetts. Only holders
of record of Essex County Common Stock at the close of business on May 6, 1998,
the Record Date, will be entitled to notice of and to vote at the Special
Meeting. As of the Record Date, 1,725,225 shares of Essex County Common Stock
were issued and outstanding.
The Special Meeting may be adjourned to another date and/or place for
proper purposes (including, without limitation, for the purpose of soliciting
additional proxies).
VOTING RIGHTS
Each stockholder of record on the Record Date is entitled to one vote for
each share of Essex County Common Stock held on each matter submitted to a vote
at the Special Meeting. A majority of the outstanding shares of Essex County
Common Stock entitled to vote on a matter, represented in person or by proxy,
constitutes a quorum for consideration of each such matter at the Special
Meeting.
The affirmative vote of the holders of at least two-thirds of the
outstanding shares of Essex County Common Stock will be sufficient to approve
the Merger Agreement. Abstentions and broker non-votes will be counted in
determining if a quorum exists and will have the same effect as votes cast
against approval of the Merger Agreement. Failure to return a proxy or vote in
person at the Special Meeting will have the effect of a vote against approval of
the Merger Agreement.
A favorable vote by a majority of shares of Essex County Common Stock
represented and entitled to vote on the directors is required to elect the
directors, and a favorable vote by a majority of shares of Essex County Common
Stock represented and entitled to vote is required to approve the 1997 Plan. For
election of directors and approval of the 1997 Plan, abstentions and broker
non-votes are counted in determining if a quorum exists, but are not counted in
determining the outcome of the vote and will therefore have no effect.
PROXIES
Any holder of Essex County Common Stock may vote such stockholder's shares
either in person or by duly authorized proxy. The giving of a proxy by an Essex
County stockholder will not affect such stockholder's right to vote such shares
if such stockholder attends the Special Meeting and desires to vote in person.
Prior to the voting of an Essex County proxy, such proxy may be revoked by the
stockholder by delivering written notice of revocation to the Clerk of Essex
County, by filing with Essex County a subsequently dated proxy or by voting in
person at the Special Meeting. All shares represented by effective proxies on
the enclosed form of Essex County proxy received by Essex County will be voted
at the Special Meeting in accordance with the terms of such proxies. If no
instructions are given, the Essex County proxies will be voted FOR the approval
of the Merger Agreement, FOR the election of the directors named in such proxy
card and FOR the adoption of the 1997 Plan.
Essex County will bear the cost of the solicitation of proxies for the
Special Meeting, except that Essex County and Eastern will share equally
expenses incurred in connection with the printing and filing of this Proxy
Statement/Prospectus. Certain officers, directors, employees and agents of Essex
County may solicit Essex County proxies by correspondence, telephone, telegraph,
telecopy or other electronic means, or in person, but without extra
compensation. Essex County will pay to banks, brokers, nominees and other
fiduciaries their reasonable charges and expenses incurred in forwarding the
proxy soliciting material to their principals. In addition, Essex County has
retained Corporate Investor Communications, Inc. to assist Essex
25
<PAGE> 31
County in the solicitation of proxies for a fee of $4,000 plus reasonable
out-of-pocket expenses. Such solicitation may be made by mail, telecommunication
or in person.
VOTING PROCEDURES FOR PARTICIPANTS IN ESSEX COUNTY'S
EMPLOYEE BENEFIT PLANS
Participants in Essex County Benefit Plans will receive individual proxies
relating to the pro rata share of Essex County Common Stock (including allocated
unvested shares) held for their benefit in the Essex County qualified plans.
Non-allocated and shares that are not voted will be voted by the trustees of the
Essex County Benefit Plans at their discretion. The trustees of the Essex County
Benefit Plans are Richard P. Hamel, Eric H. Jostrom, and Mr. Reardon, all of
whom constitute the Essex County Retirement Committee.
A participant in an Essex County Benefit Plan who executes a proxy may
revoke it at any time before it is voted by notifying the clerk of Essex County
to such effect in writing prior to the Special Meeting by filing with the Essex
County a superseding, later-dated proxy, or by voting in person at the Special
Meeting. Abstentions shall be voted neither for nor against but shall be counted
in the determination of a quorum. As of March 31, 1998, there were 72,390 shares
in Essex County's Employee Stock Ownership Plan (the "ESOP"); 19,171 shares in
the Essex County's PAYSOP/TRASOP Plan; 32,809 shares in the Essex County's
Thrift Savings Plan; and 15,176 shares in the Essex County Thrift Savings Plan
for United Steel Workers.
NO VOTE REQUIRED FOR EASTERN STOCKHOLDERS
Under applicable law, no approval of the Merger Agreement or the
transactions contemplated thereby is required by Eastern's stockholders and no
proxies are being solicitated from Eastern's stockholders.
THE MERGER
(PROPOSAL 1)
GENERAL DESCRIPTION OF THE MERGER
Merger Sub will merge with and into Essex County in accordance with the
laws of the Commonwealth of Massachusetts. Essex County shall be the Surviving
Company in the Merger and shall continue its corporate existence under the laws
of the Commonwealth of Massachusetts. At the Effective Time, (i) the Essex
County Charter, as in effect immediately prior to the Effective Time, shall be
the articles of organization of the Surviving Company until thereafter amended
as provided by law and such articles of organization, and (ii) the Essex County
By-laws, as in effect immediately prior to the Effective Time, shall be the
by-laws of the Surviving Company until thereafter amended as provided by law,
the articles of organization of the Surviving Company and such by-laws;
provided, however, that the Board of Directors of the Surviving Company shall
consist of the same number of directors as the number of directors of Merger Sub
at the Effective Time.
The initial directors of the Surviving Company, each to hold office in
accordance with the articles of organization and by-laws of the Surviving
Company, will be J. Atwood Ives, Chief Executive Officer and Chairman of
Eastern, Walter J. Flaherty, Senior Vice President and Chief Financial Officer
of Eastern, L. William Law, Jr., Senior Vice President, General Counsel and
Secretary of Eastern, Chester R. Messer, II, Senior Vice President of Eastern
and President of Boston Gas and Philip H. Reardon. The officers of Essex County
immediately prior to the Effective Time shall be the initial officers of the
Surviving Company, in each case until their respective successors are duly
elected or appointed and qualified.
It is not anticipated that the Board of Trustees or management of Eastern
will change as a result of the Merger.
BACKGROUND OF THE MERGER
Over the last several years, the Essex County Board and the management of
Essex County have followed closely developments in the gas utility industry,
with a particular focus on changes in the regulatory environment, and have
considered the impact of such developments on Essex County's strategic options
going forward. It was the view of management that because of regulatory
initiatives causing local distribution companies ("LDCs") to "unbundle" gas
sales from distribution service (i.e., allow customers to select their supplies
of gas, while continuing to be users of the LDC's distribution system), gas
sales would become increasingly the province of retail marketers because of the
desire of state regulators to have gas sales
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provided by a competitive market rather than by traditional monopoly providers
of bundled gas services. Management also believed that Essex County's relatively
small size would likely preclude it from competing effectively as an independent
retail marketer, and, based on policies adopted by regulators in recent
decisions, that efficiencies and economies of scale would be possible through
mergers or acquisitions of smaller companies by larger companies. Thus, it was
felt that there were significant risks to Essex County's shareholders associated
with the growing trend towards deregulation. Management concluded that Essex
County should seriously explore a business combination. At an Essex County Board
meeting on July 21, 1997, the Essex County Board authorized management to
interview and select investment bankers for the purpose of helping the Board
assess the prospects, desirability, timing and process for the exploration of
alternatives to enhance shareholder value. By letter dated September 15, 1997,
Furman Selz was engaged by Essex County as its exclusive financial advisor in
connection with a possible business combination.
Furman Selz contacted more than 35 companies to solicit their interest in a
transaction involving Essex County. Of that group, 13 companies agreed to sign a
confidentiality agreement (which contained a "standstill" provision prohibiting
the counterparty from making a proposal for Essex County for two years except at
the invitation of the Essex County Board) and were sent a descriptive memorandum
with respect to Essex County. Six of those companies submitted non-binding
indications of interest at the end of October, 1997 and the first week of
November, 1997. Based on such indications of interest, five of the companies,
including Eastern, were invited to conduct additional due diligence during the
middle two weeks of November, 1997.
By letter dated November 25, 1997, Furman Selz on behalf of Essex County
invited the five potential bidders to submit proposals no later than December 5,
1997. The potential bidders were provided forms of merger agreements, on which
Furman Selz requested the bidders to communicate comments. Furman Selz advised
the potential bidders that while the Essex County Board had preliminarily
concluded that a stock for stock transaction in which shareholders could
exchange their shares on a tax-free basis would be preferable, it was willing to
entertain cash bids as well.
At the regular meeting of the Essex County Board on December 2, 1997, the
directors received an update from management and Essex County's outside advisors
relating to the discussions with potential bidders.
All five of the potential bidders submitted proposals on December 5, 1997.
After reviewing all of the proposals with management and counsel, on December 9,
1997 Furman Selz advised Eastern that management would recommend Eastern's
proposals to the Essex County Board if Eastern would increase its bid so that it
would have a current value of $47.50 per share and would commit not to allow the
value of Eastern securities to be delivered in respect of each Essex County
share to fall below $45 and would allow the value of the Eastern securities to
"float" up to $54 per share. Eastern rejected the proposal by Furman Selz.
Over the course of the next week, Furman Selz and counsel for Essex County
had discussions with several of the bidders, including Eastern, attempting to
arrive at the optimum financial and legal terms relating to the sale of Essex
County. Those discussions resulted in Eastern making the proposal which is
embodied in the Merger Agreement. Essex County's service area is contiguous to
that of Boston Gas, Eastern's wholly-owned subsidiary, and the management of
Eastern believed that the acquisition of Essex County could create opportunities
for cost savings and efficiencies through integration of Essex County's
operations with those of Boston Gas.
The Executive Committee of the Essex County Board met on December 16, 1997
and received an update on the activities of Furman Selz, counsel to Essex County
and management with respect to the exploration of strategic alternatives. The
members of the Executive Committee agreed that the advisors should attempt to
finalize negotiations with Eastern with respect to its proposal.
On December 19, 1997 the Essex County Board met and received presentations
from Furman Selz and legal counsel. All members of the Essex County Board were
present. Furman Selz reviewed various financial and other information and
rendered to the Essex County Board its oral opinion to the effect that, as of
such date and based upon and subject to certain assumptions, the proposed
Exchange Ratio was fair to the holders of Essex County Common Stock. Legal
counsel reviewed the form of merger agreement. The Essex County
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Board discussed the advice they had received at the various Essex County Board
meetings and the significant benefits to shareholders and customers which would
result from the Merger. Following such discussions, the Essex County Board, by a
unanimous vote, adopted the Merger Agreement, authorized the execution thereof,
and determined to submit the Merger Agreement to the Essex County shareholders
with the Essex County Board recommendation for approval. Following the meeting,
the Merger Agreement was executed.
REASONS FOR THE MERGER; RECOMMENDATION OF THE ESSEX COUNTY BOARD OF DIRECTORS
The Essex County Board believes that the terms of the Merger are fair to,
and in the best interests of, Essex County and its shareholders. Accordingly,
the Essex County Board, by a unanimous vote, has adopted the Merger Agreement
and unanimously recommends its approval by Essex County shareholders. The Essex
County Board believes that, due to its relatively small size and limited
financial resources, a merger with a larger company would be the most prudent
way to provide shareholders with the ability to participate in future strategic
opportunities that may become possible as deregulation of the gas industry
progresses. Of particular significance to the Essex County Board was the fact
that the transaction contemplates a significant premium to the market price of
Essex County Common Stock.
In reaching its decision to approve the Merger Agreement, the Essex County
Board considered the following factors: (i) the current and historical market
prices of Essex County Common Stock and Eastern Common Stock and the fact that
the proposed exchange ratio would result in a significant premium to Essex
County shareholders; (ii) information concerning the financial performance,
condition, business operations and prospects of each of Essex County and Eastern
which led the Essex County Board to believe that a policy of continued
independence was not the best strategic option for Essex County and its
shareholders; (iii) the effect of the Merger on Essex County's existing
shareholders, including the opportunity to share in the anticipated benefits of
ownership of the combined enterprise; (iv) the expected federal income tax
treatment of the Merger as a tax-free reorganization to Essex County
shareholders and the expected accounting treatment of the Merger as a pooling of
interests; (v) the regulatory treatment to be requested in connection with the
Merger, specifically that Eastern was willing to propose new rates for customers
of Essex County which would result in as much as a 5% reduction in customer
bills; (vi) the terms of the Merger Agreement, which provide for balanced
representations and warranties, conditions to closing and rights to termination
and thus would allow the Essex County Board to terminate the Merger Agreement if
a more favorable proposal was made by another party; and (vii) the opinion of
Essex County's financial advisor, Furman Selz, that, as of December 19, 1997 and
as of the date hereof and based upon the factors and assumptions described in
such opinion, the Exchange Ratio is fair to the holders of shares of Essex
County Common Stock. In determining that the Merger is fair to Essex County's
shareholders, the Essex County Board considered the above factors as a whole and
did not assign specific or relative weights to them.
THE ESSEX COUNTY BOARD, BY A UNANIMOUS VOTE, HAS ADOPTED THE MERGER
AGREEMENT, BELIEVES THAT THE TERMS OF THE MERGER ARE FAIR TO ESSEX COUNTY
SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF ESSEX COUNTY
VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
In considering the recommendation of the Essex County Board with respect to
the Merger Agreement, shareholders should be aware that certain members of Essex
County's management and the Essex County Board have certain interests in the
Merger that are in addition to the interests of shareholders of Essex County
generally and that could potentially represent conflicts of interest. The Essex
County Board was aware of these interests and considered them, among other
matters, in adopting the Merger Agreement. See "-- Interests of Certain Persons
in the Merger."
OPINION OF ESSEX COUNTY FINANCIAL ADVISOR
Furman Selz has acted as Essex County's exclusive financial advisor in
connection with the Merger and has assisted the Essex County Board in its
examination of the fairness, from a financial point of view, of the Exchange
Ratio. As described herein, the Furman Selz opinion (together with the related
presentation) to the
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Essex County Board was only one of the many factors taken into consideration by
the Essex County Board in determining to approve the Merger Agreement.
On December 19, 1997, Furman Selz delivered its opinion (the "Furman Selz
Opinion") to the Essex County Board, to the effect that, as of the date of the
Furman Selz Opinion, based upon the facts and circumstances as they existed at
that time, and subject to certain assumptions, facts and limitations stated
therein, the Exchange Ratio is fair to the holders of the Essex County Common
Stock, from a financial point of view.
The full text of the Furman Selz Opinion, which sets forth, among other
things, the assumptions made, matters considered and the scope and limitations
of the review undertaken and procedures followed by Furman Selz in rendering its
opinion, is included as Annex B to this Proxy Statement/Prospectus and is
incorporated herein by reference. Shareholders are urged to read the Furman Selz
Opinion in its entirety. The Furman Selz Opinion was intended for the use and
benefit of the Essex County Board in its consideration of the Merger, addresses
only the fairness, from a financial point of view, of the Exchange Ratio to the
holders of Essex County Common Stock, and does not constitute a recommendation
to any holders of shares of Essex County Common Stock as to how such shareholder
should vote with respect to the proposed Merger.
In rendering the Furman Selz Opinion, Furman Selz assumed and relied,
without independent verification, upon the accuracy and completeness of all
financial and other information and data obtained from public sources or
provided to Furman Selz by Essex County and reviewed by Furman Selz for purposes
of arriving at the Furman Selz Opinion, and Furman Selz did not assume any
responsibility for independent verification of such information or undertake any
obligation to verify such information. In addition, with respect to the
financial forecasts and projections of Essex County used in its analysis, the
management of Essex County informed Furman Selz that such forecasts and
projections were reasonable, and Furman Selz assumed that they represented the
best current estimates and judgment of the management of Essex County as to the
future financial condition and operating results of Essex County, and assumed
that such forecasts and projections were reasonably prepared based on such
currently available estimates and judgment. Furman Selz assumes no
responsibility for and expresses no view as to such forecasts and projections or
the assumptions on which they are based.
In arriving at the Furman Selz Opinion, Furman Selz, among other things:
(i) reviewed the Merger Agreement and the financial terms of the
Merger set forth therein;
(ii) reviewed Essex County's Annual Reports on Form 10-K for the
fiscal years ended August 31, 1995, 1996 and 1997 and certain other filings
with the Commission made by Essex County, including proxy statements;
(iii) reviewed selected non-public information relating to Essex
County, including financial forecasts and projections and preliminary
financial results for the quarter ending November 30, 1997 furnished to
Furman Selz by Essex County;
(iv) reviewed Eastern's Annual Reports on Form 10-K for the fiscal
years ended December 31, 1994, 1995, and 1996, Quarterly Report on Form
10-Q for the nine months ended September 30, 1997, and certain other
filings with the Commission made by Eastern, including proxy statements;
(v) reviewed selected non-public information relating to Eastern
furnished to Furman Selz by Eastern;
(vi) reviewed selected other publicly available information, including
research reports, concerning Essex County and Eastern and the trading
markets for Essex County Common Stock and Eastern Common Stock;
(vii) conducted discussions with selected members of senior management
of Essex County and Eastern concerning their respective businesses and
operations, assets, present condition and future prospects;
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(viii) reviewed selected publicly available information, including
research reports, concerning certain other companies engaged in businesses
which Furman Selz believed to be comparable to Essex County and the trading
markets for certain of such companies' securities;
(ix) reviewed the financial terms of selected recent business
combinations generally and in the United States gas utility industry
specifically which Furman Selz believed to be relevant; and
(x) performed such other analyses, examinations and procedures,
reviewed such other agreements and documents, and considered such other
factors, as Furman Selz deemed in its sole judgment, to be necessary,
appropriate or relevant to render an opinion.
Although Furman Selz visited the executive offices of Essex County, it did
not conduct a physical inspection of any of the properties and facilities of
Essex County or Eastern and did not make, nor was Furman Selz furnished with nor
did it obtain, any independent evaluation or appraisal of any such properties or
facilities or of the assets of Essex County or Eastern.
In addition, Furman Selz took into account its assessment of general
economic, market and financial conditions and its experience in similar
transactions, as well as its experience in securities valuation in general. The
Furman Selz Opinion necessarily is based upon conditions as they existed as of
December 19, 1997 and could only be evaluated on such date, and did not
represent an opinion as to the value of the Essex County Common Stock or the
impact of the proposed Merger or its announcement on the trading price of the
Essex County Common Stock.
In connection with its engagement as exclusive financial advisor to Essex
County, Furman Selz solicited and received proposals from parties other than
Eastern to enter into a business combination with Essex County. See
"-- Background of the Merger".
In rendering the Furman Selz Opinion, Furman Selz assumed that the Merger
would qualify as a reorganization under Section 368(a) of the Code and that the
Merger will be accounted for as a pooling of interests in accordance with
generally accepted accounting principles ("GAAP") as described in Accounting
Principles Board Opinion No. 16.
In preparing the Furman Selz Opinion for the Essex County Board, Furman
Selz performed a variety of financial and comparative analyses, including those
described below. The preparation of a fairness opinion is a complex analytic
process involving various determinations as to the most appropriate and relevant
methods of financial analysis and the application of these methods and the
application of these methods to the particular circumstances and, therefore, is
not necessarily susceptible to partial or summary description. No company,
business or transaction used in such analysis is identical to Essex County,
Eastern or the Merger, nor is an evaluation of the results of such analyses
entirely mathematical; rather, it involves complex considerations and judgments
concerning financial and operating characteristics and other factors that could
affect the acquisition, public trading or other values of companies, business
segments or transactions being analyzed. Any estimates incorporated in the
analyses performed by Furman Selz are not necessarily indicative of actual past
or future results or values, which may be significantly more or less than such
estimates. 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, companies or securities actually may be sold. Accordingly, such
analyses and estimates are inherently subject to substantial uncertainty.
Furman Selz believes that its analysis 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
process underlying such analyses and opinion. In its analyses, Furman Selz made
numerous macroeconomic, operating and financial assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond Essex County's control and involve the
application of complex methodologies and educated judgment.
The Furman Selz Opinion is based upon the consideration by Furman Selz of
the collective results of such analysis, together with the other factors
referred to in the Furman Selz Opinion. The following is a
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summary of material financial and competitive analyses performed by Furman Selz
in arriving at the Furman Selz Opinion and presented to the Essex County Board
on December 19, 1997:
Stock Price and Premium Study. Furman Selz reviewed the closing market
price and trading volume of Essex County Common Stock for the period beginning
January 3, 1995 and ending December 18, 1997. Furman Selz compared the closing
market price performance of Essex County Common Stock for such period to (i) the
Standard and Poor's 500 Composite Index ("S&P 500"), and (ii) an LDC index
developed by Furman Selz comprised of the nine Publicly Traded Comparables (as
defined herein), to provide perspective on the current and historical price
performance relative to such indices. This analysis showed that, during such
period, Essex County's stock price under-performed the S&P 500 and generally
matched the performance of the index of Publicly-Traded Comparables. In
addition, Furman Selz observed that the proposed Exchange Ratio represents (i) a
67.5% premium over the average closing price of the Essex County Common Stock
over the most recent 180-day period, (ii) a 54.8% premium over the most recent
90-day period, (iii) a 50.2% premium over most recent 30-day period, and (iv) a
37.7% premium over the closing price of Essex County Common Stock on December
18, 1997.
Comparable Company Trading Multiples Analysis. Using publicly available
information, including earnings per share ("EPS") and growth rate estimates from
First Call Corporation ("First Call"), Furman Selz reviewed certain financial
ratios of each of the following nine publicly-traded companies that Furman Selz
deemed, through industry experience and discussions with management of Essex
County, to be reasonably similar (in terms of primary business, customer
profile, distribution channels and total revenue) to Essex County: Bay State Gas
Company, The Berkshire Gas Company, Colonial Gas Company, Connecticut Energy
Corp., CTG Resources, Inc., Delta Natural Gas Company, Inc., EnergyNorth, Inc.,
Mobile Gas Services Corporation and Providence Energy Corp. (the
"Publicly-Traded Comparables"). Furman Selz analyzed the multiples obtained by
dividing (i) the aggregate market equity value by the then most recent publicly
available Book Value (defined for this purpose as shareholders' equity), (ii)
the per share market price of the common stock of each of the Publicly-Traded
Comparables by the then publicly available latest 12-month period ("LTM") EPS,
the projected 1997 EPS and the projected 1998 EPS, and (iii) the total
capitalization (defined as the aggregate market equity value plus the total
principal amount of debt (including long-term debt and capitalized leases and
the current portion of long-term debt and capitalized leases) plus the
liquidation value of preferred stock, less investments in affiliates, plus
minority interest, less cash and cash equivalents (including short-term
investments and marketable securities)) of each of the Publicly-Traded
Comparables, by the LTM, projected 1997 and projected 1998 (i) net revenue, (ii)
earnings before interest, taxes, depreciation and amortization ("EBITDA"), and
(iii) earnings before interest and taxes ("EBIT").
Such financial ratios were compared to the corresponding historical and
projected operating results of Essex County to derive valuation estimates for
Essex County. Based on its review of the Publicly-Traded Comparables, for the
Book Value multiple, Furman Selz utilized a value of 1.6x, and for the EPS
multiple Furman Selz utilized values of 15.2x for LTM, 15.0x for projected 1997,
and 13.7x for projected 1998, and for the EBITDA multiple, Furman Selz utilized
values of 8.0x for LTM, 7.9x for projected 1997, and 6.7x for projected 1998.
Utilizing this methodology, Furman Selz derived estimated per share valuations
for the Essex County Common Stock ranging from approximately $30.00 to $37.00,
as compared to the consideration to be received by holders of Essex County
Common Stock in the Merger of $47.50 per share based upon the average closing
price of the Eastern Common Stock during the 10 consecutive trading days ended
December 18, 1997 (the "Eastern 10-day Average Closing Price") of $40.12 per
share.
Comparable Merger and Acquisition Transactions Analysis. Using publicly
available information Furman Selz reviewed transactions that have been announced
or consummated since June 12, 1989 involving the acquisition of LDCs (the
"Comparable LDC Acquisition Transactions") that Furman Selz deemed to be
reasonably similar (in terms of major products, customer profile, primary
distribution channels and total revenue) to Essex County, to derive estimated
per share valuations for Essex County Common Stock. The Comparable LDC
Acquisition Transactions and their respective dates of announcement were
(acquiror/ target): NIPSCO Industries, Inc./Bay State Gas Company (December
1997); PP&L Resources, Inc./Penn Fuel Gas, Inc. (June 1997); Oneok, Inc./Western
Resources, Inc. (December 1996); TECO Energy, Inc./ Lykes Energy, Inc. (November
1996); Atmos Energy Corp./United Cities Gas Co. (July 1996); NUI Corp./
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Pennsylvania and Southern Gas Co. (July 1993); Wisconsin Energy Corp./Wisconsin
Southern Gas Co. (May 1993); Atmos Energy Corp./Greeley Gas Co.(March 1993);
NIPSCO Industries, Inc./Northern Indiana Fuel & Light Co. (November 1992);
NIPSCO Industries, Inc./Kokomo Gas & Fuel Co. (October 1991); Citizen Utilities
Co./Southern Union Co. (Arizona utility operations) (December 1991); Arkla,
Inc./ Minnegasco (Diversified Energies, Inc. subsidiary) (July 1990); Citizen
Utilities Co./Louisiana General Services, Inc. (May 1990); Consolidated Natural
Gas Company/Virginia Natural Gas, Inc. (June 1989).
With respect to each of the Comparable LDC Acquisition Transactions, Furman
Selz compared (i) the equity purchase price as a multiple of the then most
recent publicly available Book Value, (ii) the equity purchase price as a
multiple of LTM net income prior to the transaction (the "EPS Multiple"), and
(iii) the total transaction value (defined as the equity purchase price plus the
total principal amount of debt, plus the liquidation value of preferred stock,
less investments in affiliates, plus minority interest, less cash and cash
equivalents, less option proceeds) as a multiple of the (a) LTM revenue prior to
the transaction, (b) LTM EBITDA prior to the transaction (the "EBITDA
Multiple"), and (c) LTM EBIT prior to the transaction of such companies. Based
on its review of the Comparable LDC Acquisition Transactions for the Book Value
multiple, EPS Multiple and EBITDA Multiple, respectively, Furman Selz utilized
values of 2.06x to 2.13x, 19.1x to 20.7x and 8.3x to 8.7x.
Utilizing this methodology, Furman Selz derived estimated per share
valuations for Essex County Common Stock ranging from approximately $41.00 to
$46.00, as compared to the consideration to be received by holders of Essex
County Common Stock in the Merger of $47.50 per share based upon the Eastern
10-day Average Closing Price of $40.12 per share.
Discounted Cash Flow Analysis. Furman Selz performed a discounted cash
flow ("DCF") analysis of the projected free cash flow of Essex County utilizing
management's operating projections for the years 1998 through 2002. The DCF was
calculated assuming discount rates ranging from 7.0% to 9.0%, consistent with
Furman Selz's industry research and analysis of average industry weighted
average cost of capital ("WACC"). The DCF valuation was comprised of (i) adding
(a) the present value of the projected unleveraged free cash flow for the years
1998 through 2002, and (b) the present value of Essex County's estimated
terminal value in year 2002 based upon a range of multiples of 6.0x to 8.0x
projected EBITDA in such year, consistent with Furman Selz's analysis of public
company EBITDA trading multiples, (ii) subtracting the current net debt of Essex
County, and (iii) adding the proceeds to be realized from the exercise of
outstanding options, at a price equal to the consideration to be received by the
holders of Essex County Common Stock in the Merger at $47.50 per share.
Utilizing this methodology, Furman Selz derived estimated per share
valuations for Essex County Common Stock ranging from approximately $26.00 to
$43.00, as compared to the consideration to be received by holders of Essex
County Common Stock in the Merger of $47.50 per share based upon the Eastern
10-day Average Closing Price of $40.12 per share.
Pursuant to an engagement letter dated September 18, 1997, Essex County
agreed to pay Furman Selz a $50,000 retainer fee upon the signing of such
engagement letter and an additional incentive fee of approximately $1,382,337,
of which approximately $214,850 was paid following public announcement of the
execution of the Merger Agreement, $358,084 will be paid following approval of
the Merger by the holders of Essex County Common Stock and $809,402 will be paid
upon consummation of the Merger. In addition, Essex County has agreed to
reimburse Furman Selz for its reasonable out-of-pocket expenses (including
reasonable legal fees and disbursements) and to indemnify Furman Selz against
certain liabilities relating to or arising out of services performed by it as
financial advisor to the Essex County Board in connection with the Merger.
Furman Selz is an internationally recognized investment banking firm, which
as a part of its investment banking services, is regularly engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements and valuations for corporate and other
purposes, and principals of Furman Selz have a long history of association in
the investment banking and electric and gas utility industries. Furman Selz was
retained by the Essex County Board to act as its exclusive financial advisor in
connection with the Merger
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based upon Furman Selz's reputation and experience as a financial advisor in
mergers and acquisitions as well as Furman Selz's familiarity with Essex County
and the experience of Furman Selz's principals in the valuation of businesses
and securities in the electric and gas utilities industries.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Essex County Board with respect to
the Merger, stockholders should be aware that certain members of Essex County's
management and the Essex County Board have certain interests in the Merger that
are in addition to the interests of stockholders of Essex County generally and
represent inherent conflicts of interest, including the following:
Employment Agreements. Messrs. Reardon, Purdy, Hastings, Neale, Brooks,
Beaton and Ms. Brown are parties to employment agreements with Essex County,
which provide that, upon a Change of Control of the Company (as defined in such
agreements and which will be deemed to have occurred for purposes thereof when
both stockholder approval and regulatory approval of the Merger have been
obtained), each of such executives shall remain in the employ of the Surviving
Company for a period of two years following the Change of Control of the Company
(the "Employment Period"). If, during the Employment Period, an executive is
terminated without cause or terminates his or her own employment as a result of
certain adverse actions by the Company, as more fully set forth in such
employment agreements, such executive shall be paid a lump sum severance in an
amount equal to the salary and bonus payable for the remainder of the Employment
Period plus a pro rata share of the estimated amount of any bonus that would
have been payable for the bonus period, that includes the termination date, and
will be provided with continued welfare benefits (or cash equal to replacement
costs) for the remainder of the Employment Period. These payments are subject to
reduction if necessary to avoid the receipt of any excess parachute payments,
subject to federal excise tax, except in the case of Mr. Reardon, who is
entitled to receive an additional payment if necessary to make him whole for any
such excise tax. If such persons were terminated immediately after consummation
of the Merger, each would receive total payments and benefits having a value
approximately as follows (assuming such amounts were not reduced to avoid
federal excise taxes): Mr. Reardon $440,000 (plus a possible payment with
respect to the excise tax), Mr. Purdy $263,000, Mr. Hastings $264,000, Mr. Neale
$231,000, Mr. Brooks $224,000, Mr. Beaton $235,000 and Ms. Brown $101,000. It is
anticipated that Messrs. Reardon, Purdy, Hastings, Neale, Brooks, Beaton and Ms.
Brown will remain in the employ of the Surviving Company upon consummation of
the Merger, pending an evaluation of continuing staffing requirements of the
Surviving Company.
Supplemental Executive Retirement Plan. There exists an Essex County
Supplemental Executive Retirement Plan for Mr. Reardon, effective as of January
1, 1994 (the "SERP"), pursuant to which Mr. Reardon, upon termination pursuant
to the employment agreement described above, shall receive an annual retirement
benefit, such that his aggregate retirement benefits from the SERP, the pension
plan of his former employer, and Essex County's pension plan, will have an
actuarial value equal to a joint and two-thirds survivor annuity of sixty
percent of his Final Average Earnings (as defined in the SERP). If Mr. Reardon
was terminated as of December 31, 1998 as a result of the consummation of the
Merger, he would receive approximately $500,000 pursuant to the SERP.
Essex County Board Deferral Plan. Pursuant to the Essex County Board
Deferral Plan, currently in effect, Messrs. Reardon, Benjamin C. Bixby, Daniel
A. Burkhardt, Edward J. Curtis, Robert S. Jackson and Eric H. Jostrom and Ms.
Dorothy J. Dotson have elected to defer receipt of all or a part of their fees
as a directors or as members of any committees of the Essex County Board and
have elected that such deferral amounts be credited to a stock fee account
payable to such directors after retirement in the form of Essex County Common
Stock. Such Essex County Common Stock would become payable to such directors
after such directors cease to be directors of Essex County. Upon consummation of
the Merger, all of the above named directors, except Mr. Reardon, will cease to
be directors of Essex County and will be entitled to receive approximately
40,101 shares, in the aggregate, of Eastern Common Stock based upon the Exchange
Ratio. See "Election of Directors -- Directors' Compensation."
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Essex County Retirement Plan for Members of the Essex County
Board. Pursuant to the Retirement Plan for the Essex County Board, effective
September 1, 1993 (the "Board Retirement Plan"), any eligible Board member that
retires from the Essex County Board will receive an annual benefit equal to such
board member's annual retainer in effect on the date of such board member's
retirement multiplied by such board member's vested percentage at retirement, as
determined pursuant to the Board Retirement Plan. All current members of the
Essex County Board, except Mr. Reardon, are expected to retire upon consummation
of the Merger and as such Messrs. Billups, Bixby, Burkhardt, Curtis, Hamel,
Jackson, Jostrom, Meade and Paul and Ms. Dotson will be eligible to receive
annual payments, upon attainment of the necessary retirement age, of
approximately $59,075, in the aggregate, pursuant to the Board Retirement Plan.
Stock Option Plan. Essex County maintains the Essex County Gas Company
1994 Stock Option Plan (the "Stock Option Plan"). Pursuant to the Stock Option
Plan, any unvested options will vest upon consummation of the Merger. Mr.
Reardon currently holds vested options in 14,400 shares of Essex County Common
Stock and unvested options in 9,600 shares of Essex County Common Stock pursuant
to the Stock Option Plan which will become fully vested and exercisable upon
consummation of the Merger at an exercise price of $24.25 per share.
Board Approved Benefits. On September 29, 1997, the Essex County Board
authorized cash bonuses to be payable to key employees that remain in the employ
of Essex County until the Merger is consummated. The aggregate amount of such
bonuses is expected to be approximately $250,000.
Indemnification. Pursuant to the Merger Agreement, to the extent, if any,
not provided by an existing right of indemnification or other agreement or
policy, from and after the Effective Time, Eastern and the Surviving Company
will, to the fullest extent permitted by applicable law, and the charter and
by-laws of the relevant entity, as in effect on December 19, 1997, indemnify,
defend and hold harmless the present and former directors, officers and
employees of the parties to the Merger Agreement prior to the Effective Time and
their respective subsidiaries against (i) all losses, expenses (including
reasonable attorneys' fees and expenses), claims, damages or liabilities, or,
subject to certain restrictions, amounts paid in settlement of or arising out of
actions or omissions occurring at or prior to 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, officer or employee of such party or any subsidiary thereof (the
"Indemnified Liabilities") whether asserted or claimed prior to, at, or after
the Effective Time, and (ii) all Indemnified Liabilities based on, arising from,
or pertaining to the transactions contemplated by the Merger Agreement.
In addition, the Merger Agreement provides that, for a period of six years
after the Effective Time, Eastern will cause to be maintained in effect the
policies of directors' and officers' liability insurance maintained by Essex
County (subject to certain limitations). See "The Merger Agreement --
Indemnification."
The Essex County Board was aware of these interests and considered them,
among other things, in approving the Merger.
FEDERAL INCOME TAX CONSEQUENCES
The opinion of Wachtell, Lipton, Rosen & Katz concerning the material
federal income tax consequences of the Merger, set forth below, is based upon
current provisions of the Code, existing regulations thereunder, current
administrative rulings of the Internal Revenue Service (the "IRS") and court
decisions, all of which are subject to change either prospectively or
retroactively. Any such changes could affect the conclusions set forth herein,
including the opinion of Wachtell, Lipton, Rosen & Katz. The discussion does not
address all federal income tax consequences of the Merger that may be relevant
to particular Essex County stockholders in light of their particular
circumstances, including holders that are subject to special tax rules, such as
dealers in securities, foreign persons, mutual funds, insurance companies,
tax-exempt entities and holders who do not hold their shares as capital assets,
including holders who acquired their shares pursuant to the exercise of employee
stock options or otherwise as compensation. No information is provided herein
with respect to the tax consequences of the Merger under foreign, state, or
local laws. Holders of Essex County Common Stock are advised to consult their
own tax advisers regarding the federal income tax consequences of the Merger in
light of their personal circumstances and the consequences under state, local
and foreign tax laws.
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Based upon and subject to the foregoing, it is the opinion of Wachtell,
Lipton, Rosen & Katz that the Merger will constitute a reorganization within the
meaning of Section 368(a) of the Code. Accordingly, the following federal income
tax consequences will occur:
(i) no gain or loss will be recognized by Essex County, Merger Sub or
Eastern by reason of the Merger;
(ii) no gain or loss will be recognized by a holder of Essex County
Common Stock upon the exchange of such shares solely for Eastern Common
Stock in the Merger;
(iii) the aggregate basis of the shares of Eastern Common Stock
received by a holder of Essex County Common Stock in the Merger (including
any fractional share deemed received) will be the same as the aggregate
basis of the shares surrendered in exchange therefor;
(iv) the holding period of the shares of Eastern Common Stock received
by a holder of Essex County Common Stock in the Merger (including any
fractional share deemed received) will include the holding period of the
shares surrendered in exchange therefor; and
(v) a holder of Essex County Common Stock who receives cash in lieu of
a fractional share of Eastern Common Stock will recognize gain or loss
equal to the difference, if any, between such stockholder's basis in the
fractional share (as described in paragraph (iii) above) and the amount of
cash received. Such gain or loss will be capital gain or loss if the Essex
County Common Stock is held by such stockholder as a capital asset at the
Effective Time and will be long-term capital gain or loss if the holding
period for the fractional share (as described in paragraph (iv) above) is
more than one year (the maximum rate of tax on any such long-term capital
gain being further reduced if the shares were held for more than 18
months).
HOLDERS OF ESSEX COUNTY COMMON STOCK ARE URGED TO CONSULT THEIR OWN TAX
ADVISERS WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO SUCH
HOLDERS, INCLUDING THE APPLICATION AND EFFECT OF THE LAWS OF ANY STATE,
MUNICIPAL, FOREIGN OR OTHER TAXING JURISDICTION.
It is a condition of the Closing that Essex County receive from its special
counsel, Wachtell, Lipton, Rosen & Katz, a confirming opinion dated as of the
Closing Date, to the effect that for federal income tax purposes the Merger will
constitute a reorganization within the meaning of section 368(a) of the Code.
The confirming opinion that the Merger will constitute a reorganization within
the meaning of section 368(a) of the Code is conditioned upon receipt of certain
representations of Essex County and Eastern. Stockholders of Essex County should
be aware that such opinion is not binding on the IRS and no assurance can be
given that the IRS will not adopt a contrary position or that a contrary IRS
position would not be sustained by a court.
THE CONDITION THAT ESSEX COUNTY RECEIVE THE FOREGOING OPINION OF ITS
SPECIAL COUNSEL IS WAIVABLE BY ESSEX COUNTY. IN THE EVENT THAT THIS CONDITION IS
WAIVED, ESSEX COUNTY WILL RECIRCULATE ITS PROXY STATEMENT TO ITS SHAREHOLDERS TO
DISCLOSE THE WAIVER OF THIS CONDITION AND ALL RELATED MATERIAL DISCLOSURES AND
WILL RESOLICIT APPROVAL OF THE MERGER.
GOVERNMENTAL AND REGULATORY APPROVALS
The consummation of the Merger is contingent upon receiving approval from
certain state and federal governmental agencies. Under Chapter 164 of the MGL,
the MDTE must approve the Merger and the terms of the Merger Agreement, together
with a rate plan for Essex County, which rate plan will become effective
following the Merger. The MDTE must also approve the issuance of shares of
capital stock of Merger Sub to Eastern.
Transactions such as the Merger are reviewed by the DOJ and the FTC to
determine whether they comply with applicable antitrust laws. Under the
provisions of the HSR Act, the Merger may not be consummated until such time as
the specified waiting period requirements of the HSR Act have been satisfied.
Essex County and Eastern filed notification reports, together with requests for
early termination of
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the waiting period, with the DOJ and the FTC under the HSR Act on March 30, 1998
and the waiting period has now expired.
The Commission must approve the acquisition by Eastern of the Essex County
Common Stock pursuant to the Merger Agreement, under PUHCA.
RESTRICTIONS ON RESALES BY ESSEX COUNTY AFFILIATES
The shares of Eastern Common Stock to be received by stockholders of Essex
County in connection with the Merger have been registered under the Securities
Act and, except as set forth in this paragraph, may be traded without
restriction. The securities to be issued in connection with the Merger and
received by persons who are "affiliates" (as that term is defined in Rule 144
under the Securities Act) of Eastern or Essex County prior to the Merger may be
resold by them only in transactions permitted by the resale provisions of Rule
145 under the Securities Act in the case of persons who are affiliates of Essex
County (or, in the case of such persons who become affiliates of Eastern, Rule
144 under the Securities Act) or as otherwise permitted under the Securities
Act. Pursuant to the Merger Agreement, Essex County has agreed to use its
reasonable efforts to cause its "affiliates" (as that term is used in Rule 145
under the Securities Act) to deliver a written agreement to Eastern with respect
to the shares (the "Affiliate Shares") to be received by such affiliate pursuant
to the Merger (the "Affiliate Agreements"). It is intended that, pursuant to the
Affiliate Agreements, each affiliate will agree (i) not to make any offer to
sell or any sale or other disposition of all or any part of the Affiliate Shares
in violation of the Securities Act and to hold the Affiliate Shares subject to
applicable provisions of the Securities Act, (ii) that such affiliate has been
advised that any public reoffering or resale of the Affiliate Shares by the
affiliate requires compliance with certain registration requirements under the
Securities Act, and (iii) that such affiliate understands that Eastern will be
under no obligation to register the Affiliate Shares under the Securities Act or
take certain other actions that may be necessary in connection with dispositions
by the affiliate.
ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling of interests for financial
reporting purposes in accordance with GAAP. Under the pooling method of
accounting, the operating statements of the combined companies are presented as
though the enterprises had been combined throughout all prior accounting
periods, and all assets and liabilities of the combining companies will continue
to be reflected at their preclosing recorded basis.
APPRAISAL RIGHTS
Pursuant to the MGL, holders of Essex County Common Stock who object to the
Merger Agreement and the Merger are not entitled to demand separate payment for
their shares or an appraisal thereof in connection with the transactions
contemplated by the Merger Agreement.
THE MERGER AGREEMENT
The following is a summary of the material terms of the Merger Agreement.
This summary is qualified in its entirety by reference to the Merger Agreement.
A copy of the Merger Agreement is included as Annex A to this Proxy
Statement/Prospectus and is incorporated herein by reference.
CLOSING; EFFECTIVE TIME OF THE MERGER
The Closing of the transactions contemplated by the Merger Agreement will
occur on the second business day immediately following the date on which the
last of the conditions to the Merger are fulfilled or waived (other than
conditions that by their nature are required to be performed on the Closing
Date), or at such other time and date as Essex County and Eastern agree.
In addition to being subject to Essex County stockholder approval of the
Merger Agreement, the Merger is subject to approval by the MDTE.
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On the Closing Date, the Articles of Merger complying with the requirements
of the MGL will be filed with the State Secretary of the Commonwealth of
Massachusetts. The Merger will become effective upon the filing of Articles of
Merger with the State Secretary of the Commonwealth of Massachusetts.
MANNER AND BASIS OF CONVERTING SHARES
Conversion of Stock Pursuant to the Merger. At the Effective Time, by
virtue of the Merger and without any action on the part of any holder of any
capital stock of Essex County or Merger Sub: (i) each share of Common Stock of
Merger Sub (the "Merger Sub Common Stock") shall be converted into one share of
common stock of the Surviving Company; (ii) each share of Essex County Common
Stock that is owned by Essex County as treasury stock and all shares of Essex
County Common Stock that are owned, directly or indirectly, by Essex County or
Eastern or any of their respective wholly owned subsidiaries shall be canceled
and shall cease to exist and no stock of Eastern or other consideration shall be
delivered in exchange therefor; (iii) each issued and outstanding share of Essex
County Common Stock, other than shares canceled pursuant to clause (ii) of this
paragraph, shall be converted into the right to receive 1.183985 shares of
Eastern Common Stock, provided that, if the Market Value (as defined herein) of
1.183985 shares of Eastern Common Stock computed in accordance with the Merger
Agreement is less than $45 per share, then each such share of Essex County
Common Stock shall be converted into the right to receive the number of shares
of Eastern Common Stock having a Market Value equal to $45; and if the Market
Value of 1.183985 shares of Eastern Common Stock is more than $50 per share,
then each such share of Essex County Common Stock shall be converted into the
right to receive the number of shares of Eastern Common Stock having a Market
Value equal to $50. "Market Value" of Eastern Common Stock is defined in the
Merger Agreement as the average closing price per share of Eastern Common Stock
on the NYSE for the 10 consecutive trading days prior to and including the fifth
trading day prior to the Closing Date. Upon such conversion, each holder of a
certificate formerly representing any such shares of Essex County Common Stock
shall cease to have any rights with respect thereto, except the right to receive
the shares of fully paid and non-assessable shares of Eastern Common Stock to be
issued in consideration therefor upon surrender of such certificate in
accordance with the Merger Agreement. The Exchange Ratio shall be adjusted to
reflect fully the effect of any stock split, reverse split, stock dividend
(including any dividend or distribution of securities convertible into Eastern
Common Stock), reorganization, recapitalization or other like change with
respect to Eastern Common Stock occurring after the date of the Merger Agreement
and having a record date prior to the Effective Time.
Exchange of Essex County Certificates. Essex County and Eastern will
designate an exchange agent (the "Exchange Agent") mutually agreeable to Essex
County and Eastern to distribute shares of Eastern Common Stock exchanged for
Essex County Common Stock in the Merger. As soon as practicable after the
Effective Time, Eastern will cause the Exchange Agent to send a letter of
transmittal and instructions to each holder of record as of the Effective Time
of Essex County Common Stock for use in exchanging certificates which
immediately prior to the Effective Time represented shares of Essex County
Common Stock (the "Certificates") that were converted ("Converted Shares") into
the right to receive shares of Eastern Common Stock. Certificates should not be
surrendered by the holders of Essex County Common Stock until they have received
the letter of transmittal from the Exchange Agent. Upon surrender of a
Certificate to the Exchange Agent for cancellation, together with a duly
executed letter of transmittal and such other documents as the Exchange Agent
shall require, the holder of such Certificate will be entitled to receive in
exchange therefor a certificate representing that number of whole shares of
Eastern Common Stock and the amount of cash in lieu of fractional share
interests (if any) which such holder has the right to receive pursuant to the
Merger Agreement. In the event of a transfer of ownership of Converted Shares
which is not registered in the transfer records of Essex County, a certificate
representing the proper number of shares of Eastern Common Stock may be issued
to a transferee if the Certificate representing such Converted Shares is
presented to the Exchange Agent, accompanied by all documents required to
evidence and effect such transfer and by evidence satisfactory to the Exchange
Agent that any applicable stock transfer taxes have been paid. Until surrendered
as contemplated in the Merger Agreement, each Certificate will be deemed at any
time after the Effective Time to represent only the right to receive upon such
surrender the certificate representing shares of Eastern Common Stock and cash
in lieu of any fractional shares (and distributions described below). Unless and
until the Certificate or Certificates representing Converted Shares have been
surrendered for exchange to the
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Exchange Agent, no dividends or other distributions payable to holders of
Eastern Common Stock as of a record date after the Effective Time will be paid
to any holder of unsurrendered Certificates representing such Converted Shares
and no cash payment in lieu of fractional shares shall be paid to any such
holder. Subject to the effect of unclaimed property, escheat and other
applicable laws, following surrender of any such Certificate, there will be paid
to the record holder of the certificates representing whole shares of Eastern
Common Stock issued in exchange therefor, without interest, (i) at the time of
such surrender, the amount of any cash payable in lieu of a fractional share of
Eastern Common Stock to which such holder is entitled pursuant to the Merger
Agreement and the amount of dividends or other distributions with a record date
after the Effective Time theretofore paid with respect to such whole shares of
Eastern Common Stock, and (ii) at the appropriate payment date, the amount of
dividends or other distributions with a record date after the Effective Time but
prior to surrender and a payment date subsequent to surrender payable with
respect to such whole shares of Eastern Common Stock, as the case may be.
TREATMENT OF FRACTIONAL INTERESTS
No certificates or scrip representing fractional shares of Eastern Common
Stock will be issued upon the surrender for exchange of Certificates and such
fractional shares will not entitle the owner thereof to vote or to any other
rights of a holder of Eastern Common Stock. A holder of Essex County Common
Stock who would otherwise have been entitled to a fractional share of Eastern
Common Stock shall be entitled to receive a cash payment in lieu of such
fractional share in an amount equal to the product of such fraction multiplied
by the average of the last reported sales price, regular way, per share of
Eastern Common Stock on the NYSE for the 10 business days prior to and including
the Closing Date, without any interest thereon.
CONDITIONS TO THE MERGER
Condition to Each Party's Obligation to Effect the Merger. The Merger
Agreement contains certain closing conditions. The respective obligations of
each party to effect the Merger are subject to satisfaction prior to the Closing
Date of the following conditions, except to the extent permitted by applicable
law, such conditions are waived by the joint action of the parties in writing:
(i) the required approval of the stockholders of Essex County shall have been
obtained at the Special Meeting; (ii) no temporary restraining order or
preliminary or permanent injunction or other order by any federal or state court
preventing consummation of Merger shall have been issued and be continuing in
effect, and the Merger and the other transactions contemplated by the Merger
Agreement shall not have been prohibited under any applicable federal or state
law or regulation; (iii) the Registration Statement shall have become effective
in accordance with the provisions of the Securities Act and no stop order
suspending such effectiveness shall have been issued and remain in effect; (iv)
the shares of Eastern Common Stock issuable in the Merger shall have been
approved for listing on the NYSE upon official notice of issuance; (v) the
required statutory approvals of the transactions contemplated by the Merger
Agreement (as specified in the Merger Agreement) shall have been obtained at or
prior to the Effective Time, such approvals shall have become Final Orders (as
defined in the Merger Agreement) and such Final Orders shall not impose terms or
conditions which, in the aggregate, would have or insofar as reasonably can be
foreseen, could have a material adverse effect on the business, assets,
financial condition, prospects or results of operations of Essex County as the
Surviving Company and its subsidiaries taken as a whole (taking into account the
proposed modifications in Essex County's rate structure outlined in the press
release issued in connection with the announcement of the execution of the
Merger Agreement) or Eastern and its subsidiaries taken as a whole or which
would be materially inconsistent with the agreements of Essex County and Eastern
contained in the Merger Agreement (it being understood that the required
statutory approvals include without limitation the approval of the MDTE of a
revised rate/regulatory structure for Essex County as the Surviving Company
which will include no material limitations or restrictions on Essex County's
ability to implement cost savings from operating efficiencies and elimination of
redundancies resulting from the integration of the operations of Essex County
with those of Boston Gas, and no such limitations or restrictions shall be
imposed by statutory or other regulatory action); (vi) each of Essex County and
Eastern shall have received a letter of its independent public accountants,
dated the Closing Date, in form and substance reasonably satisfactory, in each
case, to Essex County and Eastern, stating that the transactions effected
pursuant to the Merger Agreement will qualify as a pooling of interests
transaction pursuant to GAAP and applicable SEC regulations; (vii) there shall
not be in effect any
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judgment, decree or order of any governmental authority, administrative agency
or court of competent jurisdiction prohibiting or limiting Eastern from
exercising all material rights and privileges pertaining to its ownership of
Essex County as the Surviving Company or the ownership or operation by Eastern
or any of its subsidiaries of all or a material portion of the business or
assets of Eastern and all of its subsidiaries, or compelling Eastern or any of
its subsidiaries to dispose of or hold separate all or any material portion of
the business or assets of Eastern and all of its subsidiaries (including Essex
County as the Surviving Company and its subsidiaries), as a result of the Merger
or the transactions contemplated by the Merger Agreement.
Conditions to the Obligations of Essex County to Effect the Merger. The
obligation of Essex County to effect the Merger is further subject to the
satisfaction, on or prior to the Closing Date, of certain conditions, including
the following, except as may be waived by Essex County in writing: (i) Eastern
(and/or its appropriate subsidiaries) shall have performed in all material
respects its agreements and covenants contained in or contemplated by the Merger
Agreement required to be performed by it at or prior to the Effective Time; (ii)
the representations and warranties of Eastern contained in the Merger Agreement
shall be true and correct as of the date of the Merger Agreement and as of the
Closing Date (subject to certain materiality exceptions); (iii) Essex County
shall have received a certificate signed by the Chief Financial Officer of
Eastern dated the Closing Date, with respect to the satisfaction of certain
conditions in the Merger Agreement; (iv) no Eastern Material Adverse Effect (as
defined in the Merger Agreement) shall have occurred and there shall exist no
fact or circumstance which is reasonably likely to have an Eastern Material
Adverse Effect; (v) the Eastern Required Consents (as defined in the Merger
Agreement) shall have been obtained (subject to certain materiality exceptions);
(vi) Essex County shall have received Affiliate Agreements, duly executed by
each affiliate of Eastern; and (vii) Essex County shall have received an opinion
of counsel from Wachtell, Lipton, Rosen & Katz, in form and substance
satisfactory to Essex County, dated the Closing Date, to the effect that the
Merger will be treated as a tax-free reorganization within the meaning of
Section 368(a) of the Code.
Conditions to the Obligation of Eastern to Effect the Merger. The
obligation of Eastern to effect the Merger is further subject to the
satisfaction, on or prior to the Closing Date, of certain conditions, including
the following, except as may be waived by Eastern in writing: (i) Essex County
(and/or its appropriate subsidiaries) shall have performed in all material
respects its agreements and covenants contained in or contemplated by the Merger
Agreement required to be performed by it at or prior to the Effective Time; (ii)
the representations and warranties of Essex County set forth in the Merger
Agreement shall be true and correct as of the date of the Merger Agreement and
as of the Closing Date (subject to certain materiality exceptions); (iii)
Eastern shall have received a certificate signed by the Vice President and
Treasurer of Essex County, dated the Closing Date, with respect to the
satisfaction of certain conditions in the Merger Agreement; (iv) no Essex County
Material Adverse Effect (as defined in the Merger Agreement) shall have occurred
and there shall exist no fact or circumstance which is reasonably likely to have
an Essex County Material Adverse Effect; (v) the Essex County Required Consents
(as defined in the Merger Agreement) shall have been obtained (subject to
certain materiality exceptions); (vii) Eastern shall have received Affiliate
Agreements duly executed by each affiliate of Essex County.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of
Essex County and Eastern relating to, among other things, (i) organization and
similar corporate matters, (ii) their respective capitalization, (iii)
authorization, execution, delivery, performance and enforceability of the Merger
Agreement and related matters, and the absence of conflicts, violations and
defaults under their respective charters and by-laws and certain other
agreements and documents, (iv) documents and reports filed by them with the
Commission and the accuracy of the information contained therein, (v) the
absence of certain changes and events, (vi) litigation, (vii) employee benefit
matters, (viii) taxes and matters relating to a tax-free reorganization, (ix)
certain regulatory matters and (x) certain other matters. The representations
and warranties expire at the Effective Time.
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CERTAIN COVENANTS; CONDUCT OF BUSINESS PRIOR TO THE EFFECTIVE TIME
Essex County. The Merger Agreement provides that, prior to the Effective
Time or earlier termination of the Merger Agreement, Essex County will, and will
cause its subsidiaries to, carry on their respective operations in the usual,
regular and ordinary course, in substantially the same manner as previously
conducted and use all commercially reasonable efforts to (i) preserve intact
their present business organizations and goodwill, preserve the goodwill and
relationships with customers, suppliers and others having business dealings with
them, (ii) subject to prudent management of workforce needs and ongoing programs
currently in force, keep available the services of their present officers and
employees as a group, (iii) maintain and keep its material properties and assets
in as good repair and condition as at present, subject to ordinary wear and
tear, and maintain supplies and inventories in quantities consistent with past
practice.
In addition to the foregoing limitations, Essex County has also agreed (as
to itself and its subsidiaries) to certain limitations on its ability to (i)
declare or pay dividends (including limiting the dividends on Essex County
Common Stock to $.42 in any fiscal quarter) or split, combine, or reclassify
any, or repurchase, redeem or otherwise acquire any shares of its capital stock
or the capital stock of its subsidiaries; (ii) issue securities; (iii) amend its
charter documents; (iv) make acquisitions of businesses or assets or dispose of
assets outside the ordinary course of business; (v) incur or guarantee
indebtedness; (vi) make capital expenditures; (vii) make changes in its
compensation and benefit plans; (viii) take action that would jeopardize the
qualification of the Merger as a tax-free reorganization or change its status
under PUHCA; (ix) make changes in accounting methods; (x) take action that would
prevent the Merger from being accounted for as a pooling of interests; (xi)
discharge liabilities outside the ordinary course of business; and (xii) take
certain other actions.
Eastern. Prior to the Effective Time, Eastern has agreed (as to itself and
its subsidiaries) to certain limitations on its ability to (i) declare or pay
dividends (including limiting the dividends on Eastern Common Stock in any
fiscal year to 200% of the dividends for the prior fiscal year) or split,
combine, or reclassify any, or repurchase, redeem or otherwise acquire, any
shares of capital stock of Eastern or its subsidiaries; (ii) amend its charter
documents; (iii) take actions that would jeopardize the qualification of the
Merger as a tax-free reorganization or change its status under PUHCA; (iv) take
action that would prevent the Merger from being accounted for as a pooling of
interests; and (v) take certain other actions. In addition, Eastern has agreed
to conduct its operations and to cause its subsidiaries to conduct their
operations, in the usual, regular, and ordinary course in substantially the same
manner as previously conducted.
NO SOLICITATION
The Merger Agreement provides that, prior to the Effective Time, neither
Essex County nor any of its subsidiaries shall, and Essex County shall direct
and cause its officers, directors, employees, agents and representatives
(including, without limitation, any investment banker, attorney or accountant
retained by it or any of its subsidiaries or any of the foregoing) not to,
initiate or solicit the making of any proposal or offer (including, without
limitation, any proposal or offer to its stockholders) with respect to an
Alternative Proposal (as defined herein) or engage in any negotiations
concerning, or provide any non-public information or data to make or implement
an Alternative Proposal and that Essex County will immediately cease and cause
to be terminated any existing discussions or negotiations with any parties
conducted prior to the Merger Agreement with a view of formulating an
Alternative Proposal; and that Essex County will notify Eastern promptly if any
such proposals are received by, any such information is requested from, or any
such negotiations or discussions are sought to be initiated or continued with,
it; provided, however, that the Essex County Board may (i) furnish information
(pursuant to a confidentiality agreement deemed appropriate by the Essex County
Board, provided, however, that such confidentiality agreement shall provide that
the person or entity making such Alternative Proposal shall not purchase any
shares of Essex County Common Stock without the consent of the Essex County
Board) to or entering into discussions or negotiations with, any person or
entity that makes an unsolicited bona fide proposal or offer to acquire Essex
County pursuant to a merger, consolidation, share purchase, share exchange,
purchase of a substantial portion of assets, business combination or other
similar transaction, if, and only to the extent that, (a) the Essex County Board
determines in good faith that such action is reasonably likely to result in an
Alternative Proposal which is a more favorable transaction from the standpoint
of Essex County, (b) prior to furnishing such information to,
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or entering into discussions or negotiations with, such person or entity, Essex
County provides written notice to Eastern of the identity of the person or
entity making the Alternative Proposal and that it intends to furnish
information to, or intends to enter into discussions or negotiations with, such
person or entity, (c) Essex County keeps Eastern informed on a timely basis of
the status of any such discussions or negotiations and all terms and conditions
thereof and promptly provides Eastern with copies of any written inquiries or
proposals relating thereto, and (d) in the event that the Essex County Board
determines in good faith, after consultation with outside legal counsel, to
accept any such Alternative Proposal (in accordance with subclause (a) above),
Essex County provides Eastern with at least two days' prior notice thereof,
during which time Eastern may make, and in such event, Essex County shall in
good faith consider, a counterproposal to such Alternative Proposal; and (ii) to
the extent applicable, complying with Rule 14e-2 promulgated under the Exchange
Act with regard to an Alternative Proposal. "Alternative Proposal" is defined in
the Merger Agreement as any merger, acquisition, consolidation, reorganization,
share change, tender offer, exchange offer or other similar transaction
involving Essex County or any of Essex County's subsidiaries, or any proposal or
offer to acquire in any manner, directly or indirectly, a substantial equity
interest in or a substantial portion of the assets of Essex County or any of
Essex County's subsidiaries.
EMPLOYEE BENEFIT MATTERS
The Merger Agreement provides that each of the Essex County Benefit Plans
in effect on December 19, 1997 shall be maintained in effect with respect to the
employees of Essex County and its subsidiaries until Eastern or the Surviving
Company otherwise determines after the Effective Time; provided, however, that
any reserved right contained in any such Essex County Benefit Plan to amend,
modify, suspend, revoke or terminate any such plan shall not be limited;
provided, further, however, that Eastern or the Surviving Company or their
subsidiaries shall provide such employees, for a period of not less than six
months following the Effective Time, with benefits that are no less favorable in
the aggregate than those provided by Essex County and its subsidiaries other
than with respect to Essex County Stock Plans (as defined herein). Without
limitation of the foregoing, each person who is an employee of Essex County or
any of its subsidiaries immediately prior to the Effective Time who is a
participant in any Essex County Benefit Plan shall receive credit for purposes
of eligibility to participate and vesting, but not for purposes of benefit
accrual under any benefit plan of the Surviving Company or any of its
subsidiaries or affiliates for service credited for the corresponding purpose
under such benefit plan.
STOCK PLANS AND STOCK OPTIONS
The Merger Agreement provides that with respect to each Essex County
Benefit Plan that provides for benefits in the form of Essex County Common Stock
("Essex County Stock Plans"), Essex County and Eastern shall take all corporate
action necessary or appropriate to (i) provide for the issuance or purchase in
the open market of Eastern Common Stock rather than Essex County Common Stock,
pursuant thereto, and otherwise to amend such Essex County Stock Plans to
reflect the Merger Agreement and the Merger, (ii) obtain stockholder approval
with respect to such Essex County Stock Plans to the extent such approval is
required for purposes of the Code or other applicable law, or to enable such
Essex County Stock Plans to comply with Rule 16b-3 promulgated under the
Exchange Act, (iii) reserve for issuance under such Essex County Stock Plans or
otherwise provide a sufficient number of shares of Eastern Common Stock for
delivery upon payment of benefits, grant of awards or exercise of options under
such Essex County Stock Plans and (iv) as soon as practicable after the
Effective Time, file registration statements on Form S-8 or amendments on such
forms to the Registration Statement, as the case may be (or any successor or
other appropriate forms), with respect to the shares of Eastern Common Stock
subject to such Essex County Stock Plans to the extent such registration
statement is required under applicable law, and Eastern shall use its best
efforts to maintain the effectiveness of such registration statements (and
maintain the current status of the prospectuses contained therein) for so long
as such benefits and grants remain payable and such options remain outstanding.
With respect to those individuals who subsequent to the Merger will be subject
to the reporting requirements under Section 16(a) of the Exchange Act, the
Surviving Company shall administer the Essex County Stock Plans, where
applicable, in a manner that complies with Rule 16b-3 promulgated under the
Exchange Act.
41
<PAGE> 47
At the Effective Time, each option, warrant or other security convertible
into, convertible for or exercisable for the purchase of Essex County Common
Stock which is outstanding and unconverted, unexchanged or unexercised, as the
case may be, shall cease to represent a right to acquire Essex County Common
Stock and shall be converted automatically into an option, warrant or other
security, as the case may be, to purchase Eastern Common Stock in an amount and
at an exercise price determined as provided below:
(i) The number of shares of Eastern Common Stock to be subject to the
new option, warrant or other security shall be equal to the product of the
number of shares subject to the original option, warrant or other security
at the Effective Time and the Exchange Ratio, rounded down to the nearest
whole number of shares; and
(ii) The exercise price per share of Eastern Common Stock under the
new option, warrant or other security shall be equal to the exercise price
per share of Essex County Common Stock under the original Essex County
option divided by the Exchange Ratio and rounded up to the nearest whole
cent.
BOARD OF TRUSTEES AND MANAGEMENT OF EASTERN FOLLOWING THE MERGER
It is not anticipated that the Board of Trustees or management of Eastern
will change as a result of the Merger.
AMENDMENT
The Merger Agreement may be amended by the Board of Directors of Essex
County and the Board of Trustees of Eastern, at any time before or after
approval of the Merger Agreement by the stockholders of Essex County and prior
to the Effective Time, but after such approval, no such amendment shall (i)
alter or change the amount or kind of shares, rights, or any of the proceedings
of the treatment of shares under the Merger Agreement, or (ii) alter or change
any of the terms and conditions of the Merger Agreement if any of the
alterations or changes, alone or in the aggregate, would materially adversely
affect the rights of holders of Essex County capital stock, except for
alterations or changes that could otherwise be adopted by the Essex County
Board, without the further approval of such stockholders. The Merger Agreement
may not be amended except by an instrument in writing signed on behalf of each
of the parties thereto.
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated at any time prior to the Closing
Date, whether before or after approval by the stockholders of Essex County: (i)
by mutual written consent of the Essex County Board and the Board of Trustees of
Eastern; (ii) by either Essex County or Eastern, by written notice to the other
party, if the Effective Time shall not have occurred on or before the Initial
Termination Date; provided, however, that the right to terminate the Merger
Agreement shall not be available to any party whose failure to fulfill any
obligation under the Merger 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 required regulatory
approvals and consents shall not have been obtained 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 to June 19, 1999; (iii) by either
Essex County or Eastern by written notice to the other party, if the Essex
County stockholders' approval shall not have been obtained at a duly held Essex
County meeting on or before September 30, 1998, including any adjournments
thereof; (iv) by either Essex County or Eastern, if any state or federal law,
order, rule, or regulation is adopted or issued, which has the effect, as
supported by the written opinion of outside counsel for such party, of
prohibiting the Merger, or by either Essex County or Eastern if any court of
competent jurisdiction in the United States or any state shall have issued an
order, judgment, or decree permanently restraining, enjoining, or otherwise
prohibiting the Merger, and such order, judgment, or decree shall have become
final and nonappealable; (v) by Essex County, upon two days' prior notice to
Eastern, if the Essex County Board determines in good faith that an Alternative
Proposal is a more favorable transaction from the standpoint of Essex County;
(vi) by Essex County, by written notice to Eastern, if (a) there exist breaches
of the representations and warranties of Eastern made in the Merger Agreement as
of December 19, 1997, which breaches, individually or in the aggregate, would or
would be reasonably likely to result in an Eastern Material Adverse Effect, and
such breaches shall not have been remedied within 20 days after receipt by
Eastern of notice in writing from Essex County, specifying the nature of such
breaches and
42
<PAGE> 48
requesting that they be remedied, or (b) Eastern (and/or its appropriate
subsidiaries) shall not have performed and complied with its agreements and
covenants contained with respect to payment of dividends or shall have failed to
perform and comply with, in all material respects, its other agreements and
covenants under the Merger Agreement and such failure to perform or comply shall
not have been remedied within 20 days after receipt by Eastern of notice in
writing from Essex County, specifying the nature of such failure and requesting
that it be remedied; (vii) by Eastern, by written notice to Essex County, if (a)
there exist material breaches of the representations and warranties of Essex
County made in the Merger Agreement as of December 19, 1997 which breaches,
individually or in the aggregate, would or would be reasonably likely to result
in an Essex County Material Adverse Effect, and such breaches shall not have
been remedied within 20 days after receipt by Essex County of notice in writing
from Eastern, specifying the nature of such breaches and requesting that they be
remedied, (b) Essex County (and/or its appropriate subsidiaries) shall not have
performed and complied with its agreements and covenants contained with respect
to payment of dividends and issuances of securities or shall have failed to
perform and comply with, in all material respects, its other agreements and
covenants under the Merger Agreement, and such failure to perform or comply
shall not have been remedied within 20 days after receipt by Essex County of
notice in writing from Eastern, specifying the nature of such failure and
requesting that it be remedied; (viii) by either Eastern or Essex County, by
written notice to the other party, if (a) a third party acquires securities
representing greater than 50% of the voting power of the outstanding voting
securities of such other party or (b) individuals who as of December 19, 1997
constitute the Board of Directors or Board of Trustees, as the case may be, or
whose nomination for election by the stockholders of such party was approved by
a vote of a majority of the directors or trustees of such party then still in
office who are either directors or trustees as of December 19, 1997 or whose
election or nomination for election was previously so approved, cease for any
reason to constitute a majority of the Board of Directors or Board of Trustees
of such party then in office; or (ix) by Eastern, if (a) the Essex County Board
shall withdraw, modify or change its approval or recommendation of the Merger
Agreement or the Merger in a manner adverse to Eastern or shall have resolved to
do so; (b) the Essex County Board shall have approved or recommended to the
stockholders of Essex County any merger, combination or acquisition of Essex
County or substantially all of its assets or any tender offer for shares of
capital stock of Essex County, in each case, by a party other than Eastern or
any of its affiliates; or (c) a tender offer or exchange offer for 50% or more
of the outstanding shares of Essex County Common Stock is commenced (other than
by Eastern or an affiliate of Eastern) and the Essex County Board recommends
that the stockholders of Essex County tender their shares in such tender or
exchange offer.
EXPENSES AND TERMINATION FEE
Expenses. If the Merger Agreement is terminated pursuant to one (but not
both) of (x) an uncured breach of a representation or warranty of Essex County
or Eastern which would or would be reasonably likely to have an Eastern Material
Adverse Effect or an Essex County Material Adverse Effect, as the case may be,
or (y) noncompliance of Essex County or Eastern with their respective agreements
and covenants concerning dividends and in the case of Essex County, concerning
issuance of securities and their other agreements and covenants contained in the
Merger Agreement (with certain materiality exceptions), then: (i) the breaching
party shall promptly (but not later than five business days after receipt of
notice from the non-breaching party) pay to the non-breaching party in cash an
amount equal to all documented out-of-pocket expenses and fees incurred by the
non-breaching party (including, without limitation, fees and expenses payable to
all legal, accounting, financial, public relations and other professional
advisors arising out of, in connection with or related to the Merger or the
transactions contemplated by the Merger Agreement) not in excess of $2.5 million
("Expenses"); provided, however, that, if the Merger Agreement is terminated by
a party as a result of a willful breach by the other party, the non-breaching
party may pursue any remedies available to it at law or in equity and shall, in
addition to its out-of-pocket expenses (which shall be paid as specified above
and shall not be limited to $2.5 million), be entitled to retain such additional
amounts as such non-breaching party may be entitled to receive at law or in
equity.
Termination Fee. Essex County shall pay Eastern the $3.5 million Fee, plus
Expenses, upon the first to occur of (i) the termination of the Merger Agreement
by Essex County upon two days' prior notice to Eastern that the Essex County
Board has determined in good faith that an Alternative Proposal is a more
favorable
43
<PAGE> 49
transaction from the standpoint of Essex County; (ii) the termination of the
Merger Agreement by Eastern pursuant to an acquisition of more than 50% of Essex
County Common Stock by a third party; (iii) the termination of the Merger
Agreement by Eastern or Essex County in the event the Essex County stockholder
approval is not obtained as provided in the Merger Agreement; or (iv) the Essex
County Board changes its recommendation with respect to approval of the Merger
or the Merger Agreement as provided in the Merger Agreement.
INDEMNIFICATION
Pursuant to the Merger Agreement, to the extent, if any, not provided by an
existing right of indemnification or other agreement or policy, from and after
the Effective Time, Eastern and the Surviving Company will, to the fullest
extent permitted by applicable law, and the charter and by-laws of the relevant
entity, as in effect on December 19, 1997, indemnify, defend and hold harmless
the present and former directors, officers and employees of the parties to the
Merger Agreement and their respective subsidiaries against (i) all losses,
expenses (including reasonable attorneys' fees and expenses), claims, damages or
liabilities, or subject to certain restrictions, amounts paid in settlement,
arising out of acts or omissions occurring at or prior to 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, officer, or employee of such party or any
subsidiary thereof, whether asserted or claimed prior to, at, or after the
Effective Time, and (ii) all liabilities based on, arising from, or pertaining
to the Merger Agreement or the transactions contemplated by the Merger
Agreement.
44
<PAGE> 50
MARKET PRICE AND DIVIDEND INFORMATION
Eastern Common Stock is traded on the NYSE, the PSE and BSE under the
symbol "EFU" and the Essex County Common Stock is traded on the Nasdaq under the
symbol "ECGC." The following table sets forth, for the periods indicated, the
range of high and low per share sales prices for Eastern Common Stock as
reported on the NYSE Composite Tape, and, the range of high and low bid
information for Essex County Common Stock as reported on Nasdaq, as well as
information concerning quarterly dividends declared on each such share.
An application will be made to have the Eastern Common Stock to be issued
as a result of the Merger listed on the NYSE, the PSE and the BSE.
Eastern has declared and paid dividends for each quarter during the 1996
and 1997 fiscal years. Eastern's Board of Trustees' recent practice has been to
review its dividend policy on an annual basis and to make changes, as
appropriate. Eastern does not currently anticipate a change in its dividend
policies or practices as a result of the Merger.
<TABLE>
<CAPTION>
ESSEX COUNTY COMMON STOCK EASTERN COMMON STOCK
----------------------------- --------------------------------
HIGH LOW DIVIDENDS DIVIDENDS
ASKED BID PER SHARE HIGH LOW PER SHARE
------ ------ --------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1996:
First Quarter................ $27.50 $25.25 $.40 $37.125 $33.125 $.37
Second Quarter............... 26.25 23.50 .40 36.875 32.375 .37
Third Quarter................ 27.00 24.00 .40 38.625 30.50 .37
Fourth Quarter............... 27.00 24.00 .40 40.375 34.875 .40
Year ended December 31, 1997:
First Quarter................ $26.00 $24.25 $.41 $36.375 $30.50 $.40
Second Quarter............... 26.50 24.25 .41 35.875 30.50 .40
Third Quarter................ 29.25 25.25 .41 38.1875 34.75 .40
Fourth Quarter............... 50.00 28.25 .41 45.375 36.75 .41
Year ending December 31, 1998:
First Quarter................ $47.25 $44.00 .42 $45.625 $40.375 .41
Second Quarter (through May
7, 1998).................. $47.25 $44.50 $44.75 $40.375
</TABLE>
The following table sets forth the high and low per share and closing sales
prices per share of Essex County and Eastern Common Stock as reported on the
Nasdaq and NYSE, respectively, on December 19, 1997, the last business day prior
to announcement by the parties of the Merger Agreement, and on May 7, 1998, the
last trading day for which prices were available prior to the date of this Proxy
Statement/Prospectus and the equivalent per share value of the Essex County
Common Stock on such dates:
<TABLE>
<CAPTION>
MARKET PRICE PER SHARE
-----------------------------------------------------------------------------
EQUIVALENT PER
ESSEX COUNTY COMMON STOCK EASTERN COMMON STOCK SHARE VALUE
--------------------------- ------------------------------ --------------
DATE HIGH LOW CLOSING HIGH LOW CLOSING
---- ---- --- ------- ---- --- -------
<S> <C> <C> <C> <C> <C> <C> <C>
December 19, 1997.... $39.50 $34.50 $39.00 $42.00 $40.8125 $ 41.75 $49.43
May 7, 1998.......... $44.5625 $44.50 $44.50 $41.375 $40.375 $ 40.375 $47.80
</TABLE>
BECAUSE THE MARKET PRICE OF THE EASTERN COMMON STOCK THAT HOLDERS OF ESSEX
COUNTY COMMON STOCK WILL RECEIVE IN THE MERGER MAY INCREASE OR DECREASE PRIOR TO
THE MERGER, ESSEX COUNTY STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET
QUOTATIONS.
45
<PAGE> 51
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined financial information should be
read in conjunction with the consolidated financial statements, including the
notes thereto, of Eastern and Essex County which are incorporated by reference
in this Proxy Statement/Prospectus. The unaudited pro forma information is
presented for illustration purposes only in accordance with the assumptions set
forth below, and is not necessarily indicative of the operating results or
financial position that would have occurred if the Merger had been consummated
nor is it necessarily indicative of future operating results or financial
position of the combined enterprise. The unaudited pro forma combined financial
information does not reflect all adjustments to conform accounting practices or
any adjustments to reflect any cost savings or other synergies anticipated as a
result of the Merger.
46
<PAGE> 52
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
The following unaudited pro forma combined balance sheet presents, under
the pooling-of-interests accounting method, the combined consolidated balance
sheets of Eastern as of March 31, 1998 and Essex County as of February 28, 1998.
EASTERN ENTERPRISES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
EASTERN ESSEX COUNTY
ENTERPRISES GAS COMPANY
MARCH 31, 1998 FEBRUARY 28, 1998 PRO FORMA PRO FORMA
(AS REPORTED) (AS RECLASSIFIED) ADJUSTMENTS BALANCES(1)
----------------- ----------------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and short-term investments............ $ 122,791 $ 1,946 $ -- $ 124,737
Receivables, less reserves of $19,065...... 153,169 7,069 -- 160,238
Inventories................................ 36,005 3,305 -- 39,310
Deferred gas costs......................... 32,062 -- -- 32,062
Other current assets....................... 4,287 366 -- 4,653
---------- -------- -------- ----------
Total current assets................ 348,314 12,686 -- 361,000
PROPERTY AND EQUIPMENT,
AT COST.................................... 1,541,168 108,620 -- 1,649,788
Less -- accumulated depreciation........... 683,468 27,606 -- 711,074
---------- -------- -------- ----------
Net property and equipment.......... 857,700 81,014 -- 938,714
OTHER ASSETS
Deferred post-retirement health care
costs.................................... 82,587 -- 82,587
Investments................................ 15,879 776 16,655
Deferred charges and other costs, less
amortization............................. 69,354 3,536 (730)(2) 72,160
---------- -------- -------- ----------
Total other assets.................. 167,820 4,312 (730)(2) 171,402
---------- -------- -------- ----------
TOTAL ASSETS........................ $1,373,834 $ 98,012 $ (730)(2) $1,471,116
========== ======== ======== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current debt............................... $ 20,651 $ 6,293 $ -- $ 26,944
Accounts payable........................... 68,573 2,966 -- 71,539
Accrued expenses........................... 57,799 3,028 -- 60,827
Other current liabilities.................. 66,717 1,433 -- 68,150
---------- -------- -------- ----------
Total current liabilities........... 213,740 13,720 -- 227,460
GAS INVENTORY FINANCING...................... 31,610 3,661 -- 35,271
LONG-TERM DEBT............................... 292,787 28,721 -- 321,508
RESERVES AND OTHER LIABILITIES
Deferred income taxes...................... 97,594 8,742 -- 106,336
Post-retirement health care................ 94,708 -- -- 94,708
Coal miners retiree health................. 55,632 -- -- 55,632
Preferred stock of subsidiary.............. 29,335 -- -- 29,335
Other reserves............................. 88,399 4,624 -- 93,023
---------- -------- -------- ----------
Total reserves and other
liabilities....................... 365,668 13,366 -- 379,034
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common Stock, authorized;
Eastern -- 50 million,...................
Essex -- 5 million;......................
issued and outstanding;
Eastern -- 20.4 million; 22.5 million pro
forma.................................. 20,443 -- 2,038 (4) 22,481
Essex -- 1.7 million..................... -- 21,424 (21,424)(4) --
Capital in excess of par................... 32,342 -- 19,386 (4) 51,728
Retained earnings.......................... 417,958 17,120 (730)(2) 434,348
Treasury stock............................. (714) -- -- (714)
---------- -------- -------- ----------
Total shareholders' equity.......... 470,029 38,544 (730) 507,843
---------- -------- -------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY............................ $1,373,834 $ 98,012 $ (730) $1,471,116
========== ======== ======== ==========
</TABLE>
See accompanying notes to Unaudited Pro Forma Combined Financial Information
47
<PAGE> 53
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
The following unaudited pro forma combined statements of operations
present, under the pooling-of-interests accounting method, the consolidated
statements of operations of Eastern for the fiscal years ended December 31,
1997, 1996 and 1995 and the three months ended March 31, 1998 and 1997 combined
with the statements of operations of Essex County for the twelve months ended
November 30, 1997, and August 31, 1996 and 1995 and the three months ended
February 28, 1998 and 1997, respectively. The financial results of Essex County
for the three months ended November 30, 1996 are excluded from the pro forma
data. Essex County's operating revenues and net loss available to common
stockholders for the three months ended November 30, 1996 were $8.1 million and
$(0.3) million, respectively.
EASTERN ENTERPRISES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR TWELVE MONTHS
ENDED ENDED
DECEMBER 31, NOVEMBER 30,
1997 1997
EASTERN ESSEX COUNTY
ENTERPRISES GAS COMPANY PRO FORMA PRO FORMA
(AS REPORTED) (AS RECLASSIFIED) ADJUSTMENTS RESULTS(1)
----------------- ----------------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues........................... $970,204 $54,427 $ -- $1,024,631
Operating costs and expenses:
Operating costs.................. 684,582 30,558 -- 715,140
Selling, general and
administrative expenses....... 111,359 10,690 -- 122,049
Depreciation and amortization.... 67,949 3,422 -- 71,371
-------- ------- ------- ----------
Operating earnings................. 106,314 9,757 -- 116,071
Other income (expense):
Interest income.................. 8,997 -- -- 8,997
Interest expense................. (34,318) (3,160) -- (37,478)
Other, net....................... (4,371) 372 -- (3,999)
-------- ------- ------- ----------
Earnings from continuing operations
before income taxes.............. 76,622 6,969 -- 83,591
Provision for income taxes......... 24,672 2,565 -- 27,237
-------- ------- ------- ----------
Net earnings............. $ 51,950 $ 4,404 $ -- $ 56,354
======== ======= ======= ==========
Earnings per common share(3)(5):
Basic............................ $ 2.55 $ 2.63 $ 2.52
======== ======= ==========
Diluted.......................... $ 2.54 $ 2.55 $ 2.50
======== ======= ==========
Weighted average number of common
shares outstanding:
Basic............................ 20,358 1,676 308 22,342
======== ======= ======= ==========
Diluted.......................... 20,468 1,728 318 22,514
======== ======= ======= ==========
</TABLE>
See accompanying notes to Unaudited Pro Forma Combined Financial Information
48
<PAGE> 54
EASTERN ENTERPRISES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL YEAR ENDED
DECEMBER 31, 1996 AUGUST 31, 1996
EASTERN ESSEX COUNTY
ENTERPRISES GAS COMPANY PRO FORMA PRO FORMA
(AS REPORTED) (AS RECLASSIFIED) ADJUSTMENTS RESULTS(1)
----------------- ------------------ ----------- ----------
<S> <C> <C> <C> <C>
Revenues.......................... $1,007,342 $49,929 $ -- $1,057,271
Operating costs and expenses:
Operating costs................. 716,595 28,077 -- 744,672
Selling, general and
administrative Expenses...... 104,822 10,313 -- 115,135
Depreciation and amortization... 64,531 2,697 -- 67,228
---------- ------- ---- ----------
Operating earnings................ 121,394 8,842 -- 130,236
Other income (expense):
Interest income................. 9,419 -- -- 9,419
Interest expense................ (34,453) (2,821) -- (37,274)
Other, net...................... (115) 2 -- (113)
---------- ------- ---- ----------
Earnings from continuing
operations before income
taxes........................... 96,245 6,023 -- 102,268
Provision for income taxes........ 35,580 2,173 -- 37,753
---------- ------- ---- ----------
Net earnings...................... $ 60,665 $ 3,850 $ -- $ 64,515
========== ======= ==== ==========
Preferred stock dividends......... -- (14) -- (14)
---------- ------- ---- ----------
Net earnings available to common
shareholders.................... $ 60,665 $ 3,836 $ -- $ 64,501
========== ======= ==== ==========
Earnings per common share(3)(5):
Basic........................... $ 2.99 $ 2.36 $ 2.91
========== ======= ==========
Diluted......................... $ 2.98 $ 2.29 $ 2.88
========== ======= ==========
Weighted average number of common
shares outstanding:
Basic........................... 20,274 1,626 299 22,199
========== ======= ==== ==========
Diluted......................... 20,384 1,671 308 22,363
========== ======= ==== ==========
</TABLE>
See accompanying notes to Unaudited Pro Forma Combined Financial Information
49
<PAGE> 55
EASTERN ENTERPRISES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL YEAR ENDED
DECEMBER 31, 1995 AUGUST 31, 1995
EASTERN ESSEX COUNTY
ENTERPRISES GAS COMPANY PRO FORMA PRO FORMA
(AS REPORTED) (AS RECLASSIFIED) ADJUSTMENTS RESULTS(1)
----------------- ----------------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues............................ $949,412 $45,049 $ -- $994,461
Operating costs and expenses:
Operating costs................... 668,701 25,436 -- 694,137
Selling, general and
administrative expenses........ 105,473 9,508 -- 114,981
Depreciation and amortization..... 61,504 2,501 -- 64,005
-------- ------- ---- --------
Operating earnings.................. 113,734 7,604 -- 121,338
Other income (expense):
Interest income................... 5,633 -- -- 5,633
Interest expense.................. (38,536) (2,716) -- (41,252)
Other, net........................ 4,103 6 -- 4,109
-------- ------- ---- --------
Earnings from continuing operations
before income taxes............... 84,934 4,894 -- 89,828
Provision for income taxes.......... 24,553 1,695 -- 26,248
-------- ------- ---- --------
Net earnings from continuing
operations before extraordinary
item.............................. 60,381 3,199 -- 63,580
Extraordinary provision for coal
miners retiree health care, net of
tax............................... (6,500) -- -- (6,500)
-------- ------- ---- --------
Net earnings........................ $ 53,881 $ 3,199 $ -- $ 57,080
======== ======= ==== ========
Preferred stock dividends........... -- (19) -- (19)
-------- ------- ---- --------
Net earnings available to common
shareholders...................... $ 53,881 $ 3,180 $ -- $ 57,061
======== ======= ==== ========
Earnings per common share(3)(5):
Basic earnings per share before
extraordinary item............. $ 2.99 $ 2.00 $ 2.88
Extraordinary item, net of tax.... (0.32) -- (0.29)
-------- ------- --------
Basic earnings per share.......... $ 2.67 $ 2.00 2.59
======== ======= ========
Diluted earnings per share before
extraordinary item............. $ 2.98 $ 1.95 $ 2.87
Extraordinary item, net of tax.... (0.32) -- (0.29)
-------- ------- --------
Diluted earnings per share........ $ 2.66 $ 1.95 $ 2.58
======== ======= ========
Weighted average number of common
shares outstanding:
Basic............................. 20,187 1,591 293 22,071
======== ======= ==== ========
Diluted........................... 20,246 1,632 300 22,178
======== ======= ==== ========
</TABLE>
See accompanying notes to Unaudited Pro Forma Combined Financial Information
50
<PAGE> 56
EASTERN ENTERPRISES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1998 FEBRUARY 28, 1998
EASTERN ESSEX COUNTY
ENTERPRISES GAS COMPANY PRO FORMA PRO FORMA
(AS REPORTED) (AS RECLASSIFIED) ADJUSTMENTS RESULTS(1)
------------------ ------------------ ----------- ----------
<S> <C> <C> <C> <C>
Revenues......................... $342,919 $23,028 $ -- $365,947
Operating costs and expenses:
Operating costs................ 235,645 12,106 -- 247,751
Selling, general and
administrative expenses..... 29,624 3,258 730(2) 33,612
Depreciation and
amortization................ 23,241 1,815 -- 25,056
-------- ------- ---- --------
Operating earnings............... 54,409 5,849 (730)(2) 59,528
Other income (expense):
Interest income................ 2,617 -- -- 2,617
Interest expense............... (8,532) (792) -- (9,324)
Other, net..................... 1,290 137 -- 1,427
-------- ------- ---- --------
Earnings from continuing
operations before income
taxes.......................... 49,784 5,194 (730)(2) 54,248
Provision for income taxes....... 18,861 1,948 -- 20,809
-------- ------- ---- --------
Net earnings from continuing
operations before extraordinary
item........................... 30,923 3,246 (730)(2) 33,439
Extraordinary provision for early
extinguishment of debt, net of
tax............................ (1,465) -- -- (1,465)
-------- ------- ---- --------
Net earnings..................... 29,458 3,246 (730)(2) 31,974
======== ======= ==== ========
Earnings per common share(3)(5):
Basic earnings per share before
extraordinary item.......... $ 1.51 $ 1.91 $ 1.49
Extraordinary item, net of
tax......................... (.07) -- (.07)
-------- ------- --------
Basic earnings per share....... $ 1.44 $ 1.91 $ 1.42
======== ======= ========
Diluted earnings per share
before extraordinary item... $ 1.50 $ 1.85 $ 1.48
Extraordinary item, net of
tax......................... (.07) -- (.07)
-------- ------- --------
Diluted earnings per share..... $ 1.43 $ 1.85 $ 1.41
======== ======= ========
Weighted average number of common
shares outstanding:
Basic.......................... 20,414 1,704 314 22,432
======== ======= ==== ========
Diluted........................ 20,585 1,761 324 22,670
======== ======= ==== ========
</TABLE>
See accompanying notes to Unaudited Pro Forma Combined Financial Information
51
<PAGE> 57
EASTERN ENTERPRISES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1997 FEBRUARY 28, 1997
EASTERN ESSEX COUNTY
ENTERPRISES GAS COMPANY PRO FORMA PRO FORMA
(AS REPORTED) (AS RECLASSIFIED) ADJUSTMENTS RESULTS(1)
------------------ ------------------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues....................... $376,920 $23,221 $ -- $400,141
Operating costs and expenses:
Operating costs.............. 272,559 12,425 -- 284,984
Selling, general and
administrative expenses... 29,081 3,455 -- 32,536
Depreciation and
amortization.............. 22,303 1,649 -- 23,952
-------- ------- ---- --------
Operating earnings............. 52,977 5,692 -- 58,669
Other income (expense):
Interest income.............. 2,105 -- -- 2,105
Interest expense............. (8,790) (828) -- (9,618)
Other, net................... (1,304) 145 -- (1,159)
-------- ------- ---- --------
Earnings from continuing
operations before income
taxes........................ 44,988 5,009 -- 49,997
Provision for income taxes..... 16,765 1,878 -- 18,643
-------- ------- ---- --------
Net earnings................... 28,223 3,131 -- 31,354
======== ======= ==== ========
Earnings per common
share(3)(5):
Basic........................ $ 1.39 $ 1.89 $ 1.41
======== ======= ========
Diluted...................... $ 1.38 $ 1.84 $ 1.40
======== ======= ========
Weighted average number of
common shares outstanding:
Basic........................ 20,328 1,659 305 22,292
======== ======= ==== ========
Diluted...................... 20,418 1,708 314 22,440
======== ======= ==== ========
</TABLE>
See accompanying notes to Unaudited Pro Forma Combined Financial Information
52
<PAGE> 58
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
(1) EASTERN AND ESSEX COUNTY HISTORICAL FISCAL YEARS AND ACCOUNTING POLICIES
Eastern's historical fiscal year ends on December 31 while Essex County's
historical fiscal year ends on August 31. For purposes of combining Essex
County's historical financial information with Eastern's in the pro forma
combined statements of operations herein, the financial information of Eastern
for the fiscal years ended December 31, 1997, 1996 and 1995 and the three months
ended March 31, 1998 and 1997 have been combined with Essex County's financial
information for the twelve months ended November 30, 1997 and August 31, 1996
and 1995 and the three months ended February 28, 1998 and 1997, respectively. As
a result, Essex County's financial information for the three months ended
November 30, 1996 are excluded from the pro forma data. Essex County's operating
revenues and net loss available to common shareholders for the three months
ended November 30, 1996 were $8.1 million and $(0.3) million, respectively.
The unaudited pro forma combined condensed financial information do not
include all adjustments (see note (2)) to conform the accounting policies of
Essex County to those followed by Eastern. The nature and extent of such
adjustments, if any, will be based upon further analysis and are not expected to
be material. However, certain amounts in the historical financial statements of
Eastern and Essex County have been reclassified to present consistent pro forma
financial information. There were no material intercompany transactions between
Eastern and Essex County during the periods presented.
(2) MERGER-RELATED EXPENSES
Eastern and Essex County will incur investment banking, legal, accounting
and other transaction costs as a result of the Merger. Based on information
currently available, these costs will total approximately $4.6 million and will
be expensed in the period incurred consistent with Eastern's historical
accounting treatment of such costs. In the three months ended February 28, 1998,
Essex County incurred $0.7 million of Merger expenses which were capitalized as
deferred charges. Accordingly, a pro forma adjustment has been made to reflect
the expensing of such costs in the unaudited pro forma combined statement of
operations for the three months ended March 31, 1998. Costs incurred by Essex
County related to the Merger prior to November 30, 1997 were not material. Since
the Merger has not been consummated, the Merger expenses can only be estimated
at this time, and are subject to revision as further information becomes
available.
(3) EARNINGS PER SHARE
The pro forma net earnings per share reflect (i) the weighted average
number of Eastern common shares that would have been outstanding if the Merger
occurred at the beginning of the periods presented upon the conversion of each
outstanding share of Essex County common stock into 1.183985 shares of Eastern
common stock, as provided in the Merger agreement and (ii) the dilutive impact
of stock options using the treasury stock method.
(4) Adjusted to reflect the issuance of 2,037,542 shares of common stock of
Eastern ($1.00 par value per share) in exchange for all of the outstanding
shares of common stock of Essex County based on an exchange ratio of 1.183985.
(5) EXCHANGE RATIO
As provided for in the Merger Agreement, each issued and outstanding share
of Essex County Common Stock shall be converted into the right to receive
1.183985 shares of Eastern Common Stock, provided that, if the Market Value (as
defined) of 1.183985 shares of Eastern Common Stock is less than $45 per share,
then each such share of Essex County Common Stock shall be converted into the
right to receive the number of shares of Eastern Common Stock having a Market
Value equal to $45; and if the Market Value of 1.183985 shares of Eastern Common
Stock is more than $50 per share, then each such share of Essex County Common
Stock shall be converted into the right to receive the number of shares of
Eastern Common Stock having a Market Value equal to $50. Accordingly, a market
value of Eastern Common Stock below $38.01 per share will cause an increase in
the exchange ratio and a market value of Eastern Common Stock above $42.23 will
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<PAGE> 59
cause a decrease in the exchange ratio. Any increase in the exchange ratio will
cause a corresponding decrease in the pro forma combined per share amounts and
any decrease in the exchange ratio will cause a corresponding increase in the
pro forma per share amounts. For example, if Eastern's stock price was at either
its most recent 52-week low ($34.00) or 52-week high ($45.62), the recalculated
combined pro forma earnings per share in the latest fiscal year and interim
period would be as follows:
<TABLE>
<CAPTION>
FISCAL YEAR THREE MONTHS
ENDED ENDED
DECEMBER 31, 1997 MARCH 31, 1998
--------------------------- ---------------------------
52-WEEK 52-WEEK 52-WEEK 52-WEEK
LOW HIGH LOW HIGH
------- ------- ------- -------
<S> <C> <C> <C> <C>
Basic earnings per share...................... $ 2.50 $ 2.54 $ 1.41 $ 1.44
Diluted earnings per share.................... $ 2.48 $ 2.52 $ 1.40 $ 1.42
Book value per share.......................... $ 21.40 $ 21.77 $ 22.37 $ 22.77
</TABLE>
54
<PAGE> 60
PRINCIPAL STOCKHOLDERS OF ESSEX COUNTY AND EASTERN
Eastern. The following table shows, as of February 17, 1997, any person
who is known by Eastern to be the beneficial owner of more than 5% of any class
of voting securities of Eastern. For purposes of this Proxy
Statement/Prospectus, beneficial ownership is defined in accordance with Rule
13d-3 under the Exchange Act, and means generally the power to vote or dispose
of the securities, regardless of any economic interest therein.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
NAME AND ADDRESS BENEFICIAL PERCENT OF
OF BENEFICIAL OWNER OWNERSHIP(A) CLASS(A)
------------------- ------------ ----------
<S> <C> <C>
Sasco Capital, Inc. ........................................ 1,461,700(b) 7.2%
Ten Sasco Hill Road
Fairfield, Connecticut 06430
</TABLE>
- ---------------
(a) According to Schedule 13G filed with the Commission on or before February
17, 1998.
(b) Sasco Capital, Inc. reports that it has the sole power to vote 874,300 of
these shares, no shared voting power with regard to any of these shares and
sole dispositive power for all of these shares.
Essex County. As of December 31, 1997 no person is known by Essex County
to be the beneficial owner of more than 5% of any class of voting securities of
Essex County.
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<PAGE> 61
DESCRIPTION OF EASTERN CAPITAL STOCK
GENERAL
The description of the capital stock below is qualified in its entirety by
reference to the Eastern Charter and the Eastern By-Laws, copies of which are on
file with the Commission.
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
Eastern is authorized to issue up to 50,000,000 shares of Eastern Common
Stock. On April 23, 1998, there were 20,423,164 shares of Eastern Common Stock
issued and outstanding.
Shares of Eastern Common Stock which, by the provisions of the Eastern
Charter, are entitled to vote upon any question shall be entitled to one vote
per share in person or by proxy, except that the election of trustees by the
Eastern Common Stock shall be by cumulative voting, namely, each holder of
Eastern Common Stock will be entitled to as many votes as will equal the number
of such holder's shares multiplied by the number of trustees to be elected, and
such holder may cast all of such votes for a single candidate or distribute them
among any two or more candidates as such holder shall elect.
The holders of Eastern Common Stock are entitled to receive dividends only
when and if declared by the Board of Trustees of Eastern out of the earned
surplus of Eastern.
Upon the termination of Eastern, the trustees shall sell and convert into
money or into securities the whole or any part of the trust estate, and shall
apportion the proceeds thereof and any property forming part of the trust estate
excepted from such sale among all the stockholders in accordance with their
respective rights, ratably according to the number and kind of shares held by
them, respectively.
The holders of Eastern Common Stock will have no preemptive rights to
purchase shares of capital stock of Eastern. Shares of Eastern Common Stock will
not be subject to any redemption provisions and will not be convertible into any
other securities or property. All issued and outstanding shares of Eastern
Common Stock are fully-paid and non-assessable and the shares of Eastern Common
Stock to be issued in connection with the Merger, when authorized, approved,
issued and delivered, subject to the terms of the Merger Agreement, will be
fully-paid and non-assessable.
COMMON STOCK PURCHASE RIGHTS
Eastern adopted a stockholder rights plan that is designed to protect
stockholders from coercive or unfair tactics. To implement the plan, on February
22, 1990, the Board of Trustees declared a dividend of one common stock purchase
right (a "Right") for each outstanding share of Eastern Common Stock. The
dividend was payable on March 5, 1990 (the "Rights Record Date") to the
stockholders of record on that date. Each Right entitles the registered holder
to purchase one share of Eastern Common Stock at a price of $100 per share (the
"Purchase Price"), subject to adjustment. The Rights Agreement contemplates the
issuance of one Right for every share of Eastern Common Stock issued and
outstanding on the Rights Record Date and for each share of Eastern Common Stock
issued on or after the Rights Record Date and prior to the Distribution Date (as
defined below). The description and terms of the Rights are set forth in a
Rights Agreement (the "Rights Agreement") between Eastern and BankBoston N.A.,
as Rights Agent (the "Rights Agent").
The Rights will separate from the Eastern Common Stock upon the earliest to
occur of (i) the 10th business day following the later of the date of a public
announcement that a person with affiliates or associates of such person (an
"Acquiring Person") has acquired, or obtained the rights to acquire, beneficial
ownership of 20% or more of the outstanding shares of Eastern Common Stock or
the date on which an executive officer of Eastern had actual knowledge of such
beneficial ownership (the later of such dates, the "Stock Acquisition Date"),
(ii) the 10th business day following the commencement of a tender offer or
exchange offer that would result in any person or its affiliates and associates
owning 20% or more of the outstanding shares of Eastern Common Stock (or such
specified or unspecified later date as may be determined by a majority of the
trustees then in office) or (iii) the 10th business day following the
determination by the Board of trustees upon vote of
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<PAGE> 62
a majority of the trustees then in office that a person is, under certain
criteria as specified below, an Adverse Person (the earliest of such dates being
called the "Distribution Date").
The Trustees may determine a person to be an "Adverse Person" if such
person with affiliates or associates of such person, has acquired a number of
shares of Eastern Common Stock which a majority of the trustees then in office
determines to be substantial (which amount shall be at least 10% or more of the
outstanding shares of Eastern Common Stock) and (i) such person intends to cause
Eastern to repurchase the Eastern Common Stock beneficially owned by such person
or to take action or enter into a transaction or series of transactions intended
to provide such person or group with short term financial gain or other
advantage under circumstances not in the best long term interests of Eastern,
(ii) the ownership by such person or group is causing or reasonably likely to
cause a material adverse impact on a business or prospects of Eastern or any of
its subsidiaries, (iii) such person intends to cause Eastern to divest itself of
assets (including stock or assets of any of its subsidiaries) to the detriment
of Eastern, (iv) such person or any member of the group is a subject of any
governmental order or decree or is a defendant in or a target of any
governmental action, proceeding or investigation and in light of the subject
matter of the order, decree, action, proceeding or investigation, the person's
affiliation with Eastern could subject the market of Eastern Common Stock to
false or misleading influences or is otherwise not in the best interests of
Eastern, or (v) such person as a result of its beneficial ownership of the
Eastern Common Stock or otherwise, has violated or failed to obtain any approval
or exemption (or is likely to violate or fail to obtain any approval or
exemption) required by PUHCA or the rules or regulations promulgated thereunder
or any rules or regulations of the MDTE, or any other federal or state statute,
rule or regulation relating to the operations or business of Eastern or any of
its subsidiaries.
The Rights Agreement provides that, until the Distribution Date (or earlier
redemption or expiration of the Rights), the Rights will be transferred with and
only with Eastern Common Stock. Until the Distribution Date (or earlier
redemption or expiration of the Rights), new Eastern Common Stock certificates
issued after the Rights Record Date upon transfer or new issuance of Eastern
Common Stock will contain a notation incorporating the Rights Agreement by
reference. Until the Distribution Date (or earlier redemption or expiration of
the Rights), the surrender for transfer of any certificates for Eastern Common
Stock also constitutes the transfer of the Rights associated with the Eastern
Common Stock represented by the certificate. As soon as practicable following
the Distribution Date, separate certificates evidencing the Rights ("Rights
Certificates") will be mailed to holders of record for the Eastern Common Stock
as of the close of business on the Distribution Date and such separate Rights
Certificates alone will then evidence the Rights.
The Rights are not exercisable until the Distribution Date. The Rights will
expire on March 5, 2000 (the "Expiration Date"), or the earlier redemption of
the Rights.
In the event that, at any time following the Stock Acquisition Date or the
determination that a person is an Adverse Person, Eastern is acquired in a
merger or other business combination transaction or 50% or more of its
consolidated assets or earning power are sold, proper provision will be made so
that each holder of a Right, other than Rights beneficially owned by the
Acquiring Person or Adverse Person (which will thereafter be void), will
thereafter have the right to receive, upon the exercise thereof at the then
current exercise price of the Right, that number of shares of common stock of
the acquiring company which at the time of such transaction will have a market
value of two times the exercise price of the Right. In the event that any person
or group of affiliated or associated persons (other than Eastern or its
Affiliates) shall become the beneficial owner of 25% or more of the outstanding
Eastern Common Stock or the Board of Trustees determines that a person is an
Adverse Person, proper provision shall be made so that each holder of a Right,
other than Rights beneficially owned by the Acquiring Person or Adverse Person
(which will thereafter be void), will thereafter have the right to receive upon
exercise that number of shares of Eastern Common Stock having a market value of
two times the exercise price of the Right. The occurrence of any event in this
paragraph constitutes a "Common Stock Event."
The Purchase Price payable, and the number of whole or fractional shares of
the Eastern Common Stock or other securities or property issuable, upon exercise
of the Rights are subject to adjustment from time to time to prevent dilution
(i) in the event of a stock dividend on, or a subdivision, combination or
reclassification, of Eastern Common Stock, (ii) upon the grant to holders of
Eastern Common Stock of
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<PAGE> 63
certain rights or warrants to subscribe for shares of Eastern Common Stock or
convertible securities at less than the current market price of Eastern Common
Stock, or (iii) upon the distribution to holders of Eastern Common Stock of
evidences of indebtedness or assets (excluding cash dividends paid out of the
earnings or retained earnings of Eastern and dividends payable in shares of
Eastern Common Stock) or of subscription rights or warrants (other than those
referred to above).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional shares of any securities upon exercise of the
Rights will be issued and, in lieu thereof, at the election of Eastern, an
adjustment in cash may be made based on the market price of such securities on
the last trading date prior to the date of exercise.
At any time prior to the earlier of (i) the close of business on the 10th
business day after the Stock Acquisition Date or (ii) the Expiration Date, but
in any event not if the Board of Trustees has declared a person to be an Adverse
Person, Eastern, by a majority vote of the trustees then in office, may redeem
the Rights at a price of $.01 per Right (the "Redemption Price"). Immediately
upon the action of the Board of Trustees electing to redeem the Rights, the
right to exercise the Rights will terminate and the only right of the holders of
Rights will be to receive the Redemption Price. Until a Right is exercised, the
holder thereof, as such, will have no rights as a shareholder of Eastern,
including, without limitation, the right to vote or to receive dividends.
Until the earlier of the Distribution Date or the date of determination
that a person is an Adverse Person, the Rights Agreement may be amended without
the approval of the holders of the Rights. After the earlier of such dates, the
Rights Agreement may be amended without the approval of the holders of the
Rights in order to cure any ambiguity, to make changes that do not adversely
affect the interests of the holders of the Rights (other than the Acquiring
Person, Adverse Person or their affiliates and associates), or to change any
time period for redemption or otherwise under the Rights Agreement, except that
no change may be made to lengthen the time period for redemption or modify the
ability of the Board of Trustees of Eastern to redeem the Rights at a time when
the Rights are not then redeemable. No amendments may be made at any time to
increase the Purchase Price or reduce the number of shares of Eastern Common
Stock for which a Right is exercisable, to decrease the Redemption Price or to
accelerate the Expiration Date. Any amendments after the Stock Acquisition Date
require the approval of a majority of the Trustees then in office.
MASSACHUSETTS LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS; ANTI-TAKEOVER
EFFECTS
Eastern is subject to Chapter 110F of the MGL, an anti-takeover law. Under
Chapter 110F of the MGL, a Massachusetts corporation, or business trust that
controls a gas utility organized under Chapter 164 of the Massachusetts General
Laws, with more than 200 stockholders may not engage in a "business combination"
with an "interested stockholder" (as such terms are defined herein) for a period
of three years after the date of the transaction in which the person becomes an
interested stockholder, unless (i) the interested stockholder obtains the
approval of the board of directors (or Board of Trustees in the case of Eastern)
prior to becoming an interested stockholder, (ii) the interested stockholder
acquires 90% of the outstanding voting stock of the corporation (excluding
shares held by certain affiliates of the corporation) at the time it becomes an
interested stockholder or (iii) the business combination is approved by both the
board of directors and the holders of two-thirds of the outstanding voting stock
of the issuer (excluding shares held by the interested stockholder). An
"interested stockholder" is a person who, together with affiliates and
associates, owns (or, in certain cases, at any time within the prior three years
did own) 5% or more of the outstanding voting stock of the issuer. A "business
combination" includes a merger, certain stock or asset sales, and certain other
specified transactions resulting in a financial benefit to the interested
stockholder.
The Eastern By-Laws include a provision excluding Eastern from the
applicability of Chapter 110D of the MGL, which regulates the acquisition of
so-called "control shares." A control share acquisition is the acquisition of
shares that, when added to shares already owned, would (but for Chapter 110D of
the MGL) entitle the acquiring person to vote at least 20% of an entity's stock.
Shares acquired in such a transaction would, under Chapter 110D of the MGL, have
no voting rights unless a majority of non-interested stockholders voted to grant
such voting rights. In general, the person acquiring such shares, officers of
Eastern
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<PAGE> 64
and those trustees of Eastern who are also employees, are not permitted to vote
on whether such voting rights shall be granted. The Board of Trustees may amend
the Eastern By-Laws at any time to subject Eastern to Chapter 110D of the MGL
prospectively.
The Eastern Charter provides that the trustees, officers and agents of
Eastern generally shall not be liable except for acts or failures to act which
at the time would impose liability on such party if Eastern were a Massachusetts
business corporation and such person was a director, officer or agent thereof.
Pursuant to the Eastern Charter, Eastern shall indemnify each of its trustees
and officers against all liabilities and expenses, including amounts paid in
satisfaction of judgments, in compromise or as fines and penalties, and counsel
fees, reasonably incurred by such trustee or officer in connection with the
defense or disposition of any action, suit or other proceeding, whether civil or
criminal, including, but not limited to, derivative suits (to the extent
permitted by law), in which such trustee or officer may be involved or with
which such trustee or officer may be threatened, while in office or thereafter,
except with respect to any matters as to which such trustee or officer shall
have been adjudicated to have acted in bad faith or not to have acted in good
faith in the reasonable belief that such trustee's or officer's action was in
the best interests of Eastern or, to the extent that such matter relates to
service with respect to an employee benefit plan, in the best interests of the
participants or beneficiaries of such plan. The Eastern Charter provides,
however that, as to any matter disposed of by a compromise payment by such
trustee or officer pursuant to a consent decree or otherwise, no indemnification
either for said payment or for any other expenses shall be provided unless such
compromise shall be approved as in the best interests of Eastern, after notice
that it involves such indemnification: (i) if no change of control has occurred,
(a) by a disinterested majority of the trustees then in office or (b) by a
majority of the disinterested trustees then in office or by the stockholders of
Eastern, provided that Eastern shall have received a written opinion of
independent legal counsel to the effect that such trustee or officer appears to
have acted in good faith in the reasonable belief that such trustee's or
officer's action was in the best interests of Eastern; or (ii) if a change of
control shall have occurred, by an opinion in writing of independent legal
counsel to the effect that such trustee or officer appears to have acted in good
faith in the reasonable belief that his action was in the best interests of
Eastern. The rights accruing to any trustee or officer under the foregoing
provisions do not exclude any other right to which such trustee or officer may
be lawfully entitled; provided, however, that no trustee or officer may satisfy
any rights of indemnity or reimbursement granted pursuant to the Eastern Charter
or to which such trustee or officer may be otherwise entitled except out of the
trust estate of Eastern and no stockholder will be personally liable to any
person with respect to any claim for indemnity or reimbursement or otherwise.
The Eastern Charter provides that in discharging his or her duties, when
acting in good faith, any trustee or officer shall be fully entitled to rely
upon information, opinion reports or records, including financial statements,
books of account and other financial records, in each case presented or prepared
by, or under the supervision of, (a) one or more officers or employees of
Eastern (or of another organization in which such person serves as contemplated
by Article 19 of the Eastern Charter, including all directors, officers and
trustees of wholly-owned subsidiaries of Eastern) whom the trustee or officer
reasonably believes to be reliable and competent in the matters presented, (b)
counsel, public accountants or other persons as to matters which the trustee or
officer reasonably believes to be within such person's professional or expert
competence, or (c) in the case of a trustee, a duly constituted committee of
trustees (or similar governing body of such other organization) upon which such
trustee does not serve, as to matters within its delegated authority, which
committee the trustee reasonably believes to merit confidence, but such trustee
shall not be considered to be acting in good faith if Such trustee has knowledge
concerning the matter in question that would cause such reliance to be
unwarranted. The fact that a trustee or officer so relied shall be a complete
defense to any claim asserted against such trustee or officer, except as
expressly provided by statute, by reason of such trustee or officer being or
having been a trustee or officer of Eastern (or such other organization).
The Eastern Charter further provides that, notwithstanding any provision of
law or any other provision of the Eastern Charter, a trustee shall not be liable
to Eastern or any shareholder of Eastern for monetary damages for breach of such
trustee's fiduciary duties as a trustee, except with respect to any matter as to
which such liability is imposed by applicable law and he or she shall have been
adjudicated (i) to have breached his or her duty of loyalty to Eastern or its
stockholders, (ii) to have acted not, or omitted to act, in good faith,
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<PAGE> 65
(iii) to have knowingly violated the law, (iv) to have intentionally engaged in
misconduct, or (v) to have derived any improper personal benefit from a
transaction. Trustees, officers and agents of Eastern will also not be held
liable for any act or failure to act in good faith, which is required,
authorized or approved by any order issued pursuant to PUCHA or any other
federal or state statute regulating Eastern or any of its subsidiaries by reason
of its being a public utility holding company or their being public utilities.
The Eastern Charter also provides that stockholders, trustees, officers and
agents of Eastern will have no liability for the payment or satisfaction of all
obligations and liabilities incurred in carrying on the business of Eastern, but
that the trust estate of Eastern shall only be liable. Stockholders are
indemnified out of the trust estate if held personally liable in any event,
except for payments due upon shares of Eastern.
The trustees or the President of Eastern at any time may, and the President
or Secretary of Eastern shall upon written request of a majority of the trustees
then in office or of the holders of one-tenth of all the shares of Eastern at
the time outstanding and carrying the right to vote upon any question to be
presented to a meeting of stockholders, call a special meeting of the
stockholders having the right to vote upon any such question, to be held at the
principal place of business of Eastern or such other place (within the
Commonwealth of Massachusetts) as the trustees shall designate. Every such
request shall state the purpose of the meeting and shall be delivered at the
principal office of Eastern addressed to the President or Secretary, and, in
case the President or Secretary shall refuse or fail for fourteen days after the
request shall have been so delivered to call or cause to be called such meeting
to be held within 60 days after the delivery of the request, such meeting may be
called by the person or persons signing such request or by any three of them,
and, for such purposes such person or persons or agents shall be given access to
the principal share register of Eastern.
The stockholders of Eastern may not take any action without a meeting.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Eastern Common Stock is
BankBoston, N.A.
MANAGEMENT AND OTHER INFORMATION
Certain information relating to the management, executive compensation,
voting securities, certain relationships and related transactions and other
related matters pertaining to Essex County and Eastern is set forth in or
incorporated by reference in their respective Annual Reports on Form 10-K for
the years ended August 31, 1997 and December 31, 1997, respectively. Such Annual
Reports are incorporated by reference into this Proxy Statement/Prospectus. See
"Incorporation of Certain Documents by Reference."
COMPARATIVE RIGHTS OF ESSEX COUNTY
AND EASTERN STOCKHOLDERS
Rights of stockholders of Essex County are currently governed by the MGL,
including Chapter 164 of the MGL and certain provisions of Chapter 156B of the
MGL, the Essex County Charter and the Essex County By-laws. Rights of
stockholders of Eastern are currently governed by the MGL, the Eastern Charter,
and the Eastern By-laws. Upon consummation of the Merger, Essex County
stockholders will become stockholders of Eastern and their rights as
stockholders of Eastern will be governed by the Eastern Charter, the Eastern
By-laws and the MGL. There are a number of differences between the rights of
Essex County stockholders and the rights of Eastern stockholders. The following
is a brief summary of certain differences between the rights of Eastern
stockholders and the rights of Essex County stockholders, and is qualified in
its entirety by reference to the relevant provisions of the MGL, the Eastern
Charter and the Eastern By-laws, the Essex County Charter and the Essex County
By-laws.
AUTHORIZED CAPITAL STOCK
Essex County. The authorized capital stock of Essex County consists of
5,000,000 shares of Essex County Common Stock and 7,000 shares of Essex County
preferred stock. With respect to the preferred stock, the Essex County Board is
authorized, without stockholder approval (subject to any class voting rights of
any
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<PAGE> 66
existing holders of preferred stock), to designate series of each such class and
to determine the relative rights, preferences and limitations of such series. As
of the date hereof, there have been designated an aggregate of 7,000 shares of
Essex County 5.50% Preferred Stock Series A (of which no shares were issued and
outstanding as of the Record Date).
Eastern. Eastern is authorized to issue up to 50,000,000 shares of Eastern
Common Stock. On April 23, 1998, Eastern had 20,423,164 shares of Eastern Common
Stock issued and outstanding.
BOARDS OF DIRECTORS
Essex County. The Essex County Board currently consists of 12 members,
with the number of directors constituting the Essex County Board to be between
three and 15 and to be determined from time to time by an affirmative vote of
the majority of the Essex County Board. The Essex County Board is not divided
into staggered classes and cumulative voting in the election of directors is not
permitted.
Eastern. The Board of Trustees of Eastern is divided into three classes
having staggered terms of three years each. The Eastern Charter provides that
the number of trustees shall be fixed from time to time by the trustees but
shall not be less than three or more than twenty. The total number of trustees
is currently fixed at nine. Three of the trustees now in office have terms
expiring at the 2001 Annual Meeting of Eastern Stockholders, three have terms
expiring at the 2000 Annual Meeting of Eastern Stockholders and three have terms
expiring at the 1999 Annual Meeting of Eastern Stockholders.
Shares of Eastern Common Stock which, by the provisions of the Eastern
Charter are entitled to vote upon any question shall be entitled to one vote per
share in person or by proxy, except that the election of Trustees by the holders
of Eastern Common Stock shall be by cumulative voting, namely, each holder of
Eastern Common Stock will be entitled to as many votes as will equal the number
of such holder's shares multiplied by the number of trustees to be elected, and
such holder may cast all of such votes for a single candidate or distribute them
among any two or more candidates as such holder shall elect.
REMOVAL OF DIRECTORS
Essex County. Under the Essex County By-laws, a director may be removed
with or without cause by the vote of a majority of the stockholders entitled to
vote in the election of directors (with certain exceptions pertaining to
directors elected by a particular class of stockholders).
Eastern. Under the Eastern Charter, a trustee may be removed without cause
only by the affirmative vote of the holders of 80% of the combined voting power
of the then-outstanding shares of beneficial interest entitled to vote generally
in the election of trustees, voting together as a single class.
SPECIAL MEETINGS OF STOCKHOLDERS; STOCKHOLDER ACTION WITHOUT MEETING
Essex County. Under the Essex County By-laws, special meetings of
stockholders may be called by a Vice President, or a majority of the Essex
County Board, or by the Clerk pursuant to the term of the purchased stock or
upon written application of stockholders holding one-third part in interest of
the capital stock entitled to vote on the subject matter in question. Pursuant
to Chapter 156B, Section 43 of the MGL, stockholders of Essex County may take
action without a meeting if all stockholders entitled to vote on the matter
consent to the action in writing and the written consents are filed with the
records of the meetings of stockholders.
Eastern. The trustees or the President at any time may, and the President
or Secretary shall upon written request of a majority of the trustees then in
office or of the holders of one-tenth of all the shares of Eastern at the time
outstanding and carrying the right to vote upon any question to be presented at
a meeting of Stockholders, call a special meeting of the stockholders having the
right to vote upon any such question, and in case the President or Secretary
shall refuse or fail for fourteen days after the request shall have been so
delivered to call or cause to be called such meeting to be held within sixty
days after the delivery of the request, such meeting may be called by the person
or persons signing such request or by any three of them.
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The stockholders of Eastern may not take any action without a meeting.
STOCKHOLDER PROPOSALS AND NOMINATIONS
Essex County. For any item of business to be properly considered at an
annual or special meeting, the item of business must either (i) be specified in
the notice of meeting (or any supplement thereto) given by or at the direction
of the Essex County Board or the persons calling the meeting, (ii) be otherwise
properly brought before the meeting by or at the direction of the Essex County
Board, or (iii) be otherwise properly brought before the meeting by a
stockholder. For business to be properly brought before a meeting by a
stockholder, the stockholder must have given timely notice thereof in writing to
the Clerk of Essex County. To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of Essex
County not less than 60 days nor more than 90 days prior to the meeting;
provided, however, that in the event that less than 70 days' notice or prior
public disclosure of the date of the meeting of stockholders is given or made to
stockholders, to be timely, notice by the stockholder of business to be
conducted at a meeting must be received by the Clerk of Essex County not later
than the close of business on the 10th day following the day on which notice of
the date of the meeting of stockholders was mailed or such public disclosure was
made to the stockholders. A stockholder's notice to the Clerk of Essex County
shall be set forth as to each matter he proposes to bring before the meeting (i)
a brief description of the business desired to be brought before the meeting and
the reasons for conducting such business at the meeting, (ii) the name and
address, as they appear on Essex County's books, of the stockholders proposing
such business, (iii) the class or classes of stock and number of shares of such
class or classes of stock which are beneficially owned by the proposing
stockholders, and (iv) any material interest of the proposing stockholders in
such business.
Eastern. The Nominating Committee of the Board of Trustees of Eastern is
responsible for nominating trustees, members of committees of the Board of
Trustees and officers of Eastern, among other things. The Nominating Committee
will consider nominees for the Board of Trustees recommended by stockholders of
Eastern. Written recommendations together with supporting information should be
directed to Eastern not later than 45 days prior to the anniversary of the date
of the immediately preceding annual meeting. Such notice shall set forth: (i)
the name and address of the stockholder who intends to make the nomination and
of the person or persons to be nominated; (ii) a representation that the
stockholder is a holder of record of Eastern entitled to vote at such meeting
and intends to appear in person or by proxy at the meeting to nominate the
person or persons specified in the notice; (iii) a description of all
arrangements or understandings between the stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder; (iv) such other
information regarding each nominee proposed by such stockholder as would be
required to be included in a proxy statement filed pursuant to the proxy rules
of the Commission; and (v) the consent of each nominee to serve as a trustee if
so elected. The presiding officer of the meeting may refuse to acknowledge the
nomination of any person not made in compliance with the foregoing procedure.
Stockholder proposals intended to be presented at any annual meeting of
stockholders must be received at Eastern's principal executive offices no later
than 120 days prior to the date of the proxy statement released to stockholders
for the immediately preceding annual meeting.
DISSENTERS' RIGHTS
Essex County. The stockholders of Essex County are not entitled to
appraisal rights.
Eastern. The Eastern Charter provides that in the event of a merger or
consolidation of Eastern with another entity, the governing agreement for such
transaction must provide that the stockholders of Eastern are entitled to the
rights of dissent available under Massachusetts law as if Eastern were a
Massachusetts business corporation.
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CHARTER AMENDMENTS
Essex County. Essex County Charter amendments require a vote of two-thirds
of each class outstanding and entitled to vote thereon; provided, however, if
any such amendment would adversely affect the rights of any class of stock,
two-thirds of such class would be necessary to authorize such amendment.
Eastern. The Eastern Charter may be amended by vote of at least a majority
of the outstanding Eastern Common Stock; provided that (i) no change shall be
made to the Article pertaining to the liabilities of the trustees, officers and
agents of Eastern which would impair the relief from personal liability provided
therein, (ii) any provision requiring a higher percentage than a majority shall
be amended only by such higher percentage and (iii) the Eastern Charter may be
amended for the purpose of changing the name of Eastern, supplying any omission,
curing any ambiguity or curing, correcting or supplementing any defective or
inconsistent provision contained in the Eastern Charter by the trustees without
authorization by stockholder vote.
DIVIDENDS AND STOCK REPURCHASES
Essex County. Pursuant to the Essex County By-laws, dividends declared by
a corporation which have not been paid to or claimed by the person entitled to
them within six years after they have been declared may at any time after such
six-year period be regarded and used as funds of Essex County, and any claim
upon Essex County for such dividends shall thereafter be barred.
Eastern. The trustees, in their discretion, may from time to time declare
dividends payable at any date fixed by them out of the earned surplus of
Eastern, determined in accordance with sound accounting practice, in cash,
securities or property, and may declare dividends in securities of Eastern and
for that purpose may authorize the issuance of certificates and scrip and may
capitalize all or any part of the earned or capital surplus and may determine
the number of dollars per share so capitalized and may determine that shares
held in the treasury of Eastern shall be entitled to all or part of any such
dividend declared in securities of Eastern but in no event shall such treasury
shares be entitled to any cash payment made in connection with such dividend,
whether or not made in lieu of fractional securities; but no stockholder shall
have any right to any dividends whether in cash, securities or property of
Eastern except when and as notice shall have been given that the same have been
declared as aforesaid, and no stockholder, trustee, officer of agent of Eastern
shall be liable personally therefor, and every stockholder entitled thereto
shall look only to Eastern's trust estate for the payment of any such dividend.
Pursuant to the Eastern Charter, shares of Eastern purchased, redeemed or
otherwise acquired by Eastern may, in the discretion of the trustees, be
canceled and the number of shares issued thereby be reduced, or such shares may,
in the discretion of the trustees, be held in the treasury and may be sold or
otherwise disposed of by the trustees at such time or times, to such party or
parties and for such consideration and on such terms as the trustees may
determine, but such shares while so held in the treasury shall not be entitled
to any voting rights nor to dividends (except for dividends payable in
securities of Eastern, at the discretion of the trustees) or right of
subscription or purchase and shall not be deemed outstanding in computing
proportions or percentages of shares or stockholders under the Eastern Charter.
Shares canceled pursuant to the Eastern Charter shall have the status of
authorized but unissued shares.
FAIR PRICE CHARTER PROVISIONS
Essex County. None.
Eastern. The Eastern Charter contains certain "anti-Greenmail" provisions
in the case of certain stock repurchases from interested securityholders. Any
direct or indirect purchase or other acquisition by Eastern or any majority
owned subsidiary of any shares of capital stock of Eastern from any "interested
securityholder" (generally defined as any holder (with certain exceptions) of 5%
or more of the outstanding shares of voting stock of Eastern or an affiliate of
Eastern who at any time within the two-year period immediately prior to the date
in question was the beneficial owner of 5% or more of all outstanding shares of
voting stock of Eastern) who has been the beneficial owner of such shares for
less than two years prior to the date of such purchase or
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other acquisition or any agreement in respect thereof, for aggregate
consideration greater than the then "fair market value" (as defined in the
Eastern Charter) of such shares shall, except as expressly provided, require the
affirmative vote of the holders of voting stock representing shares equal to the
sum of (i) a majority of the then-outstanding voting stock, excluding voting
stock of which such interested securityholder is the beneficial owner, plus (ii)
the number of shares of voting stock of which such interested securityholder is
the beneficial owner, voting together as a single class. The foregoing
provisions do not apply to any purchase or other acquisition of securities made
as part of a tender or exchange offer to purchase securities of the same class
made on the same terms to all holders of such securities, or made as part of an
open market purchase program approved by a majority of the disinterested
trustees of Eastern provided that such purchase is effected on the open market
and is not the result of a privately negotiated transaction.
The Eastern Charter further provides for a higher affirmative vote in
connection with certain business transactions with interested securityholders or
their affiliates or associates, including (i) any merger or consolidation of
Eastern or any majority owned subsidiary with any interested securityholder or
any other company which is or after such merger or consolidation would be an
affiliate or associate of an interested securityholder; (ii) any sale, lease,
exchange, mortgage, pledge, transfer or other disposition involving any assets
or securities of Eastern having an aggregate fair market value in excess of 5%
of the total consolidated book assets of Eastern and its majority owned
subsidiaries; (iii) the adoption of any plan or proposal for the termination,
liquidation or dissolution of Eastern proposed by or on behalf of an interested
securityholder or any affiliate or associate; (iv) any reclassification of
securities (including any reverse stock split), or recapitalization of Eastern
or any merger or consolidation of Eastern with any of its majority owned
subsidiaries or any other transaction that has the effect, directly or
indirectly, of increasing the proportionate share of any class or series of
capital stock of Eastern, or any securities convertible into capital stock of
Eastern or into equity securities of any majority owned subsidiary, that is
beneficially owned by an interested securityholder or any affiliate or
associate; or (v) any tender offer or exchange offer made by Eastern for shares
of capital stock of Eastern that may have the effect of increasing an interested
securityholder's percentage beneficial ownership so that following the
completion of the tender offer or exchange offer such interested
securityholder's percentage beneficial ownership of the outstanding capital
stock of Eastern may exceed 110% of its percentage beneficial ownership
immediately prior to the commencement of such tender offer or exchange offer; or
(vi) any agreement, contract or other arrangement providing for any one or more
of the actions specified in the foregoing clauses (i) to (v). In any such case,
the affirmative vote is required of the holders of voting stock representing
shares equal to the sum of (a) a majority of the then outstanding voting stock,
excluding voting stock of which such interested securityholder is the beneficial
owner, plus (b) the number of shares of voting stock of which such interested
securityholder is the beneficial owner, voting together as a single class. The
foregoing provisions are not applicable to any direct or indirect purchase or
other acquisition of Eastern capital stock by Eastern or any majority owned
subsidiary from any interested securityholder, or to any particular transaction
referred to in (i) through (vi) above if approved by a majority of the
disinterested trustees.
BUSINESS COMBINATION STATUTES
Essex County. Chapter 110F of the MGL prohibits any business combination
with an "interested stockholder" (defined generally as a person owning 5% of
more of a corporation's outstanding voting stock) for three years after that
person becomes an interested stockholder unless: (i) the board gives prior
approval to the 5% purchase of the proposed business combination; (ii) upon
consummation of the transaction that resulted in the person becoming an
interested stockholder, the interested stockholder owns at least 90% of the
voting stock, excluding certain shares; or (iii) subsequent to the acquiror's
becoming an interested stockholder, the board of directors and two-thirds of the
noninterested shares approve the business combination. Essex County has not
opted out of Chapter 110F of the MGL and the provisions of Chapter 110F of the
MGL apply to an acquisition of Essex County.
Section 20E of Chapter 149 of the MGL prohibits the termination or
impairment of collective bargaining agreements following a business combination
until the negotiated termination date of the agreement or until the parties to
the agreement negotiate a new termination date.
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Eastern. Eastern is also subject to the provisions of Chapter 110F and
Section 20E of Chapter 149 of the MGL.
CONTROL SHARE STATUTE
Essex County. Chapter 110D of the MGL provides that, once a potential
acquiror notifies a company of its intention to purchase 20% or more of a
corporation, a stockholders meeting must be held within 50 days, at the
acquiror's expense, to vote on whether the control shares may exercise voting
rights. Without the approval of a majority of the outstanding shares not owned
by the acquiror, or by officers or directors of the target, the control shares
do not receive voting rights. Essex County has not opted out of Chapter 110D of
the MGL.
Eastern. The Eastern By-laws provide that the provisions of Chapter 110D
of the MGL shall not apply to control share acquisitions of beneficial shares of
Eastern.
PROPER FACTORS FOR CONSIDERATION IN EVALUATING BUSINESS COMBINATIONS
Essex County. In performing his or her duties, a director, officer or
incorporator shall be entitled to rely on information, opinions, reports or
records, including financial statements, books of account and other financial
records, in each case presented by or prepared by or under the supervision of
(i) one or more officers or employees of the corporation whom the director,
officer or incorporator reasonably believes to be reliable and competent in the
matters presented, (ii) counsel, public accountants or other persons as to
matters which the director, officer or incorporator reasonably believes to be
within such person's professional or expert competence, or (iii) in the case of
a director, a duly constituted committee of the board of directors upon which he
or she does not serve, as to matters within its delegated authority, which
committee the director reasonably believes to merit confidence, but he or she
shall not be considered to be acting in good faith if he or she has knowledge
concerning the matter in question that would cause such reliance to be
unwarranted. The fact that a director, officer or incorporator so performed his
or her duties shall be a complete defense to any claim asserted against him or
her, except as expressly provided by statute, by reason of his or her being or
having been a director, officer or incorporator of the corporation.
Eastern. The Eastern Charter provides that in discharging his or her
duties, when acting in good faith, any trustee or officer of Eastern shall be
fully entitled to rely upon information, opinion, reports or records, including
financial statements, books of account, and other financial records, in each
case, presented or prepared by, or under the supervision of, (i) one or more
officers or employees of Eastern (or of another organization in which he serves
as contemplated by Article 19 of the Eastern Charter, including all directors,
officers and trustees of wholly owned subsidiaries of Eastern) whom the trustee
or officer reasonably believes to be reliable and competent in the matters
presented, (ii) counsel, public accountants or other persons as to matters which
the trustee or officer reasonably believes to be within such person's
professional or expert competence, or (iii) in the case of a trustee, a duly
constituted committee of trustees (or similar governing body of such other
organization) upon which he or she does not serve, as to matters within its
delegated authority, which committee the trustee reasonably believes to merit
confidence, but he or she shall not be considered to be acting in good faith if
he or she has knowledge concerning the matter in question that would cause such
reliance to be unwarranted. The fact that a trustee or officer so relied shall
be a complete defense to any claim asserted against him or her, except as
expressly provided by statute, by reason of his or her being or having been a
trustee or officer of Eastern (or such other organization).
FORM OF CONSIDERATION FOR CAPITAL STOCK
Essex County. Pursuant to Section 11 of Chapter 164 of the MGL, capital
stock may be issued for cash, or real or personal property that has been
approved by the MDTE.
Eastern. The Eastern Charter provides that authorized shares of the trust
may be issued either for money, services, stock, property or other value, or by
way of a stock dividend or in exchange for other shares or securities of Eastern
and par for par in exchange for stock of another company irrespective of the
dividend rate or the then-market value of such stock. Shares may not be issued
at less than par in the case of shares with a par value.
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LIMITATION OF DIRECTOR LIABILITY
Essex County. Pursuant to Section 65 of Chapter 156B of the MGL, the fact
that a director performed his or her duties in accordance with Section 65 of
Chapter 156B of the MGL shall be a complete defense to any claim asserted
against him or her, except as expressly provided by statute, by reason of his or
her being or having been a director of a corporation.
Eastern. The Eastern Charter provides that no trustee shall be liable
except for acts or failures to act which at the time would impose liability on
him or her if Eastern were a Massachusetts business corporation and he or she
were a director thereof.
The Eastern Charter further provides that the trustees of Eastern will not
personally be liable to Eastern or its stockholders for monetary damages for
certain breaches of fiduciary duty as trustees, unless they violated their duty
of loyalty to Eastern or its stockholders, acted not, or omitted to act, in good
faith, knowingly or intentionally violated the law, intentionally misconducted
themselves, or derived an improper benefit from their actions as trustees.
Trustees, officers and agents of Eastern will also not be held liable for any
act or failure to act in good faith, that is required, authorized or approved by
an order issued pursuant to PUHCA or any other federal or state statute
regulating Eastern or any of its subsidiaries by reason of its being a public
utility holding company or their being public utilities. The Eastern Charter
also provides that stockholders, trustees, officers and agents of Eastern will
have no liability for the payment or satisfaction of obligations and liabilities
incurred in carrying on the business of Eastern and that the trust estate of
Eastern only shall be liable.
INDEMNIFICATION
Essex County. Pursuant to the Essex County By-Laws, Essex County shall
indemnify each person (other than a party plaintiff suing on such party
plaintiff's own behalf or in the right of Essex County who at any time is
serving or has served as a director or officer of Essex County against any
claim, liability, or expense incurred as a result of this service, or as a
result of any other service on behalf of Essex County, or service at the request
of Essex County as a director, officer, employee, member or agent of another
corporation, partnership, joint venture, trust, trade or industry association or
other enterprise (whether incorporated or unincorporated, for-profit or
not-for-profit), to the maximum extent permitted by law. Without limited the
generality of the foregoing, Essex County shall indemnify any such person who
was or is a party (other than a party plaintiff suing on such party plaintiff's
own behalf or in the right of Essex County), or is threatened to be made a
party, to any threatened, pending, or completed action, suit, or proceeding,
whether civil, criminal, administrative, or investigative (including, without
limitation, attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit, or proceeding.
Essex County shall not be liable to indemnify a director or officer for any
amounts paid in settlement of any action or claim effected without Essex
County's written consent. Essex County shall not settle any action or claim in
any manner which would impose any penalty or limitation on the director or
officer without the director's or officer's written consent. Neither Essex
County nor the director or officer will unreasonably withhold its or his or her
consent to any proposed settlement.
Eastern. Pursuant to the Eastern Charter, Eastern shall indemnify each of
its trustees and officers against all liabilities and expenses, including
amounts paid in satisfaction of judgments, in compromise or as fines and
penalties, and counsel fees, reasonably incurred by him or her in connection
with the defense or disposition of any action, suit or other proceeding, whether
civil or criminal, including, but not limited to, derivative suits (to the
extent permitted by law), in which he or she may be involved or with which he or
she may be threatened, while in office or thereafter, except with respect to any
matters as to which he or she shall have been adjudicated to have acted in bad
faith or not to have acted in good faith in the reasonable belief that his or
her action was in the best interests of Eastern or, to the extent that such
matter relates to service with respect to an employee benefit plan, in the best
interests of the participants or beneficiaries of such plan; provided, however,
that as to any matter disposed of by a compromise payment by such trustee or
officer pursuant to a consent decree or otherwise, no indemnification either for
said payment or for any other expenses shall be provided unless such compromise
shall be approved as in the best interests of Eastern, after notice
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that it involves such indemnification: (i) if no change of control has occurred,
(a) by a disinterested majority of the trustees then in office or (b) by a
majority of the disinterested trustees then in office or by the stockholders of
Eastern, provided that Eastern shall have received a written opinion of
independent legal counsel to the effect that such trustee or officer appears to
have acted in good faith in the reasonable belief that his or her action was in
the best interests of Eastern; or (ii) if a change of control shall have
occurred, by an opinion in writing of independent legal counsel to the effect
that such trustee or officer appears to have acted in good faith in the
reasonable belief that his or her action was in the best interests of Eastern.
No trustee or officer may satisfy any rights of indemnity or reimbursement
granted pursuant to the Eastern Charter or to which he or she may be otherwise
entitled except out of the trust estate of Eastern.
ELECTION OF DIRECTORS
(PROPOSAL 2)
INFORMATION ABOUT NOMINEES
In accordance with the Essex County By-laws, an Essex County Board of not
less than 3 or more than 15 directors is to be elected at the Special Meeting to
serve until the next special meeting of stockholders and until their successors
are duly elected and qualified. The Essex County Board has fixed the number of
directors at 12. All of the following nominees for director are currently
directors of Essex County and all of the nominees have consented to serve if
elected. The proxy cannot be voted for more than 12 nominees. Unless otherwise
noted, each of the directors has been with the organizations listed in the
following table in the capacity or capacities so listed for more than five
years.
NOMINEES FOR DIRECTOR
<TABLE>
<CAPTION>
SERVED AS
NOMINEE AND PRINCIPAL OCCUPATION DIRECTOR
FOR THE LAST FIVE YEARS AGE SINCE
-------------------------------- --- ---------
<S> <C> <C>
CHARLES E. BILLUPS.......................................... 68 1971
Chairman of the Essex County Board since January 1985;
Interim President of Essex County from May 1992 to
December 1992; President and Chief Executive Officer of
Essex County from 1973 to 1989.
BENJAMIN C. BIXBY........................................... 62 1979
Chairman of the Board of Bixby International Corporation (a
processor of high performance plastics); director of
BankBoston, N.A., Northeast Regional Board; director of
Bay State Insurance Company; director, Merrimack Mutual
Insurance Company; director, Cambridge Mutual Fire
Insurance Company.
DANIEL A. BURKHARDT......................................... 50 1985
General Partner of The Jones Financial Companies, L.P., LLP
(a brokerage, investment banking and financial services
company) since 1978; director, St. Joseph Light & Power
Co.; director of Mid-America Realty Investments, Inc.;
director of SEMCO, Inc.; President, Treasurer and Director
of CIP Management, Inc.; General Partner of CIP Management
L.P., LLP.
EDWARD J. CURTIS............................................ 55 1993
President of E.J. Curtis Associates, Inc. (professional
management consulting services); director, SEMCO, Inc.
DOROTHY J. DOTSON........................................... 53 1985
Managing Director of Greenwich NatWest since December 1993
(an investment banking company); managing director S.G.
Warburg & Co., Inc., 1990 to 1993.
RICHARD P. HAMEL............................................ 54 1991
Attorney at Law and owner of the law firm of Hamel, Deshaies
& Gagliardi since ; director of First & Ocean
National Bank.
ROBERT S. JACKSON........................................... 64 1985
Principal of Phase II Consulting (utility consulting) since
June 1, 1993; Senior Vice President of Stone and Webster
Management Consultants, Inc. from 1974 to 1993.
</TABLE>
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<TABLE>
<CAPTION>
SERVED AS
NOMINEE AND PRINCIPAL OCCUPATION DIRECTOR
FOR THE LAST FIVE YEARS AGE SINCE
-------------------------------- --- ---------
<S> <C> <C>
ERIC H. JOSTROM............................................. 55 1981
President and Chief Investment Officer of Constitution
Management Company Inc.; (registered investment advisor)
from 1992 to Present; director of Indosuez International
Investment Services, S.A., Paris; director of Indosuez
Asia Advisors Ltd. Hong Kong; former President and
Managing Director of Standard Chartered North American
Asset Management Co., Inc.; President of Indosuez Asia
Strategic Growth Fund, Inc.; Deputy Managing Director of
Standard Chartered Equitor Global Asset Management Co.,
LTD, London; Deputy Managing Director of Standard
Chartered Equitor Global Asset Management Co., LTD,
London.
ROBERT L. MEADE............................................. 67 1983
Attorney at Law and private investor.
KENNETH L. PAUL............................................. 56 1977
Vice President, Sales and Marketing of Process Engineering,
Inc., division of Process Engineering Systems
International since 1994; President and Chief Executive
Officer, Process Engineering, Inc. from 1990 to 1994;
director of Family Bank.
PHILIP H. REARDON........................................... 61 1992
President and Chief Executive Officer of Essex County since
1992; President and Chief Executive Officer of New Jersey
Natural Gas Company from 1987 to 1992; director of
Middlesex Water Company since 1991; director of First &
Ocean National Bank since 1995.
RICHARD L. WELLMAN.......................................... 44 1994
Consultant in private practice from 1996 to present, Client
Services Manager, Katahdin Analytical Laboratories, Inc.
from 1995 to 1996; Laboratory Operations Manager of Pace
New England, Inc. from 1988 to 1995; director of Acadia
Management, Inc.
</TABLE>
BOARD OF DIRECTORS AND COMMITTEES
During the fiscal year 1997, there were six meetings of the Essex County
Board. All directors attended over 75% of the aggregate number of meetings of
the Essex County Board and the committees on which they served. The Essex County
Board has standing Executive, Compensation and Audit Committees. The Essex
County Board does not have a standing nominating committee. The Executive
Committee of the Essex County Board performs the functions of a nominating
committee. The Executive Committee has not adopted procedures for the
consideration of nominees recommended by security holders.
The Executive Committee, the members of which are Messrs. Billups
(Chairman), Bixby, Meade, and Hamel, has the power and responsibility of the
Essex County Board in the management of the business and affairs of Essex County
when the Essex County Board is not in session. All action taken by the Executive
Committee is submitted for ratification at the next meeting of the Essex County
Board. During the fiscal year 1997, there were seven meetings of the Executive
Committee.
The Compensation Committee, the members of which are Messrs. Bixby
(Chairman), Meade, Hamel and Jostrom, reviews and makes recommendations to the
Essex County Board as to the salaries and benefits of the executive officers of
Essex County. The Compensation Committee also has the responsibility of
administering the Essex County Gas Company 1994 Stock Option Plan, an incentive
stock option plan. All actions taken by the Compensation Committee are submitted
for ratification at the next meeting of the Essex County Board. During the
fiscal year 1997, there were two meetings of the Compensation Committee.
The Audit Committee, the members of which are Messrs. Bixby (Chairman),
Paul and Ms. Dotson, has the responsibility of recommending auditors,
determining the scope of their services and reviewing statements prepared and
recommendations made by the auditors for the period under audit. During fiscal
1997, there was one meeting of the Audit Committee.
DIRECTORS' COMPENSATION
Each director, other than Mr. Billups, is paid a fee of $500 for each
meeting of the Essex County Board attended and $400 for each committee of the
Essex County Board meeting attended. Reasonable travel
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expenses are reimbursed. In addition, each director, other than Mr. Billups and
those directors who receive salaries from Essex County, is paid a quarterly
retainer of $1,250 for all other services rendered to Essex County. Also, each
member of the Executive Committee is paid a quarterly retainer of $1,250 except
Mr. Billups and those members who receive salaries from Essex County. Finally,
Mr. Billups is paid a quarterly retainer of $5,000 in lieu of the foregoing
directors' fees.
Essex County maintains a plan that allows the members of the Essex County
Board to defer receipt of all or any part of their fees as a director or as a
member of any and all committees of the Essex County Board. Under the Essex
County Board Deferral Plan, a participating director may elect that deferred
amounts be credited to either a cash fee account or to a stock fee account. A
director may also elect that any amounts previously credited to a cash fee
account be transferred to a stock fee account, but amounts credited to a stock
fee account cannot be transferred to a cash fee account. Amounts credited to the
stock fee account are credited with the number of shares of Essex County Common
Stock that can be purchased at fair market value on the date such amount is
credited to the account. Fees deferred and related earnings are payable when a
director ceases to be a director, following a director's retirement from his or
her primary occupation or on a fixed date five or more years after the election
to defer fees. The Essex County Board Deferral Plan also provides an election to
receive deferred fees and accrued interest in one sum or in annual installments,
not to exceed 10 years. In the event of death of a director, payments are made
to the beneficiary designated by the director. As of August 31, 1997, the total
number of shares of Essex County Common Stock credited to the directors' stock
fee accounts was 51,523. Until such time as the shares are issued by Essex
County and delivered to a director, such director has none of the rights of
stockholders generally, including the right to vote or dispose of the shares
represented by the amounts credited to the stock fee accounts.
Essex County also has a non-qualified retirement plan for any member of the
Essex County Board who is not a common law employee of Essex County. The
non-qualified retirement plan provides for an annual benefit equal to the annual
retainer in effect on the date of retirement and has a vesting schedule which
provides for no vesting for less than five years of service, 50% vesting with
five years of service increasing by 10% each year until 100% vested after 10
years of qualifying service.
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SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table lists the beneficial ownership, as of August 31, 1997,
of Essex County Common Stock by all directors, each of the executive officers
named in the Summary Compensation Table herein and the directors and executive
officers of Essex County as a group.
<TABLE>
<CAPTION>
AMOUNT OF
BENEFICIAL
OWNERSHIP PERCENT
OF COMMON OF
NAME STOCK* CLASS
---- ---------- -------
<S> <C> <C>
Charles E. Billups.......................................... 2,000 **
Benjamin C. Bixby........................................... 2,335(1) **
Daniel A. Burkhardt......................................... 136 **
Edward J. Curtis............................................ 100 **
Dorothy J. Dotson........................................... 484 **
Richard P. Hamel............................................ 25,700(2) 1.52%
James H. Hastings........................................... 6,572(3) **
Robert S. Jackson........................................... 200 **
Eric H. Jostrom............................................. 38,946(4) 1.87%
Robert L. Meade............................................. 22,852 1.35%
Kenneth L. Paul............................................. 3,701(5) **
John W. Purdy, Jr........................................... 5,189(6) **
Philip H. Reardon........................................... 18,369(7) **
Richard L. Wellman.......................................... 500 **
All Directors and Executive Officers as a Group (17
persons).................................................. 146,642(8) 8.53%
</TABLE>
- ---------------
* Shares held directly with sole voting and/or investment power unless
otherwise indicated.
** Shares beneficially owned do not exceed 1% of the outstanding shares of
Essex County Common Stock.
(1) Includes 1,753 shares owned by his wife.
(2) Includes 25,600 shares of Essex County Common Stock owned by trusts, of
which he is a co-trustee. Beneficial ownership of these shares is
disclaimed.
(3) Includes 2,020 shares of Essex County Common Stock held in Essex County's
Employee Thrift Savings (401-k) Trust Fund, 3,109 shares of Essex County
Common Stock held in Essex County's Employee Stock Ownership Plan Trust Fund
and 61 shares of Essex County Common Stock held in Essex County's TRASOP
Trust Fund.
(4) Includes 27,925 shares of Essex County Common Stock owned by Trusts, of
which he is a trustee or a co-trustee. Beneficial ownership of these shares
is disclaimed.
(5) Includes 1,268 shares of Essex County Common Stock owned by his son.
(6) Includes 964 shares of Essex County Common Stock held in Essex County's
Employee Thrift (401-k) Trust Fund and 3,627 shares of Essex County Common
Stock held in Essex County's Employee Stock Ownership Plan Trust Fund.
(7) Includes 1,000 shares of Essex County Common Stock owned jointly by his wife
and mother-in-law; 2,260 shares of Essex County Common Stock held in Essex
County's Employee Thrift (401-k) Trust Fund; 2,340 shares of Essex County
Common Stock held in Essex County's Employee Stock Ownership Plan Trust Fund
and 9,600 shares in Essex County's Incentive Stock Option Plan.
(8) See footnotes 1-7 above; includes 4,282 shares of Essex County Common Stock
held in Essex County's TRASOP Trust Fund, 4,077 shares of Essex County
Common Stock held in Essex County's Employee Thrift (401-k) Trust Fund, and
7,807 shares of Essex County Common Stock held in Essex County's Employee
Stock Ownership Plan Trust Fund for executive officers not previously noted.
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COMPENSATION OF EXECUTIVE OFFICERS
CASH COMPENSATION
The following table shows compensation paid by Essex County and its
subsidiaries to Essex County's President and Chief Executive Officer and the
other executive officers of Essex County whose total annual salary and bonus for
fiscal 1997 exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
-------------------------------------- --------------------------------
SECURITIES (3)
NAME AND (1) OTHER ANNUAL RESTRICTED(2) UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION(3) STOCK AWARDS($) OPTIONS/SAR(#) COMPENSATION($)
------------------ ---- --------- -------- --------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Philip H. Reardon..... 1997 185,233 15,000 -- 15,618
President & 1996 176,278 -- -- 17,712
Chief Executive 1995 175,462 -- 24,000 25,100
Officer
John W. Purdy, Jr..... 1997 109,341 6,000 -- 11,244
Vice President 1996 110,492 -- -- 12,716
Marketing and 1995 107,683 -- -- 18,132
Public Affairs
James H. Hastings..... 1997 100,973 10,000 -- 10,015
Vice President 1996 95,300 -- -- 10,864
and Treasurer 1995 90,000 -- -- 14,828
</TABLE>
- ---------------
(1) Compensation for Mr. Reardon includes $3,802, $3,078 and $2,262 in deferred
directors fees for fiscal 1997, 1996 and 1995, respectively.
(2) The named executive officers have no restricted stock holdings.
(3) The amounts in this column represent the contributions by Essex County on
behalf of the above-named individuals to the ESOP, which is a qualified
defined contribution plan, and Essex County's contribution to the Thrift
Plan, which is a defined contribution plan that incorporates salary deferral
provisions pursuant to Section 401(k) of the Code for all employees who have
elected to participate on that basis. During the fiscal year ended August
31, 1997, Essex County contributions under the ESOP and the Thrift Plan for
Mr. Reardon were $10,020 and $5,598, respectively, contributions under the
ESOP and Thrift Plan for Mr. Purdy were $7,692 and $3,552, respectively, and
contributions under the ESOP and Thrift Plan for Mr. Hastings were $6,759
and $3,256, respectively.
FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
SECURITIES
NUMBER OF UNEXERCISED VALUE OF IN- UNEXERCISED
UNDERLYING AT FISCAL YEAR THE-MONEY AT OPTIONS/SARS
OPTIONS/SARS END(#) FISCAL YEAR END ($)(1)
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ -------------- --------------- -------------
<S> <C> <C> <C> <C>
Philip H. Reardon..................... 9,600 14,400 $16,800 $25,200
</TABLE>
- ---------------
(1) The values represent the difference between the exercise price of the
options and the market price of Essex County Common Stock at fiscal
year-end.
EMPLOYEE PLANS AND AGREEMENTS
Essex County maintains a non-contributory defined benefit pension plan (the
"Plan"), for non-union employees to provide retirement benefits based on a final
full five-year average compensation formula. Non-union employees are eligible
for the Plan at age 21, with one year of service, with benefits based on a
maximum of 25 years of service until age 65.
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The following table shows the 1997 annual pension benefits payable to
employees upon retirement at age 65 in various levels of final five-year average
compensation and years-of-service classification, assuming the election of a
retirement allowance payable as a life annuity:
PENSION PLAN TABLE
<TABLE>
<CAPTION>
FINAL FIVE YEAR YEARS OF SERVICE
COVERED ----------------------------------------
COMPENSATION 10 15 20 25 OR MORE
- --------------- ------- ------- ------- ----------
<S> <C> <C> <C> <C>
$100,000 $21,270 $31,906 $42,541 53,176
120,000 25,670 38,506 51,341 64,176
140,000 30,070 45,106 60,141 75,176
160,000 34,470 51,706 68,941 86,176
180,000 38,870 58,306 77,741 97,176
</TABLE>
Compensation under the Plan for the executive officers named in the Summary
Compensation Table consists of regular compensation, excluding bonuses and
special pay, and is the same as the Annual Compensation shown in the Summary
Compensation Table. The estimated credited years of service at normal retirement
under the Plan for the individuals named in the Summary Compensation Table is:
Mr. Reardon, 10, Mr. Purdy, 15, and Mr. Hastings, 29. The benefits listed in the
Pension Plan Table are not subject to any deduction for Social Security or other
offset amounts.
In addition, Essex County has the SERP for executives of Essex County who
are selected by the Essex County Board to participate. The SERP provides
retirement and disability benefits as well as a death benefit. Mr. Reardon has
been selected and is participating in the SERP. Benefits under the SERP are
determined according to the following benefit formula: 60% of highest five
consecutive full calendar years average compensation reduced by the employee's
qualified plan benefits from Essex County Gas Company and New Jersey Natural Gas
Company.
Essex County has entered into contingent employment agreements with Messrs.
Reardon, Purdy, and Hastings. These employment agreements become effective only
upon a Change of Control of the Company. Each of these such employment
agreements call for the executive to receive an annual salary at the rate which
is not less than the current rate of annual salary with the opportunity for
increases from time to time thereafter which are in accordance with Essex
County's regular practices. In addition, the executive is also entitled to
current benefits, including insurance and participation in qualified plans. In
the event of a termination of any of these employment agreements by Essex County
after a Change of Control of the Company for any reason other than death,
disability or cause, or in the event a covered officer resigns upon the
occurrence of (i) any significant change in the nature or scope of the officer's
duties from those presently performed, any reduction in total compensation, any
other breach by Essex County of the employment agreement or (ii) a reasonable
determination by such officer that, as a result of a Change of Control of the
Company and such change in circumstances thereafter significantly affecting his
position, such officer is unable to exercise the authorities, powers, functions
or duties attached to his position, such officer will be entitled to receive the
above-mentioned compensation and benefits as provided for in the employment
agreements for a term of two years.
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<PAGE> 78
COMPENSATION COMMITTEE REPORT OF EXECUTIVE COMPENSATION
The Compensation Committee's compensation policies and plans applicable to
the executive officers seeks to enhance the profitability of Essex County and
stockholder value, as well as to control costs and maintain reasonable rates for
the customers. The Compensation Committee's practices reflect policies that
compensation should (1) attract and retain well-qualified executives, (2)
support short- and long-term goals and objectives of Essex County, (3) reward
individuals for outstanding contributions to Essex County's success, (4) be
meaningfully related to the value created for stockholders, and (5) relate to
maintenance of good customer relations and reasonable rates.
Chief Executive Officer. In establishing the Chief Executive Officer's
compensation, the Compensation Committee begins by determining the salary paid
to Chief Executive Officers at similarly sized utility companies, as reported in
regional surveys, keeping in mind the performance of those companies, in order
to establish a starting point for the Chief Executive Officer's compensation.
The Compensation Committee then reviews certain of its financial goals,
including earnings, return on equity and cost containment efforts; to the extent
these goals have been met or exceeded, the Chief Executive Officer's
compensation is increased. More than any other factor, the Compensation
Committee believes the degree of success in meeting these financial objectives
is the most important element in determining the Chief Executive Officer's
compensation. Secondarily important (and somewhat more subjective) in the
Compensation Committee's considerations are the following criteria: the
development of a company strategic plan, the creation of an action plan to
improve relations with regulators, customers and the media, and involvement in
community affairs. The proposed compensation amount is then submitted to the
full Essex County Board for approval.
Other Executive Officers. In establishing compensation for Essex County's
executive officers other than the Chief Executive Officer, the Chief Executive
Officer first establishes a salary range for each executive officer. These
salary ranges are based in part upon salaries provided to executive officers in
comparable utility companies, as reported by regional salary surveys, based on
the relative significance of each officer's responsibilities. Specific salary
levels are then established through evaluations of each executive officer's
performance of his or her goals and duties with the assistance of outside
compensation specialists. Financial goals related to earnings, cost containment
efforts and return on equity are the most important factors. Other, more
subjective goals such as leadership qualities, as well as technical abilities,
also influence the determination of each executive officer's salary level. These
base salary levels, as determined by the Chief Executive Officer, are then
reviewed by the Compensation Committee and approved by the Essex County Board.
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COMPARATIVE TOTAL STOCKHOLDER RETURN
Set forth below is a line graph comparing the cumulative total stockholder
return for Essex County's Common Stock to the cumulative total return of the S&P
500 and the S&P 40 Utility Index for the five-year period beginning August 31,
1992 and ending August 31, 1997.
<TABLE>
<S> <C> <C> <C>
Base Period ESSEX COUNTY S&P 500 S&P 40 UTILITY INDEX
Aug-92 100.00 100.00 100.00
Aug-93 137.49 115.21 125.63
Aug-94 117.82 121.52 111.69
Aug-95 128.01 147.58 130.75
Aug-96 136.40 175.22 147.95
Aug-97 149.68 246.44 163.79
</TABLE>
Assumes $100 invested at the close of trading on the last trading day of
fiscal 1992 in Essex County Common Stock, S&P 500 and S&P 40 Utility Index. Also
assumes reinvestment of dividends.
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<PAGE> 80
ADOPTION OF 1997 PERFORMANCE AND EQUITY INCENTIVE PLAN
(PROPOSAL 3)
The Essex County Board has adopted, subject to approval by the
stockholders, the 1997 Plan, which 1997 Plan provides for the granting to key
management employees of Essex County and its subsidiaries, including employees
who are also members of the Essex County Board, incentive awards payable in cash
or a combination of cash and restricted common stock ("Grant Shares"). The
purpose of the 1997 Plan is to advance the interests of Essex County by
providing long-term financial incentives to key management employees and to
encourage their ownership of Essex County Stock. The aggregate number of Grant
Shares which may be issued under the 1997 Plan will be 50,000. However, in the
event that subsequent to the date of adoption of the 1997 Plan by the Essex
County Board, the outstanding shares of Essex County Common Stock should be
changed by reason of share dividends, share splits, share combinations, or
recapitalizations, then the number of Grant Shares issued under the 1997 Plan
may be adjusted by the Essex County Board to reflect such change. Any Grant
Share which is forfeited under the terms of the Plan will again be available for
incentive awards under the 1997 Plan.
The complete text of the 1997 Plan is included as Annex C to this Proxy
Statement/Prospectus. The following summary of certain provisions of the 1997
Plan is qualified by reference to the text of the 1997 Plan.
The 1997 Plan is administered by the Compensation Committee of the Essex
County Board, which is comprised on members who are not eligible to participate
in the 1997 Plan. The Compensation Committee has plenary authority to construe
and interpret the 1997 Plan and to establish, amend, and rescind such rules and
regulations as, in its judgment, are necessary in order to administer the 1997
Plan effectively.
Under the 1997 Plan and as determined by the Compensation Committee,
participants will be assigned threshold, target and maximum incentive award
potentials, each expressed as a percentage of the participant's base salary at
the beginning of the plan year. Each participant's actual incentive award will
depend upon Essex County's performance during the plan year and upon a
discretionary assessment of each participant's contribution to the achievement
of corporate goals. Such awards will be payable, at the Compensation Committee's
discretion, in cash or a combination of cash and Grant Shares, provided that no
more than 70% of any incentive award shall be payable in Grant Shares. Grant
Share awards are expressed as a dollar amount that is converted to an equivalent
amount of Grant Shares using the average closing price of Essex County Common
Stock for the last five trading days in September of the new fiscal year. Any
cash awards under the 1997 Plan will be paid in a lump-sum after the close of
the plan year.
The Grant Shares are non-transferable, and may not be pledged, hypothecated
or encumbered, except in accordance with the terms of the 1997 Plan. Grant
Shares vest in a participant on the date five years from the date such Grant
Shares were awarded, provided that the participant has remained an employee of
Essex County or its subsidiaries during the five-year vesting period. The Grant
Shares shall be held by an escrow agent designated by the Compensation
Committee, and, at the time all forfeiture provisions terminate, Essex County
will cause such shares to be delivered to the participant free of all
restrictions under the 1997 Plan.
If the employment of the participant should be terminated because of death,
disability, retirement at age sixty-five, a Change in Control (as defined in the
1997 Plan) or any other reason specified by the Compensation Committee, the
participant's interest in the Grant Shares shall immediately vest. If a
participant retires prior to attaining age 65, than such Grant Shares shall vest
in proportion to the number of months or employment completed during the
applicable five-year employment period before the participant's retirement for
each year in which Grant Shares were awarded. For participant's retiring prior
to attaining age 65, the Compensation Committee may, in its discretion, specify
that the interest of the participant in any remaining Grant Shares then subject
to forfeiture shall become vested at that time, at a future date, or upon the
completion of such conditions as the Compensation Committee may provide. If a
participant fails to complete the five-year employment requirement and his or
her interest in the Grant Shares is not otherwise vested, the participant shall
forfeit to Essex County any and all interest in the unvested Grant Shares.
Subject to the restrictions on transfer and the risk of forfeiture, a
participant shall have all of the rights of a stockholder of Essex County with
respect to Grant Shares, including the right to vote such Grant Shares and
receive dividends and other distributions paid or made with respect to such
Grant Shares.
The grant of an incentive award under the 1997 Plan shall be subject to the
Compensation Committee's determination that Essex County Common Stock dividends
have not been reduced or eliminated during the
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plan year. In no event shall any incentive award be granted if the dividend is
reduced or eliminated or earnings available for Essex County Common Stock do not
equal or exceed dividends declared on Essex County Common Stock for the plan
year.
A participant does not recognize income for United States federal income
tax purposes upon the grant of an incentive awards under the 1997 Plan. Upon
payment to the participant in respect of an earned incentive award, the
participant recognizes income in an amount equal to the cash paid and Essex
County is entitled to a deduction of such amount (subject to the limitations of
Section 162(m) and Section 280G of the Code discussed below (the
"Limitations")). The participant does not recognize income upon receipt of the
Grant Shares until such Grant Shares have become vested. The participant will
recognize income in an amount equal to the fair market value of the Grant Shares
at the time of vesting, and Essex County is entitled to a deduction of such
amount (subject to the Limitations) for its taxable year in which ends the
taxable year in which ends the taxable year of the participant for which the
participant recognizes such income. However, the participant may elect to
recognize income at the time the Grant Shares are awarded by making a special
election under the provisions of Section 83(b) of the Code (an "83(b)
Election"). If a participant makes an 83(b) Election, he or she will recognize
income equal to the fair market value of the Grant Shares (determined without
the restrictions) at the time the shares are awarded. Essex County will be
entitled to a deduction of the same amount (subject to the Section Limitations)
for its taxable year in which ends the taxable year of the participant for which
the participant recognizes such income. If such an 83(b) Election is made, the
participant will not recognize any income upon the date the Grant Shares become
vested. However, if such participant forfeits the Grant Shares, no loss
deduction will be allowed. The participant's basis in the Grant Shares will be
equal to the fair market value of such Grant Shares at the time the participant
recognizes income in respect of them.
With certain exceptions not relevant here, Section 162(m) of the Code
disallows a deduction to Essex County of compensation in excess of $1 million
per year paid to the Chief Executive Officer and the four other most highly
compensated officers whose compensation must have been reported in the Summary
Compensation Table. Thus, if the payments to such an executive in respect of an
annual incentive award, together with such executive's other compensation for a
year, exceeds $1 million, such excess will not be deductible by Essex County. In
addition, if Grant Shares are vested in connection with a Change of Control,
some or all of the deductions otherwise attributable to Essex County could, in
some circumstances, be disallowed under Section 280G of the Code.
The Essex County Board may amend, suspend or terminate the 1997 Plan, but
no such amendment may increase the number of Grant Shares subject to the 1997
Plan, materially increase the benefits accruing to participants under the 1997
Plan or materially modify the eligibility requirements under the 1997 Plan
without stockholder approval. No such amendment, suspension or termination may
effect an outstanding award without the consent of the participant. In the event
of a Change in Control, the Essex County Board may not terminate or reduce
benefits under the 1997 Plan with respect to those participants as of the date
of the Change in Control.
Awards under the 1997 Plan may be granted through September 1, 2007.
As part of the approval process of the 1997 Plan, Essex County has sought
and received approval from the Commonwealth of Massachusetts Department of
Public Utilities by order dated September 3, 1997.
Unless the Merger Agreement is terminated, it is not anticipated that any
shares or options will be issued under the 1997 Plan.
The persons named in the accompanying proxy or their substitutes will vote
such proxy for this proposal unless it is marked to the contrary. A favorable
vote of shares representing a majority of the total number of shares of Essex
County Common Stock present in person or by Proxy and entitled to vote at the
Special Meeting is required to approve and adopt the 1997 Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Compensation Committee has served as an officer
or employee of Essex County.
Mr. Hamel, a director of Essex County, is owner of the law firm of Hamel,
Deshaies & Gagliardi, a firm which performed legal services for Essex County
during the past 22 years. The firm has also been retained for the current fiscal
year.
CERTAIN TRANSACTIONS
Essex County engaged Greenwich NatWest as placement agent for issuance of
First Mortgage Bonds during the 1997 fiscal year and Ms. Dorothy J. Dotson, a
director of Essex County, is a Senior Vice President and Managing Director of
Greenwich NatWest. In addition, Mr. Ed Curtis, a director of Essex County, was
retained to conduct a study on gas industry trends during the 1997 fiscal year,
for which he was paid a fee totaling $13,080.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires Essex County's executive
officers and directors, and persons who own more than 10% of Essex County Common
Stock to file reports of ownership and changes in ownership with the Commission.
Officers, directors and greater than 10% stockholders are required by Commission
regulation to furnish Essex County with copies of all Section 16(a) forms they
file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Forms 5 were
required for those persons, Essex County believes that, during the fiscal year
ended August 31, 1997, all filing requirements applicable to the officers,
directors, and greater than 10% beneficial owners were complied with. Mr.
Reardon received a grant of options from Essex County in February 1995 and filed
a late report on Form 4. The delay in filing the report was inadvertent.
INDEPENDENT PUBLIC ACCOUNTANTS
The firm of Arthur Andersen LLP, independent certified public accountants,
was first appointed in August, 1987, and is expected to be reappointed as
auditors to examine the records of Essex County for the fiscal year ended August
31, 1998.
Representatives of Arthur Andersen LLP are expected to be present at the
Special Meeting with the opportunity to make a statement, if they desire to do
so, and to be available to respond to appropriate questions.
EXPENSES
The expenses in connection with the solicitation of the enclosed form of
proxy will be borne by Essex County. In order to obtain the requisite vote at
the Special Meeting, Essex County officers, directors, and other employees of
Essex County may solicit proxies, but Essex County will not pay any compensation
for such solicitations. In addition, Essex County has contracted with Corporate
Investors Communications, Inc. to assist Essex County with the solicitation of
proxies for a fee of $4,000 plus expenses.
STOCKHOLDER PROPOSALS
Any stockholder proposal to be presented at the 1999 Annual Meeting of
Essex County Stockholders must be received by Cathy E. Brown, Clerk of Essex
County, on or before August 7, 1998, for inclusion in Essex County's Proxy
Statement and form of proxy relating to that meeting.
For any item of business to be properly considered at the 1999 Annual
Meeting of Essex County Stockholders, the item of business must either (i) be
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Essex County Board or the persons calling the meeting as
herein provided, (ii) be otherwise properly brought before the meeting by or at
the direction of the Essex County Board, or (iii) be otherwise properly brought
before the meeting by a stockholder as hereinafter provided. For
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<PAGE> 83
business to be properly brought before a meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Clerk of
Essex County. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of Essex County not less
than 60 days nor more than 90 days prior to the meeting; provided, however,
that, in the event that less than 70 days' notice or prior public disclosure of
the date of the meeting of stockholders is given or made to stockholders, to be
timely, notice by the stockholder of business to be conducted at a meeting must
be received by the Clerk of Essex County not later than the close of business on
the 10th day following the day on which notice of the date of the meeting of
stockholders was mailed or such public disclosure was made to the stockholders.
A stockholder's notice to the Clerk of Essex County shall be set forth as to
each matter he proposes to bring before the meeting (i) a brief description of
the business desired to be brought before the meeting and the reasons for
conducting such business at the meeting, (ii) the name and address, as they
appear on Essex County's books, of the stockholder or stockholders proposing
such business, (iii) the class or classes of stock and number of shares of such
class or classes of stock which are beneficially owned by the proposing
stockholder or stockholders, and (d) any material interest of the proposing
stockholder or stockholders in such business.
LEGAL MATTERS
The validity of the securities to be issued in the Merger has been passed
upon for Eastern by Ropes & Gray, Boston, Massachusetts. Certain tax
consequences of the Merger have been passed upon for Essex County by Wachtell,
Lipton, Rosen & Katz, New York, New York.
EXPERTS
The Essex County consolidated financial statements as of August 31, 1997
and 1996, and for each of the three years in the period ended August 31, 1997,
incorporated by reference in this proxy statement/prospectus have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
The Eastern consolidated financial statements as of December 31, 1997 and
1996, and for each of the three years in the period ended December 31, 1997,
incorporated by reference in this proxy statement/prospectus have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
OTHER MATTERS
Essex County does not presently 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
names in the enclosed form of proxy, including any substitutes, will vote said
proxy in accordance with their judgment on such matters.
------------------------
Reference is hereby made to the Eastern Charter, a copy of which is on file
in the office of the Secretary of The Commonwealth of Massachusetts. The name
"Eastern Enterprises" refers to the Trustees under said Eastern Charter as
Trustees and not personally; and no Trustee, shareholder, officer or agent of
Eastern Enterprises shall be held to any personal liability in connection with
the affairs of said Eastern Enterprises, but the trust estate only is liable.
By Order of the
BOARD OF DIRECTORS
Cathy E. Brown
Clerk
May 8, 1998
78
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ESSEX COUNTY GAS COMPANY
PROXY STATEMENT/PROSPECTUS
INDEX OF DEFINED TERMS
<TABLE>
<S> <C>
83(b) Election...................... 76
1997 Plan........................... 8
Acquiring Person.................... 56
Affiliate Agreements................ 36
Adverse Person...................... 56
Affiliate Shares.................... 36
Affiliated Employees................ 12
Alternative Proposal................ 41
Board Retirement Plan............... 33
Boston Gas.......................... 7
BSE................................. 1
business combination................ 58
Certificates........................ 12, 37
Closing............................. 10
Closing Date........................ 10
Code................................ 12
Commission.......................... 3
Common Stock Event.................. 57
Comparable LDC Acquisition
Transactions...................... 31
Converted Shares.................... 37
DCF................................. 32
Distribution Date................... 56
DOJ................................. 10
earnings............................ 16
Eastern............................. 1
Eastern 10-day Average Closing
Price............................. 31
Eastern Board....................... 49
Eastern By-laws..................... 12
Eastern Charter..................... 7
Eastern Common Stock................ 1
EBIT................................ 31
EBITDA.............................. 31
EBITDA Multiple..................... 32
Effective Time...................... 10
Employment Period................... 33
EPS................................. 31
EPS Multiple........................ 32
ESOP................................ 26
Essex County........................ 1
Essex County Benefit Plans.......... 11
Essex County Board.................. 1
Essex County By-laws................ 8
Essex County Common Stock........... 1
Essex County Stock Plans............ 41
Exchange Act........................ 3
Exchange Agent...................... 37
Exchange Ratio...................... 9
Expenses............................ 43
Expiration Date..................... 57
Fee................................. 11
First Call.......................... 31
fixed charges....................... 15
FTC................................. 10
Furman Selz......................... 7
Furman Selz Opinion................. 7, 29
GAAP................................ 30
Grant Shares........................ 75
HSR Act............................. 10
Indemnified Liabilities............. 34
Initial Termination Date............ 10
interested stockholder.............. 58
IRS................................. 34
LDCs................................ 26
Limitations......................... 76
LTM................................. 31
Market Value........................ 9, 37
MDTE................................ 10
Merger.............................. 1
Merger Agreement.................... 1
Merger Sub.......................... 1
Merger Sub Common Stock............. 37
MGL................................. 8
Midland............................. 7
Nasdaq.............................. 3
NYSE................................ 1
Plan................................ 71
PSE................................. 1
Publicly-Traded Comparables......... 31
PUHCA............................... 10
Purchase Price...................... 56
Record Date......................... 8
Redemption Price.................... 58
Registration Statement.............. 3
Right............................... 56
Rights Agent........................ 56
Rights Agreement.................... 56
Rights Certificates................. 57
Rights Record Date.................. 56
S&P 500............................. 31
Securities Act...................... 1, 3
SERP................................ 33
Special Meeting..................... 1
Stock Acquisition Date.............. 56
Stock Option Plan................... 34
Surviving Company................... 1
WACC................................ 32
</TABLE>
79
<PAGE> 85
ANNEX A
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
ESSEX COUNTY GAS COMPANY
AND
EASTERN ENTERPRISES
DATED AS OF DECEMBER 19, 1997
<PAGE> 86
TABLE OF CONTENTS
<TABLE>
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ARTICLE I
THE MERGER
Section 1.1 The Merger.................................... 1
Section 1.2 Effects of the Merger......................... 1
Section 1.3 Effective Time of the Merger.................. 1
Section 1.4 Directors and Officers........................ 1
ARTICLE II
TREATMENT OF SHARES
Section 2.1 Effect of the Merger on Capital Stock......... 2
Section 2.2 Exchange of Certificates...................... 2
ARTICLE III
THE CLOSING
Section 3.1 Closing....................................... 4
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PATRIOT CO.
Section 4.1 Organization and Qualification................ 4
Section 4.2 Subsidiaries.................................. 5
Section 4.3 Capitalization................................ 5
Section 4.4 Authority; Non-Contravention; Statutory
Approvals; Compliance..................................... 5
Section 4.5 Reports and Financial Statements.............. 7
Section 4.6 Absence of Certain Changes or Events.......... 7
Section 4.7 Litigation.................................... 7
Section 4.8 Registration Statement and Proxy Statement.... 8
Section 4.9 Tax Matters................................... 8
Section 4.10 Employee Matters; ERISA....................... 9
Section 4.11 Environmental Protection...................... 10
Section 4.12 Regulation as a Utility....................... 12
Section 4.13 Vote Required................................. 12
Section 4.14 Accounting Matters............................ 12
Section 4.15 Opinion of Financial Advisor.................. 12
Section 4.16 Ownership of Parent Common Stock.............. 12
Section 4.17 Insurance..................................... 12
Section 4.18 Change in Control and Severance Payments...... 12
Section 4.19 Year 2000..................................... 12
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT
Section 5.1 Organization and Qualification................ 13
Section 5.2 Subsidiaries.................................. 13
Section 5.3 Capitalization................................ 13
Section 5.4 Authority; Non-Contravention; Statutory
Approvals; Compliance..................................... 14
Section 5.5 Reports and Financial Statements.............. 15
</TABLE>
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Section 5.6 Absence of Certain Changes or Events.......... 15
Section 5.7 Litigation.................................... 15
Section 5.8 Registration Statement and Proxy Statement.... 15
Section 5.9 Regulation as a Utility....................... 16
Section 5.10 Accounting Matters............................ 16
Section 5.11 Ownership of the Company Common Stock......... 16
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
Section 6.1 Covenants of the Parties...................... 16
Section 6.2 Covenant of Patriot Co.; Alternative
Proposals................................................. 19
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1 Access to Information......................... 20
Section 7.2 Proxy Statement and Registration Statement.... 20
Section 7.3 Regulatory Matters............................ 21
Section 7.4 Shareholder Approval.......................... 21
Section 7.5 Directors' and Officers' Indemnification...... 21
Section 7.6 Disclosure Schedules.......................... 22
Section 7.7 Public Announcements.......................... 22
Section 7.8 Rule 145 Affiliates........................... 22
Section 7.9 Certain Employee Agreements................... 22
Section 7.10 Employee Benefit Plans........................ 23
Section 7.11 Patriot Co. Stock Plans....................... 23
Section 7.12 Patriot Co. Stock Options..................... 24
Section 7.13 Expenses...................................... 24
Section 7.14 Further Assurances............................ 24
ARTICLE VIII
CONDITIONS
Section 8.1 Conditions to Each Party's Obligation to
Effect the Merger......................................... 24
Section 8.2 Conditions to Obligation of Parent to Effect
the Merger................................................ 25
Section 8.3 Conditions to Obligation of Patriot Co. to
Effect the Merger......................................... 26
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
Section 9.1 Termination................................... 26
Section 9.2 Effect of Termination......................... 27
Section 9.3 Termination Fee; Expenses..................... 28
Section 9.4 Amendment..................................... 28
Section 9.5 Waiver........................................ 28
ARTICLE X
GENERAL PROVISIONS
Section 10.1 Non-Survival; Effect of Representations and
Warranties................................................ 28
Section 10.2 Brokers...................................... 29
</TABLE>
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<TABLE>
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Section 10.3 Notices...................................... 29
Section 10.4 Miscellaneous................................ 30
Section 10.5 Interpretation............................... 30
Section 10.6 Counterparts; Effect......................... 30
Section 10.7 Parties in Interest.......................... 30
Section 10.8 Waiver of Jury Trial and Certain Damages..... 30
Section 10.9 Enforcement.................................. 30
Section 10.10 Massachusetts Business Trust................. 30
</TABLE>
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AGREEMENT AND PLAN OF MERGER, DATED AS OF DECEMBER 19, 1997 (this
"Agreement"), by and between Essex County Gas Company, a Massachusetts
corporation ("Patriot Co."), and Eastern Enterprises, a Massachusetts business
trust ("Parent").
WHEREAS, Patriot Co. and Parent have determined to engage in a business
combination transaction on the terms stated herein;
WHEREAS, the boards of directors of Patriot Co. and Parent have approved
and deemed it advisable and in the best interests of their respective
shareholders to consummate the transactions contemplated herein under which the
business of Patriot Co. and Parent would be combined by means of the merger of
Merger Co., a corporation to be formed under the laws of the Commonwealth of
Massachusetts and to be a wholly owned subsidiary of Parent ("Merger Sub"), with
and into Patriot Co., as a result of which Patriot Co. will become a
wholly-owned subsidiary of Parent;
WHEREAS, for federal income tax purposes, it is intended that the parties
hereto and their respective stockholders will recognize no gain or loss for
federal income tax purposes as a result of the consummation of the transaction
contemplated hereby,
NOW THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein, the parties hereto,
intending to be legally bound hereby, agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 THE MERGER. Upon the terms and subject to the conditions of
this Agreement:
(a) Prior to the Effective Time, Parent shall cause Merger Sub to be
incorporated and to adopt charter documents and other organizational documents
as may be necessary or advisable and which shall be appropriate for effecting
the purposes of this Agreement.
(b) At the Effective Time (as defined in Section 1.3), Merger Sub shall be
merged with and into Patriot Co. (the "Merger") in accordance with the laws of
the Commonwealth of Massachusetts. Patriot Co. shall be the surviving
corporation in the Merger and shall continue its corporate existence under the
laws of the Commonwealth of Massachusetts. The effects and the consequences of
the Merger shall be as set forth in Section 1.2. Throughout this Agreement, the
term "Patriot Co." shall refer to Patriot Co. prior to the Merger and the term
the "Company" shall refer to Patriot Co. in its capacity as the surviving
corporation in the Merger.
SECTION 1.2 EFFECTS OF THE MERGER. At the Effective Time, (i) the articles
of organization of Patriot Co., as in effect immediately prior to the Effective
Time, shall be the articles of organization of the Company until thereafter
amended as provided by law and such articles of organization, and (ii) the
by-laws of Patriot Co., as in effect immediately prior to the Effective Time,
shall be the by-laws of the Company until thereafter amended as provided by law,
the articles of organization of the Company and such by-laws; provided, however,
that the board of directors of the Company shall consist of the same number of
directors as the number of directors of Merger Sub at the Effective Date.
Subject to the foregoing, the additional effects of the Merger shall be as
provided in the applicable provisions of the Gas and Electricity Law of the
Commonwealth of Massachusetts (the "MGEL") and the Business Corporation Law of
the Commonwealth of Massachusetts (the "MBCL").
SECTION 1.3 EFFECTIVE TIME OF THE MERGER. On the Closing Date (as defined
in Section 3.1), with respect to the Merger, articles of merger complying with
the requirements of the MGEL and the MBCL shall be filed with the State
Secretary of the Commonwealth of Massachusetts. The Merger shall become
effective when the articles of merger are filed with the State Secretary of the
Commonwealth of Massachusetts (the "Effective Time").
SECTION 1.4 DIRECTORS AND OFFICERS. The directors of Merger Sub
immediately prior to the Effective Time shall be the initial directors of the
Company, each to hold office in accordance with the Articles of
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Organization and by-laws of the Company, and the officers of Merger Sub
immediately prior to the Effective Time shall be the initial officers of the
Company, in each case until their respective successors are duly elected or
appointed and qualified.
ARTICLE II
TREATMENT OF SHARES
SECTION 2.1 EFFECT OF THE MERGER ON CAPITAL STOCK. At the Effective Time,
by virtue of the Merger and without any action on the part of any holder of any
capital stock of Patriot Co. or Merger Sub:
(a) Conversion of Merger Sub Stock. Each share of Common Stock of Merger
Sub (the "Merger Sub Common Stock") shall be converted into one share of Common
Stock, no par value, of the Company (the "Company Common Stock").
(b) Cancellation of Certain Patriot Co. Stock. Each share of Common Stock,
no par value, of Patriot Co. (the "Patriot Co. Common Stock") that is owned by
Patriot Co. as treasury stock and all shares of Patriot Co. Common Stock that
are owned, directly or indirectly, by Patriot Co. or Parent or any of their
respective wholly owned subsidiaries shall be canceled and shall cease to exist
and no stock of Parent or other consideration shall be delivered in exchange
therefor.
(c) Conversion of Patriot Co. Common Stock. Each issued and outstanding
share of Common Stock, no par value, of Patriot Co. (the "Patriot Co. Common
Stock"), other than shares canceled pursuant to Section 2.1(b) of this
Agreement, shall be converted into the right to receive 1.183985 shares of
Common Stock, par value $1.00 per share, of Parent ("Parent Common Stock");
provided that, if the Market Value of 1.183985 shares of Parent Common Stock
computed in accordance with this paragraph is less than $45 per share, then each
such share of Patriot Co. Common Stock shall be converted into the right to
receive the number of shares of Parent Common Stock having a Market Value equal
to $45; and if the Market Value of 1.183985 shares of Parent Common Stock is
more than $50 per share, then each such share of Patriot Co. Common Stock shall
be converted into the right to receive the number of shares of Parent Common
Stock having a Market Value equal to $50. "Market Value" of Parent Common Stock
means the average closing price per share of Parent Common Stock on the New York
Stock Exchange for the ten consecutive trading days prior to and including the
fifth trading day prior to the Closing Date. Upon such conversion, each holder
of a certificate formerly representing any such shares of Patriot Co. Common
Stock shall cease to have any rights with respect thereto, except the right to
receive the shares of fully paid and non-assessable shares of Parent Common
Stock to be issued in consideration therefor upon surrender of such certificate
in accordance with Section 2.3. The "Exchange Ratio" means the number of shares
of Parent Common Stock into which each share of Patriot Co. Common Stock is
converted pursuant to this paragraph. The Exchange Ratio shall be adjusted to
reflect fully the effect of any stock split, reverse split, stock dividend
(including any dividend or distribution of securities convertible into Parent
Common Stock), reorganization, recapitalization or other like change with
respect to Parent Common Stock occurring after the date hereof and having a
record date prior to the Effective Time.
SECTION 2.2 EXCHANGE OF CERTIFICATES. (a) Deposit with Exchange Agent. As
soon as practicable after the Effective Time, the Company shall deposit with a
bank or trust company mutually agreeable to Parent and Patriot Co. (the
"Exchange Agent"), pursuant to an agreement in form and substance reasonably
acceptable to Parent and Patriot Co., certificates representing shares of Parent
Common Stock required to effect the conversion of Patriot Co. Common Stock into
Parent Common Stock (or make other arrangements mutually satisfactory to Parent
and Patriot Co.) in accordance with Section 2.1(c), together with cash payable
in respect of fractional shares pursuant to Section 2.2(d).
(b) Exchange Procedures. As soon as practicable after the Effective Time,
Parent shall cause the Exchange Agent to mail to each holder of record as of the
Effective Time of a certificate or certificates which immediately prior to the
Effective Time represented outstanding shares of Patriot Co. Common Stock (the
"Certificates") that were converted (the "Converted Shares") into the right to
receive shares of Parent Common Stock (the "Parent Shares") pursuant to Section
2.1: (i) a letter of transmittal (which shall specify
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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 Exchange Agent)
and (ii) instructions for effecting the surrender of the Certificates in
exchange for certificates representing Parent Shares. Upon surrender of a
Certificate to the Exchange Agent for cancellation, together with a duly
executed letter of transmittal and such other documents as the Exchange Agent
may require, the holder of such Certificate shall be entitled to receive in
exchange therefor a certificate representing that number of whole Parent Shares
and the amount of cash in lieu of fractional share interests which such holder
has the right to receive pursuant to the provisions of this Article II. In the
event of a transfer of ownership of Converted Shares which is not registered in
the transfer records of Patriot Co. a certificate representing the proper number
of Parent Shares may be issued to a transferee if the Certificate representing
such Converted Shares is presented to the Exchange Agent, accompanied by all
documents required to evidence and effect such transfer and by evidence
satisfactory to the Exchange Agent that any applicable stock transfer taxes have
been paid. Until surrendered as contemplated by this Section 2.2, each
Certificate shall be deemed at any time after the Effective Time to represent
only the right to receive upon such surrender the certificate representing
shares of Parent Common Stock and cash in lieu of any fractional Parent Shares
as contemplated by this Section 2.2.
(c) Distributions with Respect to Unexchanged Shares. No dividends or
other distributions declared or made after the Effective Time with respect to
Parent Shares with a record date after the Effective Time shall be paid to the
holder of any unsurrendered Certificate with respect to the Parent Shares
represented thereby and no cash payment in lieu of fractional shares shall be
paid to any such holder pursuant to Section 2.2(d) until the holder of record of
such Certificate shall surrender such Certificate. Subject to the effect of
unclaimed property, escheat and other applicable laws, following surrender of
any such Certificate, there shall be paid to the record holder of the
certificates representing whole Parent Shares issued in exchange therefor,
without interest, (i) at the time of such surrender, the amount of any cash
payable in lieu of a fractional share of Parent Common Stock to which such
holder is entitled pursuant to Section 2.2(d) and the amount of dividends or
other distributions with a record date after the Effective Time theretofore paid
with respect to such whole Parent Shares and (ii) at the appropriate payment
date, the amount of dividends or other distributions with a record date after
the Effective Time but prior to surrender and a payment date subsequent to
surrender payable with respect to such whole Parent Shares.
(d) No Fractional Securities. Notwithstanding any other provision of this
Agreement, no certificates or scrip representing fractional shares of Parent
Common Stock shall be issued upon the surrender for exchange of Certificates and
such fractional shares shall not entitle the owner thereof to vote or to any
other rights of a holder of Parent Common Stock. A holder of Patriot Co. Common
Stock who would otherwise have been entitled to a fractional share of Parent
Common Stock shall be entitled to receive a cash payment in lieu of such
fractional share in an amount equal to the product of such fraction multiplied
by the average of the last reported sales price, regular way, per share of
Parent Common Stock on the New York Stock Exchange for the ten business days
prior to and including the Closing Date, without any interest thereon.
(e) Closing of Transfer Books. From and after the Effective Time the stock
transfer books of the Company shall be closed and no transfer of any capital
stock thereof shall thereafter be made. If, after the Effective Time,
Certificates are presented to the Company, they shall be canceled and exchanged
for certificates representing the appropriate number of Parent Shares as
provided in Section 2.1 and in this Section 2.2.
(f) Termination of Exchange Agent. Any certificates representing Parent
Shares deposited with the Exchange Agent pursuant to Section 2.2(a) and not
exchanged within six months after the Effective Time pursuant to this Section
2.2 shall be returned by the Exchange Agent to Parent, which shall thereafter
act as Exchange Agent. All funds held by the Exchange Agent for payment to the
holders of unsurrendered Certificates in lieu of fractional shares, and
unclaimed at the end of one year from the Effective Time shall be returned to
the Company, after which time any holder of unsurrendered Certificates shall
look as a general creditor only to Parent for payment of such funds to which
such holder may be due, subject to applicable law.
(g) Escheat. The Company shall not be liable to any person for such shares
or funds delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law.
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(h) The consideration delivered upon the surrender for exchange of Patriot
Co. Common Stock in accordance with the terms hereof shall be deemed to have
been issued in full satisfaction of all rights pertaining to such Patriot Co.
Common Stock, and there shall be no further registration of transfers on the
records of the Company of shares of which were outstanding immediately prior to
the Effective Time. If, after the Effective Time, Certificates are presented to
the Company for any reason, they shall be canceled and exchanged as provided in
this Article II.
(i) In the event any Certificates shall have been lost, stolen or
destroyed, the Exchange Agent shall issue in exchange for such lost, stolen or
destroyed Certificates, upon the making of an affidavit of that fact by the
holder thereof, such Parent Shares as may be required pursuant to Section 2;
provided however, that Parent may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed Certificates to deliver a bond in such sum as it may reasonably direct
as indemnity against any claim that may be made against Parent or the Exchange
Agent with respect to the Certificates alleged to have been lost, stolen or
destroyed.
(j) It is intended by the parties hereto that the Merger shall (i)
constitute a reorganization within the meaning of Section 368 of the Internal
Revenue Code of 1986, as amended (the "Code") and (ii) qualify for accounting
treatment as a pooling of interests. The parties hereto hereby adopt this
Agreement as a "plan of reorganization" within the meaning of Sections
1.368-2(g) and 1.368-3(a) of the United States Treasury Regulations.
(k) Each of Parent, Merger Sub and the Patriot Co. will take all such
reasonable and lawful action as may be necessary or appropriate in order to
effectuate the Merger in accordance with this Agreement as promptly as possible.
If, at any time after the Effective Time, any such further action is necessary
or desirable to carry out the purposes of this Agreement and to vest the Company
with full right, title and possession to all assets, property, rights,
privileges, powers and franchises of Patriot Co. and Merger Sub, the officers
and directors of Patriot Co. and Merger Sub immediately prior to the Effective
Time are fully authorized in the name of their respective corporations or
otherwise to take, and will take, all such lawful and necessary action.
ARTICLE III
THE CLOSING
SECTION 3.1 CLOSING. The closing of the Merger (the "Closing") shall take
place at Wachtell, Lipton, Rosen & Katz, at 10.00 A.M., Eastern time, on the
second business day immediately following the date on which the last of the
conditions set forth in Article VIII hereof is fulfilled or waived (other than
conditions that by their nature are required to be performed on the Closing
Date, but subject to satisfaction of such conditions), or at such other time and
date and place as Patriot Co. and Parent shall mutually agree (the "Closing
Date").
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PATRIOT CO.
Patriot Co. represents and warrants to Parent as follows:
SECTION 4.1 ORGANIZATION AND QUALIFICATION. Except as set forth in Section
4.1 of the Patriot Co. Disclosure Schedule (as defined in Section 7.6(ii)),
Patriot Co. and each Patriot Co. subsidiary (as defined below) is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization, has all requisite corporate power
and authority, and has been duly authorized by all necessary approvals and
orders, to own, lease and operate its assets and properties to the extent owned,
leased and operated and to carry on its business as it is now being conducted
and is duly qualified and in good standing to do business in each jurisdiction
in which the nature of its business or the ownership or leasing of its assets
and properties makes such qualification necessary, other than in such
jurisdictions where the failure to be so qualified and in good standing will
not, when taken together with all other such failures, have a material adverse
effect on the business, properties, prospects, financial condition or results of
operations of Patriot Co.
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and its subsidiaries taken as a whole or on the consummation (or the timing of
consummation) of this Agreement (any such material adverse effect being
hereafter referred to as a "Patriot Co. Material Adverse Effect"). As used in
this Agreement, the term "subsidiary" of a person shall mean any corporation or
other entity (including partnerships and other business associations) of which a
majority of the outstanding capital stock or other voting securities having
voting power under ordinary circumstances to elect directors or similar members
of the governing body of such corporation or entity shall at the time be held,
directly or indirectly, by such person.
SECTION 4.2 SUBSIDIARIES. Section 4.2 of the Patriot Co. Disclosure
Schedule sets forth a description as of the date hereof, of all subsidiaries and
joint ventures of Patriot Co., including the name of each such entity, the state
or jurisdiction of its incorporation or organization, Patriot Co.'s interest
therein and a brief description of the principal line or lines of business
conducted by each such entity. Except as set forth in Section 4.2 of the Patriot
Co. Disclosure Schedule, none of the Patriot Co. subsidiaries are a "public
utility company", a "holding company", a "subsidiary company" or an "affiliate"
of any public utility company within the meaning of Section 2(a)(5), 2(a)(7),
2(a)(8) or 2(a)(11) of the Public Utility Holding Company Act of 1935, as
amended (the "1935 Act"). Except as set forth in Section 4.2 of the Patriot Co.
Disclosure Schedule, all of the issued and outstanding shares of capital stock
of each Patriot Co. subsidiary are validly issued, fully paid, nonassessable and
free of preemptive rights, and are owned, directly or indirectly, by Patriot Co.
free and clear of any liens, claims, encumbrances, security interests, equities,
charges and options of any nature whatsoever and there are no outstanding
subscriptions, options, calls, contracts, voting trusts, proxies or other
commitments, understandings, restrictions, arrangements, rights or warrants,
including any right of conversion or exchange under any outstanding security,
instrument or other agreement, obligating any such subsidiary to issue, deliver
or sell, or cause to be issued, delivered or sold, additional shares of its
capital stock or obligating it to grant, extend or enter into any such agreement
or commitment, except for any of the foregoing that could not reasonably be
expected to have a Patriot Co. Material Adverse Effect. As used in this
Agreement, the term "joint venture" of a person shall mean any corporation or
other entity (including partnerships and other business associations) that is
not a subsidiary of such person, in which such person or one or more of its
subsidiaries owns an equity interest, other than equity interests held for
passive investment purposes which are less than 10% of any class of the
outstanding voting securities or equity of any such entity.
SECTION 4.3 CAPITALIZATION. The authorized capital stock of Patriot Co.
consists of 5,000,000 shares of Patriot Co. Common Stock and 7,000 shares of
Patriot Co. preferred stock. As of the close of business on November 30, 1997,
there were issued and outstanding 1,778,058* shares of Patriot Co. Common Stock
and no shares of Patriot Co. preferred stock. All of the issued and outstanding
shares of the capital stock of Patriot Co. are validly issued, fully paid,
nonassessable and free of preemptive rights. Except as set forth in Section 4.3
of the Patriot Co. Disclosure Schedule, as of the date hereof, there are no
outstanding subscriptions, options, calls, contracts, voting trusts, proxies or
other commitments, understandings, restrictions, arrangements, rights or
warrants, including any right of conversion or exchange under any outstanding
security, instrument or other agreement, obligating Patriot Co. or any of the
subsidiaries of Patriot Co. to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of the capital stock or other equity
interests of Patriot Co. or any of its subsidiaries, or obligating Patriot or
any of its subsidiaries to redeem or otherwise acquire or cancel any such shares
or other interests or obligating Patriot Co. to grant, extend or enter into any
such agreement or commitment.
SECTION 4.4 AUTHORITY; NON-CONTRAVENTION; STATUTORY APPROVALS;
COMPLIANCE. (a) Authority. Patriot Co. has all requisite corporate power and
authority to enter into this Agreement, and, subject to obtaining the Patriot
Co. Shareholders' Approval (as defined in Section 4.13) and the Patriot Co.
Required Statutory Approvals (as defined in Section 4.4(c)), to consummate the
transactions contemplated hereby. The
- ---------------
* This number includes 52,821 shares of Patriot Co. Common Stock issuable on
January 1, 1998 under Patriot Co.'s Deferred Directors Fee Plan, 24,000 shares
of Patriot Co. Common Stock issuable under outstanding options pursuant to the
Patriot Co. 1994 Stock Option Plan and 7,335 shares of Patriot Co. Common
Stock issuable on December 31, 1997 pursuant to the Patriot Co. Employee Stock
Ownership Plan of 1986.
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execution and delivery of this Agreement and the consummation by Patriot Co. of
the transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Patriot Co., subject to obtaining the applicable
Patriot Co. Shareholders' Approval. This Agreement has been duly and validly
executed and delivered by Patriot Co. and, assuming the due authorization,
execution and delivery hereof by the other signatories hereto, constitutes the
valid and binding obligation of Patriot Co. enforceable against it in accordance
with its terms.
(b) Non-Contravention. Except as set forth in Section 4.4(b) of the
Patriot Co. Disclosure Schedule, the execution and delivery of this Agreement by
Patriot Co. do not, and the consummation of the transactions contemplated hereby
will not, violate, conflict with, or result in a breach of any provision of, or
constitute a default (with or without notice or lapse of time or both) under, or
result in the termination or modification of, or accelerate the performance
required by, or result in a right of termination, cancellation, or acceleration
of any obligation or the loss of a benefit under, or result in the creation of
any lien, security interest, charge or encumbrance ("Liens") upon any of the
properties or assets of Patriot Co. or any of the subsidiaries of Patriot Co. or
to Patriot Co.'s knowledge to any of its joint ventures (any such violation,
conflict, breach, default, right of termination, modification, cancellation or
acceleration, loss or creation, a "Violation" with respect to Patriot Co. (such
term when used in Article V having a correlative meaning with respect to Parent)
pursuant to any provisions of (i) the articles of organization, by-laws or
similar governing documents of Patriot Co. or any of its subsidiaries or, to
Patriot Co.'s knowledge, any of its joint ventures, (ii) subject to obtaining
the Patriot Co. Required Statutory Approvals and the receipt of the Patriot Co.
Shareholders' Approval, any statute, law, ordinance, rule, regulation, judgment,
decree, order, injunction, writ, permit or license of any Governmental Authority
(as defined in Section 4.4(c)) applicable to Patriot Company or any of its
subsidiaries or, to Patriot Company's knowledge, any of its joint ventures, or
any of their respective properties or assets or (iii) subject to obtaining the
third-party consents or other approvals set forth in Section 4.4(b) of the
Patriot Co. Disclosure Schedule (the "Patriot Co. Required Consents") any note,
bond, mortgage, indenture, deed of trust, license, franchise, permit,
concession, contract, lease or other instrument, obligation or agreement of any
kind to which Patriot Co. or any of its subsidiaries or, to Patriot Co.'s
knowledge, any of its joint ventures is a party or by which it or any of its
properties or assets may be bound or affected.
(c) Statutory Approvals. No declaration, filing or registration with, or
notice to or authorization, consent or approval of, any court, federal, state,
local or foreign governmental or regulatory body (including a stock exchange or
other self-regulatory body) or authority (each, a "Governmental Authority") is
necessary for the execution and delivery of this Agreement by Patriot Co. or the
consummation by Patriot Co. of the transactions contemplated hereby, except as
described in Section 4.4(c) of the Patriot Co. Disclosure Schedule (the "Patriot
Co. Required Statutory Approvals"), it being understood that references in this
Agreement to "obtaining" such Patriot Co. 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.
(d) Compliance. Except as set forth in Section 4.4(d) or Section 4.11 of
the Patriot Co. Disclosure Schedule, or as disclosed in the Patriot Co. SEC
Reports (as defined in Section 4.5) filed prior to the date hereof, neither
Patriot Co. nor any of its subsidiaries nor, to the knowledge of Patriot Co.,
any joint venture of Patriot Co. is in violation of, is 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 as set forth in Section 4.4(d)
of the Patriot Co. Disclosure Schedule or in Section 4.11 of the Patriot Co.
Disclosure Schedule, Patriot Co. and its subsidiaries and joint ventures have
all permits, licenses, franchises and other governmental authorizations,
consents and approvals necessary to conduct their respective businesses as
currently conducted in all respects. Except as set forth in Section 4.4(d) of
the Patriot Co. Disclosure Schedule, Patriot Co. and each of its subsidiaries 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 under, (i) its articles of
organization or by-laws or (ii) any material contract, commitment, agreement,
indenture, mortgage, loan agreement, note, lease, bond,
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license, approval or other instrument to which it is a party or by which it is
bound or to which any of its property is subject.
SECTION 4.5 REPORTS AND FINANCIAL STATEMENTS. The filings required to be
made by Patriot Co. and its subsidiaries since September 1, 1993 under the
Securities Act of 1933, as amended (the "Securities Act"), the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), the 1935 Act, and
applicable state public utility laws and regulations have been filed with the
Securities and Exchange Commission (the "SEC"), or the appropriate state public
utilities commission, as the case may be, including all forms, statements,
reports, agreements (oral or written) and all documents, exhibits, amendments
and supplements appertaining thereto complied, as of their respective dates, in
all material respects with all applicable requirements of the appropriate
statute and the rules and regulations thereunder and the Exhibit Index to
Patriot Co.'s most recently filed Form 10-K includes each agreement, contract or
instrument (including all amendments thereto) to which Patriot Co. or any of its
subsidiaries is a party or by which any of them is bound required to be included
thereon (the "Material Contracts"). Patriot Co. has made available to Parent a
true and complete copy of each report, schedule, registration statement and
definitive proxy statement filed by Patriot Co. with the SEC since September 1,
1993 (as such documents have since the time of their filing been amended, the
"Patriot Co. SEC Reports"). As of their respective dates, the Patriot Co. SEC
Reports did not contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The audited consolidated financial statements and unaudited
interim financial statements of Patriot Co. included in the Patriot Co. SEC
Reports (collectively, the "Patriot Co. Financial Statements") complied as to
form in all material respects with the applicable rules of the SEC, have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis ("GAAP") (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 the consolidated financial position of
Patriot Co. as of the dates thereof and the consolidated results of operations
and cash flows for the periods then ended. True, accurate and complete copies of
the articles of organization and by-laws of Patriot Co., as in effect on the
date hereof, have been made available to Parent. Neither Patriot Co. nor any of
its subsidiaries is in default under or in violation of any Material Contracts,
nor to Patriot Co.'s best knowledge is any other party thereto.
SECTION 4.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
the Patriot Co. SEC Reports filed prior to the date hereof or as set forth in
Section 4.6 of the Patriot Co. Disclosure Schedule, from August 31, 1997,
Patriot Co. and each of its subsidiaries have conducted their operations only in
the ordinary course of business consistent with past practice and there has not
occurred: (i) any change, development, event or other circumstance, situation or
state of affairs that has had or may be reasonably expected to have any Patriot
Co. Material Adverse Effect; (ii) any amendments to or changes in the Articles
of Organization or By-Laws of Patriot Co.; (iii) any damage to, destruction or
loss of any asset of Patriot Co. (whether or not covered by insurance) that
could reasonably be expected to have a Patriot Co. Material Adverse Effect; (iv)
any material change by Patriot Co. in its accounting methods, principles or
practices; (v) any material revaluation by the Patriot Co. of any of its assets;
(vi) any other action or event that would have required the consent of Parent
pursuant to Section 6.1 had such action or event occurred after the date of this
Agreement; or (vii) any sale of a material amount of assets (tangible or
intangible) of Patriot Co., except in the ordinary course of business.
SECTION 4.7 LITIGATION. Except as disclosed in the Patriot Co. SEC Reports
filed prior to the date hereof or as set forth in Section 4.7, Section 4.9 or
Section 4.11 of the Patriot Co. Disclosure Schedule, (i) there are no claims,
suits, actions or proceedings, pending or, to the knowledge of Patriot Co.,
threatened, nor are there, to the knowledge of Patriot Co., any investigations
or reviews pending or threatened against, relating to or affecting Patriot Co.
or any of the its subsidiaries or any meritorious basis for any such claims,
suits, actions, proceedings, investigations or reviews, and (ii) there are no
judgments, decrees, injunctions, rules or orders of any court, governmental
department, commission, agency, instrumentality or authority or any arbitrator
applicable to Patriot Co. or any of its subsidiaries, except for any of the
foregoing under clauses (i) and (ii) that individually or in the aggregate would
not reasonably be expected to have a Patriot Co. Material Adverse Effect.
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SECTION 4.8 REGISTRATION STATEMENT AND PROXY STATEMENT. (i) None of the
information supplied or to be supplied by or on behalf of Patriot Co. for
inclusion or incorporation by reference in the registration statement on Form
S-4 to be filed with the SEC in connection with the issuance of shares of Parent
Common Stock in the Merger (the "Registration Statement") will, at the time the
Registration Statement becomes effective under the Securities Act, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading
and (ii) the proxy statement, in definitive form, relating to the meeting of
Patriot Co. shareholders to be held in connection with the Merger (the "Proxy
Statement") shall not, at the dates mailed to shareholders and at the times of
the meetings of shareholders to be held in connection with the Merger, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The Registration Statement and the Proxy Statement, insofar as they
relate to Patriot Co. or any Patriot Co. subsidiary, shall comply as to form in
all material respects with the applicable provisions of the Securities Act and
the Exchange Act and the rules and regulations thereunder.
SECTION 4.9 TAX MATTERS. "Taxes", as used in this Agreement, means any
federal, state, county, local or foreign taxes, charges, fees, levies or other
assessments, including all net income, gross income, sales and use, ad valorem,
transfer, gains, profits, excise, franchise, real and personal property, gross
receipts, capital stock, production, business and occupation, disability,
employment, payroll, license, estimated, stamp, custom duties, severance or
withholding taxes or charges imposed by any governmental entity, and includes
any interest and penalties (civil or criminal) on or additions to any such taxes
and any expenses incurred in connection with the determination, settlement or
litigation of any tax liability. "Tax Return", as used in this Agreement, means
a report, return or other information required to be supplied to a governmental
entity with respect to Taxes including, where permitted or required, combined or
consolidated returns for any group of entities that includes Patriot Co. or any
of its subsidiaries, or Parent or any of its subsidiaries, as the case may be.
Except as set forth in Section 4.9 of the Patriot Co. Disclosure Schedule:
(a) Filing of Timely Tax Returns. Patriot Co. and each of its subsidiaries
have filed (or there has been filed on its behalf) all Tax Returns required to
be filed by each of them under applicable law. All such Tax Returns were and are
in all material respects true, complete and correct and filed on a timely basis.
(b) Payment of Taxes. Patriot Co. and each of its subsidiaries have,
within the time and in the manner prescribed by law, paid all Taxes that are
currently due and payable except for those contested in good faith and for which
adequate reserves have been taken.
(c) Deferred Taxes. Patriot Co. and its subsidiaries have accounted for
deferred income taxes in accordance with GAAP.
(d) Tax Liens. There are no Tax liens upon the assets of Patriot Co. or
any of its subsidiaries except liens for Taxes not yet due.
(e) Withholding Taxes. Patriot Co. and each of its subsidiaries have
complied in all material respects with the provisions of the Code relating to
the withholding of Taxes, as well as similar provisions under any other laws,
and have, within the time and in the manner prescribed by law, withheld from
employee wages and paid over to the proper governmental authorities all amounts
required.
(f) Extensions of Time for Filing Tax Returns. Neither Patriot Co. nor any
of its subsidiaries have requested any extension of time within which to file
any Tax Return, which Tax Return has not since been filed.
(g) Waivers of Statute of Limitations. Neither Patriot Co. nor any of its
subsidiaries has executed any outstanding waivers or comparable consents
regarding the application of the statute of limitations with respect to any
Taxes or Tax Returns.
(h) Expiration of Statute of Limitations. The statute of limitations for
the assessment of all Taxes has expired for all applicable Tax Returns of
Patriot Co. and each of its subsidiaries or those Tax Returns have been examined
by the appropriate taxing authorities for all periods through the date hereof,
and no deficiency
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for any Taxes has been proposed, asserted or assessed against Patriot Co. or any
of its subsidiaries that has not been resolved and paid in full.
(i) Audit, Administrative and Court Proceedings. No audits or other
administrative proceedings or court proceedings are presently pending with
regard to any Taxes or Tax Returns of Patriot Co. or any of its subsidiaries.
(j) Powers of Attorney. No power of attorney currently in force has been
granted by Patriot Co. or any of its subsidiaries concerning any Tax matter.
(k) Tax Rulings. Neither Patriot Co. nor any of its subsidiaries has
received a Tax Ruling (as defined below) or entered into a Closing Agreement (as
defined below) with any taxing authority that would have a continuing adverse
effect after the Closing Date. "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.
(l) Availability of Tax Returns. Patriot Co. has made available to Parent
complete and accurate copies of (i) all Tax Returns, and any amendments thereto,
filed by Patriot Co. or any of its subsidiaries since January 1, 1993, (ii) all
audit reports received from any taxing authority relating to any Tax Return
filed by Patriot Co. or any of its subsidiaries and (iii) any Closing Agreements
entered into by Patriot Co. or any of its subsidiaries with any taxing
authority.
(m) Tax Sharing Agreements. Neither Patriot Co. nor any of its
subsidiaries are a party to any agreement relating to allocating or sharing of
Taxes.
(n) Code Section 280G. Neither Patriot Co. nor any of its subsidiaries is
a party to any agreement, contract or arrangement that could result, on account
of the transactions contemplated hereunder, separately or in the aggregate, in
the payment of any "excess parachute payments" within the meaning of Section
280G of the Code.
(o) Liability for Others. Neither Patriot Co. nor any of its subsidiaries
has any liability for Taxes of any person other than Patriot Co. and its
subsidiaries (i) under Treasury Regulations Section 1.1502-6 (or any similar
provision of state, local or foreign law) as a transferee or successor, (ii) by
contract or (iii) otherwise.
SECTION 4.10 EMPLOYEE MATTERS; ERISA. Except as set forth in Section 4.10
of the Patriot Co. Disclosure Schedule:
(a) Benefit Plans. Section 4.10(a) of the Patriot Co. Disclosure Schedule
contains a true and complete list of each employee benefit plan, program,
policy, arrangement or agreement sponsored or maintained by Patriot Co. or any
of its subsidiaries covering employees, former employees, directors or former
directors of Patriot Co. or any of its subsidiaries or their beneficiaries, or
providing benefits to such persons in respect of services provided to any such
entity, including, but not limited to, any employee benefit plans within the
meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), and any severance or change in control agreement, plan,
policy or program between Patriot Co. or any of its subsidiaries and any
employee thereof (collectively, the "Patriot Co. Benefit Plans"). For purposes
of this Section 4.10, "subsidiary" includes any entity which, under Code section
414(b), (c), (m) or (o), is required to be considered as a single employer with
Patriot Co. Neither Patriot Co. nor any of its subsidiaries is obligated to
contribute to any "multiemployer plan" as defined in Section 3(37) of ERISA.
(b) Contributions. All contributions and other payments required to be
made for any period through the date to which this representation speaks, by
Patriot Co. or any of its subsidiaries to any Patriot Co. Benefit Plan (or to
any person pursuant to the terms thereof) have been timely made or paid in full,
or, to the extent not required to be made or paid on or before the date to which
this representation speaks, have been properly reflected in the Patriot Co.
Financial Statements.
(c) Qualification; Compliance. Each of the Patriot Co. Benefit Plans
intended to be "qualified" within the meaning of Section 401(a) of the Code has
been determined by the Internal Revenue Service (the "IRS") to be so qualified
or an application for such a determination, which was filed before the
expiration of
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the applicable remedial amendment period, is pending, and, to the knowledge of
Patriot Co., no circumstances exist that could reasonably be expected to result
in the revocation of any such determination. Patriot Co. and each of its
subsidiaries is in compliance in all material respects with, and each of the
Patriot Co. Benefit Plans is and has been operated in all material respects in
compliance with, all applicable laws, rules and regulations governing such plan,
including, without limitation, ERISA and the Code. Each Patriot Co. Benefit Plan
intended to provide for the deferral of income, the reduction of salary or other
compensation, or to afford other income tax benefits, complies in all material
respects with the requirements of the applicable provisions of the Code or other
laws, rules and regulations required to provide such income tax benefits. There
are no pending or, to the knowledge of Patriot Co., threatened claims under or
in respect of any Patriot Co. Benefit Plan by or on behalf of any employee,
former employee, director, former director, or beneficiary thereof, or otherwise
involving any Patriot Co. Benefit Plan (other than routine claims for benefits).
(d) Title I or IV Liabilities. No event has occurred and, to the knowledge
of Patriot Co., there exists no condition or set of circumstances, that could
subject or potentially subject Patriot Co. or any of its subsidiaries to any
liability (whether to a governmental agency, a multiemployer plan or any other
person or entity) arising under or based upon any provision of Title I or Title
IV of ERISA.
(e) Documents Made Available. Patriot Co. has made available to Parent a
true and correct copy of each collective bargaining agreement to which Patriot
Co. or any of its subsidiaries is a party or under which Patriot Co. or any of
its subsidiaries has obligations and, with respect to each Patriot Co. Benefit
Plan, where applicable, (i) such plan, including all amendments thereto, and the
most recent summary plan description, (ii) the most recent annual report filed
with the IRS, (iii) each related trust agreement and insurance contract, (iv)
the most recent determination of the IRS with respect to the qualified status of
such Patriot Co. Benefit Plan, and (v) the most recent actuarial report or
valuation. To the best knowledge of Patriot Co., in the case of each Patriot Co.
Benefit Plan, no employee handbook or similar employee communication relating to
such Plan nor any written communication of benefits under such Plan from the
administrator thereof, in either case that has not been delivered or made
available to Parent, describes the terms of such Plan in a manner that is
materially inconsistent with the documents and summary plan descriptions
relating to such Plan that have been made available pursuant to the foregoing
sentence.
(f) No Patriot Co. Benefit Plan provides post-retirement health or welfare
benefits to any individual, other than as required by Section 601 et seq. of
ERISA and Section 4980 B of the Code or any other laws, rules or regulations.
(g) Labor Agreements. As of the date hereof, neither Patriot Co. nor any
of its subsidiaries are a party to any collective bargaining agreement or other
labor agreement with any union or labor organization. To the best knowledge of
Patriot Co., as of the date hereof, there is no current union representation
question involving employees of Patriot Co. or any of its subsidiaries, nor does
Patriot Co. know of any activity or proceeding of any labor organization (or
representative thereof) or employee group to organize any such employees. Except
as disclosed in the Patriot Co. SEC Reports filed prior to the date hereof or in
Section 4.10(f) of the Patriot Co. Disclosure Schedule, (i) there is no unfair
labor practice, employment discrimination or other material complaint against
Patriot Co. or any of its subsidiaries pending or, to the best knowledge of
Patriot Co., threatened, (ii) there is no strike or lockout or material dispute,
slowdown or work stoppage pending, or to the best knowledge of Patriot Co.,
threatened, against or involving Patriot Co., and (iii) there is no proceeding,
claim, suit, action or governmental investigation pending or, to the best
knowledge of Patriot Co., threatened, in respect of which any director, officer,
employee or agent of Patriot Co. or any of its subsidiaries are or may be
entitled to claim indemnification from Patriot Co. or such subsidiary pursuant
to their respective articles of organization or by-laws or as provided in the
indemnification agreements listed in Section 4.10(f) of the Patriot Co.
Disclosure Schedule.
SECTION 4.11 ENVIRONMENTAL PROTECTION. Except as set forth in Section 4.11
of the Patriot Co. Disclosure Schedule or in the Patriot Co. SEC Reports filed
prior to the date hereof:
(a) Compliance. Patriot Co. and each of its subsidiaries are in compliance
with all applicable Environmental Laws (as defined in Section 4.11(f)(ii)); and
neither Patriot Co. nor any of its subsidiaries have received any communication
from any person or Governmental Authority that alleges that Patriot Co. or
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any of its subsidiaries is not in compliance with applicable Environmental Laws,
except where the failure to be in such compliance would not in the aggregate
have a Patriot Co. Material Adverse Effect.
(b) Environmental Permits. Patriot Co. and each of its subsidiaries have
obtained or have applied for all environmental, health and safety permits and
governmental authorizations (collectively, the "Environmental Permits")
necessary for the construction of their facilities or the conduct of their
operations, and all such Environmental Permits are in good standing or, where
applicable, a renewal application has been timely filed and is pending agency
approval, and Patriot Co. and its subsidiaries are in compliance with all terms
and conditions of the Environmental Permits, and Patriot Co. reasonably believes
that any transfer, renewal or reapplication for any Environmental Permit
required as a result of the Merger can be accomplished in the ordinary course of
business.
(c) Environmental Claims. There is no Environmental Claim (as defined in
Section 4.11(f)(i)) pending (i) against Patriot Co. or any of its subsidiaries
or joint ventures, or (ii) against any real or personal property or operations
Patriot Co. or any of its subsidiaries owns, leases or manages, in whole or in
part.
(d) Releases. There have been no Releases (as defined in Section
4.11(f)(iv)) of any Hazardous Material (as defined in Section 4.11(f)(iii)) that
would be reasonably likely to form the basis of any Environmental Claim against
Patriot Co. or any of its subsidiaries.
(e) Predecessors. Patriot Co. has no knowledge of any Environmental Claim
pending or threatened, or of any Release of Hazardous Materials that would be
reasonably likely to form the basis of any Environmental Claim, in each case
against any person or entity (including, without limitation, any predecessor of
Patriot Co. or any of its subsidiaries) whose liability Patriot Co. or any of
its subsidiaries has or may have retained or assumed either contractually or by
operation of law or against any real or personal property which Patriot Co. or
any of its subsidiaries formerly owned, leased or managed, in whole or in part.
(f) As used in this Agreement:
(i) "Environmental Claim" means any and all administrative, regulatory
or judicial actions, suits, demands, demand letters, directives, claims,
liens, investigations, proceedings or notices of noncompliance or violation
by any person or entity (including any Governmental Authority) alleging
potential liability (including, without limitation, potential
responsibility for or liability for enforcement costs, investigatory costs,
cleanup costs, governmental response costs, removal costs, remedial costs,
natural-resources damages, property damages, personal injuries, fines 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 Patriot Co. or any of its subsidiaries or joint ventures (for
purposes of this Section 4.11), or by Parent or any of its subsidiaries or
joint ventures (for purposes of Section 5.11); 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, local laws, rules
and regulations 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 Materials, or otherwise
relating to the manufacture, 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 ("PCBs") in regulated concentrations; 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,
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material, substance or waste, exposure to which is now prohibited, limited
or regulated under any Environmental Law in a jurisdiction in which Patriot
Co. or any of its subsidiaries or joint ventures operate (for purposes of
this Section 4.11) or in which Parent or any of its subsidiaries or joint
ventures operate (for purposes of Section 5.11).
(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.
SECTION 4.12 REGULATION AS A UTILITY. Patriot Co. is regulated as a public
utility in the Commonwealth of Massachusetts and in no other state. Neither
Patriot Co. nor any "subsidiary company" or "affiliate" of Patriot Co. is
subject to regulation as a public utility or public service company (or similar
designation) by any other state in the United States or any foreign country.
Patriot Co. shall not, prior to the Effective Time, become a "holding company"
within the meaning of the 1935 Act without complying with the registration
exemption or other provisions applicable thereto.
SECTION 4.13 VOTE REQUIRED. The approval of the Merger by two-thirds of
the votes entitled to be cast by all holders of Patriot Co. Common Stock (the
"Patriot Co. Shareholders' Approval") is the only vote of the holders of any
class or series of the capital stock of Patriot Co. or any of its subsidiaries
required to approve this Agreement, the Merger and the other transactions
contemplated hereby.
SECTION 4.14 ACCOUNTING MATTERS. Neither Patriot Co., any Patriot Co.
subsidiary nor, to Patriot Co.'s best knowledge, any of its affiliates has taken
or agreed to take any action that would prevent the transactions to be effected
pursuant to this Agreement from being accounted for as a pooling of interests in
accordance with GAAP and applicable SEC regulations. As used in this Agreement
(except as specifically otherwise defined), the term "affiliate", except where
otherwise defined herein, shall mean, as to any person, any other person which
directly or indirectly controls, or is under common control with, or is
controlled by, such person. As used in this definition, "control" (including,
with its correlative meanings, "controlled by" and "under common control with")
shall mean possession, directly or indirectly, of power to direct or cause the
direction of management or policies (whether through ownership of securities or
partnership or other ownership interests, by contract or otherwise).
SECTION 4.15 OPINION OF FINANCIAL ADVISOR. The Company has received the
opinion of Furman Selz LLC, to the effect that, as of December 19, 1997, the
Exchange Ratio is fair from a financial point of view to the holders of Patriot
Co. Common Stock.
SECTION 4.16 OWNERSHIP OF PARENT COMMON STOCK. Except as set forth in
Section 4.16 of Patriot Co. Disclosure Schedule, Patriot Co. does not
"beneficially own" (as such term is defined for purposes of Section 13(d) of the
Exchange Act) any shares of Parent Common Stock or Parent Preferred Stock.
SECTION 4.17 INSURANCE. Except as set forth in Section 4.17 of the Patriot
Co. Disclosure Schedule, Patriot Co. and each of its subsidiaries are, and have
been continuously since January 1, 1993, insured with Minet Insurance Brokers,
Inc. for a maximum amount of $10 million and against such risks and losses as
are customary in all material respects for companies conducting the business as
conducted by Patriot Co. and its subsidiaries during such time period. Except as
set forth in Section 4.17 of the Patriot Co. Disclosure Schedule, neither
Patriot Co. nor any of its subsidiaries has received any notice of cancellation
or termination with respect to any material insurance policy of Patriot Co. or
any of its subsidiaries. The insurance policies of Patriot Co. and each of its
subsidiaries are valid and enforceable policies in all material respects.
SECTION 4.18 CHANGE IN CONTROL AND SEVERANCE PAYMENTS. Except as set forth
on Section 4.10 of the Patriot Co. Disclosure Schedule, neither Patriot Co. nor
any of its subsidiaries have any plans, programs or agreements to which they are
parties, or to which they are subject, pursuant to which payments (or
acceleration of benefits) may be required upon, or may become payable directly
or indirectly as a result of, a change of control of Patriot Co. or otherwise
upon termination of employment of any individual with Patriot Co. or any of its
subsidiaries.
SECTION 4.19 YEAR 2000. Section 4.19 of the Patriot Co. Disclosure
Schedule summarizes the status of Patriot Co.'s dealings and communications with
third-party service providers with respect to ensuring that
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Patriot Co.'s computer systems do not, or will not following modification
thereof, be deficient with respect to formatting for the Year 2000 Problem and
that such third-party service providers and Patriot Co.'s computer systems are,
or will be, following modification thereof in material compliance with all
regulations and trade organization guidelines concerning the Year 2000 Problem.
Patriot Co. has made available to Parent copies of all correspondence between
Patriot Co. and its third-party service providers concerning Year 2000 Problem
compliance. Except as set forth in Section 4.19 of Patriot Co. Disclosure
Schedule, Patriot Co. has no other contracts with, or commitments to, any
third-party with respect to its computer systems. All issues and modification,
if any, regarding Year 2000 Problem compliance by Patriot Co. have been resolved
and undertaken and, will in the future be resolved and undertaken, by
third-party service providers and Patriot Co. Patriot Co. is not aware of any
inability on the part of any customer, insurance company or service provider
with which the Seller transacts business to timely remedy their own deficiencies
in respect of the Year 2000 Problem, which inability, individually or in the
aggregate, reasonably could be expected to have a Material Adverse Effect on
Patriot Co.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent represents and warrants to Patriot Co. as follows:
SECTION 5.1 ORGANIZATION AND QUALIFICATION. Except as set forth in Section
5.1 of the Parent Disclosure Schedule (as defined in Section 7.6(i)), Parent and
each of its subsidiaries is a Massachusetts business trust, in the case of
Parent, or a corporation, in the case of each subsidiary, duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation or organization, has all requisite corporate power and authority,
and has been duly authorized by all necessary approvals and orders, to own,
lease and operate its assets and properties to the extent owned, leased and
operated and to carry on its business as it is now being conducted and is duly
qualified and in good standing to do business in each jurisdiction in which the
nature of its business or the ownership or leasing of its assets and properties
makes such qualification necessary, other than in such jurisdictions where the
failure to be so qualified and in good standing will not, when taken together
with all other such failures, have a material adverse effect on the business,
properties, financial condition, results of operations or prospects of Parent
and its subsidiaries taken as a whole or on the consummation of this Agreement
(any such material adverse effect being hereafter referred to as a "Parent
Material Adverse Effect").
SECTION 5.2 SUBSIDIARIES. Section 5.2 of the Parent Disclosure Schedule
sets forth a description as of the date hereof of all material subsidiaries and
joint ventures of Parent. Except as set forth in Section 5.2 of the Parent
Disclosure Schedule, none of Parent's subsidiaries are a "public utility
company", a "holding company", a "subsidiary company" or an "affiliate" of any
public utility company within the meaning of Section 2(a)(5), 2(a)(7), 2(a)(8)
or 2(a)(11) of the 1935 Act, respectively. Except as set forth in Section 5.2 of
the Parent Disclosure Schedule, all of the issued and outstanding shares of
capital stock of each Parent subsidiary are validly issued, fully paid,
nonassessable and free of preemptive rights, and are owned directly or
indirectly by Parent free and clear of any liens, claims, encumbrances, security
interests, equities, charges and options of any nature whatsoever and there are
no outstanding subscriptions, options, calls, contracts, voting trusts, proxies
or other commitments, understandings, restrictions, arrangements, rights or
warrants, including any right of conversion or exchange under any outstanding
security, instrument or other agreement, obligating any such Parent subsidiary
to issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of its capital stock or obligating it to grant, extend or enter into any
such agreement or commitment; except for any of the foregoing that could not
reasonably be expected to have an Parent Material Adverse Effect.
SECTION 5.3 CAPITALIZATION. (a) The authorized capital stock of Parent
consists of 50,000,000 shares of Parent Common Stock and no shares of Parent
Preferred Stock. As of the close of business on December 18, 1997, there were
issued and outstanding 20,387,739 shares of Parent Common Stock (excluding
shares of treasury stock) and no shares of Parent Preferred Stock. All of the
issued and outstanding shares of the capital stock of Parent are, and will be,
validly issued, fully paid, nonassessable and free of preemptive rights. Except
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as set forth in Section 5.3 of the Parent Disclosure Schedule, as of the date
hereof, there are no outstanding subscriptions, options, calls, contracts,
voting trusts, proxies or other commitments, understandings, restrictions,
arrangements, rights or warrants, including any right of conversion or exchange
under any outstanding security, instrument or other agreement, Parent or any of
its subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of the capital stock or other equity interests of
Parent, or any of its subsidiaries or obligating Parent or any of its
subsidiaries to redeem or otherwise acquire or cancel any such shares or other
interests or obligating Parent to grant, extend or enter into any such agreement
or commitment.
SECTION 5.4 AUTHORITY; NON-CONTRAVENTION; STATUTORY APPROVALS;
COMPLIANCE. (a) Authority. Parent has all requisite corporate power and
authority to enter into this Agreement, and, subject to the applicable Parent
Required Statutory Approvals (as defined in Section 5.4(c)), to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation by Parent of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of Parent. This
Agreement has been duly and validly executed and delivered by Parent and,
assuming the due authorization, execution and delivery hereof by the other
signatories hereto, constitutes the valid and binding obligation of Parent
enforceable against it in accordance with its terms.
(b) Non-Contravention. Except as set forth in Section 5.4(b) of the Parent
Disclosure Schedule, the execution and delivery of this Agreement by Parent do
not, and the consummation of the transactions contemplated hereby will not,
result in a Violation pursuant to any provisions of (i) the articles of
incorporation, by-laws or similar governing documents of Parent or any of its
subsidiaries or, to Parent's knowledge, any of its joint ventures, (ii) subject
to obtaining the Parent Required Statutory Approvals any statute, law,
ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit
or license of any Governmental Authority applicable to Parent or any of its
subsidiaries or, to Parent's knowledge, any of its joint ventures or any of
their respective properties or assets or (iii) subject to obtaining the
third-party consents or other approvals set forth in Section 5.4(b) of the
Parent Disclosure Schedule (the "Parent Required Consents"), any note, bond,
mortgage, indenture, deed of trust, license, franchise, permit, concession,
contract, lease or other instrument, obligation or agreement of any kind to
which Parent or any of its subsidiaries or, to Parent's knowledge, any of its
joint ventures is a party or by which it or any of its properties or assets may
be bound or affected, excluding from the foregoing clauses (i), (ii) and (iii)
such violations as would not have, in the aggregate, a Parent Material Adverse
Effect.
(c) Statutory Approvals. Except as described in Section 5.4(c) of the
Parent Disclosure Schedule, 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 Parent or the
consummation by Parent of the transactions contemplated the failure to obtain,
make or give which would have, in the aggregate, a Parent Material Adverse
Effect (the "Parent Required Statutory Approvals"), it being understood that
references in this Agreement to "obtaining" such Parent 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.
(d) Compliance. Except as set forth in Section 5.4(d) or Section 5.11 of
the Parent Disclosure Schedule, or as disclosed in the Parent SEC Reports (as
defined in Section 5.5) filed prior to the date hereof, neither Parent nor any
of its subsidiaries nor, to the knowledge of Parent, any joint venture of Parent
is in violation of, is 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 violations that, in the aggregate, do not have, and to the
knowledge of Parent, are not reasonably likely to have, a Parent Material
Adverse Effect. Except as set forth in Section 5.4(d) of the Parent Disclosure
Schedule or in Section 5.11 of the Parent Disclosure Schedule, Parent and its
subsidiaries and joint ventures have all permits, licenses, franchises and other
governmental authorizations, consents and approvals necessary to conduct their
respective businesses as currently conducted in all respects, except those which
the failure to obtain would, in the aggregate, not have a Parent Material
Adverse Effect. Except as set forth in Section 5.4(d) of the Parent Disclosure
Schedule, Parent and each of its subsidiaries 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
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lapse of time or action by a third party, could result in a default under, (i)
its articles of organization (or similar governing documents) or by-laws or (ii)
any material contract, commitment, agreement, indenture, mortgage, loan
agreement, note, lease, bond, license, approval or other instrument to which it
is a party or by which it is bound or to which any of its property is subject;
except for breaches, violations or defaults that, in the aggregate, do not have,
and to the knowledge of Parent, are not reasonably likely to have, a Parent
Material Adverse Effect.
SECTION 5.5 REPORTS AND FINANCIAL STATEMENTS. The filings required to be
made by Parent and its subsidiaries since January 1, 1993 under the Securities
Act, the Exchange Act, the 1935 Act, and applicable state public utility laws
and regulations have been filed with the SEC or the appropriate state public
utilities commission, as the case may be, including all forms, statements,
reports, agreements and all documents, exhibits, amendments and supplements
appertaining thereto, and complied, as of their respective dates, in all
material respects with all applicable requirements of the appropriate statute
and the rules and regulations thereunder. Parent has made available to Patriot
Co. a true and complete copy of each report, schedule, registration statement
and definitive proxy statement filed by Parent with the SEC since January 1,
1993 (as such documents have since the time of their filing been amended, the
"Parent SEC Reports"). As of their respective dates, the Parent SEC Reports did
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. The
audited consolidated financial statements and unaudited interim financial
statements of Parent included in the Parent SEC Reports (collectively, the
"Parent Financial Statements") have been prepared in accordance with GAAP
(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 the consolidated financial position of Parent as of the dates thereof
and the consolidated results of its operations and cash flows for the periods
then ended. True, accurate and complete copies of the declaration of trust and
by-laws of Parent as in effect on the date hereof, have been made available to
Patriot Co.
SECTION 5.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
the Parent SEC Reports filed prior to the date hereof or as set forth in Section
5.6 of the Parent Disclosure Schedule, from December 31, 1996, Parent and each
of its subsidiaries have conducted their operations only in the ordinary course
of business consistent with past practice and there has not been, and no fact or
condition exists which would have or, insofar as reasonably can be foreseen,
could have a Parent Adverse Effect.
SECTION 5.7 LITIGATION. Except as disclosed in the Parent SEC Reports
filed prior to the date hereof or as set forth in Section 5.7, Section 5.9 or
Section 5.11 of the Parent Disclosure Schedule, (i) there are no claims, suits,
actions or proceedings, pending or, to the knowledge of Parent, threatened, nor
are there, to the knowledge of Parent, any investigations or reviews pending or
threatened against, relating to or affecting Parent or any of the its
subsidiaries, and (ii) there are no judgments, decrees, injunctions, rules or
orders of any court, governmental department, commission, agency,
instrumentality or authority or any arbitrator applicable to Parent or any of
its subsidiaries; except for any of the foregoing under clauses (i) and (ii)
that individually or in the aggregate would not reasonably be expected to have a
Parent Material Adverse Effect.
SECTION 5.8 REGISTRATION STATEMENT AND PROXY STATEMENT. None of the
information supplied or to be supplied by or on behalf of Parent for inclusion
or incorporation by reference in (i) the Registration Statement will, at the
time the Registration Statement becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading and (ii) the Proxy Statement shall not, at the dates mailed to
Patriot Co. shareholders and at the times of the meeting of Patriot Co.
shareholders to be held in connection with the Merger, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. The Registration
Statement and the Proxy Statement, insofar as they relate to Parent or any
Parent subsidiary, shall comply as to form in all material respects with the
applicable provisions of the Securities Act and the Exchange Act and the rules
and regulations thereunder.
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SECTION 5.9 REGULATION AS A UTILITY. Parent is an exempt "holding company"
within the meaning of Section 3(a)(1) of the 1935 Act, pursuant to orders of the
Securities and Exchange Commission. Boston Gas Company, a subsidiary of Parent,
is a regulated public utility in the Commonwealth of Massachusetts and in no
other state. Neither Parent nor any "subsidiary company" or "affiliate" of
Parent is subject to regulation as a public utility or public service company
(or similar designation) by any other state in the U.S. or any foreign country.
SECTION 5.10 ACCOUNTING MATTERS. Neither Parent nor, to Parent's best
knowledge, any of its affiliates has taken or agreed to take any action that
would prevent the transaction to be effected pursuant to this Agreement from
being accounted for as a pooling of interests in accordance with GAAP and
applicable SEC regulations.
SECTION 5.11 OWNERSHIP OF THE COMPANY COMMON STOCK. Except as set forth in
Section 5.16 of the Parent Disclosure Schedule, as of the date of this Agreement
Parent does not "beneficially own" (as such term is defined for purposes of
Section 13(d) of the Exchange Act) any shares of Patriot Co. Common Stock.
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 6.1 COVENANTS OF THE PARTIES. After the date hereof and prior to
the Effective Time or earlier termination of this Agreement, Parent and Patriot
Co. each agree as follows, each as to itself and to each of the Parent
subsidiaries and Patriot Co. subsidiaries, as the case may be, except as
expressly contemplated or permitted in this Agreement, or to the extent the
other parties hereto shall otherwise consent in writing:
(a) Ordinary Course of Business. Each party hereto shall, and shall cause
its subsidiaries to, carry on their respective operations in the usual, regular
and ordinary course in substantially the same manner as heretofore conducted and
use all commercially reasonable efforts to (i) preserve intact their present
business organizations and goodwill, preserve the goodwill and relationships
with customers, suppliers and others having business dealings with them, (ii)
subject to prudent management of workforce needs and ongoing programs currently
in force, keep available the services of their present officers and employees as
a group, and (iii) maintain and keep material properties and assets in as good
repair and condition as at present, subject to ordinary wear and tear, and
maintain supplies and inventories in quantities consistent with past practice.
(b) Dividends. No party shall nor shall any party permit any of its
subsidiaries to: (i) declare or pay any dividends on or make other distributions
in respect of any of their capital stock other than (A) dividends by a
wholly-owned subsidiary to Patriot Co. or Parent, as the case may be, or another
wholly-owned subsidiary, (B) dividends by a less than wholly-owned subsidiary
consistent with past practice, (C) regular dividends on Patriot Co. Common
Stock, with usual record and payment dates in any fiscal quarter, that do not
exceed $.42, or (D) regular dividends on Parent Common Stock, with usual record
and payment dates in any fiscal year, that do not exceed 200% of the dividends
for the prior fiscal year; (ii) split, combine or reclassify any capital stock
or the capital stock of any subsidiary or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of, or in substitution
for, shares of capital stock or the capital stock of any subsidiary; or (iii)
redeem, repurchase or otherwise acquire any shares of its capital stock or the
capital stock of any subsidiary other than, subject to paragraph (k) below,
redemptions, repurchases and other acquisitions of shares of capital stock in
connection with the administration of employee benefit and dividend reinvestment
plans as in effect on the date hereof in the ordinary course of the operation of
such plans consistent with past practice.
(c) Issuance of Securities. Patriot Co. shall not, nor shall it permit any
of its subsidiaries to, issue, agree to issue, deliver, sell, award, pledge,
dispose of or otherwise encumber or authorize or propose the issuance, delivery,
sale, award, pledge, disposal or other encumbrance of, any shares of their
capital stock of any class or any securities convertible into or exchangeable
for, or any rights, warrants or options to acquire, any such shares or
convertible or exchangeable securities, other than non-discretionary grants, as
provided for in Schedule 4.3 to this Agreement, the Patriot Co. Benefit Plans
and the Patriot Co. Dividend Reinvestment Plan. The parties shall promptly
furnish to each other such information as may be reasonably requested
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including financial information and take such action as may be reasonably
necessary and otherwise fully cooperate with each other in the preparation of
any registration statement under the Securities Act and other documents
necessary in connection with issuance of securities as contemplated by this
Section 6.1(c), subject to obtaining customary indemnities.
(d) Charter Documents. No party shall, and no party shall permit any of
its subsidiaries to, amend or propose to amend its respective articles of
organization, by-laws or regulations, or similar organic documents, except as
contemplated herein, in any way that would alter the terms of the securities to
be issued in the Merger.
(e) Acquisitions. Except as disclosed in Section 6.1 of Patriot Co.
Disclosure Schedule or the Parent Disclosure Schedule, Patriot Co. 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 a substantial portion of the assets of, or by any other manner, any business
or any corporation, partnership, association or their business organization or
division thereof, or otherwise acquire or agree to acquire any material amount
of assets other than in the ordinary course of business.
(f) Capital Expenditures. Except as set forth in Section 6.1(f) of Patriot
Co. Disclosure Schedule, Patriot Co. shall not, nor shall it permit any of its
subsidiaries to, make capital expenditures in excess of $1 million per year over
the amount budgeted by Patriot Co. or its subsidiaries for capital expenditures
for the 1998 and 1999 fiscal years.
(g) No Dispositions. Except as set forth in Section 6.1(g) of the Patriot
Co. Disclosure Schedule, Patriot Co. shall not, nor shall it permit any of its
subsidiaries to, sell, lease, license, encumber or otherwise dispose of, any of
its assets, other than encumbrances or dispositions in the ordinary course of
its business consistent with past practice.
(h) Indebtedness. Patriot Co. 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 statement 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, or to finance the capital
expenditures permitted pursuant to Section 6.1(f) of this Agreement; (ii)
arrangements between such party and its subsidiaries or among its subsidiaries;
or (iii) in connection with the refunding of existing indebtedness at a lower
cost of funds.
(i) Compensation, Benefits. Except as set forth in Section 6.1(i) of the
Patriot Co. Disclosure Schedule or as may be required by applicable law, as may
be required to facilitate or obtain a determination from the IRS that a plan is
"qualified" within the meaning of Section 401(a) of the Code or as contemplated
by this Agreement, Patriot Co. shall not, nor shall it permit any of its
subsidiaries to, (i) enter into, adopt or amend or increase the amount or
accelerate the payment or vesting of any benefit or amount payable under, any
employee benefit plan or other contract, agreement, commitment, arrangement,
plan or policy covering employees, former employees, directors or former
directors or their beneficiaries or providing benefits to such persons that is
maintained by, contributed to or entered into by such party or any of its
subsidiaries, or increase, or enter into any contract, agreement, commitment or
arrangement to increase in any manner, the compensation or fringe benefits, or
otherwise to extend, expand or enhance the engagement, employment or any related
rights of, or take any other action or grant any benefit (including, without
limitation, any stock options or stock option plan) not required under the terms
of any existing employee benefit plan, or other contract, agreement, commitment,
arrangement, plan or policy to or with any director, officer or other employee
of such party or any of its subsidiaries, except for normal increases or grants
or actions in the ordinary course of business consistent with past practice
that, in the aggregate, do not result in a material increase in benefits or
compensation expense to such party or any of its subsidiaries or (ii) enter into
or amend any employment, severance or special pay arrangement with respect to
the termination of employment or other similar contract, agreement or
arrangement with any director or officer or other employee other than in the
ordinary course of business consistent with current industry practice.
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(j) 1935 Act. Except as set forth in Section 6.1(j) of the Patriot Co.
Disclosure Schedule or the Parent Disclosure Schedule, and except as required or
contemplated by this Agreement, no party shall, nor shall any party 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.
(k) Accounting. Except as set forth in Section 6.1(k) of the Patriot Co.
Disclosure Schedule, Patriot Co. shall not, nor shall Patriot Co. permit any of
its subsidiaries to, make any changes in its accounting methods, except as
required by law, rule, regulation or GAAP.
(l) Pooling. No party shall, nor shall any party permit any of its
subsidiaries to, take any action which would, or would be reasonably likely to,
prevent the transactions to be effected pursuant to this Agreement, to be
accounted for as a pooling of interests in accordance with GAAP and applicable
SEC regulations, and each party hereto shall use all reasonable efforts to
achieve such result (including taking such actions as may be necessary to cure
any facts or circumstances that could prevent such transactions from qualifying
for pooling-of-interests accounting treatment).
(m) Tax-Free Status. No party shall, nor shall any party permit any of its
subsidiaries to, take any actions which would, or would be reasonably likely to,
adversely affect the status of the Merger as a tax-free transaction (except as
to dissenters' rights and fractional shares) under Section 368(a) of the Code,
and each party hereto shall use all reasonable efforts to achieve such result.
(n) Cooperation, Notification. Each party shall, and shall cause its
subsidiaries to, (i) in the case of Patriot confer on a regular and frequent
basis with one or more representatives of Parent to discuss, subject to
applicable law, material operational matters and the general status of its
ongoing operations; (ii) in the case of Patriot Co., promptly notify Parent of
any significant changes in its business, properties, assets, condition
(financial or other), results of operations or prospects; (iii) advise the other
party of any change or event which has had or, insofar as reasonably can be
foreseen, is reasonably likely to result in, in the case of Patriot Co., a
Patriot Co. Material Adverse Effect or, in the case of Parent, a Parent Material
Adverse Effect; and (iv) promptly provide the other party with copies of all
filings made by such party or any of its subsidiaries with any state or federal
court, administrative agency, commission or other Governmental Authority in
connection with this Agreement and the transactions contemplated hereby.
(o) Third-Party Consents. Patriot Co. shall, and shall cause its
subsidiaries to, use all commercially reasonable efforts to obtain all the
Company Required Consents. Patriot Co. shall promptly notify Parent of any
failure or prospective failure to obtain any such consents and, if requested by
Parent shall provide copies of all the Patriot Co. Required Consents obtained by
Patriot Co. to Parent. Parent shall, and shall cause its subsidiaries to, use
all commercially reasonable efforts to obtain all Parent Required Consents.
Parent shall promptly notify Patriot Co. of any failure or prospective failure
to obtain any such consents and, if requested by Patriot Co., shall provide
copies of all Parent Required Consents obtained by Parent to Patriot Co.
(p) No Breach, Etc. No party shall, nor shall any party permit any of its
subsidiaries to, willfully take any action that would or is reasonably likely to
result in a material breach of any provision of this Agreement or in any of its
representations and warranties set forth in this Agreement being untrue on and
as of the Closing Date.
(q) Discharge of Liabilities. Patriot Co. shall not 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 unappealable 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 such party's reports filed with the
SEC, or incurred in the ordinary course of business consistent with past
practice.
(r) Contracts. Patriot Co. shall not, except in the ordinary course of
business consistent with past practice, modify, amend, terminate, renew or fail
to use reasonable business efforts to renew any material contract or agreement
to which such party or any subsidiary of such party is a party or waive, release
or assign any material rights or claims.
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(s) Insurance. Patriot Co. shall, and shall cause its subsidiaries to,
maintain with financially responsible insurance companies insurance (including
directors and officers liability insurance) in such amounts and against such
risks and losses as are customary for companies engaged in the electric and gas
utility industry.
(t) Permits. Patriot Co. shall, and shall cause its subsidiaries to, use
reasonable efforts to maintain in effect all existing governmental permits
pursuant to which such party or its subsidiaries operate.
SECTION 6.2 COVENANT OF PATRIOT CO.; ALTERNATIVE PROPOSALS. Prior to the
Effective Time, Patriot Co. agrees (a) that neither it nor any of its
subsidiaries shall, and it shall direct and cause its officers, directors,
employees, agents and representatives (including, without limitation, any
investment banker, attorney or accountant retained by it or any of its
subsidiaries or any of the foregoing) not to, initiate or solicit the making of
any proposal or offer (including, without limitation, any proposal or offer to
its stockholders) with respect to an Alternative Proposal (as defined below) or
engage in any negotiations concerning, or provide any non-public information or
data to make or implement an Alternative Proposal; (b) that it will immediately
cease and cause to be terminated any existing discussions or negotiations with
any parties conducted heretofore with a view of formulating an Alternative
Proposal; and (c) that it will notify Parent promptly if any such proposals are
received by, any such information is requested from, or any such negotiations or
discussions are sought to be initiated or continued with, it; provided, however,
that nothing contained in this Section 6.2 shall prohibit the Board of Directors
of Patriot Co. from (i) furnishing information (pursuant to a confidentiality
agreement deemed appropriate by the Board of Directors of Patriot Co., provided,
however, that such confidentiality agreement shall provide that the person or
entity making such Alternative Proposal shall not purchase any shares of Patriot
Co. Common Stock without the consent of the Board) to or entering into
discussions or negotiations with, any person or entity that makes an unsolicited
bona fide proposal or offer to acquire Patriot Co. pursuant to a merger,
consolidation, share purchase, share exchange, purchase of a substantial portion
of assets, business combination or other similar transaction, if, and only to
the extent that, (A) the Board of Directors of Patriot Co. determines in good
faith that such action is reasonably likely result in an Alternative Proposal
which is a more favorable transaction from the standpoint of Patriot Co., (B)
prior to furnishing such information to, or entering into discussions or
negotiations with, such person or entity, Patriot Co. provides written notice to
Parent of the identity of the person or entity making the Alternative Proposal
and that it intends to furnish information to, or intends to enter into
discussions or negotiations with, such person or entity, (C) Patriot Co. keeps
Parent informed on a timely basis of the status of any such discussions or
negotiations and all terms and conditions thereof and promptly provides Parent
with copies of any written inquiries or proposals relating thereto, and (D) in
the event that the Board of Directors of Patriot Co. determines in good faith,
after consultation with outside legal counsel, to accept any such Alternative
Proposal (in accordance with subclause (A) above), Patriot Co. provides Parent
with at least two days' prior notice thereof, during which time Parent may make,
and in such event, Patriot Co. shall in good faith consider, a counterproposal
to such Alternative Proposal; and (ii) to the extent applicable, complying with
Rule 14e-2 promulgated under the Exchange Act with regard to an Alternative
Proposal. Nothing in this Section 6.2 shall (x) permit Patriot Co. to terminate
this Agreement (except as specifically provided in Article 10 hereof), (y)
permit Patriot Co. to enter into any agreement with respect to an Alternative
Proposal during the term of this Agreement (it being agreed that during the term
of this Agreement, Patriot Co. shall not enter into any agreement with any
person that provides for, or in any way facilitates, an Alternative Proposal
(other than a confidentiality agreement of the type described above)) or (z)
affect any other obligation of Patriot Co. under this Agreement. "Alternative
Proposal" shall mean any merger, acquisition, consolidation, reorganization,
share exchange, tender offer, exchange offer or similar transaction involving
Patriot Co. or any of Patriot Co.'s subsidiaries, or any proposal or offer to
acquire in any manner, directly or indirectly, a substantial equity interest in
or a substantial portion of the assets of Patriot Co. or any of Patriot Co.'s
subsidiaries. Nothing herein shall prohibit a disposition permitted by Section
6.1(g) hereof.
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ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.1 ACCESS TO INFORMATION. Upon reasonable notice and during
normal business hours, Patriot Co. shall, and shall cause its subsidiaries to,
afford to the officers, directors, employees, accountants, counsel, investment
bankers, financial advisors and other representatives of Parent (collectively,
"Representatives") reasonable access, during normal business hours throughout
the period prior to the Effective Time, to all of its properties, books,
contracts, commitments and records (including, but not limited to, Tax Returns)
and, during such period, each party shall, and shall cause its subsidiaries to,
furnish promptly to the other (i) access to each report, schedule and other
document filed or received by it or any of its subsidiaries pursuant to the
requirements of federal or state securities laws or filed with or sent to the
SEC, the FERC, the Department of Justice, the Federal Trade Commission, the
Massachusetts Department of Telecommunication and Energy, any other federal or
state regulatory agency or commission, and (ii) access to all information
concerning themselves, their subsidiaries, directors, officers and shareholders
and such other matters as may be reasonably requested by the other party in
connection with any filings, applications or approvals required or contemplated
by this Agreement. Each party shall, and shall cause its subsidiaries and
Representatives to, hold in strict confidence all Information (as defined in the
Confidentiality Agreement) concerning the other parties furnished to it in
connection with the transactions contemplated by this Agreement in accordance
with the Confidentiality Agreement, dated as of November 7, 1997, between
Patriot Co. and Parent, as it may be amended from time to time (the
"Confidentiality Agreement").
SECTION 7.2 PROXY STATEMENT AND REGISTRATION STATEMENT.
(a) Preparation and Filing. The parties will prepare and file with the SEC
as soon as reasonably practicable after the date hereof the Registration
Statement and the Proxy Statement (together, the "Proxy/Registration
Statement"). The parties hereto shall each use reasonable efforts to cause the
Registration Statement to be declared effective under the Securities Act as
promptly as practicable after such filing. Each party hereto shall also take
such action as may be reasonably required to cause the shares of Parent Common
Stock issuable in connection with the Merger to be registered or to obtain an
exemption from registration under applicable state "blue sky" or securities
laws; provided, however, that no party shall be required to register or qualify
as a foreign corporation or to take other action which would subject it to
service of process in any jurisdiction where it will not be, following the
Merger, so subject. Each of the parties hereto shall furnish all information
concerning itself which is required or customary for inclusion in the
Proxy/Registration Statement. The parties shall use reasonable efforts to cause
the shares of Parent Common Stock issuable in the Merger to be approved for
listing on the New York Stock Exchange upon official notice of issuance. The
information provided by any party hereto for use in the Proxy/Registration
Statement shall be true and correct in all material respects without omission of
any material fact which is required to make such information not false or
misleading. No representation, covenant or agreement is made by or on behalf of
any party hereto with respect to information supplied by any other party for
inclusion in the Proxy Statement/Registration Statement.
(b) Letter of Patriot Co.'s Accountants. Following receipt by Arthur
Andersen LLP, Patriot Co.'s independent auditors, of an appropriate request from
Patriot Co. pursuant to SAS No. 72, Patriot Co. shall use best efforts to cause
to be delivered to Parent a letter of Arthur Andersen LLP dated a date within
two business days before the date of the Proxy/Registration Statement, and
addressed to Parent, in form and substance reasonably satisfactory to Parent and
customary in scope and substance for "cold comfort" letters delivered by
independent public accountants in connection with registration statements
similar to the Proxy/Registration Statement.
(c) Letter of Parent's Accountants. Following receipt by Arthur Andersen
LLP, Parent's independent auditor, of an appropriate request from Parent
pursuant to SAS No. 72, Parent shall use best efforts to cause to be delivered
to Patriot Co. a letter of Arthur Andersen LLP, dated a date within two business
days before the date of the Proxy/Registration Statement, and addressed to
Patriot Co., in form and substance reasonably satisfactory to Patriot Co. and
customary in scope and substance for "cold comfort" letters delivered by
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independent public accountants in connection with registration statements
similar to the Proxy/Registration Statement.
SECTION 7.3 REGULATORY MATTERS. Each party hereto shall cooperate and use
its best efforts to promptly prepare and file all necessary documentation, to
effect all necessary applications, notices, petitions, filings and other
documents, and to use all commercially reasonable efforts to obtain all
necessary permits, consents, approvals and authorizations of all Governmental
Authorities necessary or advisable to consummate (or in connection with the
consummation of) the transactions contemplated by this Agreement, including,
without limitation, the Patriot Co. Required Statutory Approvals and the Parent
Required Statutory Approvals.
SECTION 7.4 SHAREHOLDER APPROVAL.
(a) Patriot Co. Shareholders. Subject to the provisions of Section 7.4(b),
Patriot Co. shall, as soon as reasonably practicable after the date hereof (i)
take all steps necessary to duly call, give notice of, convene and hold a
meeting of its shareholders (the "Patriot Co. Special Meeting") for the purpose
of securing the Patriot Co. Shareholders' Approval, (ii) distribute to its
shareholders the Proxy Statement in accordance with applicable federal and state
law and with its articles of organization and by-laws, (iii) subject to the
fiduciary duties of its Board of Directors, recommend to its shareholders the
approval of this Agreement and the transactions contemplated hereby and (iv)
cooperate and consult with Parent with respect to each of the foregoing matters.
(b) Meeting Date. The Patriot Co. Special Meeting for the purpose of
securing the Patriot Co. Shareholders' Approval shall be held on such date as
Patriot Co. and Parent shall mutually determine.
SECTION 7.5 DIRECTORS' AND OFFICERS' INDEMNIFICATION.
(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, Parent and the Company shall, to the fullest extent permitted by
applicable law and the charter and by-laws of the relevant entity, as in effect
on the date hereof, 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, an officer, director or employee of any of the parties hereto or
any subsidiary (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 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,
officer or employee of such party or a subsidiary of such party (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 the event of any such loss, expense, claim, damage or
liability (whether or not arising before the Effective Time), (i) Parent shall
pay the reasonable fees and expenses of counsel selected by the Indemnified
Parties, which counsel shall be reasonably satisfactory to Parent, promptly
after statements therefor are received and otherwise advance to such Indemnified
Party upon request reimbursement of documented expenses reasonably incurred,
(ii) Parent and the Company will 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
Massachusetts law, and the declaration of trust or By-laws (or similar governing
documents) shall be made by independent counsel mutually acceptable to Parent
and the Indemnified Party; provided, however, that Parent shall not be liable
for any settlement effected without its written consent (which consent shall not
be unreasonably withheld). The Indemnified Parties as a group may retain only
one law firm with respect to each related matter except to the extent there is,
in the opinion of counsel to an Indemnified Party, under applicable standards of
professional conduct, a conflict on any significant issue between positions of
such Indemnified Party and any other Indemnified Party or Indemnified Parties.
(b) Insurance. For a period of six years after the Effective Time, Parent
shall cause to be maintained in effect an extended reporting period for current
policies of directors' and officers' liability insurance for the benefit of
those persons who are currently covered by such policies of Patriot Co. on terms
no less favorable
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than the terms of such current insurance coverage; provided, however, that
Parent shall not be required to expend in any year an amount in excess of 150%
of the annual aggregate premiums currently paid by Patriot Co., for such
insurance; and provided, further, that if the annual premiums of such extended
reporting period coverage dates exceed such amount, Parent shall be obligated to
obtain the best extended reporting period coverage reasonably available, in the
reasonable judgment of the Board of Directors of Parent, for a cost not
exceeding such amount.
(c) Successors. In the event Parent or any of its successors or assigns
(i) consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger or
(ii) transfers all or substantially all of its properties and assets to any
person, then and in either such case, proper provisions shall be made so that
the successors and assigns of Parent shall assume the obligations set forth in
this Section 7.5.
(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 and officers of Patriot Co.,
and its subsidiaries with respect to their activities as such prior to the
Effective Time, as provided in its respective articles of organization and
by-laws 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 7.5 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.
SECTION 7.6 DISCLOSURE SCHEDULES. On the date hereof, (i) Parent has
delivered to Patriot Co. a schedule (the "Parent Disclosure Schedule"),
accompanied by a certificate signed by the chief financial officer of Parent
stating the Parent Disclosure Schedule is being delivered pursuant to this
Section 7.6(i) and (ii) Patriot Co. has delivered to Parent a schedule (the
"Patriot Co. Disclosure Schedule"), accompanied by a certificate signed by the
vice president and treasurer of Patriot Co. stating the Patriot Co. Disclosure
Schedule is being delivered pursuant to this Section 7.6(ii). The Patriot Co.
Disclosure Schedule and the Parent Disclosure Schedule are collectively referred
to herein as the "Disclosure Schedules". The Disclosure Schedules constitute an
integral part of this Agreement and modify the respective representations,
warranties, covenants or agreements of the parties hereto contained herein to
the extent that such representations, warranties, covenants or agreements
expressly refer to the Disclosure Schedules. Anything to the contrary contained
herein or in the Disclosure Schedules notwithstanding, any and all statements,
representations, warranties or disclosures set forth in the Disclosure Schedules
shall be deemed to have been made on and as of the date hereof.
SECTION 7.7 PUBLIC ANNOUNCEMENTS. Subject to each party's disclosure
obligations imposed by law or the requirements of the New York Stock Exchange,
Patriot Co. and Parent will cooperate with each other in the development and
distribution of all news releases and other public information disclosures with
respect to this Agreement or any of the transactions contemplated hereby and
shall not issue any public announcement or statement with respect hereto without
the consent of the other party (which consent shall not be unreasonably
withheld).
SECTION 7.8 RULE 145 AFFILIATES. Within 30 days after the date of this
Agreement, Patriot Co. shall identify in a letter to Parent, and Parent shall
identify in a letter to Patriot Co., all persons who are, and to such person's
best knowledge who will be at the Closing Date, "affiliates" of Patriot Co. and
Parent, respectively, as such term is used in Rule 145 under the Securities Act
(or otherwise under applicable SEC accounting releases with respect to
pooling-of-interests accounting treatment). Each of Patriot Co. and Parent shall
use all reasonable efforts to cause their respective affiliates (including any
person who may be deemed to have become an affiliate after the date of the
letter referred to in the prior sentence) to deliver to Parent on or prior to
the Closing Date a written agreement substantially in the form attached as
Exhibit 7.8 (each, an "Affiliate Agreement").
SECTION 7.9 CERTAIN EMPLOYEE AGREEMENTS. Subject to Section 7.10, Parent
and the Company and its subsidiaries shall honor, without modification, all
contracts, agreements, collective bargaining agreements and
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commitments of the parties prior to the date hereof which apply to any current
or former employee or current or former director of the parties hereto and are
disclosed in Section 4.10 of the Patriot Co. Disclosure Schedule; provided,
however, that this undertaking is not intended to prevent Parent or the Company
from enforcing such contracts, agreements, collective bargaining agreements and
commitments in accordance with their terms, including, without limitation, any
reserved right to amend, modify, suspend, revoke or terminate any such contract,
agreement, collective bargaining agreement or commitment. Subject to applicable
collective bargaining agreements, for a period of three years following the
Effective Time, any reductions in workforce in respect of employees of the
Company shall be made on a fair and equitable basis, in light of the
circumstances and the objectives to be achieved, giving consideration to
previous work history, job experience, and qualifications, without regard to
whether employment prior to the Effective Time was with Patriot Co. or its
subsidiaries or Parent or its subsidiaries, and any employees whose employment
is terminated or jobs are eliminated by the Company or any of its subsidiaries
during such period shall be entitled to participate on a fair and equitable
basis in the job opportunity and employment placement programs offered by the
Company or any of its subsidiaries. Any workforce reductions carried out
following the Effective Time by Parent or the Company and their 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 regulations promulgated thereunder, and any
comparable state or local law.
SECTION 7.10 EMPLOYEE BENEFIT PLANS.
(a) Maintenance of Patriot Co. and Parent Benefit Plans. Subject to
Section 7.11 and Section 6.1(i), each of the Patriot Co. Benefit Plans in effect
at the date hereof shall be maintained in effect with respect to the employees
or former employees of Patriot Co. and any of its subsidiaries, who are covered
by any such benefit plan immediately prior to the Closing Date (the "Affiliated
Employees") until Parent or the Company otherwise determine after the Effective
Time; provided, however, that nothing herein contained shall limit any reserved
right contained in any such Patriot Co. Benefit Plan to amend, modify, suspend,
revoke or terminate any such plan; provided, further, however, that Parent or
the Company or their subsidiaries shall provide benefits to the Affiliated
Employees for a period of not less than six months following the Effective Time,
other than with respect to plans referred to in Section 7.11, which are no less
favorable in the aggregate than those provided under Patriot Co. Benefit Plans
(with respect to employees and former employees of Patriot Co. and its
subsidiaries). Without limitation of the foregoing, each employee of Patriot Co.
or its subsidiaries immediately prior to the Effective Time who is a participant
in any Patriot Co. Benefit Plan shall receive credit for purposes of eligibility
to participate and vesting, but not for purposes of benefit accrual under any
benefit plan of the Company or any of its subsidiaries or affiliates for service
credited for the corresponding purpose under such benefit plan, but not for
purposes of benefit accrual thereunder.
SECTION 7.11 PATRIOT CO. STOCK PLANS. With respect to each Patriot Co.
Benefit Plan that provides for benefits in the form of Patriot Co. Common Stock
("Patriot Co. Stock Plans"), Patriot Co. and Parent shall take all corporate
action necessary or appropriate to (i) provide for the issuance or purchase in
the open market of Parent Common Stock rather than Patriot Co. Common Stock,
pursuant thereto, and otherwise to amend such Patriot Co. Stock Plans to reflect
this Agreement and the Merger, (ii) obtain shareholder approval with respect to
such Patriot Co. Stock Plans to the extent such approval is required for
purposes of the Code or other applicable law, or to enable such Patriot Co.
Stock Plans to comply with Rule 16b-3 promulgated under the Exchange Act, (iii)
reserve for issuance under such Patriot Co. Stock Plans or otherwise provide a
sufficient number of shares of Parent Common Stock for delivery upon payment of
benefits, grant of awards or exercise of options under such Patriot Co. Stock
Plans and (iv) as soon as practicable after the Effective Time, file
registration statements on Form S-8 or amendments on such forms to the Form S-4
Registration Statement, as the case may be (or any successor or other
appropriate forms), with respect to the shares of Parent Common Stock subject to
such Patriot Co. Stock Plans to the extent such registration statement is
required under applicable law, and Parent shall use its best efforts to maintain
the effectiveness of such registration statements (and maintain the current
status of the prospectuses contained therein) for so long as such benefits and
grants remain payable and such options remain outstanding. With respect to those
individuals who subsequent to the Merger will be subject to the reporting
requirements under
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Section 16(a) of the Exchange Act, the Company shall administer the Patriot Co.
Stock Plans, where applicable, in a manner that complies with Rule 16b-3
promulgated under the Exchange Act.
SECTION 7.12 PATRIOT CO. STOCK OPTIONS. At the Effective Time, each
option, warrant or other security convertible into convertible for or
exercisable for the purchase of Patriot Co. Common Stock which is outstanding
and unconverted, unexchanged or unexercised, as the case may be, shall cease to
represent a right to acquire Patriot Co. Common Stock and shall be converted
automatically into an option, warrant or other security, as the case may be, to
purchase Parent Common Stock in an amount and at an exercise price determined as
provided below:
(a) The number of shares of Parent Common Stock to be subject to the new
option, warrant or other security shall be equal to the product of the number of
shares subject to the original option, warrant or other security at the
Effective Time and the Exchange Ratio, rounded down to the nearest whole number
of shares; and
(b) The exercise price per share of Parent Common Stock under the new
option, warrant or other security shall be equal to the exercise price per share
of Patriot Co. Common Stock under the original Patriot Co. option divided by the
Exchange Ratio and rounded up to the nearest whole cent.
SECTION 7.13 EXPENSES. Subject to Section 9.3, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses, except that those
expenses incurred in connection with printing the Proxy/Registration Statement,
as well as the filing fee relating thereto, shall be shared equally by Patriot
Co. and Parent.
SECTION 7.14 FURTHER ASSURANCES. Each party will, and will cause its
subsidiaries to, execute such further documents and instruments and take such
further actions as may reasonably be requested by any other party in order to
consummate the Merger in accordance with the terms hereof.
ARTICLE VIII
CONDITIONS
SECTION 8.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligations of each party to effect the Merger shall be
subject to the satisfaction on or prior to the Closing Date of the following
conditions, except, to the extent permitted by applicable law, that such
conditions may be waived in writing pursuant to Section 9.5 by the joint action
of the parties hereto:
(a) Shareholder Approval. Patriot Shareholders' Approval shall have been
obtained.
(b) No Injunction. No temporary restraining order or preliminary or
permanent injunction or other order by any federal or state court preventing
consummation of the Merger shall have been issued and be continuing in effect,
and the Merger and the other transactions contemplated hereby shall not have
been prohibited under any applicable federal or state law or regulation.
(c) Registration Statement. The Registration Statement shall have become
effective in accordance with the provisions of the Securities Act, and no stop
order suspending such effectiveness shall have been issued and remain in effect.
(d) Listing of Shares. The shares of Parent Common Stock issuable in the
Merger pursuant to Article II shall have been approved for listing on the New
York Stock Exchange upon official notice of issuance.
(e) Statutory Approvals. The Patriot Co. Required Statutory Approvals and
the Parent Required Statutory Approvals shall have been obtained at or prior to
the Effective Time, such approvals shall have become Final Orders (as defined
below) and such Final Orders shall not impose terms or conditions which, in the
aggregate, would have, or insofar as reasonably can be foreseen, could have, a
material adverse effect on the business, assets, financial condition, prospects
or results of operations of the Company and its subsidiaries taken as a whole
(taking into account the proposed modifications in Patriot Co.'s rate structure
outlined in the
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press release to be issued in connection with the announcement of the execution
of this Agreement) or Parent and its subsidiaries taken as a whole or which
would be materially inconsistent with the agreements of the parties contained
herein; it being understood that for purposes of this section, "Parent Required
Statutory Approval" shall include without limitation approval by the
Massachusetts Department of Telecommunication and Energy of a revised
rate/regulatory structure for the Company which will include no material
limitations or restrictions on the Company's ability to implement cost savings
from operating efficiencies and elimination of redundancies resulting from the
integration of the operations of the Company with those of Boston Gas Company
(and no such limitations or restrictions shall be imposed by statutory or other
regulatory action). A "Final Order" 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
transactions contemplated hereby may be consummated has expired, and as to which
all conditions to the consummation of such transactions prescribed by law,
regulation or order have been satisfied.
(f) Pooling. Each of Patriot Co. and Parent shall have received a letter
of its independent public accountants, dated the Closing Date, in form and
substance reasonably satisfactory, in each case, to Patriot Co. and Parent,
stating that the transactions effected pursuant to this Agreement will qualify
as a pooling of interests transaction under GAAP and applicable SEC regulations.
(g) Government Actions. There shall not be in effect any judgment, decree
or order of any governmental authority, administrative agency or course of
competent jurisdiction prohibiting or limiting Parent from exercising all
material rights and privileges pertaining to its ownership of the Company or the
ownership or operation by Parent or any of its subsidiaries of all or a material
portion of the business or assets of Parent and all of its subsidiaries, or
compelling Parent or any of its subsidiaries to dispose of or hold separate all
or any material portion of the business or assets of Parent and all of its
subsidiaries (including the Company and its subsidiaries), as a result of the
Merger or the transactions contemplated by this Agreement.
SECTION 8.2 CONDITIONS TO OBLIGATION OF PARENT TO EFFECT THE MERGER. The
obligation of Parent to effect the Merger shall be further subject to the
satisfaction, on or prior to the Closing Date, of the following conditions,
except as may be waived by Parent in writing pursuant to Section 9.5:
(a) Performance of Obligations of Patriot Co. Patriot Co. (and/or its
appropriate subsidiaries) shall have performed in all material respects its
agreements and covenants contained in Sections 6.1 and 6.2 and shall have
performed in all material respects its other agreements and covenants contained
in or contemplated by this Agreement to be performed by it at or prior to the
Effective Time.
(b) Representations and Warranties. The representations and warranties of
Patriot Co. set forth in this Agreement shall be true and correct (i) on and as
of the date hereof and (ii) on and as of the Closing Date with the same effect
as though such representations and warranties had been made on and as of the
Closing Date (except for representations and warranties that expressly speak
only as of a specific date or time other than the date hereof or the Closing
Date which need only be true and correct as of such date or time) except in each
of cases (i) and (ii) for such failures of representations or warranties to be
true and correct (without regard to any materiality qualifications contained
therein) which, individually or in the aggregate, would not be reasonably likely
to result in a Patriot Co. Material Adverse Effect.
(c) Closing Certificates. Parent shall have received a certificate signed
by the vice president and treasurer of Patriot Co., dated the Closing Date, to
the effect that, to the best of such officer's knowledge, the conditions set
forth in Section 8.2(a) and Section 8.2(b) have been satisfied.
(d) No Patriot Co. Material Adverse Effect. No Patriot Co. Material
Adverse Effect shall have occurred and there shall exist no fact or circumstance
which is reasonably likely to have a Patriot Co. Material Adverse Effect.
(e) Patriot Co. Required Consents. Patriot Co. Required Consents the
failure of which to obtain would have a Patriot Co. Material Adverse Effect
shall have been obtained.
(f) Affiliate Agreements. Patriot Co. shall have received Affiliate
Agreements, duly executed by each "affiliate" of Patriot Co., substantially in
the form of Exhibit 7.8, as provided in Section 7.8.
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SECTION 8.3 CONDITIONS TO OBLIGATION OF PATRIOT CO. TO EFFECT THE
MERGER. The obligation of Patriot Co. to effect the Patriot Co. Merger shall be
further subject to the satisfaction, on or prior to the Closing Date, of the
following conditions, except as may be waived by Patriot Co. in writing pursuant
to Section 9.5:
(a) Performance of Obligations of Parent. Parent (and/or its appropriate
subsidiaries) shall have performed in all material respects its agreements and
covenants contained in Section 6.1 and shall have performed in all material
respects its other agreements and covenants contained in or contemplated by this
Agreement to be performed by it at or prior to the Effective Time.
(b) Representations and Warranties. The representations and warranties of
Parent set forth in this Agreement shall be true and correct (i) on and as of
the date hereof and (ii) on and as of the Closing Date with the same effect as
though such representations and warranties had been made on and as of the
Closing Date (except for representations and warranties that expressly speak
only as of a specific date or time other than the date hereof or the Closing
Date which need only be true and correct as of such date or time) except in each
of cases (i) and (ii) for such failures of representations or warranties to be
true and correct (without regard to any materiality qualifications contained
therein) which, individually or in the aggregate, would not be reasonably likely
to result in a Parent Material Adverse Effect.
(c) Closing Certificates. Patriot Co. shall have received a certificate
signed by the chief financial officer of Parent, dated the Closing Date, to the
effect that, to the best of such officer's knowledge, the conditions set forth
in Section 8.3(a) and Section 8.3(b) have been satisfied.
(d) No Parent Material Adverse Effect. No Parent Material Adverse Effect
shall have occurred and there shall exist no fact or circumstance which is
reasonably likely to have a Parent Material Adverse Effect.
(e) Parent Required Consents. The Parent Required Consents the failure of
which to obtain would have a Parent Material Adverse Effect shall have been
obtained.
(f) Affiliate Agreements. Patriot Co. shall have received Affiliate
Agreements, duly executed by each "affiliate" of Parent substantially in the
form of Exhibit 7.8, as provided in Section 7.8.
(g) Tax Opinion. Patriot Co. shall have received an opinion of Wachtell,
Lipton, Rosen & Katz satisfactory in form and substance to Patriot Co., dated as
of the Closing Date, to the effect that the Merger will be treated as a tax-free
reorganization under Section 368(a) of the Code.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
SECTION 9.1 TERMINATION. This Agreement may be terminated at any time
prior to the Closing Date, whether before or after approval by the shareholders
of the respective parties hereto contemplated by this Agreement:
(a) by mutual written consent of the Boards of Directors of Patriot Co. and
Parent;
(b) by any party hereto, by written notice to the other parties, if the
Effective Time shall not have occurred on or before the first anniversary of the
date hereof (the "Initial Termination Date"); provided, however, that the right
to terminate the Agreement under this Section 9.1(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 Sections 8.1(e), 8.2(e)and/or 8.3(e)
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 to the eighteen month anniversary of the date hereof;
(c) by any party hereto, by written notice to the other parties, if the
Patriot Co. Shareholders' Approval shall not have been obtained at a duly held
Patriot Co. Special Meeting on or before September 30, 1998, including any
adjournments thereof;
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(d) by any party hereto, if any state or federal law, order, rule or
regulation is adopted or issued, which has the effect, as supported by the
written opinion of outside counsel for such party, of prohibiting the Merger, or
by any party hereto if any court of competent jurisdiction in the United States
or any State shall have issued an order, judgment or decree permanently
restraining, enjoining or otherwise prohibiting the Merger, and such order,
judgment or decree shall have become final and nonappealable;
(e) by Patriot Co., upon two days' prior notice to Parent in accordance
with Section 6.2, if the Board of Directors of Patriot Co. determines in good
faith that an Alternative Proposal is a more favorable transaction from the
standpoint of Patriot Co.;
(f) by Patriot Co., by written notice to Parent, if (i) there exist
breaches of the representations and warranties of Parent made herein as of the
date hereof which breaches, individually or in the aggregate, would or would be
reasonably likely to result in a Parent Material Adverse Effect, and such
breaches shall not have been remedied within 20 days after receipt by Parent of
notice in writing from Patriot Co., specifying the nature of such breaches and
requesting that they be remedied, or (ii) Parent (and/or its appropriate
subsidiaries) shall not have performed and complied with its agreements and
covenants contained in Sections 6.1(b) and 6.1(c) or shall have failed to
perform and comply with, in all material respects, its other agreements and
covenants hereunder and such failure to perform or comply shall not have been
remedied within 20 days after receipt by Parent of notice in writing from
Patriot Co., specifying the nature of such failure and requesting that it be
remedied;
(g) by Parent, by written notice to Patriot Co., if (i) there exist
material breaches of the representations and warranties of Patriot Co. made
herein as of the date hereof which breaches, individually or in the aggregate,
would or would be reasonably likely to result in a Patriot Co. Material Adverse
Effect, and such breaches shall not have been remedied within 20 days after
receipt by Patriot Co. of notice in writing from Parent, specifying the nature
of such breaches and requesting that they be remedied, (ii) Patriot Co. (and/or
its appropriate subsidiaries) shall not have performed and complied with its
agreements and covenants contained in Sections 6.1(b) and 6.1(c) or shall have
failed to perform and comply with, in all material respects, its other
agreements and covenants hereunder, and such failure to perform or comply shall
not have been remedied within 20 days after receipt by Patriot Co. of notice in
writing from Parent, specifying the nature of such failure and requesting that
it be remedied; or
(h) by either Parent or Patriot Co., by written notice to the other party,
if (A) a third party acquires securities representing greater than 50% of the
voting power of the outstanding voting securities of such other party or (B)
individuals who as of the date hereof constitute the board of directors of such
other party (together with any new directors whose election by such board of
directors or whose nomination for election by the stockholders of such party was
approved by a vote of a majority of the directors of such party then still in
office who are either directors as of the date hereof or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the board of directors of such party then in office; or
(i) by Parent, if (i) the Board of Directors of Patriot Co. shall withdraw,
modify or change its approval or recommendation of this Agreement or the Merger
in a manner adverse to Parent or shall have resolved to do so; (ii) the Board of
Directors of Patriot Co. shall have approved or recommended to the stockholders
of Patriot Co. any merger, combination or acquisition of Patriot Co. or
substantially all of its assets or any tender offer for shares of capital stock
of Patriot Co., in each case by a party other than Parent or any of its
affiliates; or (iii) a tender offer or exchange offer for 50% or more of the
outstanding shares of Patriot Co. Common Stock is commenced (other than by
Parent or an affiliate of Parent) and the Board of Directors of Patriot Co.
recommends that the stockholders of Patriot Co. tender their shares in such
tender or exchange offer.
SECTION 9.2 EFFECT OF TERMINATION. Subject to Section 10.1(b), in the
event of termination of this Agreement by either Patriot Co. or Parent pursuant
to Section 9.1 there shall be no liability on the part of either Patriot Co. or
Parent or their respective officers or directors hereunder, except that Section
7.13 and Section 9.3, the agreement contained in the last sentence of Section
7.1, Section 10.8 and Section 10.9 shall survive the termination.
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SECTION 9.3 TERMINATION FEE; EXPENSES.
(a) Termination Fee upon Breach or Withdrawal of Approval. If this
Agreement is terminated at such time that this Agreement is terminable pursuant
to one (but not both) of (x) Section 9.1(f)(i) or (ii) or (y) Section 9.1(g)(i)
or (ii), then: (i) the breaching party shall promptly (but not later than five
business days after receipt of notice from the non-breaching party) pay to the
non-breaching party in cash an amount equal to all documented out-of-pocket
expenses and fees incurred by the non-breaching party (including, without
limitation, fees and expenses payable to all legal, accounting, financial,
public relations and other professional advisors arising out of, in connection
with or related to the Merger or the transactions contemplated by this
Agreement) not in excess of $2.5 million ("Expenses"); provided, however, that,
if this Agreement is terminated by a party as a result of a willful breach by
the other party, the non-breaching party may pursue any remedies available to it
at law or in equity and shall, in addition to its out-of-pocket expenses (which
shall be paid as specified above and shall not be limited to $2.5 million), be
entitled to retain such additional amounts as such non-breaching party may be
entitled to receive at law or in equity.
(b) Patriot Co. shall pay Parent a fee of $3.5 million (the "Fee"), plus
Expenses, upon the first to occur of (i) the termination of this Agreement by
Patriot Co. pursuant to Section 9.1(e); (ii) the termination of this Agreement
by Parent pursuant to an acquisition of Patriot Co. Common Stock as set forth in
Section 9.1(h); or (iii) the termination of this Agreement by Parent or Patriot
Co. pursuant to Section 9.1(c) or Section 9.1(i).
(c) Liquidated Damages; Prompt Payment. The parties agree that the
agreements contained in this Section 9.3 are an integral part of the
transactions contemplated by the Agreement and constitute liquidated damages and
not a penalty. If one party fails to promptly pay to the other any fee due
hereunder, the defaulting party shall pay the costs and expenses (including
legal fees and expenses) in connection with any action, including the filing of
any lawsuit or other legal action, taken to collect payment, together with
interest on the amount of any unpaid fee at the publicly announced prime rate of
BankBoston, N. A. from the date such fee was required to be paid.
SECTION 9.4 AMENDMENT. This Agreement may be amended by the Boards of
Directors of the parties hereto, at any time before or after approval hereof by
the shareholders of Patriot Co. and prior to the Effective Time, but after such
approvals, no such amendment shall (i) alter or change the amount or kind of
shares, rights or any of the proceedings of the treatment of shares under
Article II, or (ii) alter or change any of the terms and conditions of this
Agreement if any of the alterations or changes, alone or in the aggregate, would
materially adversely affect the rights of holders of Patriot Co. capital stock,
except for alterations or changes that could otherwise be adopted by the Board
of Directors of Patriot Co., without the further approval of such shareholders.
This Agreement may not be amended except by an instrument in writing signed on
behalf of each of the parties hereto.
SECTION 9.5 WAIVER. At any time prior to the Effective Time, the parties
hereto may (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any of the agreements or
conditions contained herein, to the extent permitted by applicable law. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid if set forth in an instrument in writing signed on behalf of such party.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.1 NON-SURVIVAL; EFFECT OF REPRESENTATIONS AND WARRANTIES. (a)
All representations, warranties and agreements in this Agreement shall not
survive the Merger, except as otherwise provided in this Agreement and except
for the agreements contained in this Section 10.1 and in Article II, Section
7.5, Section 7.9, Section 7.10, Section 7.11, Section 10.7 and Section 10.9. The
representations, warranties and agreements of each party hereto shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any other party hereto, any person controlling any such party or
any of their officers or directors, whether prior to or after the execution of
this Agreement.
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<PAGE> 117
(b) No party may assert a claim for breach of any representation or
warranty contained in this Agreement (whether by direct claim or counterclaim)
except in connection with the cancellation of this Agreement pursuant to Section
9.1(f)(i) or Section 9.1(g)(i) (or pursuant to any other subsection of Section
9.1, if the terminating party would have been entitled to terminate this
Agreement pursuant to Section 9.1(f)(i) or Section 9.1(g)(i)).
SECTION 10.2 BROKERS. Patriot Co. represents and warrants that, except for
Furman Selz whose fees have been disclosed to Parent prior to the date hereof,
no broker, finder or investment banker is entitled to any brokerage, finder's or
other fee or commission in connection with the Merger or the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
Patriot Co. Parent represents and warrants that, except for Salomon Smith
Barney, no broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the Merger or the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Parent.
SECTION 10.3 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given if (i) delivered personally, (ii) sent
by reputable overnight courier service, (iii) telecopied (which is confirmed),
or (iv) five days after being mailed by registered or certified mail (return
receipt requested) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(a) If to Patriot Co., to:
Essex County Gas Company
7 North Hunt Road
Amesbury, MA 01913
Attention: Mr. Philip H. Reardon
Telephone: (978) 388-4082 or
(978) 556-1234
Telecopy: (978) 469-5207
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Seth A. Kaplan, Esq.
Telephone: (212) 403-1000
Telecopy: (212) 403-2000
(b) If to Parent, to:
Eastern Enterprises
9 Riverside Road
Weston, Massachusetts 02193
Attention: Walter J. Flaherty,
Senior Vice President and CFO
Telephone: (781) 647-2304
Telecopy: (781) 647-2350
with a copy to:
Eastern Enterprises
9 Riverside Road
Weston, Massachusetts 02193
Attention: L. William Law, Jr., Esq.,
Senior Vice President and General Counsel
Telephone: (781) 647-2313
Telecopy: (781) 647-2398
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<PAGE> 118
SECTION 10.4 MISCELLANEOUS. This Agreement (including the documents and
instruments referred to herein) (i) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and oral,
among the parties, or any of them, with respect to the subject matter hereof
other than the Confidentiality Agreement; (ii) shall not be assigned by
operation of law or otherwise; and (iii) shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts applicable to
contracts executed in and to be fully performed in such Commonwealth, without
giving effect to its conflicts of law, rules or principles and except to the
extent the provisions of this Agreement (including the documents or instruments
referred to herein) are expressly governed by or derive their authority from the
MBCL or the MGEL.
SECTION 10.5 INTERPRETATION. When a reference is made in this Agreement to
Sections or Exhibits, such reference shall be to a Section or Exhibit of this
Agreement, respectively, unless otherwise indicated. The table of contents and
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement. Whenever
the words "include", "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation".
SECTION 10.6 COUNTERPARTS; EFFECT. This Agreement may be executed in one
or more counterparts, each of which shall be deemed to be an original, but all
of which shall constitute one and the same agreement.
SECTION 10.7 PARTIES IN INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and, except for rights of
Indemnified Parties as set forth in Section 7.5, nothing in this Agreement,
express or implied, is intended to confer upon any other person any rights or
remedies of any nature whatsoever under or by reason of this Agreement.
SECTION 10.8 WAIVER OF JURY TRIAL AND CERTAIN DAMAGES. Each party to this
Agreement waives, to the fullest extent permitted by applicable law, (i) any
right it may have to a trial by jury in respect of any action, suit or
proceeding arising out of or relating to this Agreement and (ii) without
limitation to Section 9.3, any right it may have to receive damages from any
other party based on any theory of liability for any special, indirect,
consequential (including lost profits) or punitive damages.
SECTION 10.9 ENFORCEMENT. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the Commonwealth of Massachusetts or in Massachusetts state court,
this being in addition to any other remedy to which they are entitled at law or
in equity. In addition, each of the parties hereto (a) consents to submit itself
to the personal jurisdiction of any federal court located in the Commonwealth of
Massachusetts or any Massachusetts state court in the event any dispute arises
out of this Agreement or any of the transactions contemplated by this Agreement,
(b) agrees that it will not attempt to deny such personal jurisdiction by motion
or other request for leave from any such court and (c) agrees that it will not
bring any action relating to this Agreement or any of the transactions
contemplated by this Agreement in any court other than a federal or state court
sitting in the Commonwealth of Massachusetts.
SECTION 10.10 MASSACHUSETTS BUSINESS TRUST. Reference is hereby made to
the declaration of trust establishing Eastern Enterprises (formerly Eastern Gas
and Fuel Associates) dated July 18, 1929, as amended, a copy of which is on file
in the office of the Secretary of the Commonwealth of Massachusetts. The name
"Eastern Enterprises" refers to the trustees under said declaration as trustees
and not personally; and no trustee, shareholder, officer or agent of Eastern
Enterprises shall be held to any personal liability in connection with the
affairs of said Eastern Enterprises, but the trust estate only is liable.
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<PAGE> 119
IN WITNESS WHEREOF, Patriot Co. and Parent have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the date
first written above.
ESSEX COUNTY GAS COMPANY
By: /s/ PHILIP REARDON
------------------------------------
Name: Philip H. Reardon
Title: President and Chief Executive
Officer
/s/ JAMES HASTINGS
- ------------------------------------
Vice President and Treasurer
EASTERN ENTERPRISES
By: /s/ W. J. FLAHERTY
------------------------------------
Name: W. J. Flaherty
Title: Senior Vice President and
Chief Financial Officer
/s/ JEAN A. SCHOLTENS
- ------------------------------------
Treasurer
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<PAGE> 120
ANNEX B
FURMAN SELZ LLC LOGO 230 PARK AVENUE - NEW YORK 10169 - 212-309-8200
December 19, 1997
The Board of Directors
Essex County Gas Company
7 North Hunt Road
Amesbury, Massachusetts 01913
Ladies and Gentlemen:
You have requested our opinion, as investment bankers, as to the fairness,
from a financial point of view, to the holders of the Common Stock, no par value
(the "Shares"), of Essex County Gas Company, a Massachusetts corporation (the
"Company"), of the Exchange Ratio (as defined below) provided for pursuant to
the terms of the Agreement and Plan of Merger dated as of December 19, 1997 (the
"Merger Agreement"), by and between Eastern Enterprises, a Massachusetts
business trust ("Eastern"), and the Company, providing for, among other things,
the merger (the "Merger") of a wholly owned subsidiary of Eastern to be formed
for that purpose with and into the Company. At the effective time of the Merger,
each of the issued and outstanding Shares will be converted into the right to
receive 1.183985 shares of Common Stock, par value $1.00 per share, of Eastern
("Eastern Common Stock"), subject to adjustment as described in the Merger
Agreement (the "Exchange Ratio").
We understand that the Merger is intended to qualify as a reorganization
under Section 368(a) of the Internal Revenue Code of 1986, as amended, and we
have assumed that the Merger will so qualify. You have informed us, and we have
assumed, that the Merger will be accounted for as a pooling of interests in
accordance with generally accepted accounting principles as described in
Accounting Principles Board Opinion No. 16.
In conducting our analysis and arriving at our opinion as expressed herein,
we have reviewed and analyzed, among other things, the following:
(i) the Agreement and the financial terms of the Merger set forth
therein;
(ii) the Annual Reports on Form 10-K for the fiscal years ended August
31, 1994, 1995, 1996 and 1997, and certain other filings with the
Securities and Exchange Commission ("SEC") made by the Company, including
proxy statements;
(iii) Eastern's Annual Reports on Form 10-K for the fiscal years ended
December 31, 1994, 1995 and 1996, Quarterly Report on Form 10-Q for the
nine month period ended September 30, 1997, and certain other filings made
by Eastern, including proxy statements;
(iv) selected other publicly available information, including research
reports, concerning the Company and Eastern and the trading market for the
Shares and the Eastern Common Stock;
(v) selected non-public information relating to the Company, including
financial forecasts and projections, and preliminary financial results for
the quarter ending November 30, 1997, furnished to us by the Company;
(vi) selected non-public information relating to Eastern furnished to
us by Eastern; and
MEMBERS: NEW YORK, AMERICAN, OTHER PRINCIPAL STOCK EXCHANGES & REGULATED BY SFA
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(vii) selected publicly available information, including research
reports, concerning certain other companies engaged in businesses which we
believe to be comparable to Eastern and the Company and the trading markets
for certain of such companies' securities;
(viii) the financial terms and conditions of selected recent business
combinations generally and in the United States gas utility industry
specifically which we believe to be relevant.
In addition, we have performed and conducted the following:
(i) discussions with selected members of senior management of the
Company and Eastern concerning their respective businesses and operations,
assets, present condition and future prospects; and
(ii) such other analyses, examinations and procedures, and reviewed
such other agreements and documents, and considered such other factors, as
we have deemed, in our sole judgment, to be necessary, appropriate or
relevant to render an opinion.
In addition, we have taken into account our assessment of general economic,
market and financial conditions and our experience in similar transactions, as
well as our experience in securities valuation in general. Our opinion
necessarily is based upon conditions as they exist and can be evaluated on the
date hereof. We express no opinion as to the prices or trading ranges in which
the Shares or Eastern Common Stock will actually trade at any time.
We have assumed and relied, without independent verification, upon the
accuracy and completeness of the financial and other information obtained from
public sources or provided to us by the Company and reviewed by us for purposes
of arriving at our opinion, and we have not assumed any responsibility for
independent verification of such information or undertaken any obligation to
verify such information. In addition, with respect to the financial forecasts
and projections of the Company used in our analysis, we have assumed that they
have been reasonably prepared based upon the best current judgment of the
Company's management as to the future financial condition and operating results
of the Company. We assume no responsibility for and express no opinion as to
such forecasts and projections or the assumptions on which they are based.
Although we visited the executive offices of the Company, we have not
conducted a physical inspection of any of the properties and facilities of the
Company or Eastern and have not made, been furnished with or obtained any
independent evaluations or appraisals of any such properties and facilities or
of the assets of the Company or Eastern.
In our capacity as financial advisor to the Company with respect to the
Transaction, we solicited and received proposals from parties other than Eastern
to enter into a business combination transaction with the Company.
Furman Selz will receive a fee for its services to the Board of Directors
in connection with the Merger Agreement and the Merger pursuant to an engagement
letter, dated September 15, 1997, a major portion of which is contingent upon
the approval of the Merger by the holders of the Shares and upon consummation of
the Merger. In addition, the Company has agreed to reimburse Furman Selz for
certain out-of-pocket expenses and to indemnify Furman Selz for certain
liabilities arising from the delivery of this opinion. As you may know, in the
ordinary course of business, we may actively trade in the equity securities of
Eastern and the Company for our own account and for the accounts of our
customers and, accordingly, may at any time hold a long or short position in
such securities.
This opinion is for the use and benefit of the Board of Directors in its
consideration of the Merger. This opinion is not intended to be and does not
constitute a recommendation to any holder of the Shares as to how such holder
should vote with respect to the Merger. We were not requested to express any
opinion as to, and this opinion does not in any manner address, the underlying
business decision of the Board of Directors to approve the Merger Agreement or
to proceed with or effect the Merger. This opinion may be included in its
entirety in any proxy statement with respect to the Merger, but it may not be
summarized, excerpted from or
MEMBERS: NEW YORK, AMERICAN, OTHER PRINCIPAL STOCK EXCHANGES & REGULATED BY SFA
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<PAGE> 122
otherwise publicly referred to without our prior written consent (except in such
proxy statement, provided Furman Selz has been given a reasonable opportunity to
review such summary, excerpt or reference).
Based upon and subject to the foregoing, it is our opinion as investment
bankers that the Exchange Ratio is fair, from a financial point of view, to the
holders of the Shares.
Very truly yours,
FURMAN SELZ LLC
By: /s/ WILLIAM K. PERRIN
------------------------------------
William K. Perrin
Managing Director
MEMBERS: NEW YORK, AMERICAN, OTHER PRINCIPAL STOCK EXCHANGES & REGULATED BY SFA
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<PAGE> 123
ANNEX C
ESSEX COUNTY GAS COMPANY
1997 PERFORMANCE AND EQUITY INCENTIVE PLAN
1. PURPOSE. The purpose of this plan is to advance the interests of Essex
County Gas Company (the "company") by providing long-term financial incentives
to selected key employees of the company and its subsidiaries for achieving
specified objectives. The plan is designed to recognize and reward success
relative to plan objectives and permit participants to acquire common shares of
the company ("shares"). By encouraging such share ownership, the company seeks
to attract, retain and motivate employees of training, experience and ability.
2. PLAN TERM. This plan shall become effective on September 1, 1997 (the
"effective date") provided the plan is approved by the shareholders at the next
annual meeting of shareholders of the company following such adoption of the
plan by the Board of Directors of the company. If such approval is not granted,
any awards under the plan shall become null and void. Awards under the plan may
be granted through September 1, 2007.
3. ADMINISTRATION. The plan shall be administered by the Compensation
Committee of the Board of Directors of the company (the "committee") who may not
participate in the plan. Subject to the provisions of this plan, the committee
shall have full power to construe and interpret the plan and to establish, amend
and rescind rules and regulations for its administration. The interpretation and
construction by the committee of any provisions of the plan and any
determination by the committee pursuant to any provision of the plan or any such
incentive award shall be final and conclusive, and binding on both the
participant and the company.
The committee shall hold meetings at such times and places as it may
determine. A majority of members of the committee shall constitute a quorum and
actions approved by a majority of the members of the committee at a meeting at
which a quorum is present, or actions reduced to or approved in writing by a
majority of the members of the committee, shall be valid actions of the
committee.
4. ELIGIBLE EMPLOYEES. Incentive awards may be granted to such key
employees of the company or of any of its subsidiaries (including members of the
Board of Directors who are also employees of the company or any of its
subsidiaries) as are selected by the committee (any such selected employee, a
"participant").
5. SHARES SUBJECT TO THE PLAN. The maximum number of shares in respect
for which incentive awards may be cumulatively granted under the plan, subject
to adjustment as provided in paragraph 12 of the plan, during the term in which
the plan is effective shall be Fifty Thousand (50,000) shares of the common
stock of the company. Shares that are forfeited under the provisions specified
in paragraph 10(f)(1) may again be subjected to an incentive award under the
Plan.
6. INCENTIVE AWARD POTENTIAL. Participants will be assigned threshold,
target and maximum incentive award potentials, each expressed as a percentage of
the participant's annual base salary at the beginning of the plan year.
Incentive award potential percentages shall be established by the committee from
time to time, at its sole discretion. For 1997, the plan incentive award
potentials are in accordance with Table 1 following.
C-1
<PAGE> 124
TABLE 1
1997 INCENTIVE AWARD POTENTIAL
<TABLE>
<CAPTION>
PERCENT OF SALARY
---------------------------------------
LEVEL ELIGIBLE EMPLOYEES THRESHOLD TARGET MAXIMUM
- ----- ------------------ --------- ------ -------
<C> <S> <C> <C> <C>
1 President & CEO............................... 15% 30% 45%
2 Chief Operating Officer (open)................ 12.5 25 37.5
3 Vice Presidents............................... 10 20 30
</TABLE>
Each participant's actual incentive award will depend upon the company's
achievements during the plan year and a discretionary assessment of the
participant's contribution relative to specific key results as made by either
the committee (for the president and CEO) or the president and CEO for other
plan participants as set forth in paragraph 7 and subject to the satisfaction of
the provisions in paragraph 8.
7. PERFORMANCE EVALUATION. The committee shall establish whether any
incentive award shall be granted under the plan during the plan year based on
company results and a discretionary assessment as shown in these three success
categories:
-- Ratepayer interests
-- Shareholder interests
-- Discretion
Ratepayer interests shall consist of one or more company performance
objectives directed at promoting the achievement of such considerations as
enhancing the efficiency of the company's operations, lowering the company's
cost of service, improving the company's cost standing against peer companies,
or other such company operational factors as approved by the committee. The
committee shall establish the plan year performance standards for threshold,
target and maximum levels of achievement and the proportionate weight given to
each of the operational performance criteria. For 1997, the plan shall utilize
one ratepayer criterion; cost of operations and maintenance expense per customer
on a three-year average basis. The ratepayer category shall constitute
thirty-five (35%) percent of a participant's target incentive award potential.
Shareholder interests shall consist of two company performance criteria
directed at achieving the company's net income objective and promoting a level
of total shareholder return which aligns with the company's stated objective, or
other such company criteria as established annually by the committee. The
committee shall establish the plan year performance standards for threshold,
target and maximum levels of achievement and the proportionate weight given to
each of the financial performance criteria. For 1997, the plan shall utilize two
performance criteria; the company's actual net income versus budgeted net income
(un-weather normalized) and three-year cumulative total shareholder return
versus the E.D. Jones Index, a group representing 30 investor-owned gas
utilities. Each shareholder performance criterion will be weighted as a percent
of a participant's target Incentive Award Potential. For fiscal 1997, the net
income criterion will be weighted twenty-five (25%) percent and the total
shareholder return criterion twenty (20%) percent of the participant's target
award.
Discretion shall represent a designated percentage of a participant's
incentive award potential during the plan year as established annually by the
committee. The committee shall exercise its discretion in determining what
portion, if any, of the discretionary component shall be awarded to the
president and CEO at the close of the plan year. The discretion component shall
consist of 3-5 key results specified for the participant for the plan year. The
president and CEO, subject to committee approval, shall establish what portion,
if any, of the discretionary component shall be awarded to other plan
participants at the close of the plan year. For 1997, Table 2 displays the
performance categories and their weightings.
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TABLE 2
<TABLE>
<CAPTION>
CATEGORY WEIGHT CRITERIA
- -------- ------ --------
<S> <C> <C>
Ratepayer......................... 35% Cost of Service
Shareholder....................... 25 Net Income
20 Total Shareholder Return
Discretion........................ 20 Key Results
Total................... 100%
</TABLE>
8. SHAREHOLDER PROTECTION. The grant of an incentive award under the plan
for the plan year shall be subject to the committee's determination that the
company's common stock dividends have not been reduced or eliminated during the
plan year. In no event shall any incentive award be granted if the dividend is
reduced or eliminated or earnings available for common stock do not equal or
exceed dividends declared on common stock for the plan year.
9. INCENTIVE AWARD GRANTS. Each participant's actual incentive award, if
any, will depend on the company's results relative to stated plan year ratepayer
and shareholder performance objectives and the discretionary rating. The
committee shall determine any earned awards relative to the company's actual
results for the plan year against the ratepayer and shareholder threshold,
target and maximum standards and discretionary component. Results occurring
between performance standards for the ratepayer and shareholder criteria will be
found using interpolation.
(a) Incentive awards shall be payable in cash, or a combination of
cash and restricted common shares ("grant shares"), as the committee in its
sole discretion shall determine, provided however that no more than seventy
(70%) percent of any incentive award shall be payable in grant shares. The
proportion, if any, of a participant's incentive award payable in cash
shall be paid in a lump-sum as soon as practical following the close of the
plan year.
10. TERMS AND CONDITIONS OF GRANT SHARES. Grant shares issued under this
plan shall be issued according to the terms and conditions which follow:
(a) Price. Grant shares shall be issued for no consideration.
(b) Number of shares. The number of grant shares issued to each
participant, if any, shall be determined by dividing the amount of a
participant's earned incentive award to be paid in grant shares by the
average closing price of the company's common stock during the last five
business days in September of the new fiscal year.
(c) Forfeiture of grant shares. Grant shares issued under this plan
shall be subject to vesting provisions specified in paragraph 10(f)(1).
(d) Non-Transferability. Any grant shares which are subject to the
vesting provisions in paragraph 10(f)(1) shall be non-transferable by the
participant, and may not be pledged, hypothecated or otherwise encumbered.
Notwithstanding the preceding sentence, grant shares may with the consent
of the committee, be registered in the name of a personal, irrevocable
trust established by such participant; provided, however, that all of the
terms of the Plan including, without limitation, the forfeiture provisions
shall be binding upon the trustee of any such trust.
Withholding Taxes. Whenever payments under an incentive award are
made in cash, the company will withhold therefrom an amount sufficient to
satisfy all taxes required to be withheld by the company. At the time of
the issuance of grant shares to a participant, and as a condition of the
company's obligation to deliver a certificate for such grant shares to the
participant, the participant shall pay to the company an amount equal to
all taxes required to be withhold by the company for the account of the
participant as a result of such issuance; or, in lieu of such payment, the
company may, at its sole option, accept the written authorization of the
participant to withhold such taxes from compensation thereafter becoming
payable to the participant by the company. If the participant shall elect
under Section 83 of the Internal
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Revenue Code of 1986, as amended, to accelerate the recognition of income
attributable to the receipt of grant shares, the participant shall furnish
the company with a copy of such election concurrently with its filing with
the Internal Revenue Service and shall pay to the company the amount of
taxes required to be withheld for the account of the participant by reason
of such election.
Vesting.
(1) The interest of a participant in grant shares shall vest on the
date five (5) years from the date such grant shares were issued to the
participant, except as provided in subparagraph (2) below, provided that
the participant shall have remained employed by the company and/or one
of its subsidiaries during the five-year period immediately following
the date the grant shares were issued to such participant. If the
employment requirement and his or her interest in grant shares is not
otherwise vested under subparagraph (2), below, the participant shall
forfeit to the company all un-vested grant shares theretofore issued to
such participant and the participant shall thereafter have no further
rights with respect to such grant shares.
(2) Notwithstanding the foregoing, a participant's interest in
grant shares may become vested at a date earlier than five years from
their date of issue for such reason as may be specified by the
committee, in its sole discretion, at the time of or subsequent to the
award of such grant shares, and such interest shall become immediately
vested upon any of the following occurrences:
(aa) The participant's employment by the company or any of its
subsidiaries terminates by reason of such participant's death or
disability (as defined in Section 72(m)(7) of the Internal Revenue
Code of 1986, as amended); or
(bb) There is a "change in control" of the company. A "change in
control" shall mean the occurrence of any of the following:
(i) the acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange of
Act")) (a "Person") of beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of twenty (20%)
percent or more of the combined voting power of the then
outstanding voting securities of the company entitled to vote
generally in the election of directors (the "Outstanding Company
Voting Securities"); provided, however, that for purposes of this
subsection (i), the following acquisitions shall not constitute a
change of control: (A) any acquisition directly from the company,
(B) any acquisition by the company, (C) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained
by the company or any company controlled by the company or (D)
any acquisition by any company pursuant to a transaction that
complies with clauses (A), (B) and (C) of subsection (iii) below;
or
(ii) individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board; provided, however, that any individual
becoming a director subsequent to the date hereof whose election, or
nomination for election by the company's shareholders, was approved
by a vote of at least a majority of the directors then comprising the
Incumbent Board shall be considered as though such individual were a
member of the incumbent Board, but excluding, for this purpose, any
such individual whose initial assumption of office occurs as a result
of an actual or threatened election contest with respect to the
election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other
than the Board; or
(iii) the approval by the shareholders of the company of a
reorganization, merger or consolidation or sale or other disposition
of all or substantially all of the assets of the company ("Business
Combination") or, if consummation of such Business Combination is
subject, at the time of such approval by shareholders, to the consent
of any government or governmental agency, the obtaining of such
consent (either explicitly or implicitly by consummation); excluding,
however, such a Business Combination pursuant to which (A) all or
substantially all
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of the individuals and entities who were the beneficial owners of the
Outstanding Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly, more
than sixty (60%) percent of, respectively, the then outstanding
shares of common stock and the combined voting power of the then
outstanding voting securities entitled to vote generally in the
election of directors, as the case may be, of the company resulting
from such Business Combination (including, without limitation, a
company that as a result of such transaction owns the company or all
or substantially all of the company's assets either directly or
through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such Business
Combination of the Outstanding Company Voting Securities, (B) no
Person (excluding any employee benefit plan (or related trust) of the
company or such company resulting from such Business Combination)
beneficially owns, directly or indirectly, twenty (20%) percent or
more of, respectively, the then outstanding shares of common stock of
the company resulting from such Business Combination or the combined
voting power of the then outstanding voting securities of such
company except to the extent that such ownership existed prior to the
Business Combination and (C) at least a majority of the members of
the Board of Directors of the company resulting from such Business
Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(iv) approval by the shareholders of the company of a complete
liquidation or dissolution of the company.
(3) If a participant's employment by the company or one of its
subsidiaries terminates during the five-year employment period described
in paragraph 10(f)(1) by reason of his or her retirement, and
participant retires on or after attaining age 65 the interest of the
participant in any grant shares then subject to forfeiture shall become
fully vested at the time of retirement. If the participant retires, as
determined by the committee, prior to attaining age 65, there shall be
deemed vested in his account an additional number of grant shares
determined by multiplying the number of shares to forfeiture for each
year in which grant shares were awarded during the five-year employment
period by a fraction the numerator of which shall be the number of full
months preceding participants retirement that shall have elapsed since
the date of the award of such shares and the denominator of which shall
be 60. The committee may, in its discretion, specify that the interest
of the participant in any remaining grant shares then subject to
forfeiture shall become vested at that time, at a future date, or upon
the completion of such other conditions as the committee may provide.
11. RIGHTS AS A SHAREHOLDER. Except as otherwise provided in paragraphs
10 and 14, a participant shall have all of the rights of a shareholder of the
company with respect to grant shares registered in his or her name, including
the right to vote such grant shares and receive dividends and other
distributions paid or made with respect to such grant shares.
12. SHARE DIVIDENDS; SHARE SPLITS; SHARE COMBINATIONS;
RECAPITALIZATIONS. The Board of Directors of the company may make appropriate
adjustment in the maximum number of shares subject to the plan to adjunct for
any share dividends, share splits, share combinations, recapitalizations and
other similar changes in the capital structure of the company. The provisions
contained in the plan shall apply to any other shares of capital stock of the
company or other securities which may be acquired by the participant as a result
of a share dividend, share split, share combination, or exchange for other
securities resulting from any recapitalization, reorganization or any other
transaction affecting the grant shares.
13. NO EMPLOYMENT COMMITMENT. Nothing herein contained shall be deemed to
be or constitute an agreement or commitment by the company to continue the
participant in its employ or the employ of any subsidiary of the company.
14. CUSTODY OF GRANT SHARES. The grant shares shall be held in
certificated or uncertificated form as determined by the committee, by an escrow
agent designated by the committee. At the time all forfeiture provisions
relating to such grant shares shall terminate, the company will, upon the making
of arrangements under paragraph 10(e), deliver such certificate to the
participant, together with the assignment referred to
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above, without restrictions except for such restrictions as may be required to
ensure compliance with federal and state securities laws. Any such restrictions
may at the company's discretion be noted or referred to conspicuously on such
certificate prior to its delivery to the participant.
15. TERMINATION OR AMENDMENT OF PLAN.
(a) Except as provided in subparagraph (b), the Board of Directors may
at any time suspend, amend or terminate the plan without further action on
the part of the shareholders of the company, provided;
(1) that no such suspension, amendment or termination shall
adversely affect or impair the rights of a participant to any then
issued and outstanding grant shares without the consent of such
participant; and
(2) that no such amendment which (A) increases the maximum number
of grant shares subject to this plan, (B) materially increases the
benefits accruing to participants under the plan, or (C) materially
modifies the requirement as to eligibility for participation in the
plan, may be made without first obtaining shareholder approval.
(b) In the event of a change in control (as defined in paragraph
10(f)(2)(bb)), the Board of Directors may neither terminate the plan nor
reduce benefits under the plan with respect to those individuals who are
participants as of the date of the change in control.
16. GOVERNING LAW. This plan shall be subject to and construed in
accordance with the laws of Massachusetts.
17. INDEMNIFICATION OF COMMITTEE. In addition to such other rights of
indemnification as they may have as members of the Board of Directors of the
company or as members of the committee, each member of the committee shall be
indemnified by the company against the reasonable expenses, including attorneys'
fees, actually and necessarily incurred in connection with the defense of any
action, suit or proceeding, or in connection with any appeal therein, to which
he or she may be a party by reason of any action taken or any failure to act
under or in connection with the plan, or any incentive award granted thereunder,
and against all amounts paid by him or her in settlement thereof (provided such
settlement is approved by independent legal counsel selected by the Board of
Directors), or paid by him or her in satisfaction of a judgment in any such
action, suit or proceeding in which such committee member has been determined to
be liable for misconduct in his/her duties; provided that within fifteen (15)
days after receipt of service of process in connection with any such action,
suit or proceeding the committee member shall in writing offer the company the
opportunity, at the company's expenses, to defend the same on behalf of the
committee member.
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EXHIBIT 99.1
[FORM OF FRONT OF PROXY CARD]
PROXY CARD PROXY CARD
[ESSEX COUNTY GAS COMPANY LOGO]
THIS PROXY IS SOLICITED ON BEHALF OF THE ESSEX COUNTY BOARD OF DIRECTORS FOR THE
SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON WEDNESDAY, JUNE 24, 1998
The undersigned appoints Charles E. Billups and Richard P. Hamel, or either
of them (the "Proxy Holders") proxies for the undersigned, each with full power
of substitution and revocation, to attend the Special Meeting of Shareholders of
Essex County Gas Company ("Essex County"), to be held on Wednesday, June 24,
1998 at 10:00 a.m., Eastern Standard Time, at the offices of State Street Bank,
225 Franklin Street (33rd Floor), Boston Massachusetts, or at any adjournments
or postponements of the Special Meeting, and to vote as specified in this Proxy
all the shares of Essex County Common Stock which the undersigned would be
entitled to vote if personally present.
YOUR VOTE IS IMPORTANT!
PLEASE MARK, SIGN, AND DATE
THIS PROXY ON THE REVERSE
SIDE AND RETURN IT PROMPTLY
IN THE ACCOMPANYING
ENVELOPE.
(CONTINUED AND TO BE SIGNED ON
REVERSE SIDE)
<PAGE> 130
[FORM OF REVERSE OF PROXY CARD]
[ESSEX COUNTY GAS COMPANY LOGO]
PLEASE MARK VOTE IN BOX IN THE FOLLOWING
MANNER USING DARK INK ONLY. M
This Proxy when properly executed will be voted in accordance with your
indicated directions. If no direction is made, this Proxy will be voted FOR all
of the following proposals.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
----------- ----------- -----------
<S> <C> <C> <C>
1. APPROVAL OF MERGER AGREEMENT: [ ] N N
Approval of the Agreement and Plan of Merger, dated as of
December 19, 1997, by and between Essex County and Eastern
Enterprises
2. ELECTION OF DIRECTORS: [ ] N N
Election of all of the following nominees, except as
marked to the contrary: C.E. Billups, B.C. Bixby, D.A.
Burkhardt, E.J. Curtis, D.J. Dotson, R.P. Hamel, R.S.
Jackson, E.H. Jostrom, R.L. Meade, K.L. Paul, P.H. Reardon,
R.L. Wellman (INSTRUCTION: TO VOTE AGAINST ANY INDIVIDUAL
NOMINEE, STRIKE A LINE THROUGH SUCH NOMINEE'S NAME IN THE
LIST ABOVE).
3. ADOPTION OF THE 1997 PERFORMANCE AND EQUITY INCENTIVE [ ] N N
PLAN: Adoption of the 1997 Performance and Equity
Incentive Plan
</TABLE>
In their discretion, the Proxy Holders are authorized to vote upon any other
business that may properly come before the meeting.
The undersigned acknowledges receipt of the Notice of Special Meeting of
Shareholders and of the Joint Proxy Statement/Prospectus.
Dated:
- --------------------------------------, 199__
Signature(s):
- --------------------------------------
- --------------------------------------
Please sign exactly as your name
appears on the other side of this
card. Joint owners should each sign
personally. Where applicable, indicate
your official position or
representative capacity.
YOUR VOTE IS IMPORTANT!
PLEASE MARK, SIGN, AND DATE THIS PROXY AND RETURN IT PROMPTLY
IN THE ACCOMPANYING ENVELOPE.
