UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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FORM 10-Q
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|X| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
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For the quarterly period ended September 30, 1998
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OR
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|_| Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
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For the transition period from to
COMMISSION FILE NUMBER 0-10007
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COLONIAL GAS COMPANY
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(Exact name of registrant as specified in its charter)
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Massachusetts 04-1558100
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
40 Market Street, Lowell, Massachusetts 01852
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (978) 322-3000
Former name, former address and former fiscal year, if changed since last
report: Not applicable
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No |_|
The number of shares of the registrant's common stock, $3.33 par value,
outstanding as of November 1, 1998 was 8,853,349.
<PAGE>
COLONIAL GAS COMPANY
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Statements of Income -
Three Months Ended September 30, 1998 and 1997
Nine Months Ended September 30, 1998 and 1997
Consolidated Condensed Balance Sheets -
September 30, 1998, December 31, 1997
and September 30, 1997
Consolidated Condensed Statements of Cash Flows -
Nine Months Ended September 30, 1998 and 1997
Notes to Consolidated Condensed Financial Statements
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
PART II - OTHER INFORMATION
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
COLONIAL GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended
September 30,
1998 1997
(In Thousands Except
Per Share Amounts)
Operating Revenues $ 12,347 $ 14,877
Cost of gas sold 6,197 8,587
----------- -----------
Operating Margin 6,150 6,290
----------- -----------
Operating Expenses:
Operations 6,717 7,055
Maintenance 1,187 1,078
Depreciation and Amortization 3,524 2,976
Taxes, other than income 1,218 1,253
----------- -----------
Total Operating Expenses 12,646 12,362
----------- -----------
Income Taxes (Credit) (3,250) (3,029)
----------- -----------
Utility Operating Loss (3,246) (3,043)
Other Operating Income (Loss):
Energy Trucking revenues 373 2,470
Energy Trucking expenses, including
income taxes and interest 414 2,018
----------- -----------
Energy Trucking Net Income (Loss) (41) 452
Other, net of income taxes 66 66
----------- -----------
Total Other Operating Loss 25 518
Non-Operating Income, Net 204 52
----------- -----------
Income (Loss) Before Interest and Debt (3,017) (2,473)
Expense
Interest and Debt Expense 2,196 2,093
----------- -----------
Net Loss $ (5,213) $ (4,566)
=========== ===========
Average Common Shares Outstanding 8,806 8,620
=========== ===========
=========== ===========
Loss per Average Common Share $ (0.59) $ (0.53)
=========== ===========
=========== ===========
Dividends Paid per Common Share $ .345 $ .335
=========== ===========
(See accompanying notes to consolidated condensed financial statements)
<PAGE>
COLONIAL GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
Nine Months Ended
September 30,
1998 1997
(In Thousands Except
Per Share Amounts)
Operating Revenues $115,854 $124,866
Cost of gas sold 60,777 68,621
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Operating Margin 55,077 56,245
---------- -------------
Operating Expenses:
Operations 20,326 21,608
Maintenance 3,390 3,338
Depreciation and Amortization 9,937 8,921
Taxes, other than income 3,966 4,029
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Total Operating Expenses 37,619 37,896
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Income Taxes 4,374 4,974
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Utility Operating Income 13,084 13,375
Other Operating Income:
Energy Trucking revenues 1,395 4,260
Energy Trucking expenses, including
income taxes and interest 1,600 3,949
---------- -------------
Energy Trucking Net Income (205) 311
(Loss)
Other, net of income taxes 224 172
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Total Other Operating Income 19 483
Non-Operating Income, Net 640 299
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Income Before Interest and Debt Expense 13,743 14,157
Interest and Debt Expense 6,517 5,931
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Net Income $ 7,226 $ 8,226
========== =============
========== =============
Average Common Shares Outstanding 8,750 8,576
========== =============
========== =============
Income per Average Common Share $ 0.83 $ 0.96
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========== =============
Dividends Paid per Common Share $ 1.025 $ 1.005
========== =============
(See accompanying notes to consolidated condensed financial statements)
<PAGE>
COLONIAL GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
ASSETS
September December September
30, 31, 30,
1998 1997 1997
------------ ------------ ------------
(Unaudited) (Unaudited)
(In Thousands)
Utility Property:
At original cost $387,950 $362,742 $356,141
Accumulated depreciation (98,443) (88,210) (91,233)
------------ ------------ ------------
Net utility property 289,507 274,532 264,908
Non-Utility Property - Net 7,293 7,312 6,701
------------ ------------ ------------
Net property 296,800 281,844 271,609
------------ ------------ ------------
Capital Leases - Net 1,680 2,630 2,392
------------ ------------ ------------
Current Assets:
Cash and cash equivalents 1,139 259 1,563
Accounts receivable - net 4,728 18,585 4,599
Accrued utility revenues 710 7,417 723
Unbilled gas costs 14,582 19,266 13,694
Fuel and other inventories 15,990 12,959 14,495
Prepayments and other current 12,214 9,481 9,487
assets
------------ ------------ ------------
Total current assets 49,363 67,967 44,561
------------ ------------ ------------
Deferred Charges and Other
Assets:
Unrecovered deferred income 8,432 9,014 9,192
taxes
Unrecovered environmental
expenses - incurred 3,622 3,833 3,641
Unrecovered environmental
expenses - accrued 307 707 656
Unrecovered transition costs 2,800 2,800 4,500
- accrued
Other 20,482 20,196 19,871
------------ ------------ ------------
Total deferred charges
and other assets 35,643 36,550 37,860
============ ============ ============
Total Assets $383,486 $388,991 $356,422
============ ============ ============
(See accompanying notes to consolidated condensed financial statements)
<PAGE>
COLONIAL GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
LIABILITIES AND CAPITALIZATION
September December September
30, 31, 30,
1998 1997 1997
------------ ------------ ------------
(Unaudited) (Unaudited)
(In Thousands)
Capitalization:
Common equity:
Common Stock - part value $ 3.33
per share Authorized -
15,000 shares
Issued and outstanding -
8,845, 8,688, 8,647 $29,455 $28,931 $28,794
Premium on common stock 61,162 57,277 56,517
Retained earnings 34,178 35,924 31,011
------------ ------------ ------------
Total Common equity 124,795 122,132 116,322
Long-term debt 110,000 100,102 100,144
------------ ------------ ------------
Total capitalization 234,795 222,234 216,466
------------ ------------ ------------
Capital Lease Obligations 1,041 1,617 1,471
------------ ------------ ------------
Current Liabilities:
Current maturities of
long-term debt 144 10,164 10,161
Current capital lease 639 1,013 921
obligations
Notes payable 51,300 49,400 34,600
Gas inventory purchase 11,860 14,895 9,934
obligations
Accounts payable 8,522 15,674 9,390
Other 11,293 11,362 11,767
Total current 83,758 102,508 76,773
liabilities
------------ ------------ ------------
Deferred Credits and Reserves:
Deferred income taxes-funded 44,339 41,443 39,126
Deferred income taxes-unfunded 8,432 9,014 9,192
Accrued environmental expenses 307 707 656
Accrued transition costs 2,800 2,800 4,500
Other 8,014 8,668 8,238
------------ ------------ ------------
Total deferred credits and 63,892 62,632 61,712
reserves
============ ============ ============
Total Capitalization and $383,486 $388,991 $356,422
Liabilities
============ ============ ============
(See accompanying notes to consolidated condensed financial statements)
<PAGE>
COLONIAL GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
September 30,
1998 1997
(In Thousands)
Cash Flows From Operating Activities:
Net income $ 7,226 $ 8,226
Adjustments to reconcile net income to 15,291 14,158
net cash
Changes in current assets and liabilities 10,321 16,283
-------- --------
Net cash provided by operating 32,838 38,667
activities
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Cash Flows From Investing Activities:
Capital expenditures (24,977) (23,084)
Non-utility capital expenditures (369) (1,142)
Change in deferred accounts 447 (1,460)
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Net cash used in investing (24,899) (25,686)
activities
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Cash Flows From Financing Activities:
Dividends paid on Common Stock (8,973) (8,535)
Issuance of Common Stock 4,409 2,724
Issuance of long-term debt, net of issuance cost 29,166 14,870
Retirement of long-term debt, including premiums (30,526) (5,113)
Change in notes payable 1,900 (15,800)
Change in gas inventory purchase (3,035) (3,105)
obligations
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Net cash used in financing (7,059) (14,959)
activities
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Net increase (decrease) in cash and cash 880 (1,978)
equivalents
Cash and cash equivalents at beginning of 259 3,541
period
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Cash and cash equivalents at end of period $ 1,139 1,563
======== ========
Supplemental Disclosures of Cash Flow
Information:
Cash paid during the period for:
Interest - net of amount capitalized $ 8,154 $ 7,480
======== ========
======== ========
Income and franchise taxes $ 3,555 $ 6,109
======== ========
(See accompanying notes to consolidated condensed financial statements)
<PAGE>
COLONIAL GAS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the financial position
as of September 30, 1998 and 1997 and results of operations for the three and
nine month periods ended September 30, 1998 and 1997 and cash flows for the
nine month period ended September 30, 1998 and 1997.
2. Due to the significant impact of gas used for space heating during the
heating season (November-April) and the Company's seasonal rate structure,
the results of operations for the three month and nine month periods ending
September 30, 1998 and 1997 are not necessarily indicative of the results to
be expected for the full year.
3. During the nine months ended September 30, 1998, the Company issued 157,000
shares of Common Stock, $3.33 par value, under a Dividend Reinvestment and
Common Stock Purchase Plan and under an Employee Savings Plan. As a result,
Common Stock, $3.33 par value, increased $524,000 and Premium on Common Stock
increased $3,885,000.
4. Contingencies
Reference is made to Note I/Contingencies of the Notes to Consolidated
Financial Statements contained within the Company's 1997 Annual Report to
Stockholders.
5. Reclassifications are made periodically to previously issued financial
statements to conform to the current year presentation.
6. On October 17, 1998, the Company and Eastern Enterprises, a Massachusetts
business trust ("Eastern"), entered into an Agreement and Plan of
Reorganization which provides for the merger of the Company with and into a
subsidiary of Eastern, as a result of which the Company would become a
wholly-owned subsidiary of Eastern. Eastern's other subsidiaries presently
include two other Massachusetts natural gas distribution companies, Boston
Gas Company and Essex County Gas Company. Under the Agreement, the
outstanding shares of the Company's common stock will convert into the right
to receive cash and Eastern common stock as set forth in the Agreement.
Completion of the merger is subject to approval of the Company's stockholders
and, if required, Eastern's shareholders and receipt of satisfactory
regulatory approvals, including approval of the Massachusetts Department of
Telecommunications and Energy and the Securities and Exchange Commission and
antitrust clearance.
<PAGE>
7. Financial results for the nine month period ended September 30, 1998 were
affected by the implementation of an improved customer billing system in May,
1998 that enables the Company to bill customers using pro-rated seasonal
rates. As a result, bills sent during May, 1998 for gas consumed in April,
1998 reflected the Company's higher winter rates, increasing operating margin
by $1,121,000 or $0.08 per share, for the nine month period ended September
30, 1998. Because November, 1998 bills for October, 1998 usage will reflect
the Company's lower summer rates, this billing refinement will have the
opposite impact in the fourth quarter of 1998, and therefore have minimal
effect on calendar year earnings. The financial results of the nine month
period ended September 30, 1997 have not been restated.
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition
Results of Operations
Three Months Ended September 30, 1998 and 1997
The Company's net loss for the three months ended September 30, 1998 was
$5,213,000, or $.59 per share, which is $647,000, or 14%, more than the loss of
$4,566,000, or $.53 per share, reported for the same period last year. The
Company typically incurs losses for the second and third quarters while
reporting profits for the first and fourth quarters. This is due to
significantly higher natural gas sales throughout the colder months to meet
customers' heating needs. Approximately 90% of the Company's residential
customers are heating accounts.
The Company's operating margin decreased $140,000, or 2.2%, during the period
due to a 1.5% decrease in total gas sold and transported caused by weather which
was 25% warmer than last year and 42% warmer than normal.
Total operating expenses increased by $284,000, or 2.3%, primarily due to a
$548,000, or 18%, increase in depreciation and amortization expense caused by an
increase in utility plant and the installation of new software systems.
Operations and maintenance expenses, decreased by $229,000, or 2.8%, primarily
due to savings in bad debt expenses and insurance expenses.
Total other operating income decreased $493,000 for the period primarily due
to the financial performance of Transgas Inc. ("Transgas"), the Company's energy
trucking subsidiary. Transgas recorded a loss of $41,000 for the three month
period ended September 30, 1998 compared to a profit of $452,000 for the
three-month period ended September 30, 1997. Warmer weather during the winter of
1997-98 led to a 77% decrease in the demand for hauls of liquefied natural gas
("LNG") -- the principal hauling commodity of Transgas.
Interest and debt expense increased by $103,000, or 4.9%, primarily due to an
increase in short-term interest expense.
Nine Months Ended September 30, 1998 and 1997
Net income for the nine months ended September 30, 1998 was $7,226,000, or
$0.83 per share, compared to $8,226,000, or $0.96, per share for the comparable
1997 period.
The Company's operating margin decreased $1,168,000, or 2.1%, during the
period due to a 9.2% decrease in total gas sold and transported caused by
weather which was 12% warmer than last year and 13% warmer than normal.
Effective in the second quarter of 1998, with the implementation of an improved
customer billing system, bills sent during May for gas consumed in April were
refined to reflect the Company's higher winter rates. This billing refinement
resulted in an increase to operating margin of $1,121,000 or $0.08 per share
during the period. It will have the opposite impact in the fourth quarter of
1998 because November bills for October usage will now reflect the Company's
lower summer rates. Overall, therefore, the billing refinement is expected to
have a minimal effect on calendar year earnings.
Operations and maintenance expenses decreased $1,230,000, or 4.9% during the
period, due primarily to decreased insurance expenses and bad debt expenses.
Depreciation and amortization expense increased $1,016,000, or 11%, caused by a
$29,000,000, or 8.8%, increase in utility property. The decrease in operations
and maintenance expense offset the increase in depreciation and amortization,
resulting in the $277,000, or 0.7%, decrease in total operations expense.
Income taxes decreased $600,000, or 12%, due to a lower level of utility
income subject to tax.
Total other operating income decreased $464,000, or 96%, due to the financial
results of Transgas. A 55% decrease in Transgas' LNG hauls during the first nine
months of 1998 led to a $516,000 decrease in energy trucking net income. The
decreased LNG hauls were primarily due to the warmer than normal weather during
the winter of 1997-98.
Interest and debt expense increased by $586,000, or 9.9% due to an increase in
short-term interest expense.
Liquidity and Capital Resources
On October 7, 1998, the Company issued $10,000,000 of 5-year First Mortgage
Bonds under its Medium Term Note Program (Series B), with an effective rate of
5.50%.
<PAGE>
Year 2000
State of Readiness
The Company has identified information technology ("IT") systems and
embedded chip systems which are "mission critical", i.e. those which would have
a significant adverse impact on the operation of its core business and the core
business of its subsidiary, Transgas, in the event of a Year 2000 ("Y2K")
problem. Using its own specialized IT Department personnel, the Company is in
the process of finalizing procedures for checking mission critical IT systems
for Y2K compliance and expects those procedures to be finalized by the end of
1998. It is anticipated that any necessary testing, upgrading, replacement or
other remediation of mission critical IT systems will be completed by the end of
the second quarter of 1999. Other "less than critical" IT systems are also
scheduled to be checked and tested and/or upgraded, as required, by the end of
the second quarter of 1999.
With respect to embedded chip systems, the Company expects to complete its
inventory, assessment and action plan in the last quarter of 1998. Any necessary
testing, upgrading, replacement or other remediation would then be scheduled for
completion by the end of the second quarter of 1999.
The Company is also in the process of identifying material third party
relationships for whom a detailed survey and assessment of Y2K readiness will be
undertaken and completed during the last quarter of 1998. Any necessary testing
and implementation of risk mitigation strategies for high risk vendors would
then be scheduled for completion by the end of the second quarter of 1999.
Notwithstanding the Company's efforts with third parties, there can be no
assurance that the systems of third parties on which the Company's systems rely
will be timely converted or that any such failure to convert by a third party
would not have an adverse effect on the Company's operations.
The Company's merger with Eastern Enterprises is expected to be completed
mid-year 1999 and in connection with that pending merger, the Company
anticipates addressing certain Year 2000 issues through system integrations with
Boston Gas Company, Eastern's largest gas utility subsidiary.
Cost of Year 2000 Remediation
Based on its current information, without any system integrations with
Boston Gas Company, Colonial believes the cost of its Year 2000 compliance could
approximate $1.5 million. Substantially all of this would be incurred in the
future. System integrations with Boston Gas could significantly decrease this
amount.
<PAGE>
Risks of Year 2000 Issues and Contingency Plans
Based on its current information, the Company anticipates that its mission
critical systems (including hardware, software and embedded chips) which may not
presently be capable of handling Year 2000 data, will be upgraded to be so
capable or replaced by systems that are so capable by mid-year 1999. The Company
believes its worst case Y2K scenario would be if the interstate pipelines
transporting natural gas to its distribution system shut down or malfunctioned
in a way that seriously affected gas pressures or volumes. The Company is in the
process of assessing the Y2K readiness of those pipelines and also plans to
develop a contingency plan by mid-year 1999 to avoid disruption of service to
its customers and those of its subsidiary, Transgas. Pending Merger into Eastern
Enterprises
On October 17, 1998, the Company and Eastern Enterprises, a Massachusetts
business trust ("Eastern"), entered into an Agreement and Plan of Reorganization
which provides for the merger of the Company with and into a subsidiary of
Eastern, as a result of which the Company will become a wholly-owned subsidiary
of Eastern. Eastern's other subsidiaries presently include two other
Massachusetts natural gas distribution companies, Boston Gas Company and Essex
County Gas Company. Under the Agreement, the outstanding shares of the Company's
common stock will convert into the right to receive cash and Eastern common
stock as set forth in the Agreement. Completion of the merger is subject to
approval of the Company's stockholders and, if required, Eastern's shareholders
and receipt of satisfactory regulatory approvals, including approval of the
Massachusetts Department of Telecommunications and Energy and the Securities and
Exchange Commission and antitrust clearance.
Forward-Looking Information
This report and other Company reports and statements issued or made from time
to time contain forward looking statements which are subject to the inherent
uncertainties in predicting future results and conditions. Certain factors that
could cause actual results to differ materially from those projected in these
forward looking statements include, but are not limited to, the ability to
successfully integrate the operations of the Company with Eastern and its
subsidiaries, variations in weather, changes in the regulatory environment,
customer's preferences on energy sources, general economic conditions, increased
competition, the ability of the Company to address Y2K non-compliant situations
and other uncertainties, all of which are difficult to predict and many of which
are beyond the control of the Company.
<PAGE>
PART II - OTHER INFORMATION
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
10.1 Form of Employment Agreement* dated as of October 13, 1998 by and
between Colonial Gas Company and its executives (individual
agreements were executed by the Company with F. L. Putnam, Jr., F L.
Putnam, III, C. W. Sawyer, N. Stavropoulos, J. P. Harrington and
certain other officers).
10.2 Employment Agreement* dated as of October 13, 1999 by and between
Colonial Gas Company, Transgas Inc. and V. W. Baur.
10.3 Colonial Gas Company Retention Bonus Plan* effective as of October 19,
1998.
27 Financial Rate Schedule.
* Management Contracts
b. Reports on Form 8-K
As reported on the Form 8-K filed by the Company with the Securities and
Exchange Commission on October 21, 1998, the Company and Eastern Enterprises
entered into an Agreement and Plan of Reorganization dated October 17, 1998, a
copy of which is filed as an Exhibit to Form 10-K.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COLONIAL GAS COMPANY
(Registrant)
Date: November 10, 1998 s/F. L. Putnam, III
F. L. Putnam, III
President and Chief Executive Officer
Date: November 10, 1998 s/Nickolas Stavropoulos
Nickolas Stavropoulos
Executive Vice President - Finance,
Marketing and Chief Financial Officer
EMPLOYMENT AGREEMENT
This Agreement dated as of October 13, 1998 is between Colonial Gas
Company (the "Company"), a Massachusetts corporation, and _____________ (the
"Executive"). It restates and amends the Employment Agreement dated
__________________between the Company and the Executive.
The Company believes that it is desirable, in order to induce the
Executive to remain in the employ of the Company and to place him in a position
to act in the best interests of the Company and its stockholders in the event of
a proposal for the transfer of control of the Company, to provide certain
severance benefits to the Executive if his employment with the Company
terminates under the circumstances described below. Accordingly, the parties
hereto agree as follows:
1. Employment Rights.
(a) Except as otherwise provided in paragraph l(b), the Executive's
employment may be terminated at any time by the Company or the Executive,
subject to the Company's providing the benefits hereinafter specified.
(b) In the event a tender or exchange offer is made by any person or
group of persons within the meaning of Section 14(d) of the Securities Exchange
Act of 1934 (the "Exchange Act"), other than the Company or any employee benefit
plan sponsored by the Company, for 30% or more of the shares of stock of the
Company entitled to vote for the election of directors, the Executive agrees
that he will not leave the employ of the Company (other than as a result of
disability, retirement or death) until such offer has been terminated or a
change in control of the Company (as hereinafter defined) has occurred.
2. Termination Prior to Change in Control. If the Executive's employment
with the Company is terminated for any reason prior to the occurrence of a
change in control of the Company, he shall be entitled to receive such benefits,
and only such benefits, to which he is entitled without regard to this
Agreement. If a change in control shall occur within one year after the
termination of the Executive's employment by the Company, such termination shall
be treated as a termination after a change in control under paragraph 3 hereof
unless the Company shall sustain the burden of proving that the termination was
not in contemplation of the change in control.
3. Termination After a Change in Control. If the Executive's employment
with the Company is terminated within 24 months after the occurrence of a change
in control of the Company, he shall be entitled to receive the benefits set
forth below. For purposes of this Agreement, a "change in control" of the
Company shall mean (i) the acquisition directly or indirectly by any person of
beneficial ownership of shares of stock of the Company resulting in such person
becoming the beneficial owner of 20% or more of the shares of stock of the
Company entitled to vote for the election of directors, (ii) the occurrence of a
change during any 24 consecutive months in the composition of the Board of
<PAGE>
Directors so that the Continuing Directors (as hereinafter defined) cease for
any reason to constitute a majority of the Company's Board of Directors or (iii)
a change in control of a nature that would be required to be reported in
response to Item 1 (a) of the Current Report on Form 8-K, as in effect on the
date hereof, pursuant to section 13 or 15(d) of the Exchange Act. "Continuing
Directors" shall mean the individuals who were directors at the beginning of the
24-month period or who were designated Continuing Directors by a majority of the
then Continuing Directors. A person shall be deemed to have "beneficial
ownership" of stock if such person or any "affiliate" or "associate" of such
person (as those terms are defined in Rule 12b-2 under the Exchange Act),
directly or indirectly, controls the voting of such stock or has any options,
warrants, conversion or other rights to acquire such stock.
(a) Cause. Upon termination of the Executive's employment by the
Company for cause, the Executive shall be entitled to his salary through the
period ending with the date of such termination and any accrued benefits, and
any and all other rights of the Executive under this Agreement shall terminate
upon the date of termination. "Cause" shall mean and be limited to (i)
deliberate dishonesty by the Executive in connection with his employment, (ii)
willful and prolonged absence from work (other than as a result of illness or
incapacity) in circumstances that constitute a substantial abdication of the
Executive's responsibilities to the Company after written notice thereof has
been given by the Company to the Executive or (iii) the Executive's conviction
of a felony.
(b) Death, Disability, or Retirement. If the Executive's employment
is terminated by reason of death, permanent disability or retirement, the
Executive shall be entitled to such benefits as may be provided to him pursuant
to the Company's employee benefit plans, including any supplemental arrangements
maintained for his benefit which are set forth in writing and (1) are described
in the attached Exhibit A or (2) are adopted after the date of this Agreement.
Any and all other rights of the Executive under this Agreement shall terminate
upon the occurrence of a termination of his employment under this subparagraph
and the provisions of subparagraph (c) shall not be applicable. For purposes of
this paragraph, "permanent disability" shall be deemed to exist when, in the
good faith judgment of the Board of Directors of the Company, the Executive is
unable to perform his duties for the Company due to illness or incapacity and
such disability has continued for a period of not less than six months, unless
he shall have returned to the full time performance of his duties within 30 days
after written notice of the Board's determination has been given to him. For
purposes of this paragraph, "retirement" shall mean termination by the Executive
on or after his normal retirement date as set forth in the Company's pension
plan now in effect (or any successor or substitute plan or plans of the Company
put into effect prior to a change in control) or voluntary early retirement by
the Executive in accordance with such plan prior to his normal retirement date.
Written notice of termination of employment based on retirement shall be given
at least 60 days in advance.
(c) Good Reason. If the Executive's employment is terminated (1) by
the Executive for Good Reason (as hereinafter defined) or (2) by the Company
without cause, in lieu of further salary for subsequent periods the Executive
shall be entitled to the following benefits:
<PAGE>
(i) The Company shall forthwith pay the Executive, in addition
to his salary and accrued benefits through the date of termination,
severance pay in an amount equal to 2.00 times the sum of (A) the higher
of (x) his annual salary in effect immediately prior to the change in
control or (y) his annual salary in effect immediately prior to the
termination and (B) the higher of (x) the average of the last two annual
bonuses (annualized in the case of any bonus paid with respect to a
partial year) paid to him preceding the change in control or preceding the
date of termination, which ever is greater, and (y) the most recent annual
bonus (annualized in the case of any bonus paid with respect to a partial
year) paid to him preceding the change in control or preceding the date of
termination, whichever is greater.
(ii) The Company shall maintain in full force and effect, for
the continued benefit of the Executive and his dependents for a period
ending on the earlier of the commencement date of equivalent benefits from
a new employer or his normal retirement date (after which the terms of the
applicable pension plan shall govern), the health insurance, dental
insurance and group term life insurance plans in which the Executive was
entitled to participate immediately prior to the termination of his
employment or reasonably equivalent benefits, provided that the Executive
continues to pay an amount equal to the employee's share of contributions
in effect prior to the change in control.
(iii)If the Executive is age 55 or older on the date of
termination of his employment, the Executive will continue to receive,
until his normal retirement date, service credit under the Company's
pension plans and any supplemental arrangements maintained for his benefit
in effect immediately prior to the termination of his employment, and the
benefit levels thereunder shall be calculated as though the Executive had
received an annual increase in compensation until his normal retirement
date in an amount equal to the average annual compensation increase of all
salaried personnel of the Company included in such plans. To the extent
that payment of any amounts resulting from the foregoing may not be made
from such plans, the Company will pay such amounts to the Executive as
supplemental benefits.
(iv) At the request of the Executive, the Company shall pay the
costs of an out-placement service used by the Executive as a result of the
termination of his employment, provided such service is approved by the
Company, which approval will not unreasonably be withheld.
(v) Except as specifically set forth above, the amount of any
payment or benefit under this paragraph 3(c) shall not be reduced, offset
or subject to recovery by the Company by reason of any compensation earned
by the Executive as the result of employment by another employer after the
termination of his employment with the Company or otherwise.
For purposes of this paragraph 3(c), "Good Reason" shall mean that the
Executive has determined in good faith that (1) the Company has failed to assign
<PAGE>
to him on a consistent basis executive duties performable at the location at
which he worked before the change in control (which shall include any location
in Massachusetts within 25 miles of such location or within 50 miles of the
Company's executive offices immediately prior to the change in control) which
are commensurate with the level of executive duties performed by him immediately
prior to such change in control, (2) he is prevented by the Company from
continuing to fulfill his responsibilities at a level commensurate with that
prior to the change in control, (3) his salary in effect immediately prior to
the change in control is reduced by the Company, (4) the Company has failed to
continue in effect any health, welfare, retirement, vacation and other fringe
benefit plans of the Company in which the Executive participated at the time of
the change in control (or plans providing substantially equivalent benefits)
other than as a result of the normal expiration of any such plan in accordance
with its terms as in effect at the time of the change in control, or the Company
shall have taken or failed to take any action which would adversely affect the
Executive's continued participation in or the benefits receivable by the
Executives under any such plan as in effect at the time of the change in
control, or (5) the Company shall have failed to obtain, at the Executive's
request, an assent to the Company's performance of its obligations under this
Agreement from any person that succeeds to or has the practical ability to
control (either immediately or with the passage of time), directly or
indirectly, the Company's business.
(d) Automobile. Upon termination of the Executive's employment for
any reason, he shall have the right to purchase the automobile supplied to him
by the Company immediately prior to the change in control, or any automobile
substituted therefore with his approval, at its depreciated cost as shown on the
books of the Company.
4. Taxes.
(a) Withholding. All payments to be made to the Executive under this
Agreement will be subject to any required withholding of federal, state and
local income and employment taxes.
(b) Payment Limitation. Notwithstanding anything in this Agreement to
the contrary, if the Company determines, based on the opinion of its independent
accountants serving as such immediately prior to the change in control (the
"Accounting Firm"), that any of the payments provided for in this Agreement,
together with any other payments that must be included in such determination,
would constitute an "Excess Parachute Payment" (as defined in Section 280G of
the Internal Revenue Code of 1986, as amended (the "Code"), and proposed and
final regulations thereunder), the payments pursuant to this Agreement shall be
reduced to the maximum amount that would permit a determination that the
Executive has not received an Excess Parachute Payment (the "Maximum Amount")
unless the after-tax amount payable to the Executive hereunder without regard to
the foregoing limitation ("Uncapped After-Tax Amount," as defined below) exceeds
the after-tax amount payable to the Executive with regard to such limitation
("Capped After-Tax Amount," as defined below) by 10% or more. Any such
determination or reduction in amounts payable pursuant to this Agreement shall
be made in accordance with the follow provisions:
<PAGE>
(i) For purposes of determining whether the amounts payable to
the Executive pursuant to this Agreement shall be reduced to the Maximum
Amount, the following terms shall have the meanings indicated:
(x) The "Uncapped After-Tax Amount" shall be equal to the
sum of the amounts payable pursuant this Agreement (without regard to
this paragraph 4(b)) and pursuant to all benefit and compensation
plans and arrangements that must be included in determining whether
an Excess Parachute Payment has been made, less the Income Tax Amount
on such sum and the 20% excise tax under Section 4999 of the Code
that would be due on all Excess Parachute Payments.
(y) The "Capped After-Tax Amount" shall be equal to the sum
of the Maximum Amount and all amounts payable pursuant to all benefit
and compensation plans and arrangements that must be included in
determining whether an Excess Parachute Payment has been made, less
the Income Tax Amount on such sum.
(z) The "Income Tax Amount" shall be equal to the amount of
federal, state and local income taxes and the Executive's share of
Federal Insurance Contributions Act taxes that would be due on an
amount (after taking into account the deductibility of state and
local income taxes for federal income tax purposes) if the highest
marginal federal, state and local income tax rate in effect at the
time of the change in control were imposed on the value of the
payments assuming that the amounts payable pursuant to this Agreement
and all benefit and compensation plans and arrangements shall be
treated as paid in full on the date of the change in control.
(ii) If the Accounting Firm determines that payments pursuant to
this Agreement should be reduced to the Maximum Amount, the Company shall
promptly give the Executive notice to that effect and a copy of the
detailed calculation thereof, and the Executive may then elect, in his
sole discretion, which and how much of the payments shall be eliminated or
reduced (as long as after such election the present value of the aggregate
payments equals the Maximum Amount), and shall advise the Company in
writing of his election within 10 days of his receipt of notice. If no
such election is made by the Executive within such period, the Company may
elect which and how much of the payments shall be eliminated or reduced
(as long as after such election the present value of the aggregate
payments equals the Maximum Amount) and shall notify the Executive
promptly of such election. All determinations made by the Accounting Firm
under this paragraph 4 shall be based upon Sections 280G and 4999 of the
Code and on proposed or final regulations for applying those Code
sections, or on substantial authority within the meaning of Section 6662
of the Code, shall be binding upon the Company and the Executive and shall
be made within 60 days of a termination of employment of the Executive. As
promptly as practicable following such determination, the Company shall
pay to or distribute for the benefit of the Executive such payments as are
<PAGE>
then due to the Executive under this Agreement and shall promptly pay to
or distribute for the benefit of the Executive in the future such payments
as become due to the Executive under this Agreement.
(iii)As a result of possible uncertainty in the application of
Section 280G of the Code at the time of the determinations by the
Accounting Firm hereunder, amounts may have been paid that should not have
been paid ("Overpayment") or additional amounts may not have been paid
that could have been paid ("Underpayment"), in each case, consistent with
the calculations required to be made hereunder. In the event that the
Internal Revenue Service asserts a deficiency against the Executive or the
Company in such a case and the Accounting Firm determines that an
Overpayment has been made, any such Overpayment shall be treated for all
purposes as a loan to the Executive from the date such Overpayment was
made in an amount equal to the value of such Overpayment, which loan the
Executive shall repay to the Company together with interest at the
applicable federal rate under Section 7872(f)(2)(B) of the Code within 60
days after receipt by the Executive of written notice of such
determination by the Accounting Firm, including the amount of the loan and
interest calculation; provided, however, that no such loan shall be deemed
to have been made and no amount shall be payable by the Executive to the
Company if and to the extent such deemed loan and repayment with interest
would not eliminate the excise tax under Section 4999 of the Code, or the
disallowance of the deduction under Section 280G(a) of the Code, for the
amounts previously paid to the Executive. In the event that the Accounting
Firm determines that an Underpayment has been made, such Underpayment
shall be promptly paid by the Company to the Executive, together with
interest at the applicable federal rate provided for in Section
7872(f)(2)(B) of the Code.
5. Term. The term of this Agreement shall commence on the date hereof and
shall continue in effect until December 31, 1999 and shall automatically be
extended for one additional year on that date and on each December 31 thereafter
unless the Company or the Executive shall give at least 90 days prior written
notice that this Agreement shall not be extended. Notwithstanding the foregoing,
this Agreement shall continue in effect for the period specified in paragraph 3
hereof if a change in control of the Company shall have occurred during such
term. The respective obligations of and benefits to the Company and the
Executive as provided in paragraphs 3, 4, 6 and 7 hereof shall survive
termination of this Agreement.
6. Disclosure of Information. The Executive agrees to receive confidential
and proprietary information of the Company in confidence, and not to disclose
such information to others, except pursuant to the performance of his duties for
the Company, unless and until such information has become public knowledge or
has come into the possession of such others by legal and equitable means.
7. Fees and Expenses. The Company shall pay all legal fees and related
expenses incurred by the Executive as a result of his seeking to obtain or
enforce any right or benefit provided by this Agreement following a change in
control of the Company.
<PAGE>
8. Miscellaneous.
(a) Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the Company, its successors and assigns and the
Executive, his successors, personal representatives and heirs, and shall not be
assignable by the Executive except with respect to any payments or benefits
hereunder. In the event that the Company is consolidated or merged with or into
any other corporation, the term "Company" as used herein shall mean such other
corporation, and this Agreement shall continue in full force and effect.
(b) Amendment; Waiver. This Agreement may not be modified or amended
in any manner except by an instrument in writing signed by the parties hereto.
The waiver by either party of compliance with any provision of this Agreement by
the other party shall not operate or be construed as a waiver of any other
provision of this Agreement, or of any subsequent breach by such party or a
provision of that Agreement.
(c) Notices. All notices hereunder shall be sufficient if given in
writing sent by registered or certified mail, addressed as follows:
To the Company:
Colonial Gas Company
40 Market Street
Lowell, Massachusetts 01852
Attention: President
To the Executive:
(d) Heading. The headings of paragraphs herein are included solely
for convenience of reference and shall not control the meaning of
interpretations of any of the provisions of this Agreement.
(e) Severability. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
(f) Applicable Law. This Agreement shall be governed by the laws of
Massachusetts.
(g) Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
each of which shall be deemed an original.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
by its duly authorized officer and the Executive has executed this Agreement as
of the date first written above.
COLONIAL GAS COMPANY
By:__________________________
By:__________________________
<PAGE>
Exhibit A
SUPPLEMENTAL PENSION ARRANGEMENT
None.
EMPLOYMENT AGREEMENT
This Agreement dated as of October 13, 1998 is between Colonial Gas
Company (the "Company"), a Massachusetts corporation, its subsidiary, Transgas
Inc. ("Transgas") and Victor W. Baur (the "Executive"). It restates and amends
the Employment Agreement dated December 31, 1997 between the Company,
Transgas and the Executive.
The Company believes that it is desirable, in order to induce the
Executive to remain in the employ of Transgas, where he presently serves as
President, and to place him in a position to act in the best interests of the
Company and its stockholders in the event of a proposal for the transfer of
control of the Company, to provide certain severance benefits to the Executive
if his employment with Transgas terminates under the circumstances described
below. Accordingly, the parties hereto agree as follows:
1. Employment Rights.
(a) Except as otherwise provided in paragraph l(b), the Executive's
employment may be terminated at any time by the Company, Transgas or the
Executive, subject to the Company's providing the benefits hereinafter
specified.
(b) In the event a tender or exchange offer is made by any person or
group of persons within the meaning of Section 14(d) of the Securities Exchange
Act of 1934 (the "Exchange Act"), other than the Company or any employee benefit
plan sponsored by the Company, for 30% or more of the shares of stock of the
Company entitled to vote for the election of directors, the Executive agrees
that he will not leave the employ of Transgas (other than as a result of
disability, retirement or death) until such offer has been terminated or a
change in control of the Company (as hereinafter defined) has occurred.
2. Termination Prior to Change in Control. If the Executive's employment
with Transgas is terminated for any reason prior to the occurrence of a change
in control of the Company, he shall be entitled to receive such benefits, and
only such benefits, to which he is entitled without regard to this Agreement. If
a change in control shall occur within one year after the termination of the
Executive's employment by Transgas, such termination shall be treated as a
termination after a change in control under paragraph 3 hereof unless the
Company shall sustain the burden of proving that the termination was not in
contemplation of the change in control.
3. Termination After a Change in Control. If the Executive's employment
with Transgas is terminated within 36 months after the occurrence of a change in
control of the Company, he shall be entitled to receive the benefits set forth
below. For purposes of this Agreement, a "change in control" of the Company
shall mean (i) the acquisition directly or indirectly by any person of
beneficial ownership of shares of stock of the Company resulting in such person
becoming the beneficial owner of 20% or more of the shares of stock of the
Company entitled to vote for the election of directors, (ii) the occurrence of a
change during any 24 consecutive months in the composition of the Board of
Directors so that the Continuing Directors (as hereinafter defined) cease for
<PAGE>
any reason to constitute a majority of the Company's Board of Directors or (iii)
a change in control of a nature that would be required to be reported in
response to Item 1 (a) of the Current Report on Form 8-K, as in effect on the
date hereof, pursuant to section 13 or 15(d) of the Exchange Act. "Continuing
Directors" shall mean the individuals who were directors at the beginning of the
24-month period or who were designated Continuing Directors by a majority of the
then Continuing Directors. A person shall be deemed to have "beneficial
ownership" of stock if such person or any "affiliate" or "associate" of such
person (as those terms are defined in Rule 12b-2 under the Exchange Act),
directly or indirectly, controls the voting of such stock or has any options,
warrants, conversion or other rights to acquire such stock.
(a) Cause. Upon termination of the Executive's employment by Transgas
for cause, the Executive shall be entitled to his salary through the period
ending with the date of such termination and any accrued benefits, and any and
all other rights of the Executive under this Agreement shall terminate upon the
date of termination. "Cause" shall mean and be limited to (i) deliberate
dishonesty by the Executive in connection with his employment, (ii) willful and
prolonged absence from work (other than as a result of illness or incapacity) in
circumstances that constitute a substantial abdication of the Executive's
responsibilities to Transgas after written notice thereof has been given by the
Company or Transgas to the Executive or (iii) the Executive's conviction of a
felony.
(b) Death, Disability, or Retirement. If the Executive's employment
is terminated by reason of death, permanent disability or retirement, the
Executive shall be entitled to such benefits as may be provided to him pursuant
to the Company's or Transgas' employee benefit plans, including any supplemental
arrangements maintained for his benefit which are set forth in writing and (1)
are described in the attached Exhibit A or (2) are adopted after the date of
this Agreement. Any and all other rights of the Executive under this Agreement
shall terminate upon the occurrence of a termination of his employment under
this subparagraph and the provisions of subparagraph (c) shall not be
applicable. For purposes of this paragraph, "permanent disability" shall be
deemed to exist when, in the good faith judgment of the Board of Directors of
Transgas, the Executive is unable to perform his duties for Transgas due to
illness or incapacity and such disability has continued for a period of not less
than six months, unless he shall have returned to the full time performance of
his duties within 30 days after written notice of the Board's determination has
been given to him. For purposes of this paragraph, "retirement" shall mean
termination by the Executive on or after his normal retirement date as set forth
in the Company's or Transgas' pension plan now in effect (or any successor or
substitute plan or plans of the Company or Transgas put into effect prior to a
change in control) or voluntary early retirement by the Executive in accordance
with such plan prior to his normal retirement date. Written notice of
termination of employment based on retirement shall be given at least 60 days in
advance.
(c) Good Reason. If the Executive's employment is terminated (1) by
the Executive for Good Reason (as hereinafter defined) or (2) by the Company or
Transgas without cause, in lieu of further salary for subsequent periods the
Executive shall be entitled to the following benefits:
<PAGE>
(i) The Company shall forthwith pay the Executive, in addition
to his salary and accrued benefits through the date of termination,
severance pay in an amount equal to 2.99 times the sum of (A) the higher
of (x) his annual salary in effect immediately prior to the change in
control or (y) his annual salary in effect immediately prior to the
termination and (B) the higher of (x) the average of the last two annual
bonuses (annualized in the case of any bonus paid with respect to a
partial year) paid to him preceding the change in control or preceding the
date of termination, which ever is greater, and (y) the most recent annual
bonus (annualized in the case of any bonus paid with respect to a partial
year) paid to him preceding the change in control or preceding the date of
termination, whichever is greater.
(ii) The Company shall maintain in full force and effect, for
the continued benefit of the Executive and his dependents for a period
ending on the earlier of the commencement date of equivalent benefits from
a new employer or his normal retirement date (after which the terms of the
applicable pension plan shall govern), the health insurance, dental
insurance and group term life insurance plans in which the Executive was
entitled to participate immediately prior to the termination of his
employment or reasonably equivalent benefits, provided that the Executive
continues to pay an amount equal to the employee's share of contributions
in effect prior to the change in control.
(iii)If the Executive is age 55 or older on the date of
termination of his employment, the Executive will continue to receive,
until his normal retirement date, service credit under the Company's or
Transgas' pension plans and any supplemental arrangements maintained for
his benefit in effect immediately prior to the termination of his
employment, and the benefit levels thereunder shall be calculated as
though the Executive had received an annual increase in compensation until
his normal retirement date in an amount equal to the average annual
compensation increase of all salaried personnel of the Company included in
such plans. To the extent that payment of any amounts resulting from the
foregoing may not be made from such plans, the Company will pay such
amounts to the Executive as supplemental benefits.
(iv) At the request of the Executive, the Company shall pay the
costs of an out-placement service used by the Executive as a result of the
termination of his employment, provided such service is approved by the
Company, which approval will not unreasonably be withheld.
(v) Except as specifically set forth above, the amount of any
payment or benefit under this paragraph 3(c) shall not be reduced, offset
or subject to recovery by the Company or Transgas by reason of any
compensation earned by the Executive as the result of employment by
another employer after the termination of his employment with the Company
or Transgas or otherwise.
For purposes of this paragraph 3(c), "Good Reason" shall mean that the
Executive has determined in good faith that (1) the Company or Transgas has
<PAGE>
failed to assign to him on a consistent basis executive duties performable at
the location at which he worked before the change in control (which shall
include any location in Massachusetts within 25 miles of such location or within
50 miles of the Company's executive offices immediately prior to the change in
control) which are commensurate with the level of executive duties performed by
him immediately prior to such change in control, (2) he is prevented by the
Company or Transgas from continuing to fulfill his responsibilities at a level
commensurate with that prior to the change in control, (3) his salary in effect
immediately prior to the change in control is reduced by the Company or
Transgas, (4) the Company or Transgas has failed to continue in effect any
health, welfare, retirement, vacation and other fringe benefit plans of the
Company or Transgas in which the Executive participated at the time of the
change in control (or plans providing substantially equivalent benefits) other
than as a result of the normal expiration of any such plan in accordance with
its terms as in effect at the time of the change in control, or the Company or
Transgas shall have taken or failed to take any action which would adversely
affect the Executive's continued participation in or the benefits receivable by
the Executives under any such plan as in effect at the time of the change in
control, or (5) the Company shall have failed to obtain, at the Executive's
request, an assent to the Company's performance of its obligations under this
Agreement from any person that succeeds to or has the practical ability to
control (either immediately or with the passage of time), directly or
indirectly, the Company's business, including the business of Transgas.
(d) Automobile. Upon termination of the Executive's employment for
any reason, he shall have the right to purchase the automobile supplied to him
by Transgas immediately prior to the change in control, or any automobile
substituted therefore with his approval, at its depreciated cost as shown on the
books of Transgas.
4. Taxes.
(a) Withholding. All payments to be made to the Executive under this
Agreement will be subject to any required withholding of federal, state and
local income and employment taxes.
(b) Payment Limitation. Notwithstanding anything in this Agreement to
the contrary, if the Company determines, based on the opinion of its independent
accountants serving as such immediately prior to the change in control (the
"Accounting Firm"), that any of the payments provided for in this Agreement,
together with any other payments that must be included in such determination,
would constitute an "Excess Parachute Payment" (as defined in Section 280G of
the Internal Revenue Code of 1986, as amended (the "Code"), and proposed and
final regulations thereunder), the payments pursuant to this Agreement shall be
reduced to the maximum amount that would permit a determination that the
Executive has not received an Excess Parachute Payment (the "Maximum Amount")
unless the after-tax amount payable to the Executive hereunder without regard to
the foregoing limitation ("Uncapped After-Tax Amount," as defined below) exceeds
the after-tax amount payable to the Executive with regard to such limitation
("Capped After-Tax Amount," as defined below) by 10% or more. Any such
determination or reduction in amounts payable pursuant to this Agreement shall
be made in accordance with the follow provisions:
<PAGE>
(i) For purposes of determining whether the amounts payable to
the Executive pursuant to this Agreement shall be reduced to the Maximum
Amount, the following terms shall have the meanings indicated:
(x) The "Uncapped After-Tax Amount" shall be equal to the
sum of the amounts payable pursuant this Agreement (without regard to
this paragraph 4(b)) and pursuant to all benefit and compensation
plans and arrangements that must be included in determining whether
an Excess Parachute Payment has been made, less the Income Tax Amount
on such sum and the 20% excise tax under Section 4999 of the Code
that would be due on all Excess Parachute Payments.
(y) The "Capped After-Tax Amount" shall be equal to the sum
of the Maximum Amount and all amounts payable pursuant to all benefit
and compensation plans and arrangements that must be included in
determining whether an Excess Parachute Payment has been made, less
the Income Tax Amount on such sum.
(z) The "Income Tax Amount" shall be equal to the amount of
federal, state and local income taxes and the Executive's share of
Federal Insurance Contributions Act taxes that would be due on an
amount (after taking into account the deductibility of state and
local income taxes for federal income tax purposes) if the highest
marginal federal, state and local income tax rate in effect at the
time of the change in control were imposed on the value of the
payments assuming that the amounts payable pursuant to this Agreement
and all benefit and compensation plans and arrangements shall be
treated as paid in full on the date of the change in control.
(ii) If the Accounting Firm determines that payments pursuant to
this Agreement should be reduced to the Maximum Amount, the Company shall
promptly give the Executive notice to that effect and a copy of the
detailed calculation thereof, and the Executive may then elect, in his
sole discretion, which and how much of the payments shall be eliminated or
reduced (as long as after such election the present value of the aggregate
payments equals the Maximum Amount), and shall advise the Company in
writing of his election within 10 days of his receipt of notice. If no
such election is made by the Executive within such period, the Company may
elect which and how much of the payments shall be eliminated or reduced
(as long as after such election the present value of the aggregate
payments equals the Maximum Amount) and shall notify the Executive
promptly of such election. All determinations made by the Accounting Firm
under this paragraph 4 shall be based upon Sections 280G and 4999 of the
Code and on proposed or final regulations for applying those Code
sections, or on substantial authority within the meaning of Section 6662
of the Code, shall be binding upon the Company and the Executive and shall
be made within 60 days of a termination of employment of the Executive. As
promptly as practicable following such determination, the Company shall
<PAGE>
pay to or distribute for the benefit of the Executive such payments as are
then due to the Executive under this Agreement and shall promptly pay to
or distribute for the benefit of the Executive in the future such payments
as become due to the Executive under this Agreement.
(iii)As a result of possible uncertainty in the application of
Section 280G of the Code at the time of the determinations by the
Accounting Firm hereunder, amounts may have been paid that should not have
been paid ("Overpayment") or additional amounts may not have been paid
that could have been paid ("Underpayment"), in each case, consistent with
the calculations required to be made hereunder. In the event that the
Internal Revenue Service asserts a deficiency against the Executive or the
Company in such a case and the Accounting Firm determines that an
Overpayment has been made, any such Overpayment shall be treated for all
purposes as a loan to the Executive from the date such Overpayment was
made in an amount equal to the value of such Overpayment, which loan the
Executive shall repay to the Company together with interest at the
applicable federal rate under Section 7872(f)(2)(B) of the Code within 60
days after receipt by the Executive of written notice of such
determination by the Accounting Firm, including the amount of the loan and
interest calculation; provided, however, that no such loan shall be deemed
to have been made and no amount shall be payable by the Executive to the
Company if and to the extent such deemed loan and repayment with interest
would not eliminate the excise tax under Section 4999 of the Code, or the
disallowance of the deduction under Section 280G(a) of the Code, for the
amounts previously paid to the Executive. In the event that the Accounting
Firm determines that an Underpayment has been made, such Underpayment
shall be promptly paid by the Company to the Executive, together with
interest at the applicable federal rate provided for in Section
7872(f)(2)(B) of the Code.
5. Term. The term of this Agreement shall commence on the date hereof and
shall continue in effect until December 31, 1999 and shall automatically be
extended for one additional year on that date and on each December 31 thereafter
unless the Company, Transgas or the Executive shall give at least 90 days prior
written notice that this Agreement shall not be extended. Notwithstanding the
foregoing, this Agreement shall continue in effect for the period specified in
paragraph 3 hereof if a change in control of the Company shall have occurred
during such term. The respective obligations of and benefits to the Company,
Transgas and the Executive as provided in paragraphs 3, 4, 6 and 7 hereof shall
survive termination of this Agreement.
6. Disclosure of Information. The Executive agrees to receive confidential
and proprietary information of the Company or Transgas in confidence, and not to
disclose such information to others, except pursuant to the performance of his
duties for the Company or Transgas, unless and until such information has become
public knowledge or has come into the possession of such others by legal and
equitable means.
<PAGE>
7. Fees and Expenses. The Company shall pay all legal fees and related
expenses incurred by the Executive as a result of his seeking to obtain or
enforce any right or benefit provided by this Agreement following a change in
control of the Company.
8. Miscellaneous.
(a) Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the Company and Transgas, its successors and assigns and
the Executive, his successors, personal representatives and heirs, and shall not
be assignable by the Executive except with respect to any payments or benefits
hereunder. In the event that the Company is consolidated or merged with or into
any other corporation, the term "Company" as used herein shall mean such other
corporation, and this Agreement shall continue in full force and effect.
(b) Amendment; Waiver. This Agreement may not be modified or amended
in any manner except by an instrument in writing signed by the parties hereto.
The waiver by either party of compliance with any provision of this Agreement by
the other party shall not operate or be construed as a waiver of any other
provision of this Agreement, or of any subsequent breach by such party or a
provision of that Agreement.
(c) Notices. All notices hereunder shall be sufficient if given in
writing sent by registered or certified mail, addressed as follows:
To the Company:
Colonial Gas Company
40 Market Street
Lowell, Massachusetts 01852
Attention: President
To Transgas:
Transgas Inc.
c/o Colonial Gas Company
40 Market Street
Lowell, MA 01852
Attention: V. P. Human Resources
To the Executive:
Victor W. Baur
137 Lexington Road
Dracut, MA 01826
<PAGE>
(d) Heading. The headings of paragraphs herein are included solely
for convenience of reference and shall not control the meaning of
interpretations of any of the provisions of this Agreement.
(e) Severability. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
(f) Applicable Law. This Agreement shall be governed by the laws of
Massachusetts.
(g) Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
each of which shall be deemed an original.
IN WITNESS WHEREOF, the Company and Transgas have each caused this
Agreement to be executed by its duly authorized officer and the Executive has
executed this Agreement as of the date first written above.
COLONIAL GAS COMPANY TRANSGAS INC.
By:__________________________ By:___________________________
By:__________________________
Victor W. Baur
<PAGE>
Exhibit A
SUPPLEMENTAL PENSION ARRANGEMENT
Supplemental Executive Retirement Plan.
COLONIAL GAS COMPANY
Retention Bonus Plan
In order to provide incentives for key employees of the Company to remain
in the employ of the Company during a period of uncertainty involving industry
consolidation and the exploration of strategic alternatives by the Company, the
Company has adopted, effective October 19, 1998 (the "Effective Date"), the
following retention bonus plan:
1. Participating employees designated by the Company ("Participants")
shall be entitled to receive a cash bonus in the amount set forth below if the
Participant is continuously employed by the Company or its successor or any of
their respective subsidiaries or affiliates from the Effective Date until the
earliest to occur of the following:
(i) January 19, 2000 (15 months after the Effective
Date);
(ii) the date which is 90 days after a change in
control of the Company;
(iii)termination of the Participant's employment by the
Company without cause or by the Participant for
Good Reason (as hereinafter defined); or
(iv) termination of the Participant's employment by reason of death,
permanent disability or retirement.
2. The amount payable under this Plan shall be as follows:
(i) for senior officers designated in Tier I ("Tier I
Participants"), an amount equal to 75% of the Participant's
annual salary in effect as of the Effective Date; and
(ii) for all other Participants ("Tier II Participants"), an amount
equal to 50% of the Participant's annual salary in effect as of
the Effective Date.
3. The terms "change in control", "cause", "Good Reason", "permanent
disability" and "retirement" as used herein shall have the meanings set forth in
the Employment Agreement between the Company and the Participant in effect on
the Effective Date (or if the Participant has no such agreement, then in the
standard form of Employment Agreement entered into by the Company with its
officers).
4. In the event that the Company is consolidated or merged with or into
any other corporation or entity, the term "Company" as used herein shall mean
such other corporation or entity (the "successor"), and this Plan shall be
binding upon such successor.
5. Amounts payable hereunder shall be subject to appropriate tax
withholding.
<PAGE>
6. This Plan shall inure to the benefit of and be enforceable by each
Participant's heirs and personal or legal representatives. Upon the death of a
Participant any amount that would be payable if he or she had continued to live
shall be paid in accordance with the terms of this Plan to his or her designated
beneficiary or, if none has been designated, to his or her estate.
7. This Plan may be amended by the Company but no such amendment shall
adversely affect the rights of any Participant under this Plan without such
Participant's consent.
<PAGE>
Schedule of Participating Employees
Tier 1: J.P. Harrington, F. L. Putnam, Jr., F.L. Putnam, III,
C. W. Sawyer,
N. Stavropoulos
Tier 2: All other officers who have executed Employment
Agreements dated as of October 13,1998
<TABLE> <S> <C>
<ARTICLE> UT
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 289,507
<OTHER-PROPERTY-AND-INVEST> 8,973
<TOTAL-CURRENT-ASSETS> 49,363
<TOTAL-DEFERRED-CHARGES> 15,161
<OTHER-ASSETS> 20,482
<TOTAL-ASSETS> 383,486
<COMMON> 29,455
<CAPITAL-SURPLUS-PAID-IN> 61,162
<RETAINED-EARNINGS> 34,178
<TOTAL-COMMON-STOCKHOLDERS-EQ> 124,795
0
0
<LONG-TERM-DEBT-NET> 110,000
<SHORT-TERM-NOTES> 63,160
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 144
0
<CAPITAL-LEASE-OBLIGATIONS> 1,041
<LEASES-CURRENT> 639
<OTHER-ITEMS-CAPITAL-AND-LIAB> 83,707
<TOT-CAPITALIZATION-AND-LIAB> 383,486
<GROSS-OPERATING-REVENUE> 115,854
<INCOME-TAX-EXPENSE> 4,374
<OTHER-OPERATING-EXPENSES> 98,396
<TOTAL-OPERATING-EXPENSES> 102,770
<OPERATING-INCOME-LOSS> 13,084
<OTHER-INCOME-NET> 659
<INCOME-BEFORE-INTEREST-EXPEN> 13,743
<TOTAL-INTEREST-EXPENSE> 6,517
<NET-INCOME> 7,226
0
<EARNINGS-AVAILABLE-FOR-COMM> 7,226
<COMMON-STOCK-DIVIDENDS> 8,973
<TOTAL-INTEREST-ON-BONDS> 6,043
<CASH-FLOW-OPERATIONS> 22,517
<EPS-PRIMARY> 1.03
<EPS-DILUTED> 1.03
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