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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:
[_] Confidential, for Use of the
[_] Preliminary Proxy Statement Commission Only
(as permitted by Rule 14a-
6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
COMMONWEALTH ENERGY SYSTEM
(Name of Registrants as Specified In Their Declarations of Trust)
----------------------------------------------------------
(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)(1) and 0-11.
1) Title of each class of securities to which transactions applies:
2) Aggregate number of securities to which transactions 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 transactions:
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: _____________________________________________________________
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Commonwealth Energy System
One Main Street
Cambridge, MA 02142-9150
(617) 225-4000
May 14, 1999
Dear Shareholder:
The boards of trustees of Commonwealth Energy System, referred to below as
COM/Energy, and BEC Energy have agreed to a merger transaction that will result
in the ownership of their combined businesses by a new holding company, NSTAR.
As a result of the merger, shareholders will have a stake in a company with a
broader and more diversified customer base, including approximately 1,040,000
electric customers in 81 communities and 240,000 gas customers in 51
communities. We expect that the combination of the two businesses will better
enable us to provide improvements in service, increase revenues and reduce
costs.
If shareholders of both companies approve the merger, you will be able to
elect to exchange each of your COM/Energy common shares for either $44.10 in
cash or 1.05 NSTAR common shares. BEC Energy shareholders will be able to elect
to exchange each of their BEC Energy common shares for either $44.10 in cash or
one NSTAR common share. Your election will be subject to limitations on the
amounts of cash and NSTAR common shares issuable in the merger, which are
described more fully in the joint proxy statement/prospectus.
NSTAR will issue approximately 63,000,000 common shares, par value $1.00, in
the merger. The BEC Energy common shares outstanding before the merger will
represent approximately 68% of NSTAR common shares outstanding after the
merger. The COM/Energy common shares held before the merger will represent
approximately 32% of the NSTAR common shares outstanding after the merger. The
NSTAR shares will be traded on the New York Stock Exchange and on the Boston
Stock Exchange under the symbol "NST."
You will be asked to vote on the merger, and to vote on the election of
COM/Energy trustees and a shareholder proposal to amend COM/Energy's
declaration of trust so that all trustees would be elected on an annual basis,
as described in the following notice, at our annual meeting, on June 24, 1999,
at the headquarters of COM/Energy, One Main Street, Cambridge, Massachusetts
02142-9150. We cannot complete the merger unless holders of two-thirds of the
21,575,437 outstanding COM/Energy common shares and holders of two-thirds of
the 45,881,873 outstanding BEC Energy common shares approve the merger.
Neither the SEC nor any state securities regulators have approved or
disapproved the NSTAR common shares to be issued in the merger or determined if
this prospectus is accurate or adequate. Anyone who tells you otherwise is
committing a crime.
The securities offered by this prospectus are subject to investment risks,
which are discussed beginning on page 21.
The joint proxy statement/prospectus is dated May 14, 1999 and is first
being mailed to shareholders on or about May 14, 1999.
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COMMONWEALTH ENERGY SYSTEM
Cambridge, Massachusetts
Notice of Special Meeting in Lieu of Annual Meeting of Shareholders
June 24, 1999
To the Shareholders of
Commonwealth Energy System:
Notice is hereby given that the special meeting in lieu of annual meeting of
shareholders of Commonwealth Energy System, which will be referred to below as
"COM/Energy," will be held at the office of COM/Energy, One Main Street, P.O.
Box 9150, Cambridge, Massachusetts 02142-9150, on Thursday, June 24, 1999, at
10:30 a.m., for the following purposes:
1. To consider and vote on the merger of BEC Energy and COM/Energy and
to adopt the Agreement and Plan of Merger, dated as of December 5, 1998, as
amended.
2. To elect three trustees to hold office for a three-year term and
until the election and qualification of their respective successors.
3. To consider and vote upon a shareholder proposal, if presented at the
meeting, as described in the attached joint proxy statement/prospectus.
4. To transact such other business as may properly come before the
meeting or any adjournment or adjournments thereof.
Common shareholders of record at the close of business on May 3, 1999 are
entitled to notice of, and to vote at, the meeting.
The board of trustees of COM/Energy has determined that the merger is in the
best interests of shareholders and unanimously recommends that shareholders
vote to adopt the merger agreement and approve the merger at the annual
meeting.
By Order of the Trustees,
Michael P. Sullivan
Vice President, Secretary
and General Counsel
May 14, 1999
IMPORTANT
We cordially invite you to attend the annual meeting of shareholders, but if
you do not expect to be present, please mail your proxy in order that the
presence of a quorum may be assured. Because our shares are widely distributed
over a large number of holders, it is both necessary and desirable that all
shareholders send in their proxies. Failure to secure a quorum on the date set
would necessitate an adjournment which would cause COM/Energy considerable and
needless expense. To avoid this, please SIGN AND DATE the accompanying proxy
and mail it promptly in the enclosed envelope to Commonwealth Energy System,
P.O. Box 9150, Cambridge, Massachusetts 02142-9150.
Please do NOT send share certificates with your proxy card.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE BEC ENERGY/COMMONWEALTH ENERGY SYSTEM
COMBINATION............................................................... 4
SUMMARY.................................................................... 8
BEC ENERGY SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA............... 15
COM/ENERGY SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA............... 16
NSTAR UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION....... 17
UNAUDITED COMPARATIVE PER SHARE DATA....................................... 18
COMPARATIVE DIVIDENDS AND MARKET PRICES.................................... 19
BEC Energy............................................................... 19
COM/Energy............................................................... 19
HISTORICAL AND EQUIVALENT PER SHARE MARKET VALUES.......................... 20
RISK FACTORS............................................................... 21
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE............................ 22
THE ANNUAL MEETINGS........................................................ 23
Purpose, Time and Place.................................................. 23
Record Date; Voting Power................................................ 23
Votes Required........................................................... 24
Share Ownership of Management and Their Affiliates....................... 25
Voting of Proxies........................................................ 25
Revocability of Proxies.................................................. 25
Solicitation of Proxies.................................................. 26
THE MERGER................................................................. 27
Background of the Merger................................................. 27
Reasons for the Merger................................................... 33
Potential Cost Savings and Cost Avoidances Resulting From the Merger..... 34
Recommendation of the BEC Energy Trustees................................ 35
Recommendation of the COM/Energy Trustees................................ 37
Opinion of BEC Energy's Financial Advisor................................ 38
Opinion of COM/Energy's Financial Advisor................................ 45
Interests of Trustees and Executive Officers of BEC Energy and COM/Energy
in the Merger........................................................... 52
Material Federal Income Tax Consequences of the Merger................... 56
Arrangements Regarding the Trustees and Management of NSTAR Following the
Merger.................................................................. 59
Regulatory Matters....................................................... 60
Accounting Treatment..................................................... 62
Effect on Employee Benefit Plans......................................... 63
Listing of NSTAR Common Stock............................................ 63
THE MERGER AGREEMENT....................................................... 64
Terms of the Merger...................................................... 64
What You Will Receive for Your BEC Energy Common Shares or Your
COM/Energy Common Shares................................................ 64
Limits on Cash and NSTAR Common Shares That Shareholders Will Receive.... 65
Exchange of Share Certificates........................................... 66
Representations and Warranties........................................... 68
Conduct of Business Price to the Merger.................................. 68
Additional Agreements.................................................... 69
</TABLE>
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<TABLE>
<S> <C>
Workforce and Employee Benefit Matters................................... 70
Conditions to Completion of the Merger................................... 70
Termination of the Merger Agreement and Termination Fees and Expenses.... 72
Amendment and Waiver..................................................... 73
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION......................... 74
SHARE OWNERSHIP OF MANAGEMENT AND OTHER BENEFICIAL OWNERS OF BEC ENERGY.. 83
SHARE OWNERSHIP OF MANAGEMENT AND OTHER BENEFICIAL OWNERS OF COM/ENERGY.. 84
DESCRIPTION OF NSTAR SHARES................................................ 85
Authorized Capital....................................................... 85
Preferred Shares......................................................... 85
Common Shares............................................................ 85
Company Issuances........................................................ 85
Massachusetts Anti-Takeover Laws and Various Provisions of NSTAR's
Organizational Documents................................................ 86
Transfer Agent and Registrar............................................. 86
COMPARISON OF RIGHTS OF SHAREHOLDERS OF BEC ENERGY AND NSTAR............... 87
Boards of Trustees....................................................... 87
Quorum for Board Action; Action Without a Meeting........................ 87
Appraisal Rights......................................................... 87
COMPARISON OF RIGHTS OF SHAREHOLDERS OF COM/ENERGY AND STOCKHOLDERS OF
NSTAR..................................................................... 89
Board of Trustees........................................................ 89
Trustee Removal.......................................................... 89
Indemnification of Officers and Trustees................................. 89
Limitations on Officer and Trustee Liability............................. 90
Special Meeting of Shareholders.......................................... 90
Interested Business Transactions......................................... 91
Merger; Sale of Business................................................. 91
Termination.............................................................. 91
Amendments of Organizational Documents................................... 92
Anti-Takeover Statutes................................................... 92
Pre-Emptive Rights....................................................... 93
Preferred Shares......................................................... 93
LEGAL MATTERS.............................................................. 93
EXPERTS.................................................................... 93
OTHER MATTERS.............................................................. 94
WHERE YOU CAN FIND MORE INFORMATION........................................ 96
THE COM/ENERGY MEETING-ADDITIONAL MATTERS.................................. 99
ELECTION OF TRUSTEES (PROPOSAL NO. 2).................................... 99
Information Concerning Nominees And Trustees........................... 100
ADDITIONAL INFORMATION................................................... 102
Meetings of the COM/Energy Board of Trustees And Committees of the
Board................................................................. 102
Voting Securities...................................................... 102
Compensation of Trustees............................................... 103
Compensation of Executive Officers During the Year 1998................ 104
Pension Plan Table..................................................... 106
Supplemental Pension Agreements........................................ 107
</TABLE>
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<TABLE>
<S> <C>
Change in Control Agreements............................................ 107
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE................... 108
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION................... 108
COMPARATIVE TOTAL SHAREHOLDER RETURN...................................... 112
SHAREHOLDER PROPOSAL (PROPOSAL NO. 3)..................................... 114
ANNEX A
Agreement and Plan of Merger, as Amended.................................. A-1
ANNEX B
Opinion of Goldman, Sachs & Co............................................ B-1
ANNEX C
Opinion of SG Barr Devlin................................................. C-1
ANNEX D
NSTAR Declaration of Trust................................................ D-1
ANNEX E
NSTAR Bylaws ............................................................. E-1
</TABLE>
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QUESTIONS AND ANSWERS ABOUT THE BEC ENERGY/COMMONWEALTH ENERGY
SYSTEM MERGER
This question and answer discussion and the summary that follows highlight
selected information from this joint proxy statement/prospectus and may not
contain all of the information that is important to you. To understand the
merger fully and for a more complete description of the legal terms, you should
read carefully this entire document and the other documents that we have
referred you to. See "WHERE YOU CAN FIND MORE INFORMATION." BEC Energy and
COM/Energy shareholders will also be asked to approve other proposals in
connection with their annual meetings. Shareholders of BEC Energy should read
carefully "THE BEC ENERGY ANNUAL MEETING--ADDITIONAL MATTERS." Shareholders of
COM/Energy should read carefully "THE COM/ENERGY ANNUAL MEETING--ADDITIONAL
MATTERS." "We" as used in this document refers to BEC Energy and COM/Energy;
"COM/Energy" refers to Commonwealth Energy System.
QUESTIONS AND ANSWERS
Q. When and where is the annual meeting?
BEC Energy
We will be holding the BEC Energy annual meeting on Thursday, June 24, 1999, at
2:00 p.m. at the John B. Hynes Veterans Memorial Convention Center, Ballroom A,
900 Boylston Street, Boston, Massachusetts 02115.
COM/Energy
We will be holding the COM/Energy annual meeting on Thursday, June 24, 1999, at
10:30 a.m. at COM/Energy's offices at One Main Street, Cambridge, MA 02142-
9150.
Q. What am I being asked to vote on at the annual meeting?
BEC Energy
We are asking you to vote on two matters at the meeting:
. We are asking you to vote on the proposed merger in which BEC Energy and
COM/Energy will become subsidiaries of a new holding company, NSTAR.
. We are also asking you to elect four trustees to hold office for a three-
year term.
COM/Energy
We are asking you to vote on three matters at the meeting:
. We are asking you to vote on the proposed merger in which BEC Energy and
COM/Energy will become subsidiaries of a new holding company, NSTAR.
. We are also asking you to elect three trustees to hold office for a
three-year term.
. Finally, we are asking you to vote on a shareholder proposal to
declassify the board of trustees which may be presented at the meeting.
Q. How does the board of trustees recommend I vote on these proposals?
BEC Energy
The BEC Energy trustees believe that the merger is fair to you and in your best
interests, and have unanimously approved the merger and recommend that you vote
FOR the merger. The BEC Energy trustees also recommend that you vote FOR the
proposed trustees.
COM/Energy
The COM/Energy trustees believe that the merger is fair to you and in your best
interests, and have unanimously approved the merger and recommend that you vote
FOR the merger. The COM/Energy trustees also recommend that you vote FOR the
proposed trustees and AGAINST the shareholder proposal.
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Q. Who is entitled to vote at the meeting?
BEC Energy
You are entitled to vote at the meeting if you owned shares on May 3, 1999, the
record date for the meeting. On the record date there were 45,881,873 common
shares of BEC Energy outstanding.
COM/Energy
You are entitled to vote at the meeting if you owned shares on May 3, 1999, the
record date for the meeting. On the record date there were 21,575,437 common
shares of COM/Energy outstanding.
Q. What vote of the shareholders is needed to approve the merger?
BEC Energy
We need approval of the holders of two-thirds of the BEC Energy common shares.
Two-thirds of the holders of the COM/Energy common shares must also approve the
merger.
COM/Energy
We need approval of the holders of two-thirds of the COM/Energy common shares.
Two-thirds of the holders of the BEC Energy common shares must also approve the
merger.
Q. Am I entitled to appraisal rights?
No. Neither BEC Energy nor COM/Energy shareholders have the right to vote
against the merger and obtain payment of the fair value of their shares in
cash, sometimes referred to as appraisal rights.
Q. What do I need to do now?
Please carefully read this proxy statement, and then complete, sign and mail
your proxy card in the enclosed return envelope as soon as possible. If you
sign and send in your proxy card and do not mark how you want to vote, your
proxy will be counted as a vote in favor of the merger. The merger cannot be
completed unless the holders of two-thirds of the shares of both companies
approve it. Your vote is very important.
If you would prefer, you can attend the meeting and vote your shares in person
rather than by mailing back your proxy card.
Q. What do I do if my shares are held in "street name" by my broker?
If your shares are held in street name by a broker as your nominee, your broker
will send you a proxy card.
Q. What happens if I do not instruct my broker how to vote on the merger or if
I mark "abstain" on the proxy card?
Unless the holders of two-thirds of the shares of each company approve the
merger it cannot be completed. If your shares are held in street name by a
broker, your broker will not be able to vote your shares without instructions
from you.
If you mark your proxy "abstain" or do not instruct your broker how to vote,
your shares will have the effect of a vote against the merger.
Q. Can I change my vote after I have mailed in my signed proxy card?
BEC Energy
Yes. There are two ways you may withdraw your proxy at any time before the vote
takes place. You may tell Theodora S. Convisser, the clerk of BEC Energy, at
the annual meeting that you wish to withdraw your proxy. If you would prefer,
you can withdraw your proxy in writing by delivering to the clerk a written
revocation or a proxy bearing a later date. These should be sent to: BEC
Energy, 800 Boylston Street, Boston, Massachusetts 02199, Attention: Clerk.
COM/Energy
Yes. There are two ways you may withdraw your proxy at any time before the vote
takes place. You may tell Michael P. Sullivan, the
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secretary of COM/Energy, at the annual meeting that you wish to withdraw your
proxy. If you would prefer you can withdraw your proxy in writing by delivering
to the secretary a written revocation or a proxy bearing a later date. These
should be sent to: COM/Energy, P.O. Box 9150, Cambridge, Massachusetts 02142-
9150, Attention: Secretary.
Q. What should I do if I hold shares in BEC Energy's or COM/Energy's dividend
reinvestment, share purchase or other share benefit plans?
If you participate in either BEC Energy's or COM/Energy's dividend
reinvestment, share purchase or other share benefit plans, you will be treated
like all other shareholders of BEC Energy or COM/Energy, as appropriate.
Q. What will happen to outstanding preferred shares?
COM/Energy
COM/Energy has redeemed all outstanding COM/Energy preferred shares.
BEC Energy
The merger will have no effect on the outstanding preferred stock of Boston
Edison Company, a subsidiary of BEC Energy.
Q. What happens to my dividends?
We expect no changes in our dividend policies before the merger. After the
merger, we expect the initial annual dividend rate to be $1.94 for each common
share of NSTAR. The annual rate of $1.94 per share is equal to the current
annual dividend rate paid to BEC Energy shareholders. The expected dividend
policy after the merger would result in a 23% dividend increase for current
COM/Energy shareholders, assuming receipt of 1.05 NSTAR common shares for each
COM/Energy common share, from a current annual dividend rate of $1.66 per
share.
Please understand that no dividends have been declared on NSTAR's common
shares, and we cannot assure you that the anticipated dividend rate will ever
be in effect or will remain unchanged. NSTAR reserves the right to increase or
decrease its dividend as required by law or contract or as its board of
trustees may decide.
Q. Where will my NSTAR common shares be traded?
Like BEC Energy and COM/Energy's common shares, the NSTAR common shares will be
listed and traded on the New York Stock Exchange. NSTAR common shares will also
be traded on the Boston Stock Exchange. NSTAR common shares will be listed
under the symbol "NST."
Q: Should I send in my share certificates now?
No. You should continue to hold your share certificates. After the merger is
completed we will mail you written instructions for exchanging your share
certificates. At that time, you should send in your certificates.
Q. When do you expect the merger to be completed?
Because we must obtain a number of regulatory approvals for the merger, we
cannot be sure exactly when the merger will be completed. We are working to
complete all aspects of the merger as quickly as possible. We currently expect
to complete the merger during the second half of 1999.
Q. Who should I call if I have any additional questions?
BEC Energy
You may call BEC Energy Investor Relations at (617) 424-2658 or, with respect
to questions regarding voting, D.F. King & Co., Inc., BEC Energy's proxy
solicitor, at (800) 549-6650.
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COM/Energy
You may call COM/Energy Shareholder Services at (800) 336-3773 (in
Massachusetts) or (800) 447-1183 (outside of Massachusetts) or, with respect to
questions regarding voting, D.F. King & Co., Inc., COM/Energy's proxy
solicitor, at (800) 714-3310.
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SUMMARY
The Companies
BEC Energy
800 Boylston Street
Boston, Massachusetts 02199
(617) 424-2000
BEC Energy is organized as a Massachusetts business trust, an unincorporated
business organization with transferable shares. BEC Energy conducts its
business through its operating subsidiaries.
BEC Energy's principal subsidiaries are Boston Edison Company, a regulated
utility company, and Boston Energy Technology Group, Inc. Through Boston
Edison, BEC Energy provides electricity to approximately 663,000 customers in
the city of Boston and 39 other cities and towns in eastern Massachusetts.
Through Boston Energy Technology Group and its subsidiaries, BEC Energy engages
in a number of non-utility businesses, including telecommunications through its
joint venture with RCN Corp. and provision of cooled water air conditioning.
COM/Energy
One Main Street
Cambridge, MA 02142-9150
(617) 225-4000
COM/Energy is organized as a Massachusetts business trust, an unincorporated
business organization with transferable shares. COM/Energy conducts its
business through its operating subsidiaries.
COM/Energy holds all of the stock of four operating public utility
companies:
--Cambridge Electric Light Company
--Canal Electric Company
--Commonwealth Electric Company and
--Commonwealth Gas Company.
COM/Energy also holds the stock of several subsidiaries engaged in other
businesses, such as steam distribution, servicing and processing of liquefied
natural gas, the sale of energy products and the operation of a steam, chilled
water and electric generating facility serving several Boston area hospitals.
Through its utility subsidiaries, COM/Energy serves the energy needs of
approximately 600,000 customers in eastern Massachusetts.
NSTAR
c/o BEC Energy
800 Boylston Street
Boston, Massachusetts 02199
(617) 424-2000
NSTAR was organized on April 22, 1999 as a Massachusetts business trust with
transferable shares. NSTAR was formed to be the new holding company for BEC
Energy and COM/Energy and currently has no material assets, liabilities or
operations. NSTAR has been formed as a Massachusetts business trust rather than
a corporation to benefit from the potential Massachusetts income tax savings
accorded trusts and the lower filing fees payable by a trust in connection with
its authorized capital stock.
Currently, BEC Energy and COM/Energy together own all of NSTAR's outstanding
common shares. When the merger is completed, both BEC Energy and COM/Energy
will become subsidiaries of NSTAR. NSTAR will be the new holding company for
the combined business. The organization of the companies after the merger is
illustrated below:
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CURRENT STRUCTURE
[CHART APPEARS HERE]
MERGER TRANSACTION
[CHART APPEARS HERE]
POST-MERGER STRUCTURE
[CHART APPEARS HERE]
9
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The Merger Agreement (page 64)
In the merger, each of BEC Energy and COM/Energy will become subsidiaries of
NSTAR. This will be accomplished by the merger of acquisition subsidiaries of
NSTAR into each of BEC Energy and COM/Energy with BEC Energy and COM/Energy as
the surviving companies. The shareholders of each of BEC Energy and COM/Energy
will be able to elect to receive shares of NSTAR or cash for the shares of BEC
Energy or COM/Energy they hold prior to the merger.
Reasons for the Merger (page 33)
We believe that by combining BEC Energy and COM/Energy we will be able to
improve our service, increase our revenues and reduce our costs. The merger
will benefit shareholders by creating a holding company with a broader and more
diversified customer base, and a sufficient size and scope, to be an effective
competitor in the emerging and increasingly competitive markets for
transporting and distributing energy and marketing energy services. We believe
that the merger will allow us to benefit from cost savings and cost avoidances
that could result in net savings of approximately $500 million over a ten-year
period, and savings are expected to continue beyond the ten-year period. These
savings will benefit customers through lower rates because BEC Energy's and
COM/Energy's rates are based on their cost of service.
What You May Receive in the Merger (page 64)
In the merger, shareholders of both BEC Energy and COM/Energy will have the
option to elect to receive either cash or NSTAR common shares.
BEC Energy. If you are a shareholder of BEC Energy you will have the option
of electing to receive either $44.10 in cash or 1.00 NSTAR common share for
each BEC Energy common share that you currently hold. The cash portion of the
consideration to be paid to BEC Energy shareholders represents a payment of 5%
more than the closing price of BEC Energy common shares on December 4, 1998.
COM/Energy. If you are a shareholder of COM/Energy you will have the option
of electing to receive either $44.10 in cash or 1.05 NSTAR common shares for
each COM/Energy common share that you currently hold. Either type of
consideration offered to COM/Energy shareholders represents a payment of 17%
more than the closing price of COM/Energy common shares on December 4, 1998.
The Amount of Cash or NSTAR Shares You Actually Receive Could Vary from Your
Election. Because the merger agreement requires that $200 million be paid in
cash to the BEC Energy shareholders and $100 million be paid in cash to the
COM/Energy shareholders, the exact mix of cash and NSTAR shares that you
receive could vary from your election. If shareholders elect to receive either
more cash or a greater number of shares than is available to your shareholders
group, the companies may have to prorate the amount of cash or number of shares
paid to shareholders.
How Will the Allocation Work? If the shareholders of either BEC Energy or
COM/Energy elect to receive more cash than the amount of cash allocated to be
paid to them, we will allocate the available cash among the given shareholder
group. Similarly, if either shareholder group elects to receive a greater
number of NSTAR shares than the number available for issuance to it, we will
allocate the available NSTAR shares among the holders in that shareholder
group. If, however, one shareholder group elects more cash than has been
allocated to it and the other shareholder group elects less cash than is
allocated to it, the excess cash available from the under-electing shareholder
group will be allocated to the over-electing shareholder group.
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Based on the number of BEC Energy shares currently outstanding, we expect
that approximately 41,346,726 NSTAR common shares will be issued to BEC Energy
shareholders, or two-thirds of the total number of NSTAR shares issued in the
merger. A total of approximately $200 million will be paid in cash to BEC
Energy shareholders, or two-thirds of the total cash paid. Based on the number
of COM/Energy shares currently outstanding, we expect that approximately
20,273,256 NSTAR common shares will be issued to COM/Energy shareholders, or
one-third of the total number of shares issued in the merger. A total of
approximately $100 million will be paid in cash to COM/Energy shareholders, or
one-third of the total cash paid.
Please read the more detailed description of the cash and shares to be
issued in the merger on pages 64 to 66.
Fractional Shares. Except for fractional shares that will be issued in
exchange for shares issued under BEC Energy's or COM/Energy's dividend
reinvestment plans, NSTAR will not issue any fractional shares in the merger.
Instead, you will receive cash for any fractional shares that you would
otherwise have received.
Odd-lots. Shareholders who hold fewer than 100 common shares of BEC Energy
or COM/Energy, commonly known as odd-lots, and who elect cash with respect to
any of these shares will be allocated cash prior to any other shareholders if
the shareholders of BEC Energy or COM/Energy elect more cash than is available
for distribution to them.
When You Will Elect to Receive Cash or Shares. You do not need to make your
election at this time. We will mail you election forms for this purpose
promptly after the merger is completed. At that time, you will be able to elect
to receive either cash or NSTAR common shares in exchange for each BEC Energy
or COM/Energy common share you own or to indicate that you have no preference.
You must return your election form prior to 5:00 p.m. on or before the
twentieth business day following the date that the exchange agent mailed the
form of election to you.
What Are the Funding Sources of the $300 Million in Cash Payable to BEC Energy
and COM/Energy Shareholders?
The cash consideration will be financed by BEC Energy through funds on hand
at the time of the merger and short-term borrowings under its existing
committed and uncommitted credit lines. COM/Energy has redeemed its outstanding
preferred shares with internally generated funds.
Opinions of Financial Advisors (pages 38 to 52)
In deciding to approve the merger, our boards considered opinions from our
respective financial advisors as to the fairness of the transaction to BEC
Energy and COM/Energy shareholders from a financial point of view. BEC Energy
received an opinion from Goldman, Sachs & Co. and COM/Energy received an
opinion from the SG Barr Devlin division of SG Cowen Securities Corporation.
These opinions are attached as Annexes B and C to this joint proxy
statement/prospectus. We encourage you to read these opinions.
Tax Consequences of the Merger (page 56)
No gain or loss will be recognized by BEC Energy or COM/Energy because of
the merger. No gain or loss will be recognized by BEC Energy or COM/Energy
shareholders on their receipt of
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<PAGE>
shares of NSTAR in the merger. In general, however, BEC Energy shareholders
will recognize taxable gain or loss on their BEC Energy shares exchanged for
cash and COM/Energy shareholders will recognize gain on their COM/Energy shares
exchanged for cash or shares of NSTAR but not in excess of the amount of cash
received in the merger.
This statement of the material federal income tax consequences of the merger
is the opinion of Ropes & Gray and LeBoeuf, Lamb, Greene & MacRae, L.L.P., tax
counsels to BEC Energy and COM/Energy, and is subject to the qualifications and
assumptions stated in "Material Federal Income Tax Consequences of the Merger."
Accounting Treatment (page 62)
The merger of COM/Energy with an acquisition subsidiary of NSTAR will be
treated as an acquisition of COM/Energy by BEC Energy and accounted for under
the purchase method of accounting, in accordance with generally accepted
accounting principles. Under the purchase method of accounting, the purchase
price of COM/Energy, including direct costs of the acquisition, will be
allocated to the tangible and intangible assets acquired and the liabilities
assumed based upon their estimated fair values with the excess purchase
consideration allocated to goodwill. The other portion of our transaction, the
merger of BEC Energy with a separate acquisition subsidiary of NSTAR, will be
treated as a reorganization with no change in the recorded amount of BEC
Energy's assets and liabilities. After the merger, the results of NSTAR's
operations will include the results of operations of COM/Energy.
Comparative Per Share Market Price Information
On December 4, 1998, the last full day of trading before the public
announcement of the merger, the BEC Energy common shares and COM/Energy common
shares closed at $42 and $37 13/16, respectively, as reported on the New York
Stock Exchange Composite Transactions. On May 10, 1999, the most recent
practicable date before the printing of this joint proxy statement/prospectus,
the BEC Energy and COM/Energy common shares closed at $43 3/16 and $41,
respectively, as reported on the New York Stock Exchange Composite
Transactions.
Share Ownership of Management and Their Affiliates (page 25)
On the record date for the BEC Energy meeting, trustees and executive
officers of BEC Energy and their affiliates beneficially owned approximately
338,788 BEC Energy common shares, or less than 1% of the voting power of the
BEC Energy common shares outstanding on the record date and less than 1% of the
two-thirds vote required to approve the merger. The trustees and executive
officers of BEC Energy have indicated that they intend to vote their BEC Energy
common shares FOR the merger.
On the record date for the COM/Energy meeting, trustees and executive
officers of COM/Energy and their affiliates beneficially owned 82,864 shares or
less than 1% of the voting power of COM/Energy common shares outstanding on the
record date and approximately 1% of the two-thirds vote required to approve the
merger. The trustees and executive officers of COM/Energy have indicated that
they intend to vote their COM/Energy common shares FOR the merger.
12
<PAGE>
Interests of Trustees and Executive Officers of BEC Energy and COM/Energy in
the Merger (page 52)
Some members of BEC Energy and COM/Energy management have interests in the
merger as employees and/or trustees that are different from, or in addition to,
yours as a BEC Energy or COM/Energy shareholder. These interests include:
Financial Interest of COM/Energy Officers and Trustees in COM/Energy
Compensation Plans. If we complete the merger, restrictions on
approximately 34,887 restricted COM/Energy common shares awarded to sixteen
COM/Energy officers and trustees will lapse. In addition, eleven COM/Energy
officers have entered into change in control agreements, and participate in
various benefit plans, under which payments may be made if their employment
is terminated following shareholder approval or closing of the merger.
New Employment and Change of Control Arrangements for Mr. May and Mr.
Wright. If we complete the merger, Thomas J. May, the chairman, chief
executive officer and president of BEC Energy, will become chairman and
chief executive officer of NSTAR. In addition, Russell D. Wright, the chief
executive officer and president of COM/Energy, will become the president and
chief operating officer of NSTAR. Both Mr. May and Mr. Wright have entered
into five-year employment agreements with NSTAR that become effective when
the merger is completed. In addition, Mr. May and Mr. Wright have entered
into change in control agreements with NSTAR that will become effective when
the merger is completed. Under these change in control agreements, Mr. May
and Mr. Wright could receive significant payments and benefits if NSTAR
terminates their employment following a later change in control of NSTAR.
Trustees of BEC Energy and COM/Energy Will Continue Their Positions. All
eleven members of BEC Energy's board of trustees and all nine members of
COM/Energy's board of trustees will become trustees of NSTAR. The chairman
of the board of COM/Energy will become the chairman of the executive
committee of NSTAR's board of trustees.
The boards of trustees of BEC Energy and COM/Energy recognized these
interests and determined that they did not affect the benefits of the merger to
the BEC Energy or COM/Energy shareholders.
Conditions to Completion of the Merger (page 70)
A number of conditions must be satisfied before the parties are required to
complete the merger. These conditions include:
. approval of two-thirds of the holders of BEC Energy's and COM/Energy's
common shares;
. receipt of all required approvals of regulatory and governmental
agencies; and
. the sale of BEC Energy's Pilgrim nuclear facility or the making of other
provisions for its disposition or shut-down.
There are other conditions to the merger which may be found in Article 8 of
the merger agreement.
13
<PAGE>
Termination Fees and Expenses (page 72)
If a party terminates the merger agreement because the other party
materially breaches a representation, warranty, covenant or agreement under the
merger agreement, the breaching party must pay to the party terminating the
agreement all out-of-pocket expenses and fees incurred by the terminating
party, up to $5 million.
If a party terminates the merger agreement because its board of trustees is
required to accept another acquisition proposal, the terminating party must pay
to the non-terminating party all documented out-of-pocket expenses and fees
incurred by the non-terminating party, up to $5 million.
Additionally, if the merger agreement is terminated because one party's
board of trustees determines that it is required under law to accept another
acquisition proposal that is outstanding at the time of such termination and
that party enters into a transaction with the third party making the alternate
acquisition proposal within two years of the proposal, the party entering into
the alternative proposal will be required to pay to the other party an
additional termination fee of $35 million. This additional fee also will be
payable if the merger agreement is terminated while another acquisition
proposal is outstanding, because of a material breach of any representation,
warranty, covenant or agreement made under the merger agreement, or because a
party failed to seek or obtain the required shareholder approval, and the party
receiving the alternative acquisition proposal enters into a transaction with
the third party making the proposal within two years following termination of
the merger agreement.
Comparison of Shareholder Rights (page 89)
When the merger is completed, holders of BEC Energy and COM/Energy common
shares receiving NSTAR common shares will become shareholders of NSTAR, and
their rights will be governed by NSTAR's declaration of trust and bylaws. For
your convenience, we have attached copies of these documents as Annexes D and
E. The rights of NSTAR shareholders are similar to the rights of BEC Energy and
COM/Energy shareholders, although former BEC Energy shareholders will no longer
have rights to vote against a merger transaction and demand payment for their
shares, commonly known as appraisal rights.
14
<PAGE>
BEC ENERGY SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(in thousands of dollars, except per share amounts)
The annual financial information presented below has been derived from the
audited financial statements of BEC Energy. You should read this information in
connection with, and this information is qualified in its entirety by reference
to, BEC Energy's financial statements and accompanying notes which are
incorporated by reference into this joint proxy statement/prospectus. See
"WHERE YOU CAN FIND MORE INFORMATION."
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Income Statement Data
Operating revenues...... $1,622,515 $1,776,233 $1,666,303 $1,628,503 $1,544,735
Earnings available for
common shareholders.... $ 132,281 $ 131,493 $ 126,181 $ 96,739 $ 109,257
Earnings per share-basic
and diluted(1)......... $ 2.76 $ 2.71 $ 2.61 $ 2.08 $ 2.41
Cash dividends declared
per common share....... $ 1.895 $ 1.88 $ 1.88 $ 1.835 $ 1.775
<CAPTION>
December 31,
------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data
Total assets............ $3,213,899 $3,622,347 $3,729,291 $3,637,170 $3,608,699
Long-term debt(2)....... $ 956,230 $1,158,676 $1,160,244 $1,261,823 $1,237,217
Preferred Stock
Mandatory redeemable.. $ 49,040 $ 80,093 $ 83,465 $ 86,837 $ 88,837
Non-mandatory
redeemable........... $ 43,000 $ 83,000 $ 119,954 $ 119,677 $ 119,677
Book value per share.... $ 22.29 $ 22.13 $ 21.37 $ 20.61 $ 20.11
</TABLE>
- --------
(1) Basic and diluted earnings per share were the same for all periods
presented, except the year ended December 31, 1998, for which diluted
earnings per share were $2.75.
(2) Includes current portion of long-term debt.
15
<PAGE>
COM/ENERGY SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(in thousands of dollars, except per share amounts)
The annual financial information presented below has been derived from the
audited financial statements of COM/Energy. You should read this information in
connection with, and this information is qualified in its entirety by reference
to, COM/Energy's financial statements and accompanying notes which are
incorporated by reference into this joint proxy statement/prospectus. See
"WHERE YOU CAN FIND MORE INFORMATION."
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Income Statement Data
Operating revenues...... $ 980,115 $1,041,744 $1,010,905 $ 929,288 $ 977,585
Earnings available for
common shareholders.... $ 53,474 $ 48,913 $ 58,125 $ 50,286 $ 47,798
Earnings per share-basic
and diluted............ $ 2.48 $ 2.27 $ 2.70 $ 2.36 $ 2.29
Cash dividends declared
per common share....... $ 1.62 $ 1.58 $ 1.54 $ 1.50 $ 1.50
<CAPTION>
December 31,
------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data
Total assets............ $1,762,888 $1,485,050 $1,428,955 $1,392,342 $1,345,032
Long-term debt(1)....... $ 441,905 $ 390,964 $ 377,218 $ 418,694 $ 449,280
Preferred shares
Mandatory redeemable.. $ 12,200 $ 13,020 $ 13,840 $ 14,660 $ 15,480
Non-mandatory
redeemable........... -- -- -- -- --
Book value per share.... $ 20.87 $ 20.01 $ 19.31 $ 18.15 $ 17.24
</TABLE>
- --------
(1) Includes current portion of long-term debt.
16
<PAGE>
NSTAR UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
(in thousands of dollars, except per share amounts)
We have derived the summary unaudited pro forma combined condensed financial
information of NSTAR from, or prepared it on a basis consistent with, the
unaudited pro forma combined financial statements included elsewhere in this
joint proxy statement/prospectus. We present this data for illustrative
purposes only. It is not necessarily indicative of the combined results of
operations or financial position that would have resulted if the merger had
occurred at the beginning of the period presented or on the date indicated, nor
is it necessarily indicative of the future operating results or financial
position of NSTAR.
<TABLE>
<CAPTION>
Year Ended
December 31, 1998
-----------------
<S> <C>
Pro Forma Combined Statement of Operations
Operating revenues.......................................... $2,423,540
Earnings available for common shareholders.................. $ 150,439
Earnings per share--basic(1)................................ $ 2.36
Earnings per share--diluted................................. $ 2.36
Dividends per share(1)(2)................................... $ 1.94
</TABLE>
<TABLE>
<CAPTION>
As of
December 31, 1998
-----------------
<S> <C>
Pro Forma Combined Balance Sheet(1)
Total assets................................................ $5,139,994
Long-term debt.............................................. $1,398,135
Mandatory redeemable preferred stock........................ $ 49,040
Non-mandatory redeemable preferred stock.................... $ 43,000
Book value per share........................................ $ 27.28
</TABLE>
- --------
(1) Each common share of BEC Energy will be exchanged for one common share of
NSTAR and each common share of COM/Energy will be exchanged for 1.05 common
shares of NSTAR in the merger. Per share amounts are calculated for each
common share of NSTAR that would have been outstanding had the merger
occurred as of January 1, 1998.
(2) BEC Energy and COM/Energy expect to continue their respective current
dividend policies until they complete the merger. It is anticipated that
the initial annualized dividend rate paid to NSTAR common shareholders will
be $1.94 per share.
17
<PAGE>
UNAUDITED COMPARATIVE PER SHARE DATA(1)
We present below the earnings per share, cash dividends declared and book
value per common share data of BEC Energy and COM/Energy on both historical and
unaudited pro forma combined bases and on a per share equivalent unaudited pro
forma basis. We have derived the unaudited pro forma combined per share
information from the unaudited pro forma combined information presented
elsewhere in this document. You should read the information below in
conjunction with the financial statements and accompanying notes of BEC Energy
and COM/Energy that are incorporated by reference in this joint proxy
statement/prospectus and with the unaudited pro forma combined data included
under "UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION."
<TABLE>
<CAPTION>
As of and for the
Year Ended
December 31, 1998
-----------------
<S> <C>
BEC Energy Historical:
Earnings per share--basic................................... $ 2.76
Earnings per share--diluted................................. $ 2.75
Cash dividends declared..................................... $1.895
Book value.................................................. $22.29
COM/Energy Historical:
Earnings per share--basic and diluted....................... $ 2.48
Cash dividends declared..................................... $ 1.62
Book value.................................................. $20.87
NSTAR--Pro Forma Combined(1)(2):
Earnings per share--basic................................... $ 2.36
Earnings per share--diluted................................. $ 2.36
Cash dividends declared(3).................................. $ 1.94
Book value.................................................. $27.28
COM/Energy Per Share Equivalent(4):
Earnings per share--basic................................... $ 2.48
Earnings per share--diluted................................. $ 2.48
Cash dividends declared..................................... $ 2.04
Book value.................................................. $28.64
</TABLE>
- --------
(1) BEC Energy's unaudited pro forma balance sheet as of December 31, 1998 and
the pro forma results of operations for the year then ended have been
combined with COM/Energy's unaudited balance sheet as of December 31, 1998
and the pro forma results of operations for the year then ended, from which
the unaudited comparative per share information has been derived. BEC
Energy's balance sheet and results of operations have been adjusted to give
effect to the sale by Boston Edison of Pilgrim Nuclear Power Station to
Entergy Nuclear Generating Company, which is expected to be completed
during the first half of 1999. BEC Energy's results of operations have been
adjusted to give effect to the sale of Boston Edison's fossil generating
units to Sithe Energies, Inc., which was completed on May 15, 1998.
COM/Energy's results of operations have been adjusted to give effect to the
sale of substantially all of its fossil fuel generating plant assets to
affiliates of Southern Energy New England, L.L.C., which occurred on
December 30, 1998.
(2) The NSTAR pro forma combined financial results include adjustments related
to the merger, including financing costs and the amortization of goodwill.
No provision is made for the net impact of anticipated cost savings and
cost avoidances resulting from the merger.
(3) BEC Energy and COM/Energy expect to continue their respective current
dividend policies until completion of the merger. It is anticipated that
the initial annualized dividend rate paid to NSTAR common shareholders will
be $1.94 per common share.
(4) COM/Energy per share equivalents are 1.05 of NSTAR pro forma combined per
share equivalents, while BEC Energy per share equivalents are the same as
its historical.
18
<PAGE>
COMPARATIVE DIVIDENDS AND MARKET PRICES
BEC Energy
BEC Energy common shares are listed and principally traded on the New York
Stock Exchange and the Boston Stock Exchange under the symbol "BSE." The table
below sets forth the dividends declared and the high and low sales prices of
BEC Energy common shares for the fiscal periods indicated as reported in The
Wall Street Journal as New York Stock Exchange Composite Transactions.
<TABLE>
<CAPTION>
Price Range
Dividends ------------------
Declared High Low
--------- --------- --------
<S> <C> <C> <C>
Year Ended December 31, 1997
First Quarter.................................... $0.470 $27 3/8 $26
Second Quarter................................... $0.470 $26 5/8 $24 5/8
Third Quarter.................................... $0.470 $30 7/8 $26 1/2
Fourth Quarter................................... $0.470 $38 3/8 $30 1/4
Year Ended December 31, 1998
First Quarter.................................... $0.470 $41 15/16 $35 1/16
Second Quarter................................... $0.470 $42 5/8 $38 7/8
Third Quarter.................................... $0.470 $44 5/16 $37 3/4
Fourth Quarter................................... $0.485 $44 15/16 $39 5/8
Year Ended December 31, 1999
First Quarter.................................... $0.485 $41 3/16 $36 7/16
Second Quarter (through May 10, 1999)............ -- $43 13/16 $37 3/16
</TABLE>
COM/Energy
COM/Energy common shares are listed and principally traded on the New York
Stock Exchange and the Pacific Stock Exchange under the symbol "CES." The table
below sets forth the dividends declared and the high and low sales price of
COM/Energy common shares for the fiscal periods indicated as reported in The
Wall Street Journal as New York Stock Exchange Composite Transactions.
<TABLE>
<CAPTION>
Price Range
Dividends -------------------
Declared High Low
--------- --------- ---------
<S> <C> <C> <C>
Year Ended December 31, 1997
First Quarter................................... $0.395 $24 5/8 $20 7/8
Second Quarter.................................. $0.395 $24 3/16 $18 7/8
Third Quarter................................... $0.395 $27 $23 7/16
Fourth Quarter.................................. $0.395 $34 11/16 $25 5/16
Year Ended December 31, 1998
First Quarter................................... $0.405 $40 $34 1/2
Second Quarter.................................. $0.405 $41 $34 1/8
Third Quarter................................... $0.405 $38 1/8 $28 13/16
Fourth Quarter.................................. $0.405 $40 1/2 $31 9/16
Year Ended December 31, 1999
First Quarter................................... $0.415 $41 1/4 $35 7/16
Second Quarter (through May 10, 1999)........... -- $42 $38
</TABLE>
19
<PAGE>
HISTORICAL AND EQUIVALENT PER SHARE MARKET VALUES
The following table sets forth the market value of BEC Energy and COM/Energy
common shares on a historical and an equivalent per share basis as of December
4, 1998, the last business day before the parties entered into the merger
agreement.
<TABLE>
<CAPTION>
BEC Energy COM/Energy Equivalent Equivalent
------------------------- --------------------------- Per Share Value Per Share Value
Date High Low Closing High Low Closing BEC Energy COM/Energy
---- ------- --------- ------- ------- --------- --------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
December 4, 1998........ $42 1/4 $41 13/16 $42 $38 3/8 $37 11/16 $37 13/16 $42 $44.10
</TABLE>
We encourage BEC Energy shareholders and COM/Energy shareholders to obtain
current market quotations for BEC Energy common shares and COM/Energy common
shares.
20
<PAGE>
RISK FACTORS
In addition to the other information included or incorporated by reference
in this joint proxy statement/prospectus, BEC Energy and COM/Energy
shareholders should consider carefully the risk factors described below in
determining whether to approve the merger agreement and the proposed merger.
The value of your interest in BEC Energy or COM/Energy may change between
the time that you vote on the merger and the time that you make your election
for shares or cash, but the amount of cash or number of NSTAR common shares
payable for each of your BEC Energy or COM/Energy common shares will not
change.
We currently anticipate that the period between the time you vote on the
proposed merger and the time you make your elections for cash or NSTAR common
shares may be as long as three to nine months. The cash price that we will pay
for each BEC Energy and COM/Energy share is fixed at $44.10. Likewise, the
share exchange ratios are fixed at 1.05 NSTAR common shares for a common share
of COM/Energy and 1.00 NSTAR common share for a common share of BEC Energy. We
will not make any adjustments to the cash price or exchange ratios for changes
in the market prices of BEC Energy or COM/Energy common shares, which could be
significant, or for any other factor.
At the time you make your elections, the value of the share election may be
higher or lower than the value of the cash election, but you may not receive
all of the NSTAR common shares or cash that you elect since the total amounts
of NSTAR common shares and cash that we will distribute are fixed, except for
minor adjustments.
At the election time, it is possible that the value of the NSTAR common
shares that you can elect in the merger may be significantly higher or lower
than $44.10, the value of the cash that you may elect to receive in exchange
for your BEC Energy or COM/Energy common shares. The total number of COM/Energy
common shares and the total number of BEC Energy common shares to be exchanged
for cash are each fixed, however, subject to minor adjustments. As a
consequence, if your shareholder group elects more cash or more NSTAR common
shares than is available to it, you may not receive all of the cash or all of
the NSTAR common shares that you elect. You should review "THE MERGER
AGREEMENT--Limits on Cash and NSTAR Common Shares That Shareholders Will
Receive" below for more information.
We cannot assure you that we will be able to integrate the operations of BEC
Energy and COM/Energy as successfully as we would like and consequently, we may
not achieve the benefits of the merger.
We have entered into the merger agreement with the expectation that the
merger will result in benefits, including cost savings and avoidances of $500
million over a ten-year period, improved customer service levels and enhanced
management resources. See "THE MERGER--Reasons for the Merger" below for more
information. We will not be able to achieve the benefits of the merger unless
we are able to integrate successfully and efficiently the businesses of BEC
Energy and COM/Energy. We cannot assure you that this will occur. In addition,
the consolidation of our operations will require substantial attention from
management. Any diversion of management's attention and any difficulties
encountered in the transition and integration process could prevent us from
achieving the cost savings and other benefits of the merger referred to above.
21
<PAGE>
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
We have each made forward-looking statements in this document, and in
documents that are incorporated by reference in this joint proxy
statement/prospectus, about matters which are susceptible to risks and
uncertainties. Forward-looking statements include the information concerning
possible or assumed future results of operations of BEC Energy, COM/Energy or
NSTAR. Also, when we use words such as "believes," "expects," "anticipates" or
similar expressions, we are making forward-looking statements. Shareholders
should note that many factors, which we discuss elsewhere in this document and
in the documents that we incorporate by reference, could affect the future
financial results of BEC Energy, COM/Energy or NSTAR and could cause those
results to differ materially from those expressed in our forward-looking
statements contained or incorporated by reference in this document. These
factors include the risk factors that appear in the section entitled "Risk
Factors" on page 21.
22
<PAGE>
THE ANNUAL MEETINGS
Purpose, Time and Place
BEC Energy and COM/Energy are sending this joint proxy statement/prospectus
to their shareholders as part of their boards of trustees' solicitation of
proxies for the annual meetings of their shareholders. The BEC Energy annual
meeting will be held on Thursday, June 24, 1999 at 2:00 p.m. at the John B.
Hynes Veterans Memorial Convention Center, Ballroom A, 900 Boylston Street,
Boston, MA 02115. The COM/Energy annual meeting will be held on June 24, 1999.
It will begin at 10:30 a.m. and take place at COM/Energy's offices at One Main
Street, Cambridge, MA 02142-9150.
At the BEC Energy annual meeting, BEC Energy will ask holders of BEC Energy
common shares to consider and vote upon a proposal to adopt the merger
agreement and approve the merger. BEC Energy shareholders will also be asked to
vote upon the election of four trustees to hold office for a three-year term
and until the election and qualification of their successors.
At the COM/Energy annual meeting, COM/Energy will ask holders of COM/Energy
common shares to consider and vote upon a proposal to adopt the merger
agreement and approve the merger. COM/Energy shareholders will also be asked to
vote upon the election of three trustees to hold office for a three-year term
and until the election and qualification of their successors, and to vote upon
a shareholder proposal if presented at the COM/Energy annual meeting.
Record Date; Voting Power
BEC Energy. The BEC Energy board of trustees has fixed the close of
business, 5:00 p.m. eastern time, on May 3, 1999 as the record date for
determining the holders of BEC Energy common shares who will receive notice of,
and vote at, the BEC Energy annual meeting. Only holders of record of BEC
Energy common shares at the close of business on the record date will receive
notice of, and have the right to vote at, the BEC Energy annual meeting.
At the close of business on the record date, 45,881,873 BEC Energy common
shares were issued and outstanding. Holders of record of BEC Energy common
shares issued and outstanding on the record date will have one vote per share
on any matter properly brought before the BEC Energy annual meeting.
Shareholders may vote their shares at the BEC Energy annual meeting in person
or by proxy. See "--Voting of Proxies."
The presence at the BEC Energy annual meeting of the holders of a majority
of the outstanding BEC Energy common shares with the right to vote, either in
person or by proxy, is necessary to constitute a quorum. Abstentions will be
considered present for the purpose of establishing a quorum. Shares held by
brokers as nominees who lack discretionary authority to vote on matters without
instructions from their beneficial owners will not be considered present for
this purpose, however. Shareholders should note that under the rules of the New
York Stock Exchange, brokers who hold BEC Energy common shares as nominees will
not have discretionary authority to vote these shares for approval of the
merger agreement and the merger in the absence of beneficial owner instruction.
If a quorum is not present at the BEC Energy annual meeting, management will
adjourn or postpone the meeting to solicit additional proxies.
COM/Energy. The COM/Energy board of trustees has also fixed the close of
business, 5:00 p.m. eastern time, on May 3, 1999 as the record date for
determining the holders of COM/Energy common shares who will receive notice of,
and vote at, the COM/Energy annual meeting. Only holders of record of
COM/Energy common shares at the close of business on the record date will
23
<PAGE>
receive notice of, and have the right to vote at, the COM/Energy annual
meeting. The term "record date" is used in this document to refer to the
applicable record date for BEC Energy and COM/Energy.
At the close of business on the record date, 21,575,437 COM/Energy common
shares were issued and outstanding. Holders of record of COM/Energy common
shares issued and outstanding on the record date will have one vote per share
on any matter that may properly come before the COM/Energy annual meeting.
Votes may be cast at the COM/Energy annual meeting in person or by proxy. See
"--Voting of Proxies."
The presence at the COM/Energy annual meeting, either in person or by proxy,
of the holders of a majority of the outstanding COM/Energy common shares with
the right to vote is necessary to constitute a quorum. As in the case of BEC
Energy, abstentions will be considered present for the purpose of establishing
a quorum, but shares represented by brokers lacking discretionary authority and
beneficial owner instructions will not. Shareholders should note that under the
NYSE rules, brokers holding COM/Energy common shares will lack the
discretionary authority to vote these shares for the merger agreement and the
merger. If a quorum is not present at the COM/Energy annual meeting, management
will adjourn or postpone the meeting to solicit additional proxies.
Votes Required
BEC Energy. Approval of the proposal to adopt the merger agreement and
approve the merger will require the affirmative vote of at least two-thirds of
the BEC Energy common shares outstanding on the record date. Because the NYSE
rules state that uninstructed brokers who hold BEC Energy shares as nominees
will not have discretionary authority to vote those shares in favor of the
merger agreement or the merger, you should be sure to instruct your broker if
you are in favor of the merger agreement and the merger. Any shares that a
nominee-broker is unable to vote because he has not been given instructions, as
well as any abstentions, will have the same effect as a vote "AGAINST" the
approval of the merger agreement and the merger.
Approval of the proposal to elect four trustees of BEC Energy to hold office
for a three-year term and until the election and qualification of their
successors will require the affirmative vote of a plurality of the votes
properly cast at the BEC Energy annual meeting. Brokers who hold BEC Energy
common shares as nominees will have discretionary authority to vote the shares
to elect the four proposed trustees.
COM/Energy. Approval of the proposal to adopt the merger agreement and
approve the merger will require the affirmative vote of at least two-thirds of
the COM/Energy common shares outstanding on the record date. Because the NYSE
rules state that uninstructed brokers who hold COM/Energy shares as nominees
will not have discretionary authority to vote those shares in favor of the
merger agreement or the merger, you should be sure to instruct your broker if
you are in favor of the merger agreement and the merger. Any shares that a
nominee-broker is unable to vote because he has not received instructions, as
well as any abstentions, will have the same effect as a vote "AGAINST" the
approval of the merger agreement and the merger.
Approval of the proposal to elect three trustees of COM/Energy to hold
office for a three-year term and until the election and qualification of their
successors will require the affirmative vote of a plurality of the votes
properly cast at the COM/Energy annual meeting. Brokers who hold COM/Energy
common shares as nominees will have discretionary authority to vote the shares
to elect the three proposed trustees.
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Finally, the shareholder proposal will require the affirmative vote of at
least a majority of the votes properly cast at the COM/Energy annual meeting.
Under the NYSE rules, brokers who hold COM/Energy common shares as nominees
will not have discretionary authority to vote the shares for or against the
shareholder proposal in the absence of instructions from the beneficial owners.
Share Ownership of Management and Their Affiliates
BEC Energy. As of the close of business on the record date, BEC Energy's
trustees and executive officers and their affiliates beneficially owned
approximately 338,788 outstanding shares of BEC Energy common shares.
Collectively, these shareholders represent less than 1% of the voting power of
the BEC Energy common shares and less than 1% of the two-thirds common share
vote required to approve the merger agreement and the merger. The executive
officers and trustees of BEC Energy have indicated that they will vote "FOR"
the approval of the merger agreement and the merger.
COM/Energy. As of the close of business on the record date, COM/Energy's
trustees and executive officers and their affiliates beneficially owned 82,864
outstanding shares of COM/Energy common shares. Collectively, these
shareholders represent less than 1% of the voting power of the COM/Energy
common shares and approximately 1% of the two-thirds common share vote required
to approve the merger agreement and the merger. The executive officers and
trustees of COM/Energy have indicated that they will vote "FOR" the approval of
the merger agreement and the merger.
Voting of Proxies
Shares represented by properly executed proxies received in time for the BEC
Energy annual meeting or the COM/Energy annual meeting, as appropriate, will be
voted in the manner specified by the proxies. You should be aware that, if your
proxy is properly executed but does not contain voting instructions, your proxy
will be voted;
. ""FOR'' approval of the merger agreement and the merger;
. ""FOR'' the election of all nominees for trustee specified in "THE BEC
ENERGY ANNUAL MEETING--ADDITIONAL MATTERS--Election of Trustees", or in
"THE COM/ENERGY ANNUAL MEETING--ADDITIONAL MATTERS--Election of
Trustees", as appropriate; and
. in the case of COM/Energy, "AGAINST" the COM/Energy shareholder proposal.
We do not expect that any matter other than those described in this document
will be brought before our annual meetings. If a shareholder of either company
does properly present other matters before the annual meetings, the persons
named in that company's proxy will have discretionary authority to vote on
these other matters, including any proposal to adjourn or postpone the meeting.
Revocability of Proxies
The grant of a proxy on the enclosed BEC Energy or COM/Energy proxy card
does not preclude a shareholder from voting in person. A BEC Energy shareholder
may revoke a proxy at any time before its exercise by:
. delivering a written revocation dated later than his or her proxy to
Theodora S. Convisser, Esq., clerk, BEC Energy, 800 Boylston Street,
Boston, Massachusetts 02199, before the BEC Energy annual meeting; or
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. attending the BEC Energy annual meeting and orally revoking his or her
proxy with the clerk of the meeting.
A shareholder of COM/Energy may revoke a proxy at any time before its
exercise by:
. delivering a written revocation dated later than his or her proxy to
Michael P. Sullivan, vice president, secretary and general counsel,
Commonwealth Energy System, P.O. Box 9150, Cambridge, Massachusetts
02142-9150, before the COM/Energy annual meeting; or
. attending the COM/Energy annual meeting and orally revoking his or her
proxy with the secretary of the meeting.
You will not have revoked your proxy solely by attending the meeting.
Neither BEC Energy nor COM/Energy expects to adjourn its annual meeting for
a period of time long enough to require a new record date for the later
meeting. If any adjournment occurs, it will have no effect on the ability of
either the BEC Energy or COM/Energy shareholders of record as of the record
date to exercise their voting rights or to revoke any previously delivered
proxies.
Solicitation of Proxies
Each of BEC Energy and COM/Energy will bear the cost of soliciting proxies
from its own shareholders except that the parties will share the costs of
preparing and filing this joint proxy statement/prospectus. In addition to
solicitation by mail, the trustees, officers and employees of each of BEC
Energy and COM/Energy and their respective subsidiaries may solicit proxies
from shareholders by telephone or in person. Arrangements will also be made
with brokerage houses and other custodians, nominees and fiduciaries to forward
solicitation material to the beneficial owners of the shares they hold of
record. BEC Energy and COM/Energy will reimburse these custodians, nominees and
fiduciaries for their reasonable out-of-pocket expenses.
BEC Energy has retained D.F. King & Co., Inc. to help it solicit proxies.
D.F. King will receive a fee that BEC Energy does not expect to exceed $10,000
as compensation for its services plus D.F. King's out-of-pocket expenses. BEC
Energy has agreed to indemnify D.F. King against various liabilities arising
out of its engagement.
COM/Energy has also retained D.F. King to help it solicit proxies. D.F. King
will receive a fee that COM/Energy does not expect to exceed $5,500 as
compensation for its services plus D.F. Kings's out-of-pocket expenses.
COM/Energy has agreed to indemnify D.F. King against various liabilities
arising out of its engagement.
Shareholders should NOT send share certificates with their proxy cards.
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THE MERGER
This section of the joint proxy statement/prospectus, as well as the next
section entitled "The Merger Agreement," describe the proposed merger. These
sections highlight key information about the merger and the merger agreement
but they may not include all the information that a shareholder would like to
know. The merger agreement is attached as Annex A to this joint proxy
statement/prospectus. We urge shareholders to read the merger agreement in its
entirety.
Under the terms of the merger agreement, BEC Energy will merge with one
acquisition subsidiary of NSTAR, and COM/Energy will merge with another
acquisition subsidiary of NSTAR. As a result of these mergers, BEC Energy and
COM/Energy will become subsidiaries of NSTAR. NSTAR will be the holding company
through which the combined businesses of BEC Energy and COM/Energy will be
operated. In this document, we refer to this entire transaction as the merger.
Background of the Merger
Traditionally, electric utilities have operated within a monopoly regulatory
framework under which consumers have been restricted to a single electricity
provider, typically an electric utility engaged in the generation, transmission
and distribution of electricity. The electric energy business has, however,
become increasingly competitive in recent years as a result of industry
restructuring and general economic trends. BEC Energy, and before BEC Energy's
formation in May 1998, Boston Edison Company, and COM/Energy have been
anticipating and responding to these changes. In 1998, guided by electric
industry restructuring legislation adopted in Massachusetts, each company
extended to its electricity customers the option of choosing their own
suppliers, and each company sold substantially all of its fossil electric
generating plants. In addition, Boston Edison, now a subsidiary of BEC Energy,
has entered into an agreement to sell its Pilgrim Nuclear Power Station. As a
result of these completed and anticipated sales, the core electric utility
business of each company will mainly consist of the distribution and the
transmission of electricity. Competition has also extended into some portions
of the gas distribution industry in Massachusetts, and further efforts to
extend competition in the natural gas industry are being spearheaded by the
Massachusetts Gas Unbundling Collaborative, of which COM/Energy has been a key
participant. Since 1996, all of Commonwealth Gas Company's commercial and
industrial customers have had the opportunity to acquire gas from other
suppliers and to have gas transported through Commonwealth Gas Company's
distribution system.
Responding to the inevitable consequences of deregulation and generation
asset sales, the managements of BEC Energy and COM/Energy each undertook to
explore strategic alternatives, including potential business combinations with
other electric and gas delivery utilities in the New England area. From time to
time, Thomas May, the chairman, chief executive officer and president of BEC
Energy and Boston Edison Company, had conversations with chief executive
officers and other senior officers of utilities in the region concerning
industry restructuring, the strategic direction of the electric utility
industry, and business combinations generally. In late 1996, COM/Energy
undertook an examination of its strategic options, leading to preliminary
discussions with other utilities in the region concerning the feasibility of a
business combination. These included discussions between both William Poist,
who was COM/Energy's president and chief executive officer through September 1,
1998, and Russell Wright, COM/Energy's vice chairman and chief executive
officer of utility operations through September 1, 1998 and its president and
chief executive officer thereafter, and chief executive officers and senior
officers of other nearby utilities.
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Over several years, BEC Energy's senior management has continually reviewed
public information concerning other utilities operating in the New England area
to identify possible merger transactions. BEC Energy has worked with Goldman
Sachs and Ropes & Gray, BEC Energy's legal counsel, and has been assisted by
Deloitte Consulting LLC respecting that review. In December 1997, COM/Energy
engaged the SG Barr Devlin division of SG Cowen Securities Corporation as a
financial advisor to assist COM/Energy, together with its legal counsel,
LeBoeuf, Lamb, Greene & MacRae, L.L.P., in evaluating its strategic options. In
early 1998, COM/Energy senior management concluded that industry restructuring
and economic forces were likely to exert great pressure on small- and medium-
sized utilities, such as COM/Energy, making it difficult for them to compete
with larger utilities. They concluded that a combination with another utility
in the region would provide economies of scale, i.e., efficiency gains which
often accompany a company's growth from sources such as increased buying power
and costs which do not rise in proportion to the company's size, and enable
COM/Energy to continue to provide high quality customer service.
As Massachusetts utilities with overlapping service territories, BEC Energy
and COM/Energy have had a variety of working relationships for some time on a
wide range of matters, including not only industry restructuring and regulatory
issues but also operational issues and community affairs. Mr. May had met with
Messrs. Poist and Wright on numerous occasions at industry functions and had
discussed a variety of issues over several years. On February 24, 1998, Mr. May
had a preliminary meeting with Mr. Poist and presented the possibility of a
strategic combination of the two companies into a new entity with board
representation by both parties and a payment to COM/Energy shareholders above
the market price of COM/Energy common shares. This was followed by a telephone
call on March 3, 1998 by Mr. May to Mr. Wright in which the two discussed the
February 24 meeting and agreed to discuss further the possibility of a merger.
At a regularly scheduled meeting held on March 26, 1998, the COM/Energy
board of trustees discussed COM/Energy's strategic goals. SG Barr Devlin was
present at this meeting and made a presentation regarding possible regional
strategic combination opportunities.
On April 9, 1998, Messrs. May and Wright met and explained to one another
their strategies and visions for the future of their respective companies and
the potential benefits of a business combination. Mr. May proposed terms that
might form the basis for a merger transaction. Mr. Wright agreed that the
companies should establish a process for continuing the discussions to
determine if there was a potential basis for a favorable business combination
between them. Mr. May and Mr. Wright continued these discussions at an April 21
meeting.
At a regularly scheduled strategic planning meeting of the BEC Energy board
on April 10, 1998, the trustees discussed strategic goals, including growth
through combinations with other utility companies. At that meeting,
representatives of Goldman Sachs made a presentation to the trustees about
possible regional strategic combination opportunities. Thereafter, the trustees
had an in-depth discussion concerning mergers and acquisitions and expressed
interest in continuing the exploration of a possible strategic combination with
COM/Energy.
At a regularly scheduled meeting of the COM/Energy board on April 23, 1998,
Gerald Wilson, the chairperson of the board's strategic planning committee,
updated the trustees about various strategic options considered earlier that
day by the committee, including a possible combination with BEC Energy. The
board authorized senior management to continue to explore alternatives and
conduct due diligence regarding the various potential courses of action
identified. That led to a later meeting, on April 30, between Messrs. May and
Wright regarding a potential transaction.
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On May 11, 1998, Mr. May, together with James Judge, senior vice president
and treasurer, and Douglas Horan, senior vice president and general counsel, of
BEC Energy, met with Mr. Wright, James Rappoli, financial vice president and
treasurer of COM/Energy, and Michael Sullivan, vice president, secretary and
general counsel of COM/Energy, to determine whether there was a workable basis
for combining the two companies. At this meeting, the parties discussed
possible terms of a merger and agreed to begin exchanging confidential
information so that they could better analyze whether this type of a
transaction would be advantageous to both companies. On June 3, 1998, the
companies signed a confidentiality agreement providing for an exchange of
information.
On June 19, 1998, Mr. Sullivan called Mr. Horan to determine whether BEC
Energy remained interested in the exchange of documents and in establishing a
process for doing so, and suggested that the companies jointly retain Deloitte
Consulting to assist the companies in connection with an analysis by the
companies' respective managements of the potential cost savings and cost
avoidances that would result from a combination of the two companies. On June
22, 1998, Mr. May called Mr. Wright to confirm BEC Energy's continued interest
in merger discussions. On July 15, 1998, Messrs. Judge, Horan, Rappoli and
Sullivan met with Thomas Flaherty of Deloitte Consulting to discuss potential
cost savings and cost avoidances arising out of a combination of BEC Energy and
COM/Energy. The parties discussed the companies' analysis and the steps that
the companies needed to take to identify and quantify potential cost savings
and cost avoidances in the areas of labor, corporate and administrative
programs, purchasing and energy sourcing, as well as to quantify the costs to
achieve any identified savings. On August 17, 1998, Deloitte Consulting was
formally retained by the parties to assist the companies' managements with
their analysis.
At a regular meeting held on July 23, 1998, the BEC Energy board considered
the benefits of possible combinations with other energy companies in the New
England area, including COM/Energy. The board expressed interest in continuing
exploration of combinations with other regional utility companies including
COM/Energy.
At a regularly scheduled meeting of the COM/Energy board on July 23, 1998,
Dr. Wilson summarized for the board an earlier meeting that day in which
COM/Energy management had updated the strategic planning committee about
discussions with BEC Energy management to date and on management's due
diligence efforts. The board directed management to continue its examination of
the potential for a merger with BEC Energy.
On July 28, 1998, Messrs. May and Wright met again and discussed various
preliminary governance and integration matters. At the end of the meeting it
was decided that the parties would form working teams to consider in more
detail not only these issues but regulatory issues as well, and to exchange and
review internal financial projections and other operational information.
Through the remainder of July and during August 1998, representatives of BEC
Energy and COM/Energy met to work out the potential terms of a strategic
combination. Representatives of Ropes & Gray, legal counsel to BEC Energy, and
LeBoeuf, legal counsel to COM/Energy, participated in several of these
meetings. The parties discussed possible transaction structures and related
regulatory issues. On August 18, Messrs. Wright, Sullivan and Rappoli met with
Mr. Flaherty to review the analysis prepared by the managements of BEC Energy
and COM/Energy of potential cost savings and cost avoidances which might be
expected from this strategic combination. Later in the month, financial and
accounting representatives of the two companies exchanged additional financial
information to enable each team to complete its financial and operational
review.
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On September 3, 1998, Messrs. May and Wright met to discuss the state of the
potential transaction and determined to convene a meeting of each company's
transaction teams. On September 9, 1998, representatives of both companies and
their financial and legal advisors met to discuss a schedule and work plan for
negotiation of the terms of a potential merger transaction. The parties
scheduled a series of meetings to continue discussions relating to due
diligence, transaction structure, and outstanding financial, regulatory and
integration issues. The transaction teams met during the remainder of September
1998 to conduct due diligence examinations about various legal, financial and
operational aspects of each company's business and to continue discussion and
consideration of significant issues. On September 23, the transaction teams
held a joint meeting to discuss selected due diligence items, including, among
other issues, the parties' generation divestiture projects and, regulatory
treatment of stranded costs, i.e., costs reflecting investments made
unprofitable or unsustainable due to industry restructuring and the related
rate recovery of these costs. The diligence discussions also covered topics
such as the supply arrangements the parties have made to meet their respective
obligations to supply electric service to customers who do not choose an
alternative supplier, and environmental exposure.
At the regularly scheduled meeting of the BEC Energy board on September 24,
1998, Messrs. May, Judge and Horan reported to the BEC Energy board on the
status of discussions with COM/Energy. Mr. May reported that Goldman Sachs had
been specifically engaged to provide financial advice to BEC Energy with
respect to negotiation of a strategic combination with COM/Energy. Mr. May also
reported that the BEC Energy transaction team was continuing its analysis of
the financial, operational and strategic benefits of a combination of the
companies, including possible cost savings and cost avoidances, as well as
governance and integration issues. The board of trustees engaged in an in-depth
discussion of the potential combination and posed questions to Messrs. May,
Judge and Horan.
On the same day, the COM/Energy board held a regularly scheduled meeting at
which representatives of SG Barr Devlin and LeBoeuf provided an overview of
issues associated with the strategic alternatives under review, including a
potential combination with BEC Energy. SG Barr Devlin provided financial
advice, and LeBoeuf advised the board concerning its legal obligations to the
shareholders of COM/Energy. Management provided the board with an update on
discussions with BEC Energy management and management's analysis of the
benefits of combining the two companies, and answered questions from the board.
On September 25, 1998, the transaction teams met to discuss the two
companies' internal financial forecasts and potential rate plans for a combined
company. On September 29, 1998, Messrs. May and Wright met separately to
continue discussions of governance issues. The meeting also included discussion
of executive compensation issues and strategies for utilizing the management
resources of both companies most effectively.
On October 1, 1998, the parties' transaction teams and legal, financial and
consulting representatives met to review and discuss the BEC Energy and
COM/Energy preliminary synergy analysis. On October 7, 1998, Messrs. May, Judge
and Horan met with Messrs. Wright, Rappoli and Sullivan, with their respective
outside counsel in attendance, to discuss the process for continuing merger
discussions. It was agreed that Messrs. May and Wright should make
presentations to one another's board of trustees. Members of the transaction
teams, including Messrs. May and Wright, met again the following day with their
outside counsel present to discuss regulatory matters and possible legal
structures for a strategic combination between the companies. Over the next
several weeks, Messrs. May and Wright held a number of coordinating meetings.
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On October 22, 1998, at a regularly scheduled meeting of the BEC Energy
board, Mr. May apprised the board of the status of discussions concerning the
proposed combination with COM/Energy and gave a review of the ongoing due
diligence examination of COM/Energy's financial condition. A representative of
Goldman Sachs made a presentation respecting transactions comparable to the
proposed combination with COM/Energy and discussed a proposed structure for the
combination. In the course of the board's discussions, a representative of
Ropes & Gray made a presentation to the board respecting its legal obligations
to BEC Energy and its shareholders, including the duty to act with due care and
loyalty. The board then went into executive session and Mr. Wright joined the
meeting and was introduced to the BEC Energy trustees. Mr. Wright presented to
the trustees his vision of establishing a premier electric and gas distribution
company within the region. The BEC Energy board questioned Mr. Wright and an
extensive discussion followed.
At the COM/Energy board meeting on October 22, 1998, the board of trustees
discussed the status of the possible combination with BEC Energy. Mr. May
appeared before the COM/Energy board, shared his vision of BEC Energy's
business and responded to questions from the COM/Energy board. Following his
presentation, Mr. May left the meeting. Representatives of SG Barr Devlin and
LeBoeuf then entered and provided further financial and legal guidance to the
board.
On October 29, 1998, representatives of Goldman Sachs and SG Barr Devlin met
to discuss the respective internal financial forecasts of the companies. Later
that same day, a draft merger agreement was circulated. In addition, Mr. May
and Mr. Wright met to discuss financial terms. Mr. May indicated a possible
exchange ratio of one BEC Energy common share for each COM/Energy common share.
He noted that the BEC Energy board wanted the merger consideration to include a
cash component so that the transaction would be accretive to earnings, i.e., so
that the transaction would not increase the number of outstanding shares of the
combined company such that the combined company could not achieve an increase
in earnings per share, following the merger. Mr. Wright did not object to the
cash proposal but expressed concern with the proposed exchange ratio in view of
the current trading ratios of BEC Energy's and COM/Energy's common shares. On
November 3, 1998, following a meeting between the transaction teams to discuss
regulatory issues, Mr. Wright and Mr. May met separately in an effort to
determine whether an agreeable exchange ratio could be established. Mr. Wright
agreed that the parties should not focus exclusively on the current trading
ratios of BEC Energy's and COM/Energy's common shares but indicated that the
COM/Energy board had been expecting a higher exchange ratio.
On November 5, 1998, Mr. Wright met with Mr. May to apprise Mr. May that the
COM/Energy board of trustees planned to discuss the proposed transaction at a
special meeting on November 7. At that meeting, with representatives of SG Barr
Devlin and LeBoeuf present, management apprised the trustees of the status of
negotiations. The board indicated an unwillingness to accept the terms proposed
by Mr. May in the October 29 meeting. Following the special meeting, Mr. Wright
informed Mr. May that the COM/Energy board proposed an exchange ratio of 1.1
BEC Energy common shares for each COM/Energy common share.
The BEC Energy board met again on November 12, 1998. The board discussed the
general status of the proposed transaction. Mr. May apprised the trustees of
the discussions between himself and Mr. Wright. Mr. May reviewed with the board
projected financial information regarding the proposed transaction.
Representatives of Goldman Sachs analyzed the transaction under several
different financial structures and compared it to recent similar transactions.
The BEC Energy board posed a number of questions to Mr. May and Goldman Sachs
and extensive discussion ensued. The board also agreed that Mr. May should
discuss revised governance alternatives with Mr. Wright.
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On November 13, 1998, Mr. May spoke to Mr. Wright by telephone to apprise
him of the results of the BEC Energy board meeting. Mr. May offered to increase
the number of COM/Energy-appointed representatives on the initial board of the
combined company so that BEC Energy would appoint 11 members and COM/Energy
would appoint 9 members. Mr. May also reported that the BEC Energy board would
not proceed with a transaction on the basis of the exchange ratio proposed by
COM/Energy. Mr. Wright in turn reported that the COM/Energy trustees would not
proceed with the negotiations absent an increase in the exchange ratio proposed
by BEC Energy.
On November 20, 1998, Mr. May met again with Mr. Wright to resume discussion
of the transaction. They considered the viewpoint of each company's board of
trustees and agreed that, although there could be no assurances of agreement,
each would propose to his board an exchange ratio of 1.05 shares of the common
stock of the combined company for each COM/Energy common share. Messrs. May and
Wright each agreed as well to recommend that his board approve the board
composition proposal introduced during the November 13 meeting.
On November 23, 1998, the COM/Energy board authorized Mr. Wright to proceed
with negotiations on the proposed transaction on the basis that Messrs. May and
Wright had previously introduced with the additional understanding that Mr.
Buckler serve as chair of the combined company's executive committee. On the
same day, Mr. Wright communicated these points to Mr. May. Mr. Wright proposed
a meeting of representatives of the two companies' boards of trustees to reach
a common understanding of how the key terms of the transaction might be
resolved. Separately, Messrs. Horan and Sullivan, together with Ropes & Gray
and LeBoeuf, engaged in extensive negotiations concerning the terms of a merger
agreement and related agreements, including proposed employment agreements for
Messrs. May and Wright.
On December 1, 1998, Mr. May and Messrs. Gary Countryman and Charles
Gifford, trustees of BEC Energy, met with Messrs. Wright, Buckler and
Ruettgers, a trustee of COM/Energy, to revisit matters previously discussed.
The participants in the meeting determined that, while they appeared to have
reached a common understanding on these terms, the companies' financial and
legal advisors should attempt to agree on the form and the remaining terms of a
merger agreement and related documentation that could be submitted for review
by the companies' respective boards of trustees.
The parties and their representatives continued to work through remaining
issues over the next several days, and a final set of documents was agreed upon
on the evening of December 4, 1998. A special meeting of COM/Energy's board was
held on December 5, 1998. Representatives of SG Barr Devlin reviewed the
financial and other information and rendered to the board its opinion that the
merger consideration provided for the COM/Energy common shareholders in the
merger agreement was fair from a financial point of view to the holders of
COM/Energy common shares. Counsel to COM/Energy reviewed in detail for the
board the proposed transaction terms. Following the rendering of the SG Barr
Devlin opinion, the COM/Energy board discussed with SG Barr Devlin and counsel
the information and advice it had received and the potential benefits of the
transaction to COM/Energy's shareholders and customers. Following further
extensive discussion by the COM/Energy board, the COM/Energy board unanimously
approved the proposed transaction and authorized the execution of the
transaction documents.
Later that same day, the BEC Energy board met to consider the proposed
transaction with COM/Energy. Representatives of BEC Energy's senior management
made presentations respecting the combined business, the due diligence process
and the terms of the merger agreement and related
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transaction documents. Mr. Judge reported that the parties expected the
transaction to be accretive to earnings for the combined company during the
first full year following the transaction. Representatives of Goldman Sachs and
Ropes & Gray attended and participated in the meeting. Goldman Sachs made
presentations respecting financial aspects of the transaction, including but
not limited to the transaction structure, the transaction rationale and various
financial characteristics of COM/Energy. Goldman Sachs then rendered an oral
opinion, confirmed by a subsequent written opinion dated December 5, 1998,
that, as of the date of the opinion, the cash and stock to be received by the
BEC Energy shareholders in the merger was fair to the BEC Energy shareholders
from a financial point of view. Mr. Horan made a presentation with respect to
the transaction teams' due diligence investigation and regulatory aspects of
the proposed transaction. Mr. Horan also reviewed the final terms and
conditions of the merger agreement and related agreements, including the
proposed form and terms of the employment agreements between NSTAR and each of
Mr. May and Mr. Wright. After in-depth discussion and consideration, the board
of trustees of BEC Energy authorized the merger and the execution and delivery
of the merger agreement and recommended the approval of the merger agreement
and the merger to the shareholders of BEC Energy.
Shortly after the meetings of the COM/Energy board and BEC Energy board, the
merger agreement and related transaction documents were executed. On December
7, 1998, the parties issued a joint press release announcing the merger and the
execution of the merger agreement.
Reasons for the Merger
As previously described, as a result of industry restructuring and the
generation asset sales by BEC Energy and COM/Energy, the respective managements
and boards of trustees of BEC Energy and COM/Energy decided to focus on their
electricity distribution business, and gas distribution in the case of
COM/Energy, and to geographically expand, particularly in the New England area,
through combinations with other electric and gas delivery utilities. The boards
of trustees and managements of BEC Energy and COM/Energy each believe that the
combination of BEC Energy's electric distribution business with COM/Energy's
electric and gas distribution business will provide a basis for NSTAR to become
one of the premier electric and gas distribution businesses in the New England
region. They believe the combination of these businesses will enable strategic
financial opportunities for both BEC Energy and COM/Energy and for their
shareholders as well as benefits to their customers and employees, including:
. Customer Service--BEC Energy and COM/Energy expect that the combined
enterprise will be in a better position to offer improved service levels
to customers. We believe that NSTAR's broader customer base, enhanced
financial resources and collective experience in serving the energy needs
of communities in eastern and southern Massachusetts will allow it to
invest more efficiently in technology and infrastructure.
. Potential Cost Savings and Cost Avoidances Resulting from the Merger--BEC
Energy and COM/Energy believe that the merger will result in net cost
savings and cost avoidances estimated at $500 million in the aggregate
over a ten-year period. These savings, offset in part by annual
amortization of approximately $20 million of the estimated acquisition
premium, will benefit customers because BEC Energy's and COM/Energy's
rates are based on their costs of service. See "Potential Cost Savings
and Cost Avoidances Resulting From the Merger" below.
. Competitive and Strategic Position--NSTAR will have a broader and more
diversified customer base, including approximately 1,040,000 electric
customers in 81 communities and
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240,000 gas customers in 51 communities. As a result, it will have the
size and scope to be an effective competitor in the emerging and
increasingly competitive markets for transporting and distributing energy
and marketing energy services.
. Expanded Management Resources--NSTAR will be able to draw on a larger and
more diverse pool of management for leadership in an increasingly
competitive environment.
Potential Cost Savings and Cost Avoidances Resulting From the Merger
As noted above, one of the more important potential benefits of the merger
is the cost savings expected to result from combining our operations. Unlike
some of the other benefits mentioned above, estimates of potential costs
savings may be quantified and the managements of BEC Energy and COM/Energy
developed analyses of potential cost savings as described below.
BEC Energy's and COM/Energy's respective managements have limited estimated
potential cost savings and avoidances that we expect to achieve after the
merger to quantifiable amounts. Recognition has been given to those costs to
be incurred in achieving these potential savings and avoidances and to the
time required to implement plans designed to integrate operations. Operating
synergies from the merger are estimated to generate net cost savings and cost
avoidances of $500 million over a ten-year period, excluding the annual
amortization of approximately $20 million of the estimated acquisition
premium. The major components of the anticipated cost savings and cost
avoidances identified by the managements of BEC Energy and COM/Energy are
described below.
. Integration of corporate functions--The combined company will have the
ability to eliminate redundant functions in a variety of areas, including
accounting and finance, human resources, information services, external
relations, legal, executive management, retail marketing, and
administrative support. The staffing levels for these functions are
relatively fixed and do not vary directly with changes in the number of
employees or customers. The estimated cost savings of this component over
the ten-year period totals approximately $322 million.
. Integration of corporate programs--The combined company will have the
ability to integrate various corporate and administrative functions,
thereby reducing non-labor costs in the areas of advertising and public
relations, benefits plan administration, insurance, professional
services, facilities, vehicles, association dues, and credit facilities.
In addition, future expenditures in the area of information systems that
would be made by each company on a stand-alone basis will be reduced for
the combined company. Additional expenditures will be reduced through the
more efficient management of investment in other technology areas,
including personal computers, other hardware and related software, and
data center requirements. The estimated cost savings of this component
over the ten-year period totals approximately $211 million.
. Integration of customer support functions--The combined company will have
the ability to integrate customer support functions in the areas of
customer service, marketing and sales, and other support services, such
as purchasing and materials management. The estimated cost savings of
this component over the ten-year period totals approximately $81 million.
. Streamlining of inventories and purchasing economies--The combined
company will have the ability to centralize some purchasing and inventory
functions. Inventory may be shared across locations. We expect purchasing
power of the combined company to lead to materials and services volume
discounts. The estimated cost savings of this component over the ten-year
period totals approximately $53 million.
34
<PAGE>
BEC Energy and COM/Energy will jointly develop an integration management
plan that will examine the manner in which to best organize and manage the
businesses of BEC Energy and COM/Energy following the completion of the
proposed merger and to identify duplicative positions in corporate and
administrative functions. We are committed to achieving cost savings and
avoidances resulting from personnel reductions through attrition, strictly
controlled hiring, reassignment, retraining, and voluntary separation programs.
The estimated costs savings and cost avoidances described above total
approximately $667 million for the ten-year estimation period, and are expected
to continue beyond the ten-year period following the merger. Estimated costs to
achieve the merger total approximately $111 million, over the ten-year period.
There are several categories of costs included in the approximate total cost of
$111 million that we will incur to achieve the identified savings that we
expect from the merger. They include separation costs, employee retention
costs, system integration costs, relocation costs, regulatory process costs,
transaction costs, and transition costs. Of the approximately $111 million of
estimated costs to achieve the merger, approximately $69 million will be
incurred in 1999 and 2000.
In addition, the combined company will incur the acquisition premium, which
is currently estimated to be approximately $516 million, over forty years. The
acquisition premium is the amount paid to COM/Energy shareholders in the merger
above the net book value of COM/Energy's assets and liabilities. See
"Regulatory Matters--Massachusetts Department of Telecommunications and
Energy."
Cost savings initiatives that BEC Energy or COM/Energy already planned prior
to the merger were subtracted from the gross savings estimated to result from
the merger because there is likely to be some overlap between these initiatives
and identified cost savings resulting from the merger. These ongoing or future
initiatives will contribute to lower total costs to customers and we estimated
them to total $24 million over the ten-year period.
The analyses employed by the managements of BEC Energy and COM/Energy in
order to develop estimates of potential savings as a result of the merger were
necessarily based upon various assumptions that involve judgments with respect
to, among other things, future national and regional economic and competitive
conditions, inflation rates, regulatory treatment, weather conditions,
financial markets and other uncertainties, all of which are difficult to
predict and are beyond the control of BEC Energy and COM/Energy. Accordingly,
while BEC Energy and COM/Energy believe that such assumptions are reasonable
for purposes of developing estimates of potential cost savings and cost
avoidances, there can be no assurance that such assumptions will approximate
actual experience or that such cost savings and cost avoidances will be
realized.
Recommendation of the BEC Energy Trustees
The BEC Energy trustees believe that the merger is advisable and in the best
interests of BEC Energy and its shareholders, customers and employees. They
believe the merger offers BEC Energy better prospects for the future than those
available to BEC Energy as a stand-alone entity.
In addition to the reasons for the merger described above under "Reasons for
the Merger," the trustees of BEC Energy also took into account the following
factors in considering the merger:
(1) BEC Energy's and COM/Energy's respective businesses, operations,
service territories, assets, management and prospects, and the potential
cost savings which could be realized through their consolidation;
35
<PAGE>
(2) current industry deregulation and economic, market and regulatory
conditions and trends which encourage consolidation to create new business
strategies and earnings potential;
(3) the competitive advantages of being able to offer both electric and
gas distribution services as a result of the merger;
(4) the expanded management resources of the combined entity;
(5) BEC Energy's and COM/Energy's strategic fit and shared visions of
the future of the electric and gas distribution business;
(6) the current and historical market prices and dividends of the BEC
Energy and COM/Energy common shares;
(7) the opportunity for BEC Energy shareholders to elect to receive (a)
$44.10 in cash for their BEC Energy common shares, which represents a
payment of 5% more than the closing price of BEC Energy common shares on
the New York Stock Exchange on the last trading day before announcement of
the merger, or (b) NSTAR common shares so that they may participate in the
anticipated benefits of ownership of the combined enterprise;
(8) the fact that the merger will be tax free to holders of BEC Energy
common shares who receive NSTAR common shares;
(9) the projected pro forma ownership, approximately 68%, of NSTAR by
the BEC Energy shareholders implied by the BEC Energy exchange ratio and
the COM/Energy exchange ratio;
(10) the terms of the merger agreement described under "The Merger
Agreement";
(11) the composition of the board of trustees and board committees of
NSTAR;
(12) the employment agreements of both Mr. May and Mr. Wright, which
provide that Mr. May will serve as the chairman and chief executive
officer, and Mr. Wright will serve as the president and chief operating
officer, of NSTAR;
(13) the regulatory treatment to be requested by the parties in
connection with the merger and the likelihood of obtaining timely and
satisfactory regulatory approvals of the merger and a rate plan for NSTAR's
utility subsidiaries;
(14) the favorable results of BEC Energy's due diligence review of
COM/Energy and its subsidiaries; and
(15) the opinion of Goldman Sachs, BEC Energy's financial advisor, that
the cash and NSTAR common shares to be received by the BEC Energy
shareholders in the merger is fair to the BEC Energy shareholders from a
financial point of view;
The BEC Energy trustees also considered the following factors:
(1) the risk of unfavorable regulatory treatment;
(2) the potential difficulties in integrating BEC Energy and COM/Energy
and achieving estimated cost savings and cost avoidances; and
(3) the possibility of market fluctuations in the price of BEC Energy
common shares and COM/Energy common shares following shareholder approval
and before the closing of the merger.
These risk factors are discussed in more detail under "Risk Factors."
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<PAGE>
The foregoing discussion of the information and factors discussed by the BEC
Energy board is not meant to be exhaustive, but includes all material factors
considered by the BEC Energy board. While the BEC Energy board considered such
factors, it did not quantify or attach any particular weight to the separate
factors. Further, individual members of the BEC Energy board may have placed
different emphasis on particular positive or negative factors in reaching their
determination that the merger is in the best interests of BEC Energy and its
shareholders.
The BEC Energy board has determined that the merger agreement and the merger
are advisable and fair to and in the best interests of BEC Energy and its
shareholders and has approved the merger agreement and the merger. Accordingly,
the BEC Energy board recommends that shareholders vote "FOR" approval and
adoption of the merger agreement and the merger.
In considering the recommendation of the BEC Energy board to approve the
merger agreement and the merger, holders of BEC Energy common shares should be
aware that some members of the BEC Energy board have interests in the merger
that are in addition to, and may conflict with, their interests as shareholders
and the interests of other BEC Energy shareholders. See "--Interests of
Trustees and Executive Officers of BEC Energy and COM/Energy in the Merger."
The BEC Energy trustees were aware of these interests and considered them,
among other matters, in approving the merger agreement and the merger.
Recommendation of the COM/Energy Trustees
The COM/Energy board has determined that the terms of the merger are fair
and in the best interests of COM/Energy shareholders. Accordingly, the
COM/Energy board has unanimously approved the merger agreement and unanimously
recommends that the holders of COM/Energy common shares vote FOR approval of
the merger agreement and the merger.
In its deliberations concerning the merger, the COM/Energy board considered
COM/Energy's and BEC Energy's respective businesses, operations, assets,
management, geographic location and prospects, particularly the proximity of
the respective service territories. Also, the COM/Energy board considered the
financial condition and results of operations of COM/Energy and BEC Energy both
on a historical and on a prospective basis. Other factors considered by the
COM/Energy board include:
(1) current industry deregulation and economic, market and regulatory
conditions and trends which encourage consolidation to create new business
strategies and earnings potential;
(2) the expanded management resources of the combined entity;
(3) the current and historical prices, trading information and dividend
payments with respect to the COM/Energy and BEC Energy common shares;
(4) BEC Energy's and COM/Energy's strategic fit and shared visions of
the future of the electric and gas distribution business;
(5) the fact that the merger will be tax-free to holders of COM/Energy
common shares who receive NSTAR common shares;
(6) the opportunity for COM/Energy common shareholders to elect to
receive (a) $44.10 cash for their COM/Energy common shares, which
represents a payment of 17% more than closing price of COM/Energy common
shares on the New York Stock Exchange on the last
37
<PAGE>
trading day before announcement of the merger, or (b) NSTAR common shares
so that they may participate in the anticipated benefits of ownership of
the combined enterprise;
(7) the presentations of management, including COM/Energy's analysis of
the potential operating and financial synergies anticipated from the merger
prepared with the assistance of Deloitte Consulting, which estimated
savings of $500 million, net of costs to achieve, over a ten-year period;
(8) the terms of the merger agreement, which provide for substantially
reciprocal representations and warranties, conditions to closing and rights
relating to termination;
(9) the composition of the board of trustees and board committees of
NSTAR;
(10) current industry deregulation and economic, market and regulatory
conditions encouraging consolidation;
(11) the employment agreements of both Mr. May and Mr. Wright, which
provide that Mr. May will serve as the chairman and chief executive
officer, and Mr. Wright will serve as the president and chief operating
officer, of NSTAR;
(12) the regulatory treatment to be requested by the parties in
connection with the merger and the likelihood of obtaining timely and
satisfactory regulatory approvals of the merger and a rate plan for NSTAR's
utility subsidiaries;
(13) the favorable results of COM/Energy's due diligence review of BEC
Energy and its subsidiaries; and
(14) the opinion of COM/Energy's financial advisor, SG Barr Devlin, that
the cash and NSTAR common shares to be provided to the holders of
COM/Energy common shares in the merger is fair from a financial point of
view.
The above factors were considered as a whole and no one factor was assigned
a particular weight by the COM/Energy board of trustees relative to any other.
In considering the recommendation of the COM/Energy board to approve the
merger agreement and the merger, holders of COM/Energy common shares should be
aware that some members of the COM/Energy board have interests in the merger
that are in addition to, and may conflict with, their interests as shareholders
and the interests of other COM/Energy shareholders. See "--Interests of
Trustees and Executive Officers of BEC Energy and COM/Energy in the Merger."
The COM/Energy trustees were aware of these interests and considered them,
among other matters, in approving the merger agreement and the merger.
In addition, in considering the merger, the COM/Energy board was aware of
and considered the risks to COM/Energy and its shareholders presented by the
merger including, among others, difficulties in integration, the potential for
unfavorable regulatory treatment, and market fluctuations in BEC Energy's and
COM/Energy's common shares following shareholder approval and before the
closing of the merger.
Opinion of BEC Energy's Financial Advisor
Goldman Sachs delivered its written opinion, dated December 5, 1998, to the
BEC Energy board that, as of the date of the opinion, the one fully paid and
non-assessable NSTAR common share and the $44.10 in cash, in each case per BEC
Energy common share, to be received pursuant to
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<PAGE>
the merger agreement by the holders of BEC Energy common shares, taken as a
unitary transaction, are fair from a financial point of view to the holders of
BEC Energy common shares receiving such NSTAR common shares and cash.
The full text of the written opinion of Goldman Sachs dated December 5,
1998, which sets forth assumptions made, matters considered and limitations on
the review undertaken in connection with the opinion, is attached as Annex B to
this document. The following summary describes the material assumptions made
and material matters considered in, and the material limitations on, Goldman
Sachs' review that was undertaken in providing its opinion. However, it does
not purport to be a complete description of the opinion. Accordingly, the
following summary of the opinion is qualified in its entirety by reference to
the full text of the opinion. Shareholders of BEC Energy are urged to, and
should, read such opinion in its entirety.
In connection with its opinion, Goldman Sachs reviewed, among other things:
. the merger agreement;
. Annual Reports to Stockholders and Annual Reports on Form 10-K of Boston
Edison Company, BEC Energy's predecessor, and of COM/Energy for the five
years ended December 31, 1997;
. recent interim reports to shareholders and Quarterly Reports on Form 10-Q
of BEC Energy or Boston Edison Company, as the case may be;
. other recent communications from BEC Energy and COM/Energy to their
respective shareholders;
. internal financial analyses and forecasts for BEC Energy and COM/Energy
prepared by their respective managements;
. internal financial analyses and forecasts for COM/Energy prepared by BEC
Energy's management; and
. cost savings and operating synergies estimated to result from the
transactions contemplated by the merger agreement prepared by the
managements of BEC Energy and COM/Energy with the assistance of Deloitte
Consulting.
Goldman Sachs also held discussions with members of the senior management of
BEC Energy and COM/Energy regarding the strategic rationale for, and the
potential benefits of, the transactions contemplated by the merger agreement
and the past and current business operations, financial condition, and future
prospects of their respective companies. In addition, Goldman Sachs reviewed
the reported price and trading activity for the BEC Energy common shares and
the COM/Energy common shares, compared financial and stock market information
deemed by Goldman Sachs to be relevant for BEC Energy and COM/Energy with
similar information for other companies deemed by Goldman Sachs to be relevant
whose securities are publicly traded, reviewed the financial terms of recent
business combinations deemed by Goldman Sachs to be relevant in the electric
and gas utility industry specifically and in other industries generally, and
performed such other studies and analyses as it considered appropriate.
Goldman Sachs relied upon the accuracy and completeness of all of the
financial and other information reviewed by it and assumed this accuracy and
completeness for purposes of rendering its opinion. In that regard, Goldman
Sachs assumed, with the consent of BEC Energy, that the cost savings and
operating synergies estimated to result from the transactions contemplated by
the merger
39
<PAGE>
agreement had been reasonably prepared on a basis reflecting the best currently
available estimates and judgments of BEC Energy and COM/Energy. Goldman Sachs
also assumed, with the consent of BEC Energy, that such cost savings and
synergies would be realized in the amounts and time periods contemplated by BEC
Energy and COM/Energy. Goldman Sachs did not perform any independent analysis
of the cost savings or operating synergies estimated to result from the
transactions contemplated by the merger agreement that were prepared by the
managements of BEC Energy and COM/Energy with the assistance of Deloitte
Consulting. In addition, Goldman Sachs did not make an independent evaluation
or appraisal of the assets and liabilities of BEC Energy or COM/Energy or any
of their subsidiaries. Goldman Sachs has not been furnished with any such
evaluation or appraisal, other than some third party appraisals of BEC Energy's
investment in a joint venture with RCN Corp., as to which appraisals Goldman
Sachs has expressed no opinion. Goldman Sachs' advisory services and the
opinion of Goldman Sachs were provided for the information and assistance of
the BEC Energy board in connection with its consideration of the merger and the
transactions contemplated by the merger agreement. Goldman Sachs' opinion does
not constitute a recommendation as to how any holder of BEC Energy common
shares should vote with respect to the merger agreement and the merger.
The following summarizes the material financial analyses used by Goldman
Sachs in connection with providing its written opinion to the BEC Energy board.
Although the summary does not purport to be a complete description of the
analyses performed or factors considered by Goldman Sachs, it summarizes the
material analyses performed and factors considered by Goldman Sachs in
providing its written opinion to the BEC Energy board.
(a) Historical Stock Trading Analysis. Goldman Sachs reviewed the
historical trading prices and volumes for BEC Energy common shares and
COM/Energy common shares for the period from December 6, 1993 to December
4, 1998. Goldman Sachs also reviewed historical ratios for the exchange of
BEC Energy common shares for COM/Energy common shares, for the period from
December 6, 1993 through December 4, 1998. These ratios were based on the
daily closing prices of the BEC Energy common shares and COM/Energy common
shares during such period. This analysis showed exchange ratios ranging
from approximately 0.66 to approximately 1.12 and an exchange ratio of
approximately 0.90 at December 4, 1998. Under the merger agreement, holders
of BEC Energy common shares are entitled to receive one common share of
NSTAR for each BEC Energy common share. Holders of COM/Energy common shares
are entitled to receive 1.05 common shares of NSTAR for each COM/Energy
common share.
(b) Selected Companies Analysis. Goldman Sachs reviewed market valuation
information for 10 publicly traded corporations:
. Conectiv . Energy East Corporation
. Central Maine Power Company . New England Electric System
. Eastern Utilities Associates . Potomac Electric Power Company
. GPU, Inc. . Puget Sound Energy, Inc.
. Ipalco Enterprises, Inc. . The United Illuminating Company
These 10 corporations were chosen because they are publicly-traded
companies with operations that for purposes of analysis may be considered
similar to BEC Energy and COM/Energy. We refer to these 10 companies as the
comparison companies. Goldman Sachs calculated and compared the price-to-
earnings per share multiples of BEC Energy, COM/Energy
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<PAGE>
and the comparison companies for the calendar years 1998 and 1999. The
multiples of BEC Energy were calculated using a price of $42.00 per BEC
Energy common share. This price was the per share price of BEC Energy
common shares on December 4, 1998. The multiples of COM/Energy were
calculated using a price of $37.81 per COM/Energy common share. This price
was the per share price of COM/Energy common shares on December 4, 1998.
The multiples and ratios for BEC Energy and COM/Energy were based on
information provided by BEC Energy's management, and the multiples for each
of the comparison companies were based on the most recent publicly
available information. The estimates of 1998 and 1999 earnings per share
were based on the latest estimates provided by the Institutional Brokers
Estimate Service, a data service that monitors and publishes a compilation
of earnings estimates produced by selected research analysts on publicly
traded companies.
The following table lists the low, median average and high price-to-
earnings per share multiples for the comparison companies, as compared to
the price-to-earnings per share multiples for BEC Energy and COM/Energy.
Price-to-earnings multiples are presented based on both 1998 and 1999
earnings estimates.
Price-to-Earnings Per Share Multiples of Comparison Companies
<TABLE>
<CAPTION>
1998 1999
----- -----
<S> <C> <C>
Low............................................................ 13.7x 10.9x
Median Average................................................. 14.3x 13.8x
High........................................................... 19.5x 18.4x
Price-to-Earnings Per Share Multiples of BEC Energy and COM/Energy
<CAPTION>
1998 1999
----- -----
<S> <C> <C>
BEC Energy..................................................... 15.6x 14.4x
COM/Energy..................................................... 15.4x 14.0x
</TABLE>
Goldman Sachs also considered the five-year earnings per share growth
rate estimates provided by the Institutional Brokers Estimate Service for
the comparison companies. The following table lists the low, median average
and high five-year earnings per share growth rate estimates for the
comparison companies as compared to the growth rate for BEC Energy and
COM/Energy.
Five-Year Earnings per Share Growth Rates for Comparison Companies
<TABLE>
<S> <C>
Low........................................................................ 2.0%
Median Average............................................................. 3.0%
High....................................................................... 6.0%
BEC Energy................................................................. 3.0%
COM/Energy................................................................. 2.8%
</TABLE>
(c) Comparison of Selected Transactions. Goldman Sachs reviewed publicly
available information that it deemed relevant relating to 27 selected
transactions involving electric and gas utility companies from 1987 to
1998. These transactions were selected because they were combinations of
electric or electric and gas utility companies (or their holding companies)
that possessed general business, operating and financial characteristics
representative of companies in the industries in which BEC Energy and
COM/Energy operate.
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<PAGE>
Based on the announced equity value of each selected comparable
transaction, Goldman Sachs calculated how such value compared as a measure
of the earnings per share of the companies in question for the year
immediately following the relevant transaction, or the multiple of next
year's earnings per share. Goldman Sachs also calculated how such value
compared as a measure of the book value of the companies in question, or
the multiple of book value. In addition, Goldman Sachs compared these
multiples to the corresponding data for COM/Energy, assuming the
consummation of the merger with BEC Energy. The following table lists the
low, mean average, median average and high of the multiples for the
selected comparable transactions, as well as the corresponding COM/Energy
multiples.
<TABLE>
<CAPTION>
Selected Comparable
Transactions
----------------------------
Multiple of Next
Year's Earnings Multiple of
Per Share Book Value
---------------- -----------
<S> <C> <C>
Low ........................................ 11.8x 1.2x
Mean Average ............................... 14.9x 1.8x
Median Average ............................. 14.6x 1.8x
High ....................................... 22.0x 2.8x
COM/Energy Multiples ....................... 21.2x 2.0x
</TABLE>
(d) Pro Forma Merger Analysis. Goldman Sachs performed a pro forma
analysis of the financial impact of the merger on BEC Energy shareholders.
Using earnings estimates for BEC Energy and COM/Energy prepared by their
respective managements, as well as earnings estimates for COM/Energy
prepared by BEC Energy's management, for the years 2000, 2001 and 2002,
Goldman Sachs compared the earnings per share of BEC Energy common shares,
on a stand-alone basis, with the earnings per share of the common shares of
NSTAR on a pro forma basis. Goldman Sachs performed this analysis based on
a price of $42.00 per BEC Energy common share and $37.81 per COM/Energy
common share. These were the per share price of BEC Energy common shares
and the per share price of COM/Energy common shares on December 4, 1998.
Based on BEC Energy's management estimates of the net cost savings realized
from the merger and based on a BEC Energy pro forma ownership of 67.8% of
NSTAR, this analysis showed the following accretions over the estimated
earnings per share of BEC Energy common shares on a stand-alone basis:
<TABLE>
<CAPTION>
Accretions over Estimated
Year Earnings Per Share
---- -------------------------
<S> <C>
2000 0.1%
2001 6.2%
2002 10.2%
Before giving effect to estimated cost savings resulting from the merger,
this analysis showed the following dilutions in the estimated earnings per
share of BEC Energy common shares on a stand-alone basis:
<CAPTION>
Dilutions in Estimated
Year Earnings Per Share
---- -------------------------
<S> <C>
2000 9.6%
2001 8.5%
2002 7.5%
</TABLE>
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<PAGE>
(e) Contribution Analysis. Goldman Sachs reviewed certain historical and
estimated future operating and financial information for BEC Energy and
COM/Energy and the relative contribution of BEC Energy and COM/Energy to
NSTAR based on estimates provided by BEC Energy's management. The
information that Goldman Sachs reviewed included, among other things:
. revenues;
. earnings before interest and taxes;
. net income;
. total assets; and
. book value.
The contribution analysis was based on BEC Energy management estimates.
The statistics were compared to an implied ownership by the BEC Energy
shareholders of 68% of the equity of NSTAR.
The results of this analysis were as follows:
Contribution of BEC Energy to NSTAR's:
<TABLE>
<CAPTION>
Earnings
Before
Interest Net
Year Revenues and Taxes Income
---- -------- --------- ------
<S> <C> <C> <C>
1999 63% 71% 75%
2000 63% 71% 73%
2001 61% 71% 73%
2002 60% 71% 72%
</TABLE>
(f) Discounted Cash Flow Analysis. Goldman Sachs performed a discounted
cash flow analysis under the following scenario using BEC Energy management
projections for BEC Energy and COM/Energy. A discounted cash flow analysis
is an analysis of the present value of projected cash flows using discount
rates and earnings before interest, taxes and depreciation ("EBITDA")
multiples for the year that is used as the reference point. Goldman Sachs
calculated the terminal values of BEC Energy and COM/Energy in the year
2002 based on a range of 5.0x EBITDA to 9.0x EBITDA, which was then
discounted to present value using discount rates ranging from 5.0% to 9.0%.
The terminal value is the value of cash flow that can reasonably be
expected to extend beyond the horizon of projections. This analysis showed
a value per BEC Energy common share in the following ranges:
<TABLE>
<CAPTION>
Discount Rate
-------------
5.0% 9.0%
------ ------
<S> <C> <C> <C>
Multiple of 2002 5.0x $31.61 $25.32
EBITDA 9.0x $60.20 $49.94
</TABLE>
This analysis showed a value per COM/Energy common share in the following
ranges:
<TABLE>
<CAPTION>
Discount Rate
-------------
5.0% 9.0%
------ ------
<S> <C> <C> <C>
Multiple of 2002 5.0x $28.30 $21.72
EBITDA 9.0x $55.95 $45.49
</TABLE>
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<PAGE>
(g) Dividend Discount Analysis. Goldman Sachs performed an analysis of
the present value at December 4, 1998 of the potential equity value per BEC
Energy common share and COM/Energy common share using an indicated annual
dividend of $1.88 per BEC Energy common share and $1.62 per COM/Energy
common share, in each case as of December 4, 1998, and assuming that the
holders of BEC Energy common shares and the holders of COM/Energy common
shares will receive dividends at a rate based on dividend growth rates
ranging from 1.5% to 3.0%. Goldman Sachs calculated the present value per
BEC Energy common share and per COM/Energy common share applying discount
rates ranging from 5.0% to 9.0%. This analysis indicated present values per
BEC Energy common share in the following ranges:
<TABLE>
<CAPTION>
Discount Rate
-------------
5.0% 9.0%
------ ------
<S> <C> <C> <C>
Dividend Growth 1.5% $53.71 $25.07
Rate 3.0% $94.00 $31.33
</TABLE>
This analysis indicated present values per COM/Energy common share in the
following ranges:
<TABLE>
<CAPTION>
Discount Rate
-------------
5.0% 9.0%
------ ------
<S> <C> <C> <C>
Dividend Growth 1.5% $46.29 $21.60
Rate 3.0% $81.00 $27.00
</TABLE>
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without
considering the analyses as a whole, could create an incomplete view of the
processes underlying Goldman Sachs' opinion. In arriving at its opinion,
Goldman Sachs considered the results of all of its analyses as a whole. No
company or transaction (other than the merger) used in the analyses referred
to above is identical to BEC Energy or COM/Energy or the merger. In performing
its analysis, Goldman Sachs made numerous assumptions with respect to industry
performance and general business and economic conditions, many of which are
beyond the control of BEC Energy and COM/Energy.
Goldman Sachs prepared the analyses described above solely for purposes of
providing its opinion to the BEC Energy board. The analyses do not purport to
be appraisals or necessarily reflect the prices at which businesses or
securities actually may be sold. Analyses based upon forecasts of future
results are not necessarily indicative of actual future results, which may be
significantly more or less favorable than suggested by these analyses. These
analyses are inherently subject to uncertainty because they are based upon
numerous factors or events beyond the control of BEC Energy or COM/Energy or
their advisors. See "FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE."
As described above, Goldman Sachs' opinion to the BEC Energy board was one
of many factors the BEC Energy board considered in making its determination to
approve the merger agreement and the merger.
As part of its investment banking business, Goldman Sachs is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. Goldman Sachs is
familiar with
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<PAGE>
BEC Energy, having provided investment banking services to BEC Energy from time
to time, including having acted as its financial advisor in connection with the
sale of BEC Energy's fossil fuel generating assets to Sithe Energies, Inc. in
May 1998, and having acted as its financial advisor in connection with, and
having participated in certain of the negotiations leading to, the merger
agreement. Goldman Sachs also has provided investment banking services to
COM/Energy from time to time, including having acted as its financial advisor
in connection with the sale of some of COM/Energy's generating plants to an
affiliate of Southern Energy, Inc. in December 1998.
Pursuant to a letter agreement dated November 10, 1998, BEC Energy engaged
Goldman Sachs to act as its financial advisor in connection with the
contemplated transactions. Pursuant to the terms of that letter agreement, BEC
Energy has agreed to pay Goldman Sachs a transaction fee of $5,500,000 payable
in installments in connection with the merger or another transaction involving
the acquisition of 50% or more of the outstanding common shares or assets of
COM/Energy. BEC Energy has also agreed to reimburse Goldman Sachs for its
reasonable out-of-pocket expenses, including attorneys' fees, and to indemnify
Goldman Sachs and related persons against various liabilities in connection
with its engagement, including some liabilities under the federal securities
laws.
Opinion of COM/Energy's Financial Advisor
On December 9, 1997, COM/Energy entered into an engagement letter with SG
Barr Devlin retaining SG Barr Devlin to act as COM/Energy's financial and
strategic advisor in developing and implementing future strategic and financial
courses of action. SG Barr Devlin has delivered written opinions to the
COM/Energy board, dated December 5, 1998 and the date of this joint proxy
statement/prospectus, which state that, as of such dates and based upon the
matters set forth in the opinions, the consideration NStar will issue to the
holders of COM/Energy common shares pursuant to the merger agreement is fair,
from a financial point of view, to the holders of COM/Energy common shares.
A copy of the opinion of SG Barr Devlin, dated the date of this joint proxy
statement/prospectus, is attached as Annex C to this document. The December 5,
1998 opinion is substantially identical to the opinion attached hereto. Holders
of COM/Energy common shares should read the attached opinion carefully and in
its entirety.
In connection with rendering its opinion dated the date of this joint proxy
statement/prospectus, SG Barr Devlin reviewed and relied upon, among other
things, the following:
. the Annual Reports, Forms 10-K and the related financial information for
the three-year period ended December 31, 1998, for each of COM/Energy,
BEC Energy and Boston Edison Company;
. other filings with the SEC and other regulatory authorities made by
COM/Energy, BEC Energy or Boston Edison Company, as the case may be,
during the last three years, including proxy statements, FERC Forms 1
and 2, Forms 8-K and registration statements;
. internal financial analyses and forecasts for COM/Energy and BEC Energy
prepared by their respective managements;
. the merger agreement; and
. this joint proxy statement/prospectus.
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SG Barr Devlin also conducted discussions with members of senior management
of COM/Energy and BEC Energy concerning their respective businesses, regulatory
environments, prospects, strategic objectives and possible operating and
administrative synergies and other benefits which might be realized for the
benefit of the combined company following the merger. In addition, SG Barr
Devlin compared financial and stock market information for COM/Energy and BEC
Energy with similar information for other publicly traded companies deemed by
SG Barr Devlin to be relevant, reviewed the financial terms of other business
combinations deemed by SG Barr Devlin to be relevant and performed such other
studies and analyses as it deemed appropriate.
In preparing its opinions, SG Barr Devlin relied, without independent
verification, upon the accuracy and completeness of all financial and other
information publicly available or otherwise furnished or made available to it
by COM/Energy and BEC Energy, and upon the assurances of management of
COM/Energy and BEC Energy that they were not aware of any facts that would make
such information inaccurate or misleading. With respect to the financial
projections of COM/Energy and BEC Energy and potential operating and
administrative synergies, SG Barr Devlin relied upon assurances of management
of COM/Energy and BEC Energy that such projections and synergies estimates were
reasonably prepared and reflected the best currently available estimates and
judgments of the respective managements of COM/Energy and BEC Energy as to the
future financial performance of COM/Energy and BEC Energy, as the case may be,
and as to the projected outcomes of legal, regulatory, and other contingencies.
SG Barr Devlin did not prepare independent financial projections or estimates
of synergies. SG Barr Devlin was not provided with and did not undertake an
independent evaluation or appraisal of the assets or liabilities (contingent or
otherwise) of COM/Energy or BEC Energy, nor did it make any physical inspection
of the properties or assets of COM/Energy or BEC Energy.
In arriving at its opinions, SG Barr Devlin assumed that the transactions
involved in the merger will be tax-free reorganizations under Section 351 of
the Internal Revenue Code of 1986, as amended, and that holders of COM/Energy
common shares and BEC Energy common shares who exchange their shares solely for
the stock of the new parent company will recognize no gain or loss for federal
income tax purposes as a result of the merger. In addition, SG Barr Devlin has
assumed that the merger will be accounted for by the purchase method of
accounting. COM/Energy did not authorize SG Barr Devlin to solicit, and it did
not solicit, any indications of interest from any third party with respect to
the purchase of all or a part of COM/Energy. SG Barr Devlin's opinions are
necessarily based upon financial, stock market and other conditions and
circumstances existing and disclosed to it as of the respective dates of the
opinions. SG Barr Devlin's opinions are directed to the COM/Energy board and
the fairness of the COM/Energy merger consideration to the holders of
COM/Energy common shares from a financial point of view. The opinions do not
address any other aspect of the mergers and do not constitute a recommendation
to any holder of COM/Energy common shares as to how such holder should vote at
the COM/Energy annual meeting. Although SG Barr Devlin evaluated the fairness
of the COM/Energy merger consideration to the holders of COM/Energy common
shares from a financial point of view, the specific consideration payable to
COM/Energy shareholders in the merger was determined by COM/Energy and BEC
Energy through arm's-length negotiations. COM/Energy did not place any
limitations upon SG Barr Devlin with respect to the procedures followed or
factors considered by SG Barr Devlin in rendering its opinions.
SG Barr Devlin has advised COM/Energy that, in its view, the preparation of
a fairness opinion involves various determinations as to the most appropriate
and relevant methods of financial analysis and the application of those methods
to the particular circumstances, and that, therefore, such an
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<PAGE>
opinion is not readily susceptible to summary description. Furthermore, in
arriving at its fairness opinions, SG Barr Devlin did not attribute any
particular weight to any analysis or factor considered by it, nor did SG Barr
Devlin ascribe a specific range of fair values to COM/Energy. Instead, SG Barr
Devlin made its determination as to the fairness of the merger consideration
payable to COM/Energy shareholders on the basis of qualitative judgments as to
the significance and relevance of each of the financial and comparative
analyses and factors described below. Accordingly, notwithstanding the separate
factors summarized below, SG Barr Devlin believes that its analyses must be
considered as a whole and that considering any portions of these analyses and
factors, without considering all analyses and factors, could create a
misleading or incomplete view of the evaluation process underlying its
opinions. In its analyses, SG Barr Devlin made many assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond COM/Energy's and BEC Energy's control. Any
estimates in these analyses do not necessarily indicate actual values or
predict future results or values, which may be significantly more or less
favorable than as set forth therein. In addition, analyses relating to the
value of businesses do not purport to be appraisals or to reflect the prices at
which businesses actually may be sold.
In connection with rendering its fairness opinions and making its
presentations to the COM/Energy board, SG Barr Devlin performed a variety of
financial and comparative analyses and considered a variety of factors of which
the material analyses and factors are summarized below. While this summary
describes the material analyses performed and factors considered, it does not
purport to be a complete description of the analyses performed or factors
considered by SG Barr Devlin. The results of the analyses described in this
summary were discussed with the COM/Energy board at its meeting on December 5,
1998. SG Barr Devlin derived implied exchange ratios based upon what these
analyses, when considered in light of the judgment and experience of SG Barr
Devlin, suggested about the relative value of COM/Energy common shares to BEC
Energy common shares. SG Barr Devlin's opinions are based upon its
consideration of the collective results of all such analyses, together with the
other factors referred to in its opinions. In connection with its opinion of
the same date as this document, SG Barr Devlin performed procedures deemed
appropriate by it to update the analyses made for its December 5, 1998 opinion
and reviewed with the management of COM/Energy and BEC Energy the assumptions
upon which such analyses were based. The results of such analyses were
substantially the same as those for the December 5, 1998 opinion of SG Barr
Devlin.
Share Trading History. SG Barr Devlin reviewed the historical prices and
trading volumes of COM/Energy common shares and BEC Energy common shares and
compared such prices to the Standard and Poor's Utility Index and the Standard
and Poor's 500 Composite Index. This was done to provide perspective on the
current and historical share price performance of COM/Energy and BEC Energy
relative to one another and to the market indices. SG Barr Devlin also
calculated the ratio of the weekly closing market price per share of COM/Energy
to the weekly closing market price per share of BEC Energy for the period
December 3, 1993 to December 4, 1998. This analysis showed that over this
period COM/Energy common shares traded at a price as high as 1.12 times, as low
as 0.69 times and at an average of 0.85 times the then-current market price per
share of BEC Energy common shares. SG Barr Devlin also calculated the ratio of
the daily closing market price per share of COM/Energy to the daily closing
market price per share of BEC Energy for the period December 31, 1997 to
December 4, 1998. This analysis showed that over this period COM/Energy common
shares traded at a price as high as 0.99 times, as low as 0.66 times and at an
average of
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0.89 times the then-current market price per share of BEC Energy common shares.
This analysis was utilized to provide historical background for the manner in
which the public trading market had valued COM/Energy and BEC Energy in
absolute terms and relative to each other.
Discounted Cash Flow Analysis. SG Barr Devlin performed a discounted cash
flow analysis for both COM/Energy and BEC Energy, assuming that COM/Energy and
BEC Energy performed in accordance with the operating and financial projections
provided by their respective managements for the period 1998 through 2002. As
part of this analysis, SG Barr Devlin considered some variations of
managements' "base case" projections by making certain adjustments deemed
relevant by it. However, those variations were not independent projections or
predictions of actual outcomes by SG Barr Devlin. They were merely variations
on the base case provided by management. In this way, a somewhat broader range
of possible outcomes was considered in the analysis. The purpose of the
discounted cash flow analysis was to determine a range of estimated present
values for COM/Energy and BEC Energy under managements' base case and the
variations considered. Each estimate of such present values implied, in turn,
an exchange ratio for the holders of COM/Energy common shares.
To calculate the present value of COM/Energy and BEC Energy, SG Barr Devlin
discounted to present value each company's projected cash flows for each year
during the 1998-2002 projection period, as well as the estimated value of each
company at the end of 2002. The present value of COM/Energy or BEC Energy as a
whole was then calculated by adding together these separate present value
calculations for the company in question. For these purposes, SG Barr Devlin
estimated the value at year-end 2002 for each of COM/Energy and BEC Energy in
four different ways. It applied various multiples to the following measures of
financial performance for each company:
. the company's projected earnings before interest and taxes ("EBIT")
in 2002,
. the company's projected earnings before interest, taxes, depreciation
and amortization ("EBITDA") in 2002,
. the company's projected book value of common equity as of year-end
2002, and
. the company's projected net income for 2002.
In each case, the multiples used by SG Barr Devlin were based on the
corresponding multiples of public companies deemed comparable to COM/Energy and
BEC Energy by SG Barr Devlin. These were the same companies used by SG Barr
Devlin in its "Publicly Traded Comparable Company Analysis" summarized below.
For the purposes of the discounted cash flow analyses, the multiple ranges used
for both COM/Energy and BEC Energy were as follows:
<TABLE>
<CAPTION>
Multiple
Measure of Financial Performance Range
-------------------------------- -----------
<S> <C>
EBIT....................................... 10.0x-11.0x
EBITDA..................................... 6.5x-7.5x
Book Value................................. 1.50x-1.80x
Net Income................................. 14.5x-15.5x
</TABLE>
The cash flow streams and company values at year-end 2002 under the
projections considered in the analysis were discounted to present value using
discount rates that ranged from 6.5% to 7.5% for both COM/Energy and BEC
Energy. This produced a range of values per share for COM/Energy and BEC
Energy. The results are summarized in the following table, which shows
the range of valuations produced for each of the four measures of the
companies' value at the end of 2002.
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<PAGE>
<TABLE>
<CAPTION>
COM/Energy COM/Energy BEC Energy BEC Energy
Low End of High End of Low End of High End of
Measure of Financial Performance Range Range Range Range
-------------------------------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
EBIT............................. $32.30 $51.33 $41.66 $60.44
EBITDA........................... $29.28 $46.88 $34.67 $54.30
Price/Book Value................. $29.68 $39.82 $31.27 $49.26
Price/Earnings................... $33.16 $46.69 $39.83 $56.31
Average of Above................. $31.11 $46.18 $36.85 $55.08
</TABLE>
As shown above, this analysis produced values of $31.11 to $46.18 per share
in the case of COM/Energy and $36.85 to $55.08 per share in the case of BEC
Energy. Implied exchange ratios were calculated by comparing the estimated
present values per share of COM/Energy to the corresponding estimated present
values per share of BEC Energy under the projections considered. These implied
exchange ratios ranged from 0.80 to 0.88, with a midpoint value of 0.84.
Comparable Transaction Analysis. SG Barr Devlin reviewed comparable
transactions involving mergers between regulated electric or electric and gas
utilities or holding companies for regulated electric or electric and gas
utilities. The comparable transactions were selected because they were
strategic combinations of electric, or electric and gas, utility companies (or
their holding companies) which possessed general business, operating and
financial characteristics representative of companies in the industries in
which COM/Energy and BEC Energy operate. The comparable transactions included:
. Central and South West Corporation/American Electric Power Company,
Inc.,
. KU Energy Corporation/LG&E Energy Corp.,
. DQE, Inc./Allegheny Power System, Inc.,
. PanEnergy Corp./Duke Power Company,
. IES Industries Inc./Interstate Power Company/WPL Holdings, Inc.,
. Washington Energy Company/Puget Sound Power & Light Company,
. Potomac Electric Power Company/Baltimore Gas and Electric Company, and
. CIPSCO Incorporated/Union Electric Company.
SG Barr Devlin calculated the equity consideration to be received by the
first company's shareholders for each of the comparable transactions as a
multiple of various measures of financial performance for that company,
including:
. latest 12-month net income available to common stock, and estimated
net income available to common stock for the current and the following
fiscal years under the projections considered in the analysis,
. latest 12-month cash flow, and
. book value of common equity for the most recently available fiscal
quarter preceding the transaction.
In addition, SG Barr Devlin calculated the total consideration for each of
the comparable transactions as a multiple of each company's latest 12-month
EBIT and EBITDA. Total consideration is the sum of:
(a) the equity consideration,
(b) the liquidation value of preferred stock,
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(c) the principal amount of debt,
(d) capitalized lease obligations, and
(e) minority interests,
less: (x) cash, and
(y) option proceeds, if any.
For each of the comparable transactions, SG Barr Devlin also calculated the
percentage premium to be received by the first company's shareholders over
their company's unaffected public market stock price.
Applying such multiples and premiums to the corresponding data for
COM/Energy produced a range of values for the shares of COM/Energy:
<TABLE>
<CAPTION>
Comparable COM/Energy COM/Energy
Transaction Low End of High End
Measure of Financial Performance Multiples Range of Range
-------------------------------- ----------- ---------- ----------
<S> <C> <C> <C>
Net Income.................................. 14.5x-18.5x $34.65 $41.58
Cash Flow................................... 7.0x-9.0x $24.50 $31.50
Book Value.................................. 1.70x-2.10x $35.27 $43.57
EBIT........................................ 10.5x-12.5x $37.17 $49.78
EBITDA...................................... 7.5x-8.5x $38.45 $47.45
Premium to Market........................... 15%-30% $43.48 $49.16
Weighted Average of Above, Excluding Highs
and Lows................................... -- $35.81 $44.15
</TABLE>
As shown above, this analysis produced values for COM/Energy of $35.81 to
$44.15 per share. Comparing such values to the share price for BEC Energy of
$42.00 as of December 4, 1998 resulted in an implied range of exchange ratios
of 0.85 to 1.05, with a midpoint value of 0.95.
Publicly Traded Comparable Company Analysis. Using publicly available
information, SG Barr Devlin compared selected financial information and ratios
for COM/Energy and BEC Energy with the corresponding financial information and
ratios for a group of electric or electric and gas utilities (or their holding
companies) deemed by SG Barr Devlin to be comparable to COM/Energy and BEC
Energy. The comparable companies were selected on the basis of being companies
which possessed general business, operating and financial characteristics
representative of companies in the industries in which COM/Energy and BEC
Energy operate. The comparable companies included:
. Central Hudson Gas & Electric Corporation,
. Eastern Utilities Associates,
. Energy East Corporation,
. GPU, Inc.,
. New England Electric System, and
. Puget Sound Energy, Inc.
In evaluating the current market values of COM/Energy common shares and BEC
Energy common shares, SG Barr Devlin determined ranges of multiples for
selected measures of financial
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performance for the comparable companies, including the market value of
outstanding common stock as a multiple of:
. net income available to common stock for the latest 12-month period
ended September 30, 1998, and projected net income available to common
stock for the current and the following fiscal years under the
projections considered in the analysis,
. after-tax cash flow from operations for the latest 12-month period
ended September 30, 1998, and
. book value of common equity for the most recently available fiscal
quarter ended September 30, 1998.
SG Barr Devlin then applied such multiples to the corresponding data for
COM/Energy and BEC Energy. This analysis produced a range of values per share
for COM/Energy and BEC Energy. The results are summarized in the following
table, which shows the range of valuations produced for each of the three
measures of the companies' financial performance:
<TABLE>
<CAPTION>
Comparable COM/Energy COM/Energy BEC Energy BEC Energy
Company Low End of High End Low End of High End of
Measure of Financial Multiples Range of Range Range Range
Performance ----------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Net Income.............. 14.0x-16.0x $30.91 $35.93 $35.21 $39.68
Cash Flow............... 6.0x-7.5x $21.00 $26.25 $30.02 $37.52
Book Value.............. 1.50x-1.80x $31.12 $37.34 $34.02 $40.82
Weighted Average of
Above, Excluding Highs
and Lows............... -- $30.98 $36.40 $34.81 $39.34
</TABLE>
As shown above, this analysis produced values of $30.98 to $36.40 per share
in the case of COM/Energy and $34.81 to $39.34 per share in the case of BEC
Energy. The implied range of exchange ratios resulting from these values was
0.89 to 0.93, with a midpoint value of 0.91.
Contribution Analysis. SG Barr Devlin calculated the relative contribution
of COM/Energy and BEC Energy to the combined company under the projections
considered by SG Barr Devlin with respect to (a) net income available to common
stock, (b) EBIT and (c) EBITDA for 2000 and 2002. The ranges of relative
contributions produced by this analysis are summarized in the following table:
<TABLE>
<CAPTION>
COM/Energy
COM/Energy COM/Energy Contribution
Contribution Contribution to
Year to EBITDA to EBIT Net Income
---- ------------ ------------ ------------
<S> <C> <C> <C>
2000............................... 28%-29% 30%-32% 28%-32%
2002............................... 30%-33% 29%-33% 29%-34%
</TABLE>
SG Barr Devlin derived implied exchange ratios by setting the percentage
ownership interest of COM/Energy's shareholders in the combined company equal
to each of COM/Energy's percentage contributions. These calculations yielded
implied exchange ratios ranging from 0.90 to 1.00, with a midpoint value of
0.95.
Pro Forma Merger Analysis. SG Barr Devlin analyzed certain pro forma effects
to the holders of COM/Energy common shares resulting from the merger for the
period 2000 through 2002. This analysis was based upon the respective forecasts
of the managements of COM/Energy and BEC Energy, with adjustments deemed
appropriate by SG Barr Devlin, and some potential operating and administrative
synergies that might be realized for the benefit of the new parent company
following
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the merger. The analysis showed significant improvement in earnings per share
and dividends per share to the holders of COM/Energy common shares as
summarized in the following table:
<TABLE>
<CAPTION>
Percentage Percentage
Increase Increase
in in
Earnings Dividends
Year per Share per Share
---- ---------- ----------
<S> <C> <C>
2000................................................ 19% 28%
2001................................................ 29% 32%
2002................................................ 30% 35%
</TABLE>
SG Barr Devlin was selected as COM/Energy's financial advisor because SG
Barr Devlin and principals of SG Barr Devlin have significant experience in the
investment banking and electric and gas utility industries. SG Barr Devlin is a
division of SG Cowen Securities Corporation specializing in strategic and
merger advisory services to the electric and gas utility industries, the energy
industry and selected other industries. In this capacity, SG Barr Devlin and
principals of SG Barr Devlin have been involved as advisors in numerous
transactions and advisory assignments in the electric, gas and energy
industries and are constantly engaged in the valuation of businesses and
securities in those industries.
Pursuant to the terms of SG Barr Devlin's engagement, COM/Energy has agreed
to pay SG Barr Devlin for its services in connection with the merger:
. a financial advisory retainer fee of $37,500 per quarter commencing
December 9, 1997,
. an initial financial advisory progress payment of $1,493,008 payable upon
execution of the merger agreement,
. a second financial advisory progress payment estimated at $1,497,293
payable upon approval of the merger by the holders of COM/Energy common
shares, and
. a transaction fee based on the aggregate consideration to be received by
holders of COM/Energy common shares ranging from 0.540% of such aggregate
consideration (for a transaction with an aggregate consideration of
$800,000,000) to 0.410% of such aggregate consideration (for a
transaction with an aggregate consideration of $2,000,000,000).
All financial advisory progress payments and up to a total of four quarterly
financial advisory retainer fees would be credited against any transaction fee
payable to SG Barr Devlin. COM/Energy has agreed to reimburse SG Barr Devlin
for its out-of-pocket expenses, including fees and expenses of legal counsel
and other advisors engaged with the consent of COM/Energy, and to indemnify SG
Barr Devlin against some liabilities, including liabilities under the federal
securities laws, relating to or arising out of its engagement.
Interests of Trustees and Executive Officers of BEC Energy and COM/Energy in
the Merger
In considering the BEC Energy board's and the COM/Energy board's
recommendations in favor of the merger agreement and the merger, BEC Energy
shareholders and COM/Energy shareholders should know that some members of BEC
Energy and COM/Energy management have interests in the merger that are
different from, and in addition to, their interests as BEC Energy and
COM/Energy shareholders generally.
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Continuation of Trustee Positions
Membership on NSTAR Board of Trustees
Under the merger agreement, BEC Energy has the right to select eleven
members of NSTAR's board of trustees and COM/Energy has the right to select
nine members of the NSTAR board. It is currently anticipated that all the
current trustees of BEC Energy and COM/Energy will continue as trustees of
NSTAR. For further discussion, see "--Arrangements Regarding the Trustees and
Management of NSTAR Following the Merger."
New Employment and Change of Control Arrangements for Mr. May and Mr. Wright
Employment Agreements
NSTAR has entered into employment agreements with Messrs. May and Wright
that will begin on the completion of the merger. The employment agreements will
replace each executive's existing employment arrangements. The term of each
agreement is five years from the completion of the merger. Under the terms of
his employment agreement, Mr. May will serve as the chairman and chief
executive officer of NSTAR. His base salary will be determined by the NSTAR
board consistent with BEC Energy's current compensation practices. For more
information on BEC Energy's current compensation practices see the Executive
Compensation section of BEC Energy's annual meeting proxy statement. Mr. May
will also be entitled to participate in NSTAR's incentive compensation,
retirement and welfare programs available to executives of NSTAR as determined
by the NSTAR board.
Under the terms of his employment agreement, Mr. Wright will serve as the
president and chief operating officer of NSTAR. His base salary will be
determined by the NSTAR board consistent with BEC Energy's current compensation
practices, provided that his initial base salary will be in a range of 75% to
80% of Mr. May's base salary. Mr. Wright will also be entitled to participate
in NSTAR's incentive compensation, retirement and welfare programs available to
executives of NSTAR as determined by the NSTAR board.
Mr. May's or Mr. Wright's employment is terminable by either NSTAR or the
given executive at any time, provided that the terminating party obeys the
notice requirements in the applicable agreement. Under the employment
agreements, if Mr. May's or Mr. Wright's employment is terminated without cause
or for good reason, and provided that he is not entitled to any benefits under
his change in control agreement, described below, he will receive:
. payments of his base salary at the rate in effect at the time of
termination for the remainder of the term of his employment agreement;
. incentive compensation for the remainder of the term of his employment
agreement, calculated on the basis of the incentive compensation paid to
him in the most recently completed fiscal year; and
. payments equal to the benefits he would have accumulated under NSTAR's
retirement plan and any supplemental retirement plan, assuming he was
vested and remained employed for the remainder of the term of the
employment agreement.
In addition, for the remainder of the term of his employment agreement, the
executive and his dependents would be entitled to continue to participate in
all welfare plans provided by NSTAR. For the purpose of determining the level
of the executive's benefits under those plans, he will be considered to have
remained employed with NSTAR through the end of the term of his employment
agreement.
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If Mr. May's or Mr. Wright's employment is terminated following a change in
control of NSTAR, such as a merger or a sale of NSTAR's assets, any
compensation or benefits to which he is entitled as a result of the termination
would be governed exclusively by his change in control agreement, described
below.
Change in Control Agreements
NSTAR has entered into change in control agreements with each of Mr. May and
Mr. Wright that will begin on the completion of the merger. Each agreement
provides the executive with severance benefits upon a "change in control," as
described below, of NSTAR. If, following a change in control, NSTAR or its
successor terminated the executive's employment other than for cause, death or
disability or if the executive terminated his change of control agreement for
good reason, he would receive:
. severance pay in an amount equal to three times his annual base salary,
at the rate in effect immediately prior to the date of termination or
immediately before the change in control, whichever is higher, and three
times the higher of the actual bonus paid for the most recently completed
fiscal year or the target bonus for the fiscal year in which the
termination occurs;
. prorated short-term and long-term bonus payments for the year in which
the termination occurs;
. the immediate vesting of any NSTAR share, share option or cash awards;
. the immediate payment of deferred compensation amounts on termination;
. the lump sum equivalent of the executive's accumulated benefits under any
supplemental retirement plan or arrangement; and
. payments equal to the benefits he would have accumulated under NSTAR's
retirement plan and any supplemental retirement plan assuming he was
vested and remained employed for three years.
In addition, for three years following termination of employment, the
executive would be entitled to continue to participate in all welfare plans
provided by NSTAR. The executive would also be credited with an additional
three years service for the determination of eligibility for any retiree
benefits. Each change in control agreement also provides that if amounts paid
to the executive under such agreement or otherwise would be subject to a
federal excise tax on "excess parachute payments," NSTAR will pay the executive
an additional amount of cash to offset the effect of these taxes.
A change in control under the agreements generally includes the following
events:
. a person or group becomes the beneficial owner of 30% or more of the then
outstanding common shares of NSTAR or the voting power of NSTAR's
securities;
. continuing trustees cease to be a majority of the board;
. a consolidation, merger or other reorganization or sale of the assets of
NSTAR; or
. approval by the shareholders of a complete liquidation or dissolution of
NSTAR.
Because the agreements only take effect on the completion of the proposed
merger, the merger will not constitute a change in control for purposes of
these agreements.
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Financial Interests in COM/Energy Compensation Plans
COM/Energy Change in Control Agreements
COM/Energy has entered into change in control agreements with Mr. Wright and
ten other COM/Energy officers. The merger constitutes a change in control under
these agreements. Consequently, if the shareholders of COM/Energy approve the
merger and an executive covered by a change in control agreement is terminated
by NSTAR other than for cause, death, or disability, the executive will receive
payments and benefits under these agreements. These payments and benefits will
also be triggered if any executive terminates his employment after a merger or
sale of the company or after material changes in the executive's
responsibilities, geographic location or pay opportunities. These situations,
and in three agreements, the change in control itself, are considered
constructive discharges of the executive. If all executives' employment was
terminated following the merger in one of the manners described, it is
estimated that officers of COM/Energy would have a right to payments and
benefits with an aggregate value not in excess of $13,000,000.
COM/Energy and Subsidiary Companies Long-Term Incentive Compensation Plan
The COM/Energy and Subsidiary Companies Long-Term Incentive Compensation
Plan provides long-term incentive compensation to key employees of COM/Energy
and its subsidiaries in the form of restricted COM/Energy common shares. The
merger will constitute a change in control for purposes of the long-term
incentive plan. As a consequence, all restrictions will lapse on 32,647
COM/Energy common shares held by officers and key employees of COM/Energy.
COM/Energy Restricted Common Share Plan for Trustees
The COM/Energy Restricted Common Share Plan for Trustees provides long-term
incentive compensation to COM/Energy trustees in the form of restricted
COM/Energy common shares. Under the plan, each trustee receives a $7,000 annual
retainer for services on the board of trustees, payable in restricted
COM/Energy common shares. The merger will constitute a change in control for
purposes of the plan. Consequently, all restrictions on the 2,240 COM/Energy
common shares outstanding under the plan will lapse.
COM/Energy and Subsidiary Companies Split Dollar Supplemental Pension
Agreements
The COM/Energy and Subsidiary Companies Split Dollar Supplemental Pension
Agreements provide supplemental retirement benefits to some officers of
COM/Energy. Completion of the merger constitutes a change of control under the
terms of these agreements that may result in the payment of additional pension
benefits to some officers of COM/Energy. COM/Energy presently estimates that
the maximum value of the additional benefits that the officers would receive
under the terms of the agreements, assuming for this purpose that each
officer's employment is terminated immediately following the merger, would not
exceed $6,000,000 in the aggregate.
Other Interests in the Merger
Indemnification of Trustees and Officers
NSTAR will indemnify and hold harmless from liability the trustees, officers
and employees of BEC Energy or COM/Energy or their subsidiaries for losses,
expenses including reasonable attorney's fees, claims, liabilities and damages
arising out of acts or omissions occurring at or before the completion of the
merger to the fullest extent permitted under applicable law and NSTAR's
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declaration of trust and bylaws. In addition, losses, expenses including
reasonable attorney's fees, claims, liabilities and damages that arise out of
the transactions contemplated by the merger agreement are also covered by
NSTAR's commitment. NSTAR will also honor the obligations of BEC Energy and
COM/Energy under indemnification agreements with their trustees, officers and
employees existing at the completion of the merger. For six years after the
completion of the merger, NSTAR will maintain the current directors' and
officers' liability insurance of BEC Energy or COM/Energy covering those
persons currently covered by BEC Energy's and COM/Energy's directors' and
officers' liability insurance policies on terms no less favorable than those
currently in place or will obtain new policies with terms at least as favorable
as the most favorable coverage offered by BEC Energy and COM/Energy existing
policies. NSTAR is not obligated to spend more than 200% of the annual
aggregate premiums that BEC Energy and COM/Energy currently pay for their
coverage, although NSTAR must purchase the best coverage reasonably available
for that amount.
Material Federal Income Tax Consequences of the Merger
General
Subject to the qualifications stated below, in the opinion of Ropes & Gray
and LeBoeuf, this section states the material United States federal income tax
consequences expected to result from the merger. We do not intend for this
section to be a statement of all potential tax consequences of the merger. All
of the following is subject to change, possibly with retroactive effect, and
any such change could affect the continuing validity of this statement of
material federal income tax consequences. This statement of material federal
income tax consequence assumes that COM/Energy and BEC Energy shareholders hold
their shares as capital assets.
This section does not address the tax consequences that may be relevant to
BEC Energy or COM/Energy shareholders subject to special tax treatment. These
shareholders include, for example, brokers, dealers in securities, banks,
insurance companies, tax-exempt organizations, financial institutions,
shareholders who hold their shares as part of a hedge, straddle or other risk
reduction or constructive sale transaction, persons who are not considered
United States persons under the Internal Revenue Code, including the effect of
the Foreign Investment Real Property Act on such persons and BEC Energy or
COM/Energy shareholders who acquired their shares in BEC Energy or COM/Energy,
respectively, through the exercise of options or otherwise as compensation or
through a tax-qualified retirement plan.
This statement of material federal income tax consequences also does not
address any state, local or foreign tax consequences of the merger, nor does it
address the effect of the merger on COM/Energy, the COM/Energy acquisition
subsidiary, BEC Energy, the BEC Energy acquisition subsidiary, or NSTAR in
respect of (1) the termination of the affiliated group of corporations of which
COM/Energy is the parent or (2) any asset as to which unrealized gain is
required to be recognized for U.S. federal income tax purposes at the end of
each taxable year under a mark-to-market system. Each shareholder should
consult his or her own tax advisor in order to determine the federal, state,
local or foreign tax consequences resulting from the merger in light of his or
her individual tax situation.
Tax Opinions
The obligation of BEC Energy to complete the merger is subject to the
condition, which it may waive, that it receive an opinion of counsel to the
effect that exchange of BEC Energy shares for shares of NSTAR pursuant to the
merger will constitute a non-taxable exchange pursuant to the
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Internal Revenue Code. In addition, the obligation of COM/Energy to complete
the merger is subject to the condition, which it may waive, that it receive an
opinion of counsel to the effect that the exchange of COM/Energy shares for
shares of NSTAR pursuant to the merger will constitute a non-taxable exchange
pursuant to the Internal Revenue Code. If either BEC Energy or COM Energy
waives this condition and if the material federal income tax consequences of
the merger are materially different from those described in this section, then
the shareholders of the company waiving this condition will be resolicited
before the merger is completed.
Each opinion on the tax consequences of the merger will be based upon
certain assumptions and representations including, among others, the
representations contained in the merger agreement and the tax certificates of
officers of BEC Energy, COM/Energy and NSTAR, all of which must be true and
accurate in all material respects as of the time the merger is completed.
Subject to the qualifications stated in this section, Ropes & Gray and LeBoeuf
are of the opinion that the exchange of BEC Energy shares and COM/Eneregy
shares for NSTAR shares pursuant to the merger will be treated for federal
income tax purposes as an exchange described in Section 351(a) of the Internal
Revenue Code and that this section states the material U.S. federal income tax
consequences expected to result from the merger.
These opinions assume that the merger will be consummated in accordance
with the terms of the merger agreement, that no conditions to the merger will
be waived, that the assumptions and representations upon which the opinions
are based will be true and accurate as of the time the merger is completed,
and that no actions inconsistent with these representations and assumptions
have occurred or will occur. The material representations upon which these
opinions are based are that after the merger the shareholders of BEC Energy
and COM/Energy will hold at least 80% of the outstanding shares consisting of
the only class of NSTAR shares, that there is no plan or intention by such
shareholders to sell or otherwise dispose of their shares of NSTAR, that the
source of cash received by the shareholders of BEC Energy and COM/Energy in
the merger will be BEC Energy, and that there will not be any other
transaction in connection with the merger.
Neither BEC Energy nor COM/Energy has sought a ruling from the Internal
Revenue Service as to the federal income tax consequences of the merger. The
opinions of counsel are not binding upon the Internal Revenue Service or any
court. There can be no assurance that future legislation, administrative
rulings, or court decisions will not adversely affect the accuracy of the
following statement of the material federal income tax consequences.
Tax Consequences to BEC Energy, BEC Energy Acquisition LLC, COM/Energy,
COM/Energy Acquisition LLC, and NSTAR
. None of BEC Energy, BEC Energy Acquisition LLC, COM/Energy, COM/Energy
Acquisition LLC or NSTAR will recognize gain or loss as a result of the
merger.
Tax Consequences on the Receipt of NSTAR Common Shares by BEC Energy
Shareholders
. BEC Energy shareholders will recognize no gain or loss on the exchange
of BEC Energy common shares for NSTAR common shares.
. The aggregate tax basis of the NSTAR common shares received by a BEC
Energy shareholder will be the same as the aggregate tax basis of the
BEC Energy common shares surrendered by the shareholder for NSTAR common
shares.
. The holding period of the NSTAR common shares received by a BEC Energy
shareholder will include the period during which the shareholder held
the BEC Energy common shares exchanged for NSTAR common shares.
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Tax Consequences on the Receipt of Cash by BEC Energy Shareholders
. BEC Energy shareholders who receive only cash in the merger will be
treated as having sold their BEC Energy common shares surrendered for
the cash. These shareholders will recognize gain or loss on those
surrendered shares equal to the difference between the amount of the
cash received and the tax basis of those surrendered shares.
. BEC Energy shareholders who receive in the merger cash in part and NSTAR
common shares in part should be treated as having sold those BEC Energy
common shares surrendered for cash. These shareholders should recognize
gain or loss on those shares surrendered for cash equal to the
difference between the amount of such cash and the tax basis of those
shares surrendered for cash.
. Any gain or loss recognized on the exchange of BEC Energy common shares
for cash will be capital gain or loss. This capital gain or loss will be
long-term if the holding period of such shares exceeds one year as of
the date of the exchange. Capital gain or loss recognized on BEC Energy
shares with a holding period of a year or less will be short-term.
Tax Consequences to COM/Energy Shareholders Who Receive NSTAR Common Shares
in Whole or in Part
. Except as discussed below with respect to cash received instead of
fractional shares, COM/Energy shareholders will not recognize gain or
loss on their exchange of COM/Energy common shares for NSTAR common
shares.
. Except as discussed below with respect to cash received instead of
fractional shares:
. COM/Energy shareholders who receive in the merger cash in part and
NSTAR common shares in part will not recognize loss in such
exchange;
. However, such COM/Energy shareholders will recognize gain, if any,
but only to the extent of any cash received;
. The gain, if any, will be measured by the sum of the fair market
value of the NSTAR common shares received plus the amount of cash
received minus the adjusted tax basis of the COM/Energy shares
exchanged.
. The aggregate tax basis of the NSTAR common shares received by each
COM/Energy shareholder will be the same as the aggregate tax basis of
the shares of COM/Energy common shares surrendered, decreased by the
basis of any fractional share interest for which cash is received in the
merger, and further decreased by the amount of any cash received (other
than cash received for a fractional share interest) and increased by the
gain, if any, recognized on the exchange, other than gain recognized in
respect of a fractional share interest.
. The holding period of the NSTAR common shares received by a COM/Energy
shareholder for COM/Energy common shares will include the period during
which the shareholder held the COM/Energy common shares exchanged for
NSTAR common shares.
. Cash payments received by a COM/Energy shareholder instead of a
fractional share of NSTAR will be treated for federal income tax
purposes as if the fractional share had been issued in the merger and
then redeemed by NSTAR. Gain or loss will be recognized on the deemed
redemption of the fractional share equal to the difference between the
cash received instead of the fractional share and the tax basis of the
fractional share deemed issued and redeemed.
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. Any gain or loss recognized in respect of cash received on the exchange
will be capital gain or loss and will be long-term capital gain or loss
if the holding period of such shares exceeds one year as of the date of
the exchange. Capital gain or loss recognized on COM/Energy shares with
a holding period of a year or less will be short-term capital gain or
loss.
Tax Consequences to COM/Energy Shareholders Who Receive Only Cash
. COM/Energy shareholders who receive only cash in the merger will be
treated as having sold their COM/Energy common shares. These
shareholders will recognize gain or loss on those surrendered shares
equal to the difference between the amount of the cash received and the
tax basis of those surrendered shares.
. Any gain or loss recognized on the exchange of COM/Energy common shares
for cash will be capital gain or loss. This capital gain or loss will be
long-term if the holding period of such shares exceeds one year as of
the date of the exchange. Capital gain or loss recognized on COM/Energy
shares with a holding period of a year or less will be short-term.
Reporting Requirements
Treasury regulations require each holder of COM/Energy or BEC Energy common
shares who receives NSTAR common shares in the merger to retain records and
file with such holder's federal income tax return a statement of facts
pertinent to the merger.
Backup Withholding and Reporting
A U.S. shareholder may be subject to backup withholding at a 31% rate with
respect to any payments received in the merger unless the U.S. holder complies
with certification procedures required to avoid such withholding or is an
exempt recipient under applicable Treasury Regulations. U.S. holders should
contact their brokers to ensure compliance with such procedures. NSTAR and BEC
Energy will report to the shareholders and to the Internal Revenue Service the
amount of reportable payments and any amount withheld in connection with the
merger.
The foregoing addresses only the material U.S. federal income tax
consequences of the merger and does not address the state, local or foreign tax
aspects of the merger. It is based on currently existing provisions of the
Internal Revenue Code, existing and proposed Treasury regulations thereunder
and current administrative rulings and court decisions. All of the foregoing
are subject to change and any such change could affect their continuing
validity. Each holder of COM/Energy common shares or BEC Energy common shares
should consult his or her own tax advisor as to the specific tax consequences
of the merger to him or her, including the application and effect of federal,
state, local and foreign tax laws.
Arrangements Regarding the Trustees and Management of NSTAR Following the
Merger
Board of Trustees
The merger agreement provides that upon the completion of the merger, the
number of trustees comprising the full NSTAR board will be twenty persons,
eleven of whom BEC Energy will select and nine of whom COM/Energy will select.
The NSTAR board will be composed of three classes of trustees and the designees
of each party will be divided as proportionately as possible among the three
classes. After the completion of the merger, the NSTAR board will have standing
committees
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with names and functions to be agreed on by BEC Energy and COM/Energy.
COM/Energy will have the right to select two members of the Executive Committee
of the NSTAR board, one of whom will be the chairman of COM/Energy's board on
the closing date and who will be, following the completion of the merger, the
chairman of NSTAR's executive committee.
Officers
Under the merger agreement, Mr. May, who currently serves as chairman, chief
executive officer and president of BEC Energy, will serve as chairman and chief
executive officer of NSTAR after the merger. Mr. Wright, who currently serves
as chief executive officer and president of COM/Energy, will serve as president
and chief operating officer of NSTAR after the merger. The NSTAR board will
select the other officers of NSTAR. See "--Interests of Trustees and Executive
Officers of BEC Energy and COM/Energy in the Merger--Employment Agreements."
Regulatory Matters
We have summarized below the material regulatory requirements affecting the
merger below. Although we have not yet received the required approvals we
discuss, we anticipate that we will receive all regulatory approvals during the
second half of 1999.
Massachusetts Department of Telecommunications and Energy
As a condition to the merger, the utility subsidiaries of BEC Energy and
COM/Energy must obtain the approval of rate plans from the Massachusetts
Department of Telecommunications and Energy. The Massachusetts Department will
hold a public hearing and make an investigation of the rate plans in order to
determine their propriety. We believe that, in making its determination, the
Massachusetts Department may consider such factors as:
. the effect of the merger on the rates charged by BEC Energy's and
COM/Energy's subsidiaries;
. service quality issues;
. the financial integrity of NSTAR; and
. the effect of the merger on competition, economic development and
employment.
Following the completion of the merger, the utility operations of NSTAR's
utility subsidiaries will remain subject to regulation by the Massachusetts
Department.
The proposed rate plans have three major elements.
. First, the four distribution companies will not increase base
distribution rates for four years following the merger.
. Second, the costs of the merger will be collected in rates over 40
years--ten years for transaction costs and other costs to integrate the
operations of the companies, which are currently estimated to be
approximately $111 million, and 40 years for the acquisition premium,
which is currently estimated to be approximately $516 million. The
acquisition premium is the amount paid above the net book value of
COM/Energy's assets and liabilities.
. Third, the four distribution companies will establish a service-quality
reporting system to demonstrate that service quality will not
deteriorate as a result of the merger.
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Through these proposed rate plans, NSTAR will be fully compensated for the
merger-related costs, and customers will receive both the short-term benefits
of a rate freeze and the long-term benefits of the cost savings resulting from
the merger. Under the proposed rate plans, the net savings, that is, the gross
cost savings created by the integration of operations less the merger-related
costs, will be passed through to NSTAR customers. These net savings will be in
the form of lower prices for distribution service than would otherwise have to
be paid in the absence of the merger. These lower prices will be reflected in
regulated rates established by the Massachusetts Department through normal
ratemaking procedures.
Public Utility Holding Company Act of 1935
NSTAR must obtain SEC approval under Section 9(a)(2) of the Public Utility
Holding Company Act of 1935 in connection with the merger. Section 9(a)(2) of
the Holding Company Act provides that it is unlawful for any person to acquire
any security of any public utility company without the prior approval of the
SEC if that person would own 5% or more of the voting securities of two or more
public utility companies. In the merger, NSTAR will acquire all of the common
stock of the gas and electric public utility subsidiaries of BEC Energy and
COM/Energy. Accordingly, NSTAR will file an application under the Holding
Company Act for approval of the merger.
Under the applicable standards of the Holding Company Act, the SEC is
directed to approve the merger unless it finds that:
(1) the merger will tend toward interlocking relations or
concentrations of control that are not in the public interest;
(2) the consideration to be paid in the merger is not reasonable;
(3) the merger would unduly complicate the capital structure of NSTAR's
holding company system; or
(4) the merger would violate applicable state law.
To approve the merger, the SEC must also find that the merger would tend
towards the development of an integrated public utility system and otherwise
conform to the Holding Company Act's integration and corporate simplification
standards.
As part of its application to the SEC, NSTAR will request that the SEC issue
an order exempting it and its subsidiaries from all provisions of the Holding
Company Act, except the provisions that regulate the acquisition of securities
of public utility companies, under the intrastate exemption of the Holding
Company Act. Because NSTAR and its public utility subsidiaries will be
predominantly intrastate in character and organized in and carrying on their
respective utility operations substantially in the Commonwealth of
Massachusetts, we believe that NSTAR will qualify for this exemption.
Federal Power Act
Section 203 of the Federal Power Act provides that without first receiving
authorization from the Federal Energy Regulatory Commission, no public utility
shall
. sell or otherwise dispose of its jurisdictional facilities;
. directly or indirectly, merge or consolidate its facilities with those of
any other person; or
. acquire any security of any other public utility.
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BEC Energy and COM/Energy thus require FERC approval to combine their
businesses by merging into subsidiaries of a new holding company, NSTAR. Under
Section 203 of the Federal Power Act, the FERC must approve the merger if it
finds that the merger is consistent with the public interest. The FERC
indicated in a recent policy statement that it will evaluate the following
criteria in analyzing a merger under Section 203:
(1) The FERC will examine the effect of the merger on competition in
electric power markets. Using an approach derived from the Department of
Justice/Federal Trade Commission Horizontal Merger Guidelines, it will
determine whether the merger will result in an undue increase in market
concentration or in the market power of the applicants.
(2) The FERC will review the effect of the merger on state and federal
regulation of the applicants.
We have filed a combined application with the FERC requesting that it approve
the merger under Section 203 of the Federal Power Act.
Antitrust Considerations
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and related
rules and regulations, BEC Energy and COM/Energy may not complete the merger
until they have satisfied the Hart-Scott reporting and waiting requirements.
The companies must first file notification and report forms with the Antitrust
Division of the Department of Justice and the Federal Trade Commission and then
wait as their case is reviewed. The Hart-Scott waiting period is 30 days from
the date both parties file their report forms unless the period is terminated
before 30 days has passed or extended by an FTC or Antitrust Division request
for additional information. The merger would then proceed, although
shareholders should note that expiration or termination of the Hart-Scott
waiting period does not preclude the Antitrust Division or the FTC from
challenging the merger on antitrust grounds at any later point, even after it
has been completed. Finally, although it is less common, private parties and
state attorneys general may also bring legal action under federal or state
antitrust laws in some circumstances. If the merger is not completed within 12
months after the expiration or termination of the Hart-Scott waiting period,
BEC Energy and COM/Energy would be required to submit new filings to the
Antitrust Division and the FTC. In that case, a new Hart-Scott waiting period
would have to expire or earlier terminate before the merger could close.
Atomic Energy Act
Operations of both Boston Edison Company's Pilgrim nuclear facility and the
Seabrook nuclear facility, a nuclear power plant in which COM/Energy has a
3.52% ownership interest, are within the regulatory jurisdiction of the Nuclear
Regulatory Commission. The Atomic Energy Act of 1954 provides that this type of
nuclear ownership interest may not be transferred or disposed of through a
transfer of control unless the Nuclear Regulatory Commission finds that the
transfer is consistent with the Atomic Energy Act and consents to the transfer.
In accordance with the Atomic Energy Act, BEC Energy and COM/Energy will seek
approval from the Nuclear Regulatory Commission as necessary.
Accounting Treatment
The merger of COM/Energy with an acquisition subsidiary of NSTAR will be
treated as an acquisition of COM/Energy by BEC Energy and accounted for under
the purchase method of accounting, in accordance with generally accepted
accounting principles. Under the purchase method
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of accounting, the purchase price of COM/Energy, including direct costs of the
acquisition, will be allocated to the tangible and intangible assets acquired
and the liabilities assumed based upon their estimated fair values with the
excess purchase consideration allocated to goodwill. The other portion of our
transaction, the merger of BEC Energy with a separate acquisition subsidiary of
NSTAR, will be treated as a reorganization with no change in the recorded
amount of BEC Energy's assets and liabilities. After the merger, the results of
NSTAR's operations will include the results of operations of COM/Energy.
We had to make several assumptions concerning the allocation of purchase
price in preparing the unaudited pro forma combined financial statements which
appear later in this document. We have based our allocation of the COM/Energy
purchase price to COM/Energy's assets and liabilities on preliminary estimates
of their fair values. We remind you that the unaudited pro forma adjustments
and combined amounts are included for informational purposes only. If we
complete the merger, NSTAR's financial statements will reflect effects of
transaction adjustments only from that time forward. The actual allocation of
the COM/Energy purchase price is not anticipated to differ significantly from
the allocation reflected in the unaudited pro forma combined financial
statements.
Effect on Employee Benefit Plans
Under the merger agreement, NSTAR plans to continue, on substantially the
same terms, various employee benefit plans of BEC Energy, COM/Energy and their
subsidiaries. These plans include selected health insurance and pension plans
which would remain in effect following the merger until NSTAR decides
otherwise. After the merger, NSTAR expects to adopt new or modified plans for
the system companies. Each participant in these plans will receive credit for
service performed before the merger for the purpose of determining his or her
eligibility to participate, eligibility to receive benefits and vesting under
the plans, but not for purposes of benefit accrual. NSTAR will not apply credit
for prior service, however, to the extent it would operate to duplicate any
benefit or the funding of any benefit NSTAR provides to the participant.
With respect to the BEC Energy and COM/Energy benefit plans that offer
benefits in the form of BEC Energy or COM/Energy common shares, we will take
all steps necessary to:
. amend these plans to make them plans of NSTAR or its subsidiaries,
. provide for the issuance or purchase under these plans of NSTAR common
shares rather than BEC Energy or COM/Energy common shares;
. obtain any shareholder approvals necessary to make such plans comply with
Internal Revenue Code requirements and applicable provisions of the
Securities Exchange Act of 1934;
. reserve for issuance or otherwise provide a sufficient number of NSTAR
common shares to satisfy outstanding obligations under these plans; and
. file any registration statements required with respect to these plans.
As of May 10, 1999, options to purchase 858,300 common shares of BEC Energy
with exercise prices ranging from $25.75 per share to $41.38 per share were
outstanding, as well as 107,450 shares of BEC Energy deferred share rights.
Listing of NSTAR Common Shares
In order to complete the merger, the New York Stock Exchange must approve
for listing on the exchange, upon official notice of issuance, the NSTAR common
shares to be issued in the merger on or before the closing date.
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THE MERGER AGREEMENT
The description set forth below highlights the material terms of the merger
agreement. A copy of the merger agreement is attached to this joint proxy
statement/prospectus as Annex A. This description may not include all the
information that interests you. We urge you to read the merger agreement
carefully and in its entirety.
Terms of the Merger
Under the terms of the merger agreement, BEC Acquisition, LLC will merge
with BEC Energy and CES Acquisition, LLC will merge with COM/Energy. BEC Energy
and COM/Energy will be the surviving entities of those mergers. Because NSTAR
indirectly or directly wholly owns both BEC Acquisition, LLC and CES
Acquisition, LLC, after the merger both BEC Energy and COM/Energy will be
wholly-owned by NSTAR.
We will complete the merger by filing certificates of merger with the
Secretary of the Commonwealth of Massachusetts. We expect to complete the
merger during the second half of 1999. However, it is possible that unforeseen
factors, including delays in obtaining the necessary approvals from various
governmental agencies, may delay the merger. If we have not completed the
merger by December 5, 1999, either BEC Energy or COM/Energy may terminate the
merger agreement unless the party seeking to terminate the agreement is
responsible for the delay. Additionally, if the only reason the merger has not
been completed by December 5, 1999 is that we have not yet received all the
required regulatory approvals, the merger agreement will be automatically
extended for six more months.
What You Will Receive for Your BEC Energy Common Shares or Your COM/Energy
Common Shares
You will be able to decide whether to receive cash or NSTAR common shares
for your BEC Energy or COM/Energy common shares. After the merger, the exchange
agent will send to you a form of election that you will need to complete and
return. If you do not return your form of election, or if you indicate that you
have no preference as to whether you receive cash or NSTAR common shares, BEC
Energy or COM/Energy will determine which you will receive.
BEC Energy Common Shares. If you own BEC Energy common shares, you will be
able to choose to receive either $44.10 in cash or one NStar common share for
each BEC Energy common share you own.
BEC Energy Options. NSTAR will assume each outstanding option or other right
to purchase or receive BEC Energy common shares. This means that your options
or other rights to purchase or receive BEC Energy common shares will become
options or other rights to purchase or receive NSTAR common shares. The options
or other rights to purchase or receive NSTAR common shares will be subject to
the same terms or conditions as your BEC Energy options or rights, so that you
will be able to exercise them at the same time and in the same way as you would
have exercised your BEC Energy options or share rights. Additionally, the
number of shares issuable under your options or share rights will stay the
same. The only difference is that you will receive NSTAR common shares instead
of BEC Energy common shares when you exercise your options or share rights.
COM/Energy Common Shares. If you own COM/Energy common shares, you will be
able to choose to receive either $44.10 in cash or 1.05 NSTAR common shares for
each COM/Energy common share you own.
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Limits on Cash and NSTAR Common Shares That Shareholders Will Receive
The merger agreement requires that $200 million cash will be paid to BEC
Energy shareholders and $100 million cash will be paid to COM/Energy
shareholders, and that a total of $300 million cash will be paid to all
shareholders. This means that approximately 4,535,147 BEC Energy common shares,
or 9.88% of the total number of BEC Energy shares outstanding, and
approximately 2,267,574 COM/Energy common shares, or 10.51% of the total number
of COM/Energy shares outstanding, will be exchanged for cash under the merger
agreement. The remaining BEC Energy common shares, or 90.12% of the total
number of BEC Energy shares outstanding, and COM/Energy common shares, or
89.49% of the total number of COM/Energy shares outstanding, will be exchanged
for NSTAR common shares. The merger agreement allows BEC Energy and COM/Energy
to adjust the amount of cash and NSTAR common shares that will be paid to BEC
Energy and COM/Energy shareholders so that the total amount of cash paid to all
shareholders is $300 million. Because of these provisions, you may receive some
NSTAR common shares even if you elect on your form of election to receive cash
for your shares, and you may receive some cash for your shares even if you
elect on your form of election to receive NSTAR common shares.
If Too Many Shareholders Elect to Receive NSTAR Common Shares
The number of NSTAR common shares issuable upon the exchange of BEC Energy
common shares in the merger, which we call the "BEC Share Number", will equal
the total number of BEC Energy common shares outstanding at the time of the
merger, not including BEC Energy common shares owned by BEC Energy, COM/Energy
or NSTAR, less 4,535,147. The number of COM/Energy common shares issuable upon
the exchange of COM/Energy common shares in the merger, which we call the
"COM/Energy Share Number", will equal the total number of COM/Energy common
shares outstanding at the time of the merger, not including COM/Energy common
shares owned by BEC Energy, COM/Energy or NSTAR, less 2,267,574.
If the holders of more than the BEC Share Number or more than the COM/Energy
Share Number elect to receive NSTAR common shares for their shares, we will
allocate NSTAR common shares and cash to BEC Energy shareholders or COM/Energy
shareholders, as the case may be, in the following manner:
1. All shareholders who elected to receive cash for their shares, or who
did not indicate any preference, will receive cash.
2. All persons entitled to receive BEC Energy common shares under the
Matching Contribution Account under the following plans will receive NSTAR
common shares:
. the Boston Edison Savings Plan (1999 Restatement)
. the Boston Edison Negotiated Savings Plan for Production and
Maintenance Employees (1994 Restatement)
. the Boston Edison Negotiated Savings Plan for Office, Technical
& Professional Employees (1994 Restatement)
3. The remaining cash available for distribution to BEC Energy
shareholders or COM/Energy shareholders, as the case may be, will be
prorated among the shareholders who elected to receive NSTAR common shares
for their shares.
4. All remaining BEC Energy common shares and COM/Energy common shares
will be exchanged for NSTAR common shares. NSTAR will not issue any
fractional common shares, except pursuant to any dividend reinvestment
plans of BEC Energy or COM/Energy. Otherwise, you will receive cash in
place of fractional NSTAR common shares.
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If Too Many Shareholders Elect to Receive Cash
If holders of more than 4,535,147 BEC Energy common shares or more than
2,267,574 COM/Energy common shares elect to receive cash for their shares, we
will allocate cash and NSTAR common shares to BEC Energy shareholders or
COM/Energy shareholders, as the case may be, in the following manner:
1. All shareholders who elected to receive NSTAR common shares for their
shares, or who did not indicate any preference, will receive NSTAR common
shares.
2. All shareholders who own less than 100 BEC Energy common shares or
COM/Energy common shares, and who elected to receive cash for all or any
portion of their shares, will receive cash for their shares, unless the
shareholders in this under-100 category own more than 4,535,147 BEC Energy
common shares or more than 2,267,574 COM/Energy common shares, as the case
may be. Under those circumstances, the cash would be allocated to the BEC
Energy shareholders or the COM/Energy shareholders, as the case may be, by
lottery or a similar method agreed upon by both BEC Energy and COM/Energy.
3. The remaining cash will be prorated among the other shareholders of
BEC Energy or COM/Energy, as the case may be, who elected to receive cash.
4. All remaining BEC Energy common shares and COM/Energy common shares
will be exchanged for NSTAR common shares. NSTAR will not issue any
fractional common shares, except pursuant to any dividend reinvestment
plans of BEC Energy or COM/Energy. Otherwise, you will receive cash in
place of fractional NSTAR common shares.
If Too Many Shareholders of One Company Elect Cash, and Too Few Shareholders
of the Other Company Elect Cash
Additionally, if BEC Energy shareholders elect to receive more than $200
million of cash for their shares, and COM/Energy shareholders elect to receive
less than $100 million of cash for their shares, we will reallocate to the BEC
Energy shareholders some of the cash that would have been available for payment
to the COM/Energy shareholders. We would make a similar reallocation if
COM/Energy shareholders elect to receive more than $100 million of cash for
their shares, and BEC Energy shareholders elect to receive less than $200
million of cash for their shares.
Exchange of Share Certificates
Exchange Agent. NSTAR will deposit with an exchange agent, in trust for the
benefit of holders of BEC Energy and COM/Energy common shares, certificates
evidencing the NSTAR common shares issuable and cash payable in exchange for
outstanding BEC Energy and COM/Energy common shares.
Exchange Procedures. After the merger, the exchange agent will mail a form
of election to each record holder of BEC Energy and COM/Energy common shares.
In order to make your election to receive either cash or NSTAR common shares
for your shares, you should do the following:
. properly complete and sign the form of election (please note that the
record holder of BEC Energy or COM/Energy common shares must complete and
sign the form of election);
. enclose with the form of election the BEC Energy or COM/Energy share
certificates you are exchanging for the cash or NSTAR common share
consideration you have elected common
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shares for which you are making an election, or an appropriate guarantee
of delivery of these certificates. The share certificates must be duly
endorsed in blank or otherwise acceptable for transfer on the books of BEC
Energy or COM/Energy; and
. deliver the signed form of election to the exchange agent, together with
the share certificates or guarantee of delivery, by no later than 5:00
p.m. on the twentieth business day after the transfer agent mailed the
form of election to shareholders.
Notwithstanding our current intention to mail the forms of election after
the merger, you should note that we may decide to mail the forms of election
to you before the merger. You will need to pay attention to the return date
specified in the form of election.
If you do not return your properly completed form of election by the
deadline, the exchange agent will send you instructions for surrendering your
share certificates so that you may receive cash or NSTAR common shares in
exchange for your BEC Energy or COM/Energy common shares.
After you have returned your form of election to the exchange agent, you
may revoke your elections by filing a written revocation with the exchange
agent anytime before the deadline for submitting elections. Upon your
revocation, the exchange agent will promptly return your share certificates or
guarantee of delivery.
The certificates surrendered to the exchange agent will be canceled. If a
holder of BEC Energy or COM/Energy common shares has made a transfer that is
not registered in the transfer records of the relevant company as of the time
of the merger the exchange agent may issue and pay the merger consideration to
a transferee if the certificate evidencing those common shares is presented to
the exchange agent, together with all documents required to effect such
transfer and evidence that all applicable share transfer taxes have been paid.
Until so surrendered, each outstanding share certificate that, prior to the
time of the merger represented BEC Energy or COM/Energy common shares will
from and after the time of the merger represent the ownership of the number of
NSTAR common shares or the cash for which such shares were exchangeable in the
merger.
Payments Following Surrender. Holders of unsurrendered share certificates
who will receive NSTAR common shares in exchange for their BEC Energy or
COM/Energy common shares will not receive any dividends or other distributions
with respect to NSTAR common shares, nor any cash payment in place of
fractional NSTAR common shares, until they have surrendered their certificates
as described above. At the time of surrender, a holder will receive the cash
payable in place of fractional NSTAR common shares and/or the amount of
dividends or any distributions already paid with respect to whole NSTAR common
shares if such dividends or distributions had a record date and a payment date
after the time of the merger but before the holder surrendered his or her
certificates. The holder will receive subsequent payments of dividends or
distributions on the appropriate payment date.
Lost, Stolen or Destroyed Certificates. If your certificates for any BEC
Energy or COM/Energy common shares have been lost, stolen or destroyed, you
must submit an affidavit to that effect to the exchange agent. NSTAR may also
require you to deliver a bond in an amount reasonably required to indemnify it
or the exchange agent against claims with respect to lost certificates.
Termination of Exchange Agent. One year after the merger, the exchange
agent will return to NSTAR all cash and all NSTAR share certificates that have
not been disbursed to BEC Energy or
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COM/Energy shareholders. After that time, NSTAR will act as exchange agent and
holders of unsurrendered share certificates will be general creditors of NSTAR
with respect to the cash and NSTAR common shares payable upon surrender of
their certificates. However, none of the parties to the merger agreement will
be liable to any holder of BEC Energy or COM/Energy common shares for any cash
or NSTAR common shares delivered to a public official under any applicable
abandoned property, escheat or similar law.
Withholding Rights. NSTAR or the exchange agent may withhold from the cash
or NSTAR common shares otherwise payable under the merger agreement any amounts
that are required to be deducted and withheld on such payment under any
federal, state, local or foreign tax law. To the extent that NSTAR or the
exchange agent make any such withholding, the withheld amounts will be treated
for purposes of the merger agreement as having been paid to the holder of BEC
Energy or COM/Energy common shares with respect to which the deduction and
withholding was made.
Detailed instructions, including a form of election, will be mailed to BEC
Energy and COM/Energy shareholders following the time of the merger. The
instructions will describe how to exchange your BEC Energy or COM/Energy share
certificates. You should not send your share certificates to the exchange agent
before you receive the form of election and instructions. Please do not return
your certificates with the enclosed proxy card.
Representations and Warranties
In the merger agreement, each of BEC Energy and COM/Energy makes customary
representations and warranties about itself and its business in favor of the
other party. These representations and warranties relate to such matters as
company organization and capital structure, conduct of business and absence of
specified changes, material contracts, material liabilities, and "Year 2000"
matters. One of the conditions to each party's obligation to complete the
merger is that the representations and warranties of the other be materially
true and correct at the time of the merger. This closing condition is important
to both companies and to shareholders because of the time delay between the
date we signed the merger agreement and the date we complete the merger. If
material changes have occurred with respect to matters addressed in one party's
representations and warranties during that intervening time, the other party
would have the opportunity to evaluate the effect of those changes and to
determine whether it still wishes to proceed with the merger despite those
material changes. We currently believe that the representations and warranties
about absence of certain changes, material liabilities and Year 2000 matters
are most important to each company and to shareholders deciding how to vote
their BEC Energy or COM/Energy common shares at the shareholder meetings.
However, it is possible that other representations and warranties may turn out
to be more important than we have predicted. We urge you to read the merger
agreement so that you can make your own evaluation of the representations and
warranties, and how they might bear on your investment decision.
Conduct of Business Prior to the Merger
Each of BEC Energy and COM/Energy has agreed, as to itself and its
subsidiaries, that it generally will operate its business in the ordinary
course through the time of the merger. If you would like to know more about
specific actions that are restricted until the completion of the merger, please
see section 6.1 of the merger agreement.
No Solicitation by BEC Energy or COM/Energy. Each of BEC Energy and
COM/Energy has agreed that neither it nor any of its subsidiaries will initiate
or encourage any inquiries or proposals
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about any other merger, sale of substantial assets, sale of shares or similar
transactions or engage in negotiations about any such acquisition proposal. The
relevant board of trustees, however, is not prevented from considering,
approving and recommending a bona fide acquisition proposal not solicited in
violation of the merger agreement, if the board concludes in good faith based
on the advice of outside counsel that failure to do so would likely constitute
a breach of the trustees' legal duties to shareholders.
Under the merger agreement, the party receiving an acquisition proposal or a
request for nonpublic information or for access to its properties, books or
records by any person that is considering making, or has made, an acquisition
proposal must notify the other party within 24 hours of that acquisition
proposal or request. If that party's board of trustees determines in good faith
and upon the advice of outside counsel that it is required to cause such party
to provide the requested information or access in order to properly discharge
the trustees' legal to shareholders, then that party may provide information to
the third party offeror pursuant to a confidentiality agreement that is not
more favorable to the offeror than the confidentiality agreement between BEC
Energy and COM/Energy.
Additional Agreements
Shareholder Meetings. BEC Energy and COM/Energy have agreed to call and hold
the shareholder meetings for the purpose of voting on the approval of the
merger and the issuance of the NSTAR common stock in the merger. Unless their
legal duties to shareholders require otherwise, the board of each of BEC Energy
and COM/Energy will recommend to its shareholders the approval of the merger
agreement and the merger.
Access to Information; Confidentiality. Upon reasonable notice and subject
to restrictions contained in confidentiality agreements with others, BEC Energy
and COM/Energy will each afford to the officers, employees, accountants,
counsel and other representatives of the other reasonable access to all of its
properties, books, contracts, commitments and records. Each company will
furnish promptly to the other all information about its business, properties
and personnel as the other party may reasonably request and make available the
appropriate individuals to discuss the business as either BEC Energy or
COM/Energy may reasonable request. Each party will keep the information
confidential in accordance with the terms of the mutual confidentiality
agreement between BEC Energy and COM/Energy, dated June 3, 1998.
Agreements with Affiliates. Each of BEC Energy and COM/Energy will identify
all persons who were, at the time of the shareholder meetings, "affiliates" for
purposes of Rule 145 under the Securities Act. Each of BEC Energy and
COM/Energy will use its reasonable efforts to cause each "affiliate" to deliver
a written agreement acknowledging the restrictions imposed by Rule 145 on the
resale of NSTAR common shares received in the merger.
Indemnification and Insurance. After the merger, NSTAR will, to the fullest
extent permitted under applicable law and its governing documents, indemnify
and hold harmless each present and former trustee, director, officer or
employee of BEC Energy or COM/Energy or any of their subsidiaries against any
liabilities and amounts paid in settlement in connection with any action,
proceeding or investigation relating to the transactions contemplated by the
merger agreement or any acts or omissions occurring at or prior to the merger
to the same extent as provided in the charter documents of BEC Energy and
COM/Energy as in effect immediately prior to the merger. The merger agreement
sets forth several procedural protections designed to make sure that the
indemnified parties can participate effectively in any proceeding.
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For six years after the merger, NSTAR will maintain in effect the current
directors' and officers' liability insurance policies of BEC Energy and
COM/Energy or obtain new policies on terms no less favorable than those of the
current insurance policies. In no event, however, will NSTAR be required to
spend more than 200% of the aggregate annual premiums that BEC Energy and
COM/Energy currently pay for this coverage.
Further Action. Each of BEC Energy and COM/Energy will take such actions as
may reasonably be required by the merger agreement to complete the transactions
contemplated by the merger agreement.
NSTAR Board of Trustees. The boards of trustees of both parties will cause
the NSTAR board of trustees at the time of the merger to consist of twenty
members, eleven selected by BEC Energy and nine selected by COM/Energy.
COM/Energy will have the right to designate two members of the executive
committee. One of COM/Energy's designees will be the chairman of the COM/Energy
board of trustees at the time of the merger, who will become the chairman of
the NSTAR executive committee.
Officers. At the time of the merger, Mr. May, BEC Energy's current chairman,
president and chief executive officer, will become the chairman and chief
executive officer of NSTAR, and Mr. Wright, COM/Energy's current chief
executive officer and president, will become the president and chief operating
officer of NSTAR.
Corporate Offices. At the time of the merger, NSTAR's corporate headquarters
will be located in Boston, Massachusetts.
Workforce and Employee Benefit Matters
After the merger, NSTAR will honor all contracts (including collective
bargaining agreements) of BEC Energy and COM/Energy that apply to current or
former employees or trustees. NSTAR may modify, suspend or terminate those
contracts in accordance with their terms. During the three years following the
merger, NSTAR will not consider whether an employee previously worked for BEC
Energy or COM/Energy when making decisions about work force reductions or job
eliminations. Terminated employees will have the opportunity to participate on
a fair and equitable basis in any job placement programs that NSTAR (or any
subsidiary) offers.
Participants in BEC Energy's or COM/Energy's employee benefit plans will
receive credit for prior service with respect to their eligibility to
participate, vesting of benefits and eligibility to receive benefits. Prior
service will not count for accrual of benefits. Additionally no credit will be
given for prior service if such credit would result in duplicative benefits or
duplicate the funding for such benefits.
We will take appropriate action so that all plans that provide benefits in
the form of BEC Energy common shares or COM/Energy common shares will be
changed to provide for the issuance or open market purchase of NSTAR common
shares instead. This action includes obtaining shareholder approval of those
share plans, ensuring that a sufficient number of NSTAR common shares are
available for delivery to employees under those plans, and filing the required
registration statements with respect to the NSTAR common shares issuable under
those plans.
Conditions to Completion of the Merger
Conditions to Each Party's Obligations to Complete the Merger. Neither party
is required to complete the merger unless the following conditions are met or
waived:
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. The shareholders of BEC Energy and COM/Energy have approved the merger
and the merger agreement.
. No temporary restraining order or injunction preventing the completion of
the merger is in effect or threatened, no governmental agency has brought
any proceeding which seeks to prevent the merger, and no statute, rule,
regulation or order is enacted, enforced or deemed applicable to the
merger which would make the merger illegal.
. The SEC has declared the registration statement effective and has not
taken or threatened any prohibitory action.
. The NSTAR common shares to be issued in the merger have been approved for
listing, upon official notice of issuance, on the New York Stock
Exchange.
. The parties have obtained the required regulatory approvals which have
become final orders as required in the merger agreement, including an
approval by the Massachusetts Department of the rate plan filed by the
parties.
. The applicable waiting periods under the Hart-Scott-Rodino Act have
expired or been terminated.
In addition to the conditions that apply to both parties, there are separate
closing conditions in favor of each of BEC Energy and COM/Energy. These
conditions must either have been met at the time of the merger or been waived
by the party in whose favor they were drafted.
Conditions to the Obligations of BEC Energy. The closing conditions in favor
of BEC include the following:
. COM/Energy must have performed, in all material respects, the agreements
and covenants in the merger agreement required to be performed by it.
. The representations and warranties of COM/Energy contained in the merger
agreement must be true at the time of the merger except for non-material
changes, changes contemplated by the merger agreement, or representations
and warranties made only as of a particular date.
. COM/Energy must have obtained the consents required in the merger
agreement unless the failure to obtain such consents could not reasonably
be expected to have a material adverse effect on COM/Energy or BEC
Energy.
. Each person identified as an "affiliate" of COM/Energy must have signed
an affiliate agreement that is in force.
. BEC Energy must have received a satisfactory written opinion from Ropes &
Gray opining that the exchange of BEC Energy common shares for common
shares of NSTAR in the merger will be treated as a non-taxable exchange
described in section 351(a) of the Internal Revenue Code.
Conditions to Obligations of COM/Energy. The closing conditions in favor of
COM/Energy include the following:
. BEC Energy must have performed, in all material respects, the agreements
and covenants in the merger agreement required to be performed by it.
. The representations and warranties of BEC Energy contained in the merger
agreement must be true at the time of the merger except for non-material
changes, changes contemplated by the merger agreement, or representations
and warranties made only as of a particular date.
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. BEC Energy must have obtained the consents required in the merger
agreement unless the failure to obtain such consents could not reasonably
be expected to have a material adverse effect on COM/Energy or BEC
Energy.
. Each person identified as an "affiliate" of BEC Energy must have signed
an affiliate agreement that is in force.
. COM/Energy must have received a satisfactory written opinion from LeBoeuf
opining that the exchange of COM/Energy common shares for common shares
of NSTAR in the merger will be treated as a non-taxable exchange
described in section 351(a) of the Internal Revenue Code.
. BEC Energy must have either sold its interest in the Pilgrim nuclear
facility pursuant to the agreement already in place with Entergy Nuclear
Generating Company or a similar agreement with another unaffiliated
buyer, or the boards of each of NSTAR and Boston Edison Company must have
taken specified definitive steps to permanently cease operations not
later than the end of the then-current fuel cycle if such assets have not
been sold under similar terms by the closing.
Termination of the Merger Agreement and Termination Fees and Expenses
Conditions to Termination. Each of BEC Energy and COM/Energy has the right,
under some circumstances, to terminate the merger agreement, even though it may
have received shareholder approval. These circumstances are described below:
. The boards of trustees of BEC Energy and COM/Energy may terminate the
merger agreement by mutual written consent.
. Either BEC Energy or COM/Energy may terminate the merger agreement if the
merger has not been completed by December 5, 1999, so long as the delay
has not been caused by a failure of the party seeking termination to
fulfill any obligation under the merger agreement. If the only closing
condition not satisfied on December 5, 1999 is receipt of the required
regulatory approvals, BEC Energy and COM/Energy shall extend the
termination date for another six months.
. Either BEC Energy or COM/Energy may terminate the merger agreement if its
shareholders do not approve the merger agreement and the merger.
. Either BEC Energy or COM/Energy may terminate the merger agreement if any
law, order, rule or regulation prohibits the merger or if any court or
government authority issues a nonappealable final order or other
permanent action prohibiting the merger, so long as the prohibitory
proceeding was defended by the party seeking termination.
. Either BEC Energy or COM/Energy may terminate the merger agreement if it
receives an acquisition proposal and its board of trustees determines
based on the opinion of outside counsel that failure to accept such
proposal may reasonably be expected to constitute a breach of the
trustees' fiduciary duties, provided that:
(1) outside counsel has advised the board that the trustees' fiduciary
duties require the board to reconsider its commitment to the non-
terminating party;
(2) the offeror of the acquisition proposal has agreed in writing to
pay the termination fees due to the non-terminating party; and
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(3) the party who has received the proposal and its advisors negotiate
in good faith with the non-terminating party to enable the merger to
proceed.
. Either BEC Energy or COM/Energy may terminate the merger agreement if the
other party has materially breached a covenant, representation or
warranty, and the breach remains uncured 20 days after written notice was
given, or the other party's board withdraws or modifies (or fails to
reaffirm) its approval or recommendation of the merger or approves or
recommends an acquisition proposal.
Effect of Termination. If the merger agreement is terminated, neither BEC
Energy nor COM/Energy will have any liability to the other except for
termination fees payable in the circumstances described below. Nothing,
however, will relieve any party from liability for any breach of the merger
agreement.
Termination Fees.
. If a party terminates the merger agreement because the other party
materially breaches a representation, warranty or agreement under the
merger agreement, the breaching party will pay in cash to the terminating
party all documented out-of-pocket expenses and fees incurred by the
terminating party, not to exceed $5 million. In addition, if the breach
was willful, the non-breaching, terminating party may pursue and recover
additional amounts at law or in equity.
. If a party terminates the merger agreement because its board of trustees'
fiduciary duties require that it accept an alternative acquisition
proposal, the terminating party will pay in cash to the non-terminating
party all documented out-of-pocket expenses and fees incurred by the non-
terminating party, not to exceed $5 million.
. Additionally, in a few circumstances BEC Energy or COM/Energy may be
required to pay to the other an additional termination fee of $35
million. This additional fee will be payable if the merger agreement is
terminated because one party's board of trustees determines that its
fiduciary duties require such party to accept an acquisition proposal
that is outstanding at the time of such termination and that party enters
into a transaction with the offeror of the acquisition proposal within
two years of the acquisition proposal. The additional fee also will be
payable if the merger agreement is terminated while an acquisition
proposal is outstanding, on the basis of a material breach of any
representation, warranty or covenant under the merger agreement, or a
failure to seek or obtain the requisite shareholder approval, and the
recipient of the acquisition proposal enters into a transaction with the
offeror thereof within two years following termination of the merger
agreement.
Amendment and Waiver
BEC Energy and COM/Energy may amend the merger agreement by action taken by
their boards of trustees at any time before the merger. However, after the BEC
Energy and COM/Energy shareholders have approved the merger, BEC Energy and
COM/Energy will not make any amendment that by law requires further shareholder
approval without obtaining that approval. Any amendment must be in writing and
signed by the parties.
At any time prior to the merger, BEC Energy and COM/Energy may extend the
time for the performance of the other's obligations, waive any of the other's
inaccurate representations and warranties contained in the merger agreement, or
waive the other's compliance with its agreements or conditions contained in the
merger agreement. Any extension or waiver must be in writing and signed by the
party affected by the waiver or extension.
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UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited combined pro forma financial statements give effect
to the merger. In the merger, BEC Energy and COM/Energy will combine their
businesses under a new holding company, NSTAR, by merging with acquisition
subsidiaries of NSTAR. The unaudited pro forma combined balance sheet as of
December 31, 1998 is presented as if the merger had occurred at the balance
sheet date. The unaudited pro forma combined statement of operations for the
year ended December 31, 1998 assumes that the merger occurred on January 1,
1998. Other assumptions are set forth in the notes. We prepared these
statements using the purchase method of accounting. Under the purchase method
of accounting, the purchase price of COM/Energy, including direct costs of the
acquisition, will be allocated to the assets acquired and liabilities assumed
based on their estimated fair values, with the excess purchase consideration
allocated to goodwill. BEC Energy's merger with BEC Acquisition LLC will be
treated as a reorganization with no change in the recorded amount of BEC
Energy's assets and liabilities. The results of NSTAR's operations will include
the results of operations of COM/Energy beginning when the merger is complete.
The unaudited pro forma financial statements do not give effect to the
estimated cost savings and avoidances as a result of the transaction or the
costs to achieve such savings and avoidances. The pro forma adjustments are
based upon a preliminary allocation of the COM/Energy purchase price.
Management expects to finalize the allocation upon the closing of the
transaction. Management does not expect the final allocation to differ
materially from the preliminary allocation of the purchase price.
We have prepared the following unaudited pro forma financial statements
from, and you should read them in conjunction with, the historical financial
statements and related notes of BEC Energy and COM/Energy incorporated herein
by reference. The historical consolidated financial statements of BEC Energy
have been adjusted to give effect to two transactions involving the sale of its
electric generating assets. BEC Energy's subsidiary, Boston Edison Company,
sold its fossil generating units to Sithe Energies, Inc. on May 15, 1998. This
sale is reflected in the historical balance sheet. The unaudited pro forma
statement of operations reflects certain adjustments necessary to reflect the
sale as of January 1, 1998. Boston Edison expects to complete the sale of
Pilgrim Nuclear Generating Station to Entergy Nuclear Generating Company, a
subsidiary of Entergy Corporation, during the first half of 1999. The unaudited
pro forma balance sheet of BEC Energy contains adjustments necessary to reflect
the sale to Entergy as of December 31, 1998. The unaudited pro forma statement
of operations has been adjusted to reflect the sale as of January 1, 1998. The
unaudited pro forma statement of operations of COM/Energy gives effect to the
sale of substantially all of COM/Energy's fossil fuel generating plant assets
to affiliates of Southern Energy New England, L.L.C., a subsidiary of Southern
Company, which occurred on December 30, 1998. The following unaudited pro forma
financial statements are not necessarily indicative of the financial position
or operating results that would have occurred had the merger closed on the date
as of which, or at the beginning of the period for which, the merger is being
given effect nor are they necessarily indicative of future operating results or
financial position.
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UNAUDITED PRO FORMA COMBINED BALANCE SHEET
DECEMBER 31, 1998
(in thousands)
<TABLE>
<CAPTION>
Pro Forma Merger NSTAR
Pro Forma BEC Energy Pro Forma Pro Forma
BEC Energy Adjustments Balances COM/Energy Adjustments Balances
---------- ----------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Utility plant in
service, at original
cost................... $2,720,681 (331,642)(1) $2,389,039 $1,332,238 $3,721,277
Less: accumulated
depreciation........... 926,020 (158,414)(1) 767,606 407,250 1,174,856
---------- ---------- ---------- ----------
1,794,661 1,621,433 924,988 2,546,421
Generation-related
regulatory asset, net.. 366,336 (366,336)(1) -- -- --
Nuclear fuel, net....... 68,706 (68,706)(1) -- 3,125 3,125
Construction work in
progress............... 40,965 (1,255)(1) 39,710 6,399 46,109
---------- ---------- ---------- ----------
Net utility plant....... 2,270,668 1,661,143 934,512 2,595,655
Non-utility property,
net.................... 21,565 21,565 84,812 106,377
Nuclear decommissioning
trust.................. 172,908 (172,908)(2) -- -- --
Equity investments...... 84,770 84,770 14,031 98,801
Other investments....... 30,206 30,206 -- 30,206
Restricted cash--long
term................... 172,239 (100,243)(8) 71,996
Current assets:
Cash and cash
equivalents.......... 98,989 40,000 (1) 130,982 74,840 110,000 (8) 3,622
200,485 (1) (100,000)(9)
63,200 (2) (200,000)(10)
(271,692)(2) (12,200)(19)
Restricted cash....... 21,094 21,094
Accounts receivable... 202,275 (14,785)(1) 187,490 122,064 309,554
Accrued unbilled
revenue.............. 14,322 14,322 21,211 35,533
Fuel, materials and
supplies, at average
cost................. 15,474 (2,910)(1) 12,564 32,924 45,488
Prepaid expenses and
other................ 102,448 (1,687)(1) 100,761 13,578 114,339
---------- ---------- ---------- ----------
Total current
assets............. 433,508 446,119 285,711 529,630
Deferred debits to:
Regulatory assets..... 167,642 366,336 (1) 769,003 210,628 125,808 (20) 1,105,439
30,203 (1)
204,822 (2)
Goodwill.............. 488,220 (12) 516,420
28,200 (12)
Other................. 32,632 (8,117)(1) 24,515 60,955 85,470
---------- ---------- ---------- ----------
Total assets........ $3,213,899 $3,037,321 $1,762,888 $5,139,994
========== ========== ========== ==========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
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UNAUDITED PRO FORMA COMBINED BALANCE SHEET
DECEMBER 31, 1998
(in thousands)
<TABLE>
<CAPTION>
Pro Forma Merger NSTAR
Pro Forma BEC Energy Pro Forma Pro Forma
BEC Energy Adjustments Balances COM/Energy Adjustments Balances
---------- ----------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
CAPITALIZATION AND
LIABILITIES
Common equity:
Common shares and
premium.............. $ 691,389 $ 691,389 $ 155,251 (100,000)(9) 1,329,201
(200,000)(10)
(55,251)(12)
837,812 (12)
Retained earnings..... 360,509 25,813 (4) 386,322 294,341 (294,341)(12) 386,322
---------- ---------- ---------- ----------
Total common equity.. 1,051,898 1,077,711 449,592 1,715,523
Cumulative preferred
stock:
Nonmandatory
redeemable series.... 43,000 43,000 -- 43,000
Mandatory redeemable
series............... 49,040 49,040 11,380 (11,380)(19) 49,040
---------- ---------- ---------- ----------
Total preferred
stock............... 92,040 92,040 11,380 92,040
Long term debt.......... 955,563 955,563 385,602 1,341,165
Capital lease
obligation............. -- 10,982 10,982
Current liabilities:
Long term
debt/preferred stock
due within one year.. 667 667 57,123 (820)(19) 56,970
Notes payable......... 78,000 78,000 2,000 110,000 (8) 218,200
28,200 (12)
Accounts payable...... 110,194 110,194 106,952 217,146
Accrued interest...... 20,516 20,516 5,213 25,729
Dividends payable..... 23,878 23,878 8,732 32,610
Other................. 183,664 (92,189)(3) 91,475 199,863 291,338
---------- ---------- ---------- ----------
Total current
liabilities......... 416,919 324,730 379,883 841,993
Deferred credits:
Accumulated deferred
income taxes......... 348,557 92,189 (3) 440,746 -- 440,746
Accumulated deferred
investment tax
credits.............. 45,930 (25,813)(4) 20,117 21,616 41,733
Nuclear
decommissioning
liability............ 176,578 (176,578)(2) -- -- --
Power contracts....... 58,415 58,415 59,507 117,922
Regulatory liability-
transition costs..... -- -- 358,604 (100,243)(8) 258,361
Other................. 67,999 67,999 85,722 125,808 (20) 279,529
---------- ---------- ---------- ----------
Commitments and
contingencies
Total capitalization and
liabilities............ $3,213,899 $3,037,321 $1,762,888 $5,139,994
========== ========== ========== ==========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
76
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(in thousands except per share data)
<TABLE>
<CAPTION>
Pro Forma Pro Forma Merger NSTAR
Pro Forma BEC Energy Pro Forma COM/Energy Pro Forma Pro Forma
BEC Energy Adjustments Balances COM/Energy Adjustments Balances Adjustments Balances
---------- ----------- ---------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating revenues..... $1,622,515 (99,230)(6) $1,523,285 $980,115 (79,860)(7) $900,255 $2,423,540
---------- ---------- -------- -------- ----------
Operating expenses:
Fuel and purchased
power................ 567,806 111,393 (5) 679,199 335,986 (25,170)(7) 310,816 990,015
Operations and
maintenance.......... 386,340 (121,369)(5) 264,971 245,993 (29,794)(7) 216,199 481,170
Cost of gas sold...... 163,701 163,701 163,701
Depreciation and
amortization......... 191,701 (20,772)(5) 170,929 74,110 (13,895)(7) 60,215 12,911 (14) 244,055
Demand side
management........... 51,839 51,839 16,184 16,184 68,023
Taxes--property and
other................ 84,091 (33,985)(5) 50,106 29,028 (2,177)(7) 26,851 76,957
Income Taxes.......... 97,798 (11,060)(5) 86,738 26,253 (3,266)(7) 22,987 (3,253)(15) 106,472
---------- ---------- -------- -------- ----------
Total operating
expenses........... 1,379,575 1,303,782 891,255 816,953 2,130,393
---------- ---------- -------- -------- ----------
Operating income....... 242,940 219,503 88,860 83,302 293,147
Other income (expense),
net................... (11,811) (11,811) 12,453 (254)(7) 12,199 388
---------- ---------- -------- -------- ----------
Operating and other
income................ 231,129 207,692 101,313 95,501 293,535
Interest charges:
Long-term debt....... 82,951 (3,325)(5) 79,626 37,435 (1,791)(7) 35,644 115,270
Other................ 8,800 (2,976)(5) 5,824 9,887 (88)(7) 9,799 8,292 (13) 23,915
Allowance for
borrowed funds used
during
construction........ (1,668) (1,668) (413) 56 (7) (357) (2,025)
---------- ---------- -------- -------- ----------
Total interest
charges............ 90,083 83,782 46,909 45,086 137,160
---------- ---------- -------- -------- ----------
Net income............. 141,046 123,910 54,404 50,415 156,375
Preferred dividends.... 8,765 (2,829)(5) 5,936 930 930 (930)(19) 5,936
---------- ---------- -------- -------- ----------
Earnings available for
common shareholders... $ 132,281 $ 117,974 $ 53,474 $ 49,485 $ 150,439
========== ========== ======== ======== ==========
Weighted average shares
outstanding--basic.... 47,973 47,973 21,534 21,534 (5,840) 63,667
Weighted average shares
outstanding--diluted.. 48,149 48,149 21,536 21,536 (5,840) 63,845
Earnings per share--
basic................. $ 2.76 $ 2.46 $ 2.48 $ 2.30 $ 2.36
Earnings per share--
diluted............... $ 2.75 $ 2.45 $ 2.48 $ 2.30 $ 2.36
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
77
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
BEC Energy Pro Forma Adjustments
The historical consolidated financial statements of BEC Energy have been
adjusted to give effect to two transactions involving the sale of its electric
generating assets. BEC Energy's subsidiary, Boston Edison Company, sold its
fossil generating units to Sithe Energies, Inc. on May 15, 1998. This sale is
reflected in the historical balance sheet. The unaudited pro forma statement
of operations includes adjustments necessary to reflect the sale as of January
1, 1998. Boston Edison expects to complete the sale of Pilgrim Nuclear
Generating Station to Entergy Nuclear Generating Company, a subsidiary of
Entergy Corporation, during the first half of 1999. The unaudited pro forma
balance sheet includes adjustments necessary to reflect the sale to Entergy as
of December 31, 1998. The unaudited pro forma statement of operations has been
adjusted to reflect this sale as of January 1, 1998.
1. Reflects the proceeds from the sale of Pilgrim. The proceeds include
$40,000,000 from Entergy and $200,485,000 from wholesale contract customers
(including $100,243,000 from COM/Energy, see adjustment 8) . The payment from
wholesale contract customers represents their proportionate share of the
remaining net book value of Pilgrim at the time of the sale to Entergy and
$14,785,000 of receivables. Two other utilities (including COM/Energy's
subsidiary, Commonwealth Electric Company) are the primary Pilgrim wholesale
contract customers. Under their contracts, these utilities are responsible for
paying Boston Edison a proportionate share of the capital and operating costs
of the plant in return for an equal proportion of the electric output of the
plant. As part of the sale of Pilgrim Station, Boston Edison and the utilities
have agreed that the utilities will reimburse Boston Edison for their share of
Boston Edison's unrecovered portion of the plant, including any outstanding
receivables. In return for this payment, the contract customers are relieved
from any future liability for operating and capital costs related to Pilgrim.
The reductions to utility plant in service, accumulated depreciation, nuclear
fuel, construction work in progress and fuel, materials and supplies reflect
the transfer of specific nuclear assets to Entergy upon the completion of the
sale of Pilgrim in 1999. No loss was recorded on the sale of Pilgrim because
BEC Energy will collect the unrecovered net book value of Pilgrim from its
customers. The reclassification from generation-related regulatory assets to
regulatory assets ($366,336,000) represents the portion of Pilgrim that was
already being recovered from retail customers through the transition charge.
The difference between the total proceeds received and the net book value of
the assets sold ($30,203,000) is reflected as an increase to regulatory assets
as such amounts will be collected from customers under Boston Edison's
settlement agreement which runs through 2009.
2. Pursuant to the purchase and sale agreement between Boston Edison and
Entergy, Boston Edison will transfer its nuclear decommissioning trust to
Entergy at a level which is sufficient to fully fund the estimated costs to
decommission Pilgrim. This adjustment reflects additional funding of the trust
($271,692,000) and the transfer of the trust to Entergy. The additional
funding to the trust includes $63,200,000 that will be received from the
Pilgrim wholesale contract customers. At the time of the sale or shortly
thereafter the contract customers will pay, to Boston Edison, their
proportionate share of this funding. In return, the contract customers are
relieved of all future liabilities with regard to the decommissioning of
Pilgrim. The amount funded by Boston Edison has been established as a
regulatory asset as such amounts will be collected from customers under Boston
Edison's settlement agreement which runs through 2009. After the sale, Entergy
will assume full responsibility for the decomissioning of Pilgrim.
3. The increase in accumulated deferred income taxes represents the current
year income tax benefit as a result of the sale of Pilgrim below its book
value.
78
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(continued)
4. The reduction in accumulated deferred investment tax credits represents
the recognition of unamortized investment tax credits related to Pilgrim. At
the time of the sale, BEC Energy will recognize $25,813,000 of other income
related to investment tax credits. This non-recurring shareholder benefit is
not reflected in the unaudited pro forma combined statement of operations.
5. The unaudited pro forma statement of operations reflects adjustments
necessary to eliminate the effects of BEC Energy's fossil and nuclear
generating activities effective January 1, 1998. The reduction in operating
expenses other than fuel and purchased power expense is due to the sale of the
generating facilities. The increase in fuel and purchased power expense
reflects the net incremental energy cost that Boston Edison would have incurred
to purchase replacement power at actual market rates in the absence of its own
generating capacity. The actual fuel costs during 1998 were $91,968,000, while
the cost to purchase replacement power at market rates would have been
$203,361,000. In addition, an adjustment was made to reduce interest expense
and preferred dividends, as of January 1, 1998, related to securities that were
redeemed with the proceeds of the fossil sale. No gain was recorded on the sale
of BEC Energy's fossil generating assets because BEC Energy is obligated to
reduce the transition costs to be billed to its customers by the net proceeds
of the sale.
6. The operating revenues of a utility are generally based on the cost of
providing service, including a return. Therefore, this adjustment reflects the
anticipated reduction in operating revenues which would result due to the net
reduction in operating expenses and financing costs referred to in adjustment 5
above. The following summary illustrates the reduction in operating revenues
(000):
<TABLE>
<CAPTION>
Reduction in retail base revenues.................................. ($24,531)
<S> <C>
Reduction in Pilgrim performance revenues.......................... (16,045)
Increase in fuel/standard offer revenues........................... 28,789
Reduction in Pilgrim contract revenues............................. (87,443)
--------
($99,230)
========
</TABLE>
COM/Energy Pro Forma Adjustments
The historical consolidated statement of operations of COM/Energy has been
adjusted to give effect to the sale of generating assets, effective January 1,
1998, that were sold to affiliates of Southern Energy New England, L.L.C., a
subsidiary of Southern Company. The sale, which was completed on December 30,
1998, is reflected in the historical consolidated balance sheet.
7. The reductions in operating expenses reflect the sale of the fossil
generating units effective January 1, 1998. The reduction in operating revenue
reflects the amounts collected from customers related to the sale of
electricity generated by these units. No gain was recorded on the sale of
COM/Energy's generating assets because COM/Energy is obligated to reduce the
transition costs to be billed to its customers by the net proceeds of the sale.
Merger Pro Forma Adjustments
8. Reflects the issuance of $110,000,000 of notes payable, the proceeds of
which are to be applied to the COM/Energy cash consideration (see adjustment 9
below), BEC Energy cash consideration (see adjustment 10 below) and the
redemption of all of COM/Energy's outstanding preferred shares (see adjustment
19 below). In addition, an adjustment was made to reduce restricted
79
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(continued)
cash and regulatory liability by $100,243,000 to reflect COM/Energy's share of
the payment to Boston Edison by the Pilgrim wholesale contract customers (see
adjustment 1 above). As noted above, COM/Energy sold substantially all of its
generating assets in December 1998. The proceeds of the sale are reflected on
its consolidated balance sheet as a regulatory liability as the proceeds go to
the benefit of electric customers. COM/Energy is authorized to utilize the
proceeds to reduce its stranded costs, including the buy-out of above market
purchased power contracts. COM/Energy will utilize a portion of these proceeds
to pay down its obligation to Boston Edison under its power contract related to
Pilgrim. Cash on hand and short-term borrowings (notes) issued to finance the
merger illustrated in these pro forma financial statements are based on the
balances at December 31, 1998. The actual source of funds for the merger will
be based on the actual cash balances on the date of the merger.
9. Pursuant to the merger agreement, this adjustment reflects the COM/Energy
cash consideration paid to COM/Energy common shareholders who will receive cash
in lieu of NSTAR common shares. The amount of adjustment assumes a total
payment of $100,000,000 at a cash price of $44.10 per share (see adjustment 12
below).
10. Pursuant to the merger agreement, this adjustment reflects the BEC
Energy cash consideration paid to BEC Energy common shareholders who will
receive cash in lieu of common shares of NSTAR. The amount of the adjustment
assumes a total payment of $200,000,000 at a cash price of $44.10 per share
(which includes a 5% premium for shares exchanged for cash rather than NSTAR
common shares).
11. Share consideration for BEC Energy and COM/Energy as described in the
merger agreement, is reflected below. The adjustment recognizes the issuance of
NSTAR shares in exchange for the remaining shares of BEC Energy and COM/Energy
common shares, net of the shares which were converted to cash in adjustments 9
and 10. The adjustment is based on the number of shares outstanding as of
December 31, 1998. The conversion represents the exchange of each common share
of COM/Energy into 1.05 common shares of NSTAR and the exchange of each common
share of BEC Energy into one common share of NSTAR. The total shares exchanged
and share consideration is based on the following calculations (share amounts
in thousands):
<TABLE>
<CAPTION>
As of December 31, 1998
-------------------------
NSTAR
BEC Pro
Energy COM/Energy Forma
------ ---------- ------
<S> <C> <C> <C>
Shares outstanding at
December 31, 1998 ..... 47,184 21,541 --
Shares redeemed for cash
(adjustments (9) and
(10)).................. (4,535) (2,268) --
------ ------
Remaining shares to be
exchanged.............. 42,649 19,273 --
1.00 1.05 --
------ ------
Share consideration..... 42,649 20,237 62,886
</TABLE>
12. Reflects the recognition of goodwill equal to the excess of the purchase
price over the estimated net fair value of the assets and liabilities of
COM/Energy acquired, plus estimated transaction costs resulting from the
merger. The adjustment assumes total purchase consideration equal to cash of
$100,000,000 and 20,237,000 NSTAR common shares at a price of $41.40 based on
the average closing price of BEC Energy common shares between December 2, 1998
and
80
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(continued)
December 9, 1998. The six-day average price of BEC Energy common shares used in
determining the total share consideration represents the market price over a
reasonable period of time before and after the transaction was announced on
December 7, 1998. Transaction costs of $28,200,000 represent the estimated
costs to be incurred during the merger that meet the requirements for inclusion
in goodwill. These transaction costs will be financed through the issuance of
$28,200,000 of notes payable. Goodwill for the balance sheet presented is based
on the following calculation (dollars in thousands except for per share data):
<TABLE>
<CAPTION>
As of
December 31, 1998
-----------------
<S> <C>
Cash consideration (adjustment (9))....................... $ 100,000
Common share consideration
COM/Energy shares converted............................. 19,273
Conversion rate......................................... 1.05
---------
New shares received..................................... 20,237
BEC Energy average share price.......................... $ 41.40
---------
Total share consideration............................... $ 837,812
Total consideration....................................... $ 937,812
Transaction costs......................................... $ 28,200
Less: net fair value (assumed to be book value) of
COM/Energy at
December 31, 1998........................................ $ 449,592
Goodwill.................................................. $ 516,420
</TABLE>
The unaudited pro forma combined financial results include adjustments
related to the merger, including financing costs and the amortization of
goodwill. No provision is made for the net impact of anticipated cost savings
and avoidances resulting from the merger.
These unaudited pro forma combined financial statements have been prepared
assuming that $200,000,000 of cash will be paid to BEC Energy shareholders and
$100,000,000 will be paid to COM/Energy shareholders. This is based on an
estimate of the most likely allocation of cash proceeds. A change in the
allocation of the $300,000,000 total cash proceeds will not have a material
impact on the purchase consideration, goodwill or on the pro forma combined
statement of operations.
13. Reflects the recognition of interest expense related to the issuance of
notes payable (see adjustment 8 and 12) at an assumed annual rate of 6.00%. The
interest expense as presented in the unaudited pro forma statement of
operations is calculated as if the merger had occurred on January 1, 1998. A
1/8% increase in the interest rate would cause an increase in interest expense
for the year ended December 31, 1998 of $173,000.
14. Reflects twelve months' amortization of goodwill (calculated in
adjustment 12 above) based on a forty-year amortization period.
15. Reflects an adjustment to reduce pro forma income taxes because of
higher interest expense (see adjustment 13 above). The adjustment assumes an
effective income tax rate of 39.225%.
16. The Statement of Financial Accounting Standards No. 128 regarding
earnings per share, effective for financial periods ending after December 15,
1997, established standards for computing
81
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(continued)
and presenting earnings per share. The statement now requires dual presentation
of basic and diluted earnings per share for entities with complex capital
structures. Both BEC Energy and COM/Energy adopted this pronouncement for the
statement of operations presented in these unaudited pro forma combined
financial statements. The adoption had no effect on the combined entity on a
pro forma basis.
17. For comparative purposes, some historical amounts have been reclassified
to conform to the pro forma financial statement format.
18. Calculation of Weighted Average Shares Outstanding (in thousands):
<TABLE>
<CAPTION>
Year ended Year ended NSTAR
December 31, 1998 December 31, 1998 Pro
BEC Energy COM Energy Forma
----------------- ----------------- ------
<S> <C> <C> <C>
Weighted Average Shares Outstanding 47,973 21,534 --
Shares redeemed for cash (A) (4,535) (2,268) --
Net shares 43,438 19,266 --
Conversion 1.00 1.05 --
43,438 20,229 63,667
</TABLE>
(A) Shares redeemed based on the following calculations:
<TABLE>
<CAPTION>
BEC Energy COM/Energy
---------- ----------
<S> <C> <C>
Allocated cash for redemption ($000)................... $200,000 $100,000
Redemption price per share............................. $ 44.10 $ 44.10
-------- --------
Shares redeemed (000).................................. 4,535 2,268
</TABLE>
A change in the allocation of cash for redemption between BEC Energy and
COM/Energy does not have a material impact on weighted average shares
outstanding.
19. Reflects the redemption of all of COM/Energy's outstanding preferred
shares which occurred on April 1, 1999. COM/Energy's preferred shares are
redeemable at a price equal to the amount provided in the declaration of trust
of COM/Energy, together with all dividends accrued and unpaid at the date of
such redemption. The preferred shares were carried at $12,200,000 on
COM/Energy's balance sheet prior to pro forma adjustment.
20. Reflects the recognition of a liability and related regulatory asset for
the difference between COM/Energy's pension and postretirement benefit
obligations and the fair value of the respective plan assets as of December 31,
1998.
82
<PAGE>
SHARE OWNERSHIP OF MANAGEMENT AND OTHER
BENEFICIAL OWNERS OF BEC ENERGY
The following table sets forth information regarding the beneficial
ownership of BEC Energy common shares as of April 1, 1999, assuming the
exercise of all options exercisable on, or within 60 days of, such date, by (a)
each trustee, (b) the chief executive officer and each of the other four most
highly compensated executive officers of BEC Energy/Boston Edison Company, (c)
all executive officers and trustees as a group, and (d) BEC Energy's principal
shareholders. None of the individual or collective holdings below exceeds 1% of
the outstanding BEC Energy common shares, except for the holdings of Morgan
Stanley Dean Witter & Co. which equalled 5.42% as of April 1, 1999. No member
of the group is the beneficial owner of Boston Edison Company's cumulative
preferred stock.
<TABLE>
<CAPTION>
Number of BEC Energy
Common Shares Held in
Number of BEC Energy Boston Edison
Common Shares Beneficially Company's Deferred
Name Owned Compensation Trust(2) Total
- ---- -------------------------- --------------------- ---------
<S> <C> <C> <C>
Gary L. Countryman...... 2,314 2,619 4,933
Thomas G. Dignan, Jr.... 2,827 2,793 5,620
Richard J. Egan......... 804 1,751 2,555
Charles K. Gifford...... 2,008 1,809 3,817
Nelson S. Gifford....... 4,448 4,332 8,780
L. Carl Gustin.......... 28,463(1) -- 28,463
Douglas S. Horan........ 26,650 1,583 28,233
Matina S. Horner........ 2,314 2,367 4,681
James J. Judge.......... 25,232(1) 1,368 26,600
Paul A. LaCamera........ -- 499 499
Ronald A. Ledgett....... 33,723(1) 4,102 37,825
Thomas J. May........... 104,195(1) 13,984 118,179
Sherry H. Penney........ 2,364 2,293 4,657
Herbert Roth, Jr........ 4,400 4,677 9,077
Stephen J. Sweeney...... 5,655(3) 500 6,155
--------- ------ ---------
All trustees and
executive officers as
a group, including
those named above
(18 persons) .......... 289,105(1)(3) 49,683 338,788
Morgan Stanley Dean
Witter & Co. .......... 2,559,078 -- 2,559,078
</TABLE>
- --------
(1) These totals include the following number of BEC Energy common shares held
in Boston Edison Company's 401(k) Plan: Mr. Gustin, 4,562 shares; Mr.
Horan, 2,956 shares; Mr. Judge, 2,837 shares; Mr. Ledgett, 3,290 shares;
Mr. May, 8,889 shares; all executive officers as a group, 30,698 shares.
(2) Trustees and officers who are participants in Boston Edison Company's
Deferred Compensation Plan may instruct the Plan trustee to vote BEC Energy
common shares held in the trust in accordance with their allocable share of
such deferrals, but trustee participants have no dispositive power over the
shares.
(3) 3,629 of Mr. Sweeney's 5,640 shares reported in this column are held in a
charitable annuity remainder trust, of which he, as a co-trustee of the
trust, shares dispositive and voting power with respect to the shares.
83
<PAGE>
SHARE OWNERSHIP OF MANAGEMENT AND OTHER
BENEFICIAL OWNERS OF COM/ENERGY
The following table sets forth other information regarding the beneficial
ownership of COM/Energy common shares as of April 1, 1999, by (a) each trustee,
(b) the chief executive officer and each of the other four most highly
compensated executive officers of COM/Energy, (c) all executive officers and
trustees as a group and (iv) COM/Energy's principal shareholders. Other than
the Employees Savings Plan of Commonwealth Energy System and Subsidiary
Companies, which beneficially owns approximately 12% of the outstanding
COM/Energy common shares, there are no persons known to COM/Energy who
beneficially own more than 5% of the COM/Energy common shares. None of the
persons listed below, other than the Employees Savings Plan of Commonwealth
Energy System and Subsidiary Companies, owns more than 1% of the outstanding
COM/Energy common shares.
<TABLE>
<CAPTION>
Number of COM/Energy
Name Common Shares Beneficially Owned(1)
---- -----------------------------------
<S> <C>
Employees Savings Plan of Commonwealth
Energy System and Subsidiary
Companies.............................. 2,673,501
Kevin C. Bryant......................... 484
Sheldon A. Buckler...................... 6,821
Peter H. Cressy......................... 637
Betty L. Francis........................ 685
Franklin M. Hundley..................... 5,389
William J. O'Brien...................... 5,785
Michael C. Ruettgers.................... 1,280
Gerald L. Wilson........................ 1,975
Russell D. Wright....................... 15,561
William G. Poist........................ 20,472
Deborah A. McLaughlin................... 4,744
James D. Rappoli........................ 10,292
Michael P. Sullivan..................... 8,739
All trustees and executive officers as a
group, including those named above (13
persons)............................... 82,864
</TABLE>
- --------
(1) Beneficial ownership figures set forth in this joint proxy
statement/prospectus include, where applicable, shares with respect to
which voting or investment power is attributed to a shareholder because of
joint fiduciary ownership of the shares or relationship of the shareholder
to the record owner, such as a spouse, together with shares held under the
Employees Savings Plan of Commonwealth Energy System and Subsidiary
Companies.
84
<PAGE>
DESCRIPTION OF NSTAR SHARES
Authorized Capital
NSTAR will issue common shares and may issue other equity and debt
securities in the future. The initial authorized shares of NSTAR will be
100,000,000 common shares with a par value of $1.00 per share, and 10,000,000
preferred shares with a par value of $1.00 per share. The NSTAR board may issue
the authorized shares at any time without obtaining further consent of the
shareholders or any approvals from the Massachusetts Department of
Telecommunications and Energy. NSTAR may issue its shares for money, services
or property, or as a distribution to shareholders. Further, it may issue its
shares upon terms determined by the NSTAR board in its absolute discretion.
After the merger, approximately 63,000,000 NSTAR common shares will be
outstanding. NSTAR will not have any preferred shares outstanding.
Preferred Shares
NSTAR may issue preferred shares in one or more series. The board will
determine which, if any, designations, preferences, voting rights and other
special rights will attach to the preferred shares. NSTAR may issue preferred
shares with various rights that could be used to deter takeover attempts if the
board decides that it would be advisable to do so.
Common Shares
The NSTAR board has discretion regarding the declaration of dividends on the
company's common shares so long as any prior rights or preferences of any NSTAR
preferred shareholders are respected. Other than rights legally required or
assigned to the NSTAR preferred shares prior to their issuance, holders of
NSTAR common shares will have the exclusive right to vote for the election of
trustees and on all other matters submitted to the shareholders for action.
Each NSTAR common share will entitle its holder to one vote. Holders of the
NSTAR common shares will not have cumulative voting rights in the election of
trustees.
If NSTAR is voluntarily or involuntarily liquidated or dissolved, its common
shareholders will share ratably in NSTAR's assets, after NSTAR's debt and the
preferences of any outstanding preferred shares have been satisfied.
Company Issuances
NSTAR has made no plans or agreements to issue any NSTAR common shares,
other than in the course of the merger and under any benefit plans and dividend
reinvestment/share purchase plans adopted by NSTAR. Likewise, NSTAR does not
have any current plans to issue any preferred shares. NSTAR may issue and sell
its common shares to acquire the stock or assets of other companies, to finance
expenditures and improvements to property, or to repay or refinance any
outstanding indebtedness of NSTAR or its subsidiaries. Dividend requirements
and any redemption, sinking fund or conversion provisions which accompany NSTAR
preferred shares, if authorized and issued, may interfere with the availability
of earnings for distribution to NSTAR common shareholders and for other
corporate purposes.
85
<PAGE>
Massachusetts Anti-Takeover Laws and Various Provisions of NSTAR's
Organizational Documents
NSTAR's declaration of trust and bylaws contain provisions which may serve
to deter takeovers. Its declaration of trust establishes a classified board of
trustees and requires a supermajority vote of the disinterested shareholders to
approve various business transactions with shareholders who own more than 5% of
the company.
Interested Shareholder Statute
NSTAR is also governed by a state interested shareholder statute, Chapter
110F of the Massachusetts General Laws. Chapter 110F prohibits NSTAR from
entering into a business combination with an interested shareholder for a
period of three years after the date of the transaction in which the person
became an interested shareholder. An interested shareholder includes any person
who, together with his or her affiliates or associates, collectively acquires
5% or more of the company's outstanding voting shares. A business combination
includes a merger, a sale of stock or assets, and various other transactions in
which an interested shareholder receives a financial benefit. Chapter 110F does
not apply if:
. the interested shareholder obtains the approval of the board of trustees
before acquiring 5% or more of NSTAR's outstanding voting shares; or
. the interested shareholder acquires 90% of NSTAR's non-affiliate held
voting shares at the time he or she first acquires more than 5% of the
voting shares; or
. both the NSTAR board of trustees and non-interested shareholders holding
two-thirds of the company's voting shares approve the transaction.
Chapter 110F allows Massachusetts companies to elect not to be governed by its
provisions. This election, however, would not be effective for 12 months and
would not apply to transactions with any person who became an interested
stockholder before the election. NSTAR has not made this election and is
therefore subject to the provisions of Chapter 110F.
Control Share Acquisition Statute
The NSTAR bylaws include a provision excluding NStar from the applicability
of Chapter 110D of the Massachusetts General Laws. Chapter 110D regulates the
acquisition of control shares. A control share acquisition is the acquisition
of shares which, when added to shares already owned, would allow the acquiring
person to vote at least 20% of an entity's stock. Under Chapter 110D, shares
acquired in this type of a transaction would have no voting rights unless a
majority of non-interested shareholders specifically voted to grant the
acquiring person voting rights for these shares. In general, the acquiring
person and officers and employee-trustees of NSTAR are not permitted to vote on
whether these voting rights should be granted. The NSTAR board may amend the
NSTAR bylaws at any time to subject NSTAR to this control share acquisition
statute on a going-forward basis.
Transfer Agent and Registrar
The transfer agent and registrar for NSTAR's shares, including NSTAR common
shares, is EquiServe, c/o BankBoston, N.A., P.O. Box 8040, Boston, MA 02266. In
New York City, NSTAR common shares may be presented for transfer at the office
of Securities Transfer and Reporting Services, Inc., 100 William Street,
Galleria, New York, NY 10038.
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COMPARISON OF RIGHTS OF SHAREHOLDERS OF BEC ENERGY AND NSTAR
The rights of shareholders of BEC Energy are currently governed by BEC
Energy's declaration of trust, the BEC Energy bylaws and Chapter 182 of the
Massachusetts General Laws. When the merger occurs, those BEC Energy
shareholders who receive shares of the new company in the merger will become
shareholders of NSTAR. As NSTAR shareholders, their rights will be governed by
NSTAR's declaration of trust and bylaws as well as Chapter 182. This section
summarizes the material differences between the rights of shareholders of BEC
Energy and shareholders of NSTAR. Since this summary may not describe details
important to some shareholders, all shareholders are encouraged to refer to the
organizational documents of the two companies and Chapter 182, the business
trust chapter of the Massachusetts General Laws.
Boards of Trustees
NSTAR. After the merger, the NSTAR board is expected to include twenty
trustees. The exact number of trustees may be determined from time to time by
the NSTAR board. Generally, either the shareholders or a majority of trustees
then in office may decrease the number of trustees to a number not less than
ten. Decreases in the number of trustees may only be undertaken at the annual
shareholder meeting or to eliminate vacancies caused by the death, resignation
or removal of a trustee. The trustees shall be divided into three classes and,
following the expiration of each of the initial one-, two- and three-year
terms, be elected for terms of three years at the annual meeting of
shareholders.
BEC Energy. The BEC Energy board currently consists of eleven members. The
BEC Energy declaration of trust provides that the number of trustees shall be
determined from time to time, but shall not be less than three nor more than
sixteen. Within this minimum and maximum, either the shareholders or the
trustees then in office may increase the number of trustees at any time and may
decrease the number of trustees to eliminate vacancies caused by the death,
resignation or removal of a trustee. Like the NSTAR board, the BEC Energy board
is divided into three classes of trustees which serve staggered three-year
terms.
Quorum for Board Action; Action Without a Meeting
NSTAR. At any meeting of the trustees of NSTAR, a majority of the trustees
shall constitute a quorum. Once a quorum is present, a majority of the trustees
in attendance may act for the NSTAR board. Action without a meeting requires
the written consent of a majority of the trustees.
BEC Energy. Six trustees constitutes a quorum for the transaction of
business by the BEC Energy board, except when the number of trustees in office
is less than twelve, in which case a majority of the trustees constitutes a
quorum. A majority of trustees may decide questions for the BEC Energy board
when a quorum is present. Without a meeting, action may be taken by the written
consent of a majority of the trustees.
Appraisal Rights
NSTAR. The shareholders of NSTAR are not entitled to appraisal rights. If
NSTAR were a corporation rather than a business trust, Massachusetts law would
confer appraisal rights upon its shareholders which they could exercise if the
corporation engaged in various types of business combinations or sales. In the
event of a merger or consolidation requiring shareholder approval, appraisal
rights would allow those shareholders of the corporation who object to the
transaction to
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decline the consideration offered and demand payment from the company for the
fair market value of their shares. A judicial proceeding would determine the
fair market value of these shares.
BEC Energy. BEC Energy shareholders do have appraisal rights because BEC
Energy's declaration of trust confers the same rights on its shareholders that
shareholders of a corporation would have in the event of a business combination
under Massachusetts law. The merger does not enable BEC Energy shareholders to
exercise these rights, however, because Massachusetts law does not accord
appraisal rights to a corporation's shareholders when a limited liability
company merges into the corporation.
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COMPARISON OF RIGHTS OF SHAREHOLDERS OF COM/ENERGY AND
SHAREHOLDERS OF NSTAR
The rights of shareholders of COM/Energy are currently governed by
COM/Energy's declaration of trust and Chapter 182 of the Massachusetts General
Laws. When the merger occurs, those COM/Energy shareholders who receive shares
of the new company in the merger will become shareholders of NSTAR. As NSTAR
shareholders, their rights will be governed by NSTAR's declaration of trust and
bylaws as well as Chapter 182. This section summarizes the material differences
between the rights of shareholders of COM/Energy and shareholders of NSTAR.
Since this summary may not describe details important to some shareholders, all
shareholders are encouraged to refer to the organization documents of the two
companies and Chapter 182, the business trust chapter of the Massachusetts
General Laws.
Board of Trustees
NSTAR. After the merger, the NSTAR board is expected to include twenty
trustees. The exact number of trustees may be determined from time to time by
the NSTAR board. Generally, either the shareholders or a majority of trustees
then in office may decrease the number of trustees to a number not less than
ten. Decreases in the number of trustees may only be undertaken at the annual
shareholder meeting or to eliminate vacancies caused by the death, resignation
or removal of a trustee. The trustees shall be divided into three classes and,
following the expiration of each of the initial one-, two- and three-year
terms, be elected for terms of three years at the annual meeting of
shareholders.
COM/Energy. The COM/Energy board is composed of nine members. Like the
trustees of NSTAR, COM/Energy's trustees are divided into three classes, the
members of which are elected for staggered three-year terms.
Trustee Removal
NSTAR. The NSTAR declaration of trust provides three mechanisms to remove
trustees from office.
. Trustees may be removed for cause, by a vote of the majority of shares
entitled to vote. Removal of a trustee elected by a particular class of
shareholders, however, requires only a majority vote of the shares of
this class.
. Trustees may be removed for cause, by a vote of the majority of trustees
then in office.
. Finally, trustees may be removed without cause, by a vote of holders of
80% of the shares outstanding and entitled to vote. Removal without cause
of a trustee elected by a particular class of shareholders, however,
requires only a majority vote of the shares of this class.
COM/Energy. The COM/Energy declaration of trust does not provide specific
standards for removal of trustees. The vote or written consent of 75% of the
shares entitled to vote is required to modify the provisions governing the
service of trustees, including provisions governing their incumbency in office.
Indemnification of Officers and Trustees
NSTAR. Trustees and officers of NSTAR are indemnified against liabilities
and expenses incurred by reason of their service to the company, unless they
did not act in good faith in the reasonable belief that their action was in the
best interests of NSTAR. Indemnification is not provided for matters disposed
of by settlement unless:
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. the indemnification is approved by a majority of the voting shares,
excluding any shares held by an interested trustee or officer; or
. the indemnification is voted to be in the best interest of the company by
a majority of the disinterested trustees then in office. If the company
does not have any disinterested trustees, this condition may be satisfied
by an opinion of independent company-selected counsel opining that the
indemnification is in the best interests of the company and would not be
found illegal if adjudicated.
COM/Energy. Trustees, officers, agents and representatives of COM/Energy are
indemnified for all expenses and outlays reasonably incurred in a
representative's good faith execution of the trust and in proceedings in which
he is involved by reason of his service as a representative of the company.
Indemnification should be sought after a favorable disposition of the
proceeding has been received and appeal can no longer be taken.
In addition, if a COM/Energy representative becomes involved in a proceeding
for any act or omission he performed in good faith based upon an order issued
under the Holding Company Act, the Federal Power Act or any state utility
statute, he may be indemnified by COM/Energy. If his reliance is found not to
be a valid defense because it does not apply to a particular class of
plaintiff, COM/Energy will indemnify the representative against all expenses
and liabilities he incurs in connection with the proceeding.
Limitations on Officer and Trustee Liability
NSTAR. No trustee shall incur personal liability for monetary damages based
upon a breach of fiduciary duty, i.e., the duty to act in the best interest of
the company and its shareholders, unless he is adjudicated:
. to have breached his duty of loyalty as a trustee;
. to have acted in bad faith;
. to have engaged in intentional misconduct or knowing violations of the
law; or
. to have derived an improper personal benefit from the transaction.
COM/Energy. Under COM/Energy's declaration of trust, no trustee shall be
liable and no officer shall be liable, for the following acts:
. any act or default of another representative of the company;
. any errors of judgment made in good faith;
. any other acts or omissions undertaken in good faith in execution of the
trust; and
. acts or omissions undertaken in good faith reliance upon an order issued
under the Holding Company Act, the Federal Power Act or any other state
utility statute.
Special Meeting of Shareholders
NSTAR. The chairman, president or any of the trustees of NSTAR may call a
special meeting of the shareholders. Also, the clerk is required to call a
special meeting if shareholders of at least 40% in interest request a meeting
in writing.
COM/Energy. Any of the trustees, president or treasurer of COM/Energy may
call a special meeting of the shareholders. Additionally, the president or
secretary must call a special meeting upon the written request of holders of
10% of the COM/Energy voting shares outstanding.
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Interested Business Transactions
NSTAR. NSTAR's declaration of trust contains special provisions governing
transactions between the company and interested shareholders. Generally,
interested shareholders are holders of at least 5% of the voting shares of the
company, company affiliates who have had a 5% interest within the past 2 years,
and/or affiliates or associates of these 5% holders. These provisions cover the
following types of transactions and agreements:
. A merger or consolidation with an interested shareholder or an affiliate
or associate of an interested shareholder;
. A sale, disposition or exchange to or with any interested shareholder,
affiliate or associate which has an aggregate fair market value in excess
of 5% of the total consolidated book value of NSTAR's assets;
. A plan to terminate, liquidate or dissolve NSTAR made by or on behalf of
an interested shareholder or its affiliate or associate;
. Any reclassification of securities, recapitalization of the company or
other transaction which has the effect of increasing the proportionate
ownership of any interested shareholder or any affiliate or associate of
an interested shareholder; and
. Any tender or exchange offer by NSTAR which causes a 110% increase in the
percentage beneficial ownership of an interested shareholder as compared
to the percentage ownership of the shareholder immediately prior to the
offer.
The above-listed transactions require the approval of the holders of a
majority of the NSTAR voting shares, excluding shares of the interested holder,
and the holders of the number of NSTAR shares owned by the interested
shareholder, voting together as a single class.
Aside from the five types of interested shareholder transactions described
above, transactions between NSTAR and interested shareholders shall, unless
otherwise provided, require the approval of a majority of disinterested
trustees.
COM/Energy. The COM/Energy declaration of trust does not prescribe any
different approval processes for transactions with interested shareholders.
Merger; Sale of Business
NSTAR. To engage in a merger, consolidation or sale or exchange of
substantially all of its assets, NSTAR must obtain the approval of holders of
66 2/3% of the voting shares outstanding.
COM/Energy. In order for COM/Energy to engage in a merger, consolidation,
termination or sale of substantially all trust property, it must obtain either
(a) the consent of holders of at least 75% of its voting shares outstanding, or
(b) the consent of both 66 2/3% of the trustees then in office and the holders
of 66 2/3% of the voting shares outstanding.
Termination
NSTAR. The trustees may sell, terminate or engage NSTAR in business
combinations upon a 66 2/3% vote of the shareholders. Otherwise, the duration
of NSTAR shall be infinite.
COM/Energy. Unless earlier terminated by acts causing the trust's voluntary
or involuntary termination, COM/Energy will terminate upon the earlier of:
. January 2, 2050; or
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. 20 years following the death of the last survivor of the individuals
listed in its declaration of trust.
Amendments of Organizational Documents
NSTAR. Amendments to NSTAR's declaration of trust generally require a
majority vote of both the trustees and the shareholders. Changes to the company
name or to correct inconsistencies in the declaration of trust need not be
submitted to shareholders, however. On the other hand, an 80% shareholder vote
is required to change provisions governing the number, election and termination
of trustees, unless the amendment is approved by 80% of the trustees then in
office. An 80% shareholder vote is also required to amend the interested
shareholder provisions, unless a majority of disinterested trustees approves
the amendment.
The NSTAR bylaws may generally be amended by a majority vote of the
trustees, unless the declaration of trust requires shareholder approval.
COM/Energy. Holders of 75% of COM/Energy's voting shares must approve any
amendment of the declaration of trust sections governing trustees. Otherwise,
the trustees may amend COM/Energy's declaration of trust with the consent of a
majority of the shareholders.
Anti-Takeover Statutes
NSTAR. A Massachusetts anti-takeover statute, Chapter 110F of the
Massachusetts code, prohibits any business combination with an interested
shareholder, generally, a person who owns or has recently owned at least 5% of
the company's outstanding voting shares, for three years after the person
becomes an interested shareholder unless:
. prior to the 5% purchase, the board approves either the 5% purchase or
the proposed business combination;
. the interested shareholder owned approximately 90% of the company's
voting shares after making the 5% purchase which rendered him an
interested shareholder; or
. the board of trustees and holders of two-thirds of the non-interested
shares approve the business combination after the acquiror has become an
interested stockholder.
NSTAR is subject to the anti-takeover provisions of Chapter 110F.
The NSTAR bylaws include a provision excluding NSTAR from the applicability
of Chapter 110D of the Massachusetts General Laws. Chapter 110D regulates the
acquisition of control shares. A control share acquisition is the acquisition
of shares which, when added to shares already owned, would allow the acquiring
person to vote at least 20% of the company's shares. Under Chapter 110D, shares
acquired in this type of a transaction would have no voting rights unless a
majority of non-interested shareholders specifically voted to grant the
acquiring person voting rights for these shares. In general, the acquiring
person as well as officers and employee-trustees of NSTAR are not permitted to
vote on whether these voting rights should be granted. The NSTAR board may
amend the NSTAR bylaws at any time to subject NSTAR to this control share
acquisition statute prospectively.
COM/Energy. COM/Energy is subject to both the interested shareholder
provisions of Chapter 110F and the control share acquisition provisions of
Chapter 110D of the Massachusetts General Laws.
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Pre-Emptive Rights
NSTAR. NSTAR is not obligated to first offer new issuances of common shares
to existing shareholders.
COM/Energy. Under the COM/Energy declaration of trust, COM/Energy may be
required to first offer new issuances of common shares to existing shareholders
before selling those shares to third parties.
Preferred Shares
NSTAR. Under the NSTAR declaration of trust, NSTAR may issue preferred
shares with voting powers and other rights as determined by the trustees.
COM/Energy. Under the COM/Energy declaration of trust, COM/Energy may issue
shares of preferred stock only with the limited voting and other special rights
and privileges specified in the declaration of trust.
LEGAL MATTERS
The validity of the NSTAR common shares to be issued in the merger will be
passed upon for NSTAR by Ropes & Gray, Boston, Massachusetts.
EXPERTS
The consolidated financial statements of BEC Energy included in BEC Energy's
Annual Report on Form 10-K/A for the year ended December 31, 1998 have been
audited by PricewaterhouseCoopers LLP, independent accountants, as stated in
its report which is also included in the Annual Report. These consolidated
financial statements have been incorporated by reference in this joint proxy
statement/prospectus in reliance upon the report given and upon the authority
of PricewaterhouseCoopers LLP as experts in accounting and auditing.
The consolidated financial statements and schedules of COM/Energy
incorporated by reference in this joint proxy statement/prospectus have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their reports with respect to the financial statements, and are included in
this document in reliance upon the authority of Arthur Andersen LLP as experts
in giving such reports.
Representatives of PricewaterhouseCoopers LLP expect to be present at the
BEC Energy annual meeting. Representatives of Arthur Andersen LLP expect to be
present at the COM/Energy annual meeting. While the representatives of both
firms have stated that they do not intend to make statements at these meetings,
they will be available to respond to appropriate questions from shareholders at
the meetings.
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OTHER MATTERS
Neither BEC Energy nor COM/Energy presently intends to bring any matters
other than those described in this document before its annual meeting. Further,
neither BEC Energy nor COM/Energy has any knowledge of any other matters which
may be introduced by other persons. If any other matters do properly come
before the BEC Energy annual meeting or the COM/Energy annual meeting, however,
the persons named in the enclosed proxy forms of BEC Energy or COM/Energy, as
applicable, and including any substitutes, will vote the proxies in keeping
with their judgment on such matters.
Shareholder Proposals
If the merger has not closed by this time next year, and BEC Energy and
COM/Energy hold separate annual meetings in the year 2000, shareholders should
be aware of the following requirements if they wish to submit shareholder
proposals.
Shareholders of BEC Energy who wish to make a proposal at the 2000 BEC
Energy annual meeting and have this proposal be eligible for inclusion in the
BEC Energy proxy statement should submit the proposal to BEC Energy at its
principal office in Boston, Massachusetts on or before January 15, 1999. BEC
Energy shareholders who wish to make a proposal at the 2000 BEC Energy annual
meeting without regard to whether it will be included in BEC Energy's proxy
materials should notify BEC Energy no later than March 30, 2000. If a
shareholder who wishes to present a proposal fails to notify BEC Energy by the
due date, the proxies that management solicits for the meeting will accord them
discretionary authority to vote on the shareholder's proposal if it is properly
brought before the meeting.
Shareholders of COM/Energy who wish to make a proposal at the 2000
COM/Energy annual meeting and have this proposal be eligible for inclusion in
the COM/Energy proxy statement should submit the proposal to COM/Energy at its
principal office in Cambridge, Massachusetts before January 15, 1999.
Shareholders who wish to make a proposal at the 2000 COM/Energy annual meeting
without regard to whether it will be included in COM/Energy's proxy materials
should notify COM/Energy no later than March 30, 2000. If a shareholder who
wishes to present a proposal fails to notify COM/Energy by March 30, 2000, the
proxies that management solicits for the meeting will accord them discretionary
authority to vote on the shareholder's proposal if it is properly brought
before the meeting.
If instead the merger has occurred as expected, NSTAR shareholders should
submit proposals they would like included in next year's proxy statement to
NSTAR at its principal office in Boston, Massachusetts by January 15, 1999.
NSTAR should be notified of other proposals by March 30, 2000. If a shareholder
does not notify NSTAR of its proposal by March 30, 2000, the proxies that NSTAR
management solicits for the meeting will accord them discretionary authority to
vote on the shareholder's proposal if it is properly brought before the
meeting.
Shareholder Nominations of Trustees
Again, if the merger has not closed and BEC Energy and COM/Energy hold
separate annual meetings in the year 2000, shareholder nominations for trustees
should be submitted as described below.
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The BEC Energy board will consider shareholder nominations of trustee
candidates which are submitted to the clerk of BEC Energy in writing not less
than 45 days before the anniversary of the prior year's annual meeting. Next
year, this date will be May 10. The BEC Energy bylaws require shareholders
submitting nominations to provide specified information about the shareholder
and the nominee as well as the nominee's consent to serve if elected. If a
shareholder who wishes to make a trustee nomination fails to notify BEC Energy
by the due date, the proxies that management solicits for the meeting will
accord them discretionary authority to vote on the trustee nomination if it is
properly brought before the meeting.
COM/Energy's nominating committee will consider nominations of trustee
candidates from shareholders who submit the names, qualifications and
biographical information of the nominees to the nominating committee in a
timely manner.
Assuming the merger has been completed by annual meeting time, NSTAR
shareholders who wish to nominate trustees should include the candidate's
consent to serve as well as the information on the candidate and the
shareholder required by the NSTAR bylaws, and submit the nomination to the
NSTAR clerk by May 10. If a shareholder who wishes to make a trustee nomination
fails to notify NSTAR by the due date, the proxies that management solicits for
the meeting will accord them discretionary authority to vote on the trustee
nomination if it is properly brought before the meeting.
Solicitation of Proxies
Each of BEC Energy and COM/Energy will bear the cost of soliciting its
proxies. After the initial solicitation by mail a limited number of regular
employees of each company may solicit proxies by telephone or in person. Both
companies have also retained the firm of D. F. King to aid in the solicitation
of proxies. BEC Energy expects to pay this firm a fee of $10,000, plus
expenses, and COM/Energy expects to pay the firm $5,500, plus expenses. Each of
BEC Energy and COM/Energy will reimburse banks, brokerage firms and other
custodians, nominees and fiduciaries for reasonable expenses incurred in
sending the proxy materials to BEC Energy and COM/Energy shareholders.
Proxy Card Matters
The proxy card for a participant in COM/Energy's dividend reinvestment and
common share purchase plan includes both (a) the number of shares registered in
the participant's name and (b) the number of shares beneficially owned by the
participant but registered in the name of the COM/Energy nominee for this plan.
A participant's vote with respect to the shares registered in the participant's
name is also an instruction to the nominee to vote the plan shares credited to
the participant's account.
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WHERE YOU CAN FIND MORE INFORMATION
BEC Energy and COM/Energy file annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy any
reports, statements or other information that the companies file at the SEC's
public reference rooms at the following locations:
. Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549,
. the SEC's Regional Office located at 7 World Trade Center, Suite 1300,
New York, New York 10048; and
. the SEC's Regional Office located at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. BEC Energy's and COM/Energy's SEC filings should also be
available to the public from commercial document retrieval services and at the
Internet web site maintained by the SEC at http://www.sec.gov.
In addition, shareholders may inspect material information concerning BEC
Energy and COM/Energy at the exchanges on which they list their common shares.
This would include the New York Stock Exchange for both companies, 20 Broad
Street, 7th Floor, New York, New York 10005. Material information concerning
BEC Energy may also be inspected at the Boston Stock Exchange, 100 Franklin
Street, Boston, Massachusetts 02110. Material information concerning COM/Energy
may also be inspected at the Pacific Stock Exchange, Inc., 301 Pine Street, San
Francisco, California 94104.
NSTAR has filed a registration statement to register with the SEC the NSTAR
common shares it will issue to shareholders of BEC Energy and COM/Energy in the
merger. This joint proxy statement/prospectus is a part of the registration
statement and constitutes a prospectus of NSTAR, a proxy statement of BEC
Energy for the BEC Energy annual meeting and a proxy statement of COM/Energy
for the COM/Energy annual meeting.
As allowed by SEC rules, this joint proxy statement/prospectus does not
contain all the information that shareholders can find in the registration
statement or in the exhibits to the registration statement.
The SEC allows BEC Energy and COM/Energy to "incorporate by reference"
information into this joint proxy statement/prospectus, which means that BEC
Energy and COM/Energy can disclose important information to you by referring
you to another document filed separately with the SEC. The information
incorporated by reference is deemed to be part of this joint proxy
statement/prospectus, except for any information superseded by information
contained directly in this joint proxy statement/prospectus. This joint
statement/prospectus incorporates by reference the documents set forth below
that BEC Energy (File No. 001-14768) or COM/Energy (File No. 001- 07316) have
previously filed with the SEC. These documents contain important information
about BEC Energy and COM/Energy and their financial conditions.
Regarding BEC Energy
. BEC Energy's Annual Report on Form 10-K for the year ended December 31,
1998, as amended by the Form 10-K/A filed May 13, 1999.
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Regarding COM/Energy
. COM/Energy's Annual Report on Form 10-K for the year ended December 31,
1998, as amended by the Forms 10-K/A filed April 30, 1999 and May 12,
1999.
. COM/Energy's Current Report on Form 8-K dated January 14, 1999.
BEC Energy and COM/Energy also incorporate by reference any documents they
may file with the SEC between the time this joint proxy statement/prospectus is
sent to shareholders and the date of the BEC Energy and COM/Energy annual
meetings.
If you are a shareholder, BEC Energy and COM/Energy may have already sent
you some of the documents incorporated by reference, but you can obtain any of
them through BEC Energy, COM/Energy, and the SEC or the SEC's Internet web site
as described above. Documents incorporated by reference are available from BEC
Energy or COM/Energy without charge, excluding all exhibits except those
specifically incorporated by reference as exhibits to this document.
Shareholders may obtain the documents incorporated by reference by directing a
written or telephone request to the appropriate company as follows:
BEC Energy Commonwealth Energy System
Investor Relations Shareholder Services
800 Boylston Street One Main Street
Boston, Massachusetts 02199 Cambridge, Massachusetts 02142-9150
(617) 424-2658 (800) 336-3773 (in Massachusetts)
(800) 447-1183 (outside of Massachusetts)
If you would like to request documents from BEC Energy or COM/Energy, please
do so promptly so that you may receive them before the annual meetings.
BEC Energy has provided all information about BEC Energy contained or
incorporated by reference into this joint proxy statement/prospectus, and
COM/Energy has done the same with respect to all information about COM/Energy
contained or incorporated by reference into this joint proxy
statement/prospectus. Neither BEC Energy nor COM/Energy assumes any
responsibility for the accuracy or completeness of the information provided by
the other party.
You should rely only on the information contained or incorporated by
reference in this joint proxy statement/prospectus to vote on the merger
agreement. Neither BEC Energy nor COM/Energy has authorized anyone to provide
you with information that is different from what is contained in this document.
This joint proxy statement/prospectus is dated May 14, 1999. You should not
assume that the information contained in this document is accurate as of any
other date. Neither the mailing of this joint proxy statement/prospectus to
shareholders nor the completion of the merger shall create any implication to
the contrary.
----------------
The name "BEC Energy" refers to the trustees under BEC Energy's declaration
of trust as trustees and not personally. No trustee, shareholder, officer or
agent of BEC Energy shall be held to any personal liability in connection with
the affairs of BEC Energy; only the trust estate may be liable. A copy of BEC
Energy's declaration of trust is on file with the SEC as Exhibit B to BEC
Energy's Registration Statement on Form S-4 (File No. 333-23439) filed on March
17, 1997.
The name "COM/Energy" refers to the trustees under COM/Energy's declaration
of trust as trustees and not personally. No trustee, shareholder, officer or
agent of COM/Energy shall be held to any personal liability in connection with
the affairs of COM/Energy; only the trust estate may be
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liable. A copy of COM/Energy's declaration of trust is on file with the SEC as
Exhibit 1 to COM/Energy's Quarterly Report on Form 10-Q (September 1995), File
No. 1-7316.
The name "NSTAR" refers to the trustees under NSTAR's declaration of trust
as trustees and not personally. No trustee, shareholder, officer or agent of
NSTAR shall be held to any personal liability in connection with the affairs of
NSTAR; only the trust estate may be liable. A copy of NSTAR's declaration of
trust may be found in Annex D to this joint proxy statement/prospectus.
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THE COM/ENERGY MEETING--ADDITIONAL MATTERS
ELECTION OF TRUSTEES (PROPOSAL NO. 2)
Three trustees will be elected at the annual meeting of shareholders to hold
office for the ensuing three years as directed by the declaration of trust,
which provides for staggered terms of trustees of three years each. The three
trustees elected at this meeting will hold office for a three-year term and
until the election and qualification of their respective successors. Under the
terms of the declaration of trust, trustees are required to be elected by a
plurality vote of the shareholders.
The shares represented by the enclosed form of proxy will be voted, and the
persons named in this form of proxy will, unless otherwise directed in the
proxy, vote shares represented by proxies received for the election of the
following nominees:
Peter H. Cressy
William J. O'Brien
Russell D. Wright
It is not contemplated that any of the three nominees will be unable to
serve. Should any of the nominees be unable to serve, your proxy will be voted
for the election of a nominee acceptable to the remaining trustees.
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<PAGE>
Information Concerning Nominees And Trustees
<TABLE>
<CAPTION>
Common Shares
Beneficially
Year First Owned as of
Became a March 1,
Name, Principal Occupation and Term of Office Trustee Age 1999
- --------------------------------------------- ---------- --- -------------
<S> <C> <C> <C>
(A)KEVIN C. BRYANT, General Manager --
(D)BankBoston--Europe
TERM EXPIRES IN 2000.............................. (1997) 38 484
(C) SHELDON A. BUCKLER, Chairman of the Board of
Commonwealth Energy System; Retired Vice
Chairman of the Board, Polaroid Corporation,
Cambridge, Massachusetts; Director, Aseco Corp.;
Lord Corporation; Nashua Corporation and Parlex
Corp.
TERM EXPIRES IN 2001.............................. (1991) 67 6,821
(A)PETER H. CRESSY, Chancellor, University of
(E) Massachusetts Dartmouth, North Dartmouth,
Massachusetts; Retired Rear Admiral, United
States Navy
TERM EXPIRES IN 1999 (NOMINEE).................... (1994) 57 637
(A)BETTY L. FRANCIS, Executive Vice President
(D) and Chief Credit Officer, HomeSide Lending,
Inc., Jacksonville, Florida
TERM EXPIRES IN 2001.............................. (1991) 52 685
(C) FRANKLIN M. HUNDLEY, Of Counsel,
(D) Rich, May, Bilodeau & Flaherty, P.C., Boston,
Massachusetts (Attorneys); Chairman of the Board
and a Trustee, Berkshire Energy Resources
TERM EXPIRES IN 2000.............................. (1985) 64 5,389
(B) WILLIAM J. O'BRIEN, Partner, Centre For
(C) Generative Leadership L.L.C., Hamilton,
Massachusetts (Consulting); Retired President
and CEO, The Hanover Insurance Company
TERM EXPIRES IN 1999 (NOMINEE).................... (1994) 66 5,785
(B) MICHAEL C. RUETTGERS, President, Chief
(E) Executive Officer and a Director, EMC
Corporation, Hopkinton, Massachusetts (Data
storage technology); Director, EG&G Inc.
TERM EXPIRES IN 2001.............................. (1995) 56 1,280
(B) GERALD L. WILSON, Vannevar Bush Professor of
(E) Engineering, Massachusetts Institute of
Technology, Cambridge, Massachusetts; Director,
Analogics Corp. and Aseco Corp.
TERM EXPIRES IN 2000.............................. (1985) 59 1,975
RUSSELL D. WRIGHT, President and Chief Executive
Officer of Commonwealth Energy System and Chairman
and a Director of its subsidiary companies
TERM EXPIRES IN 1999 (NOMINEE).................... (1998) 52 15,561
</TABLE>
Each of the persons named above has held his or her present position, or
another executive position with the same employer, for more than the past five
years.
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COM/Energy paid legal fees in 1998 to the firm of Rich, May, Bilodeau &
Flaherty, P.C., of which Mr. Hundley is Of Counsel. The firm has been employed
by COM/Energy in the last fiscal year and the current fiscal year.
Each trustee, including nominees, owned beneficially less than one-third of
one percent of the outstanding COM/Energy common shares.
(A) Member of Audit Committee.
(B) Member of Executive Compensation Committee.
(C) Member of Nominating Committee.
(D) Member of Benefit Review Committee.
(E) Member of Strategic Planning Committee.
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<PAGE>
ADDITIONAL INFORMATION
Meetings of the COM/Energy Board
of Trustees And Committees of the Board
COM/Energy's board of trustees held sixteen meetings throughout 1998. The
board has an audit committee, an executive compensation committee, a nominating
committee, a benefit review committee and a strategic planning committee.
The audit committee is composed of Betty L. Francis, chairperson, Kevin C.
Bryant and Peter H. Cressy. This committee held four meetings in 1998. The
committee's functions are to recommend the selection of an independent public
accountant, to review the scope of and approach to audit work, to review non-
audit services provided by the independent public accountants and to review
accounting principles and practices and the adequacy of internal controls.
The executive compensation committee is composed of Michael C. Ruettgers,
chairperson, William J. O'Brien and Gerald L. Wilson. During 1998, this
committee held four meetings. This committee reviews and recommends
compensation and promotional adjustments for selected COM/Energy personnel and
also reviews and recommends adjustments to the compensation of trustees.
The nominating committee is composed of Sheldon A. Buckler, chairperson,
Franklin M. Hundley and William J. O'Brien. There were no nominating committee
meetings held in 1998. The functions of the committee are to coordinate
suggestions or searches for potential nominees for the position of trustee, to
review and evaluate qualifications of potential nominees and to recommend to
the board of trustees nominees for vacancies occurring from time to time on the
board of trustees.
The benefit review committee is composed of Franklin M. Hundley,
chairperson, Kevin C. Bryant and Betty L. Francis. During 1998, the committee
held one meeting. The committee was organized to consider and recommend to the
board of trustees matters associated with COM/Energy's major funded benefit
plans. Functions of this committee include recommending the composition of
benefit plan boards and reviewing investment policy, objectives, performance or
proposed changes related to the plans.
The strategic planning committee is composed of Gerald L. Wilson,
chairperson, Peter H. Cressy and Michael C. Ruettgers. This committee held four
meetings during 1998. The functions of this committee are to attend strategic
planning sessions, provide support and insight to management and coordinate
management planning activities with the board of trustees.
Voting Securities
Each common share is entitled to one vote. Only shareholders of record at
the close of business on May 3, 1999 are qualified to vote at the meeting.
There were outstanding as of the record date 21,575,437 common shares.
The Employees Savings Plan of Commonwealth Energy System and Subsidiary
Companies owned beneficially 2,673,501 common shares representing 12% of the
outstanding common shares as of March 1, 1999. Members of the plan are entitled
to give voting instructions with respect to their interests.
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Compensation of Trustees
Each trustee who is not an employee of COM/Energy received cash compensation
for his or her services as trustee at the rate of $17,500 per year, plus $1,000
for each trustee and committee meeting attended. The chairpersons of the audit,
executive compensation, benefit review and strategic planning committees each
receive an additional $1,500 during the year. In addition, the chairman of the
board receives a retainer of $20,000 per year for his services as chairman of
the board and of the nominating committee.
Trustees are entitled to defer all or a specified portion of their
compensation under the terms of the Deferred Compensation Plan for Trustees of
Commonwealth Energy System. An account is established for each trustee electing
to participate in the plan, which account is credited with the amount which
would otherwise be payable to the trustee as compensation for the trustee's
services. At the end of each month, interest is credited at an annual rate
equivalent to the weighted average prime lending rate. Upon the trustee's
retirement, the account balance is paid either in a lump sum or in annual
installments according to the election made by the trustee. The rights of the
trustee in the account are not assignable and constitute an unsecured claim
against the general assets of COM/Energy.
The Restricted Common Share Plan for Trustees of Commonwealth Energy System
was adopted in 1998 when the board eliminated the Retirement Program for
Trustees to increase non-employee trustee ownership interest in COM/Energy by
providing compensation for service on the board of trustees in the form of
common shares, thus aligning the interests of the members of the board with
those of shareholders of COM/Energy. The plan provides for issuance annually of
a number of common shares equal in value to $7,000, in addition to cash
compensation paid for services on the board of trustees. The number of common
shares issuable is determined by dividing the dollar amount of $7,000 to be
distributed in the form of common shares by the fair market value of a common
share on the date the fee is payable. For this purpose fair market value means
the average closing price of the common shares in consolidated trading on the
first five trading days of the month that the common shares are issued, as
reported by the New York Stock Exchange. Pro-rata partial issuances of common
shares are made whenever a trustee has served on the board for a portion of a
calendar year. Common shares issued under the plan generally vest five years
after the date of issue, or earlier under circumstances such as the death or
retirement of a trustee or a change in control such as a merger, as defined in
the plan. The merger will constitute a change in control for purposes of this
plan. In February 1999, each non-employee trustee received 174 common shares
under the plan for services rendered during 1998.
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<PAGE>
Compensation of Executive Officers During the Year 1998
The following table shows compensation paid by COM/Energy and its
subsidiaries to the president and chief executive officer and the four other
highest paid executive officers of COM/Energy whose total compensation in 1998
exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
---------------------------------
Annual Compensation Awards Payouts
---------------------- ---------------- ----------------
Long-
Term Options
Incen- / Stock
Other Re- tive Appre- All
Annual stricted Plan ciation Other
Name and Compen- Stock (LTIP) Rights Compen-
Principal Position Year Salary Bonus sation Awards Payouts (SARS) sation
- ------------------ ---- -------- -------- ------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Russell D. Wright.......... 1998 $323,434 $155,011 -- $120,000 -- $-- $12,791
President and Chief
Executive 1997 276,333 118,825 -- -- $100,800 -- 10,977
Officer of COM/Energy and 1996 250,000 97,427 -- 100,000 -- -- 10,020
Chairman of its subsidiary
companies
William G. Poist........... 1998 267,867 40,000 -- -- -- -- 10,734
President and Chief
Executive 1997 388,200 160,290 -- -- 134,900 -- 15,528
Officer of COM/Energy and 1996 380,000 142,142 -- 160,000 -- -- 15,204
Chairman of its subsidiary
companies
Deborah A. McLaughlin...... 1998 207,667 110,943 -- 48,000 -- -- 9,758
President and Chief
Operating 1997 142,500 52,924 -- -- 46,080 -- 6,294
Officer of Utility
Operations 1996 125,831 41,534 -- 40,000 -- -- 7,062
James D. Rappoli........... 1998 206,667 81,223 -- 68,000 -- -- 8,280
Financial Vice President
and 1997 194,967 75,370 -- -- 53,040 -- 7,797
Treasurer of COM/Energy
and its 1996 178,167 60,740 -- 54,800 -- -- 7,126
subsidiary companies
Michael P. Sullivan........ 1998 182,133 73,791 -- 62,000 -- -- 7,284
Vice President, Secretary
and 1997 173,667 66,154 -- -- 48,360 -- 6,944
General Counsel of
COM/Energy 1996 161,666 55,121 -- 54,000 -- -- 6,229
and its subsidiary
companies
</TABLE>
Salary. The amounts in the column labeled "Salary" represent the aggregate
total of cash compensation received and compensation deferred by the above-
named individuals. Compensation is deferred pursuant to the provisions of the
Employees Savings Plan of Commonwealth Energy System and Subsidiary Companies
and the Executive Salary Continuation and Excess Benefit Plan for Employees of
Commonwealth Energy System and Subsidiary Companies.
Other Annual Compensation. The amounts in the column labeled "Other Annual
Compensation" represent the dollar value of perquisites and other personal
benefits, securities or property totaling either $50,000 or 10% of total annual
salary and bonus, together with various other earnings, amounts reimbursed for
the payment of taxes and the dollar value of any stock discounts not generally
available are required to be disclosed. In 1998, there were no such
perquisites, earnings, reimbursements or discounts paid or made.
Restricted Stock Awards. The amounts in the column labeled "Restricted Stock
Awards" represent the value of the restricted stock award made in 1999 which
was calculated by multiplying the average closing market price of COM/Energy's
common shares at the time of the grant by the
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<PAGE>
number of common shares awarded. The restrictions on these shares shall lapse
three years from the date of grant provided that the individual is still in the
employ of COM/Energy. Dividends are paid on the restricted common shares to the
same extent as they are paid on COM/Energy's common shares. The aggregate
number of restricted common share holdings for the above-named executive
officers as of March 1, 1999 is 24,995 common shares, having an aggregate value
of $910,755.
All Other Compensation. The amounts in the column labeled "All Other
Compensation" represent the aggregate contributions or account credits made by
COM/Energy and certain subsidiary companies during 1998 on behalf of the above-
named individuals to the Employees Savings Plan of Commonwealth Energy System
and Subsidiary Companies and the Executive Salary Continuation and Excess
Benefit Plan for Employees of Commonwealth Energy System and Subsidiary
Companies. The Employees Savings Plan of Commonwealth Energy System and
Subsidiary Companies is a defined contribution plan. The plan incorporates
salary deferral provisions pursuant to Section 401(k) of the Internal Revenue
Code for all employees who have elected to participate on that basis. The
Executive Salary Continuation and Excess Benefit Plan for Employees of
Commonwealth Energy System and Subsidiary Companies is a defined
contribution/defined benefit plan. Unlike the Employee Savings Plan, this plan
is not a qualified plan under Section 401(a) of the Internal Revenue Code. The
plan was established to provide an additional benefit to eligible participants
in the Employees Savings Plan whose benefit under that plan would be curtailed
by limits in effect under the Internal Revenue Code for qualified plans. Of the
amounts set forth in the "All Other Compensation" column, $2,500, $6,399,
$2,500, $2,500 and $2,499 represent the contributions made on behalf of Mr.
Wright, Mr. Poist, Ms. McLaughlin, Mr. Rappoli and Mr. Sullivan, respectively,
to the Employees Savings Plan. Amounts credited to the accounts of Mr. Wright,
Mr. Poist, Ms. McLaughlin, Mr. Rappoli and Mr. Sullivan under the Executive
Salary Continuation and Excess Benefit Plan in 1998 equaled $10,291, $4,335,
$7,258, $5,780 and $4,785, respectively.
President and Chief Executive Officer of COM/Energy. William G. Poist, who
is listed as an executive officer under the column "Name and Principal
Occupation" retired as president and chief executive officer of COM/Energy on
September 1, 1998 and Russell D. Wright, who is also listed under this column,
was elected as his successor on September 1, 1998.
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Pension Plan Table
The following table shows annual retirement benefits payable to employees,
including executive officers, upon retirement at age 65, in various
compensation and years of service classifications, assuming the election of a
retirement allowance payable as a life annuity from the Pension Plan for
Employees of Commonwealth Energy System and Subsidiary Companies and the
Executive Salary Continuation and Excess Benefit Plan for Employees of
Commonwealth Energy System and Subsidiary Companies, as of December 31, 1998.
<TABLE>
<CAPTION>
Highest Annual
Consecutive
3-Year
Average Base Annual Benefit for Years of Service
Salary of Last ----------------------------------------------------------------
10 Years 10 Years 15 Years 20 Years 25 Years 30 Years 35 Years
- -------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$ 90,000 $15,621 $ 23,431 $ 31,241 $ 39,052 $ 46,862 $ 50,922
120,000 21,121 31,681 42,241 52,802 63,362 68,922
150,000 26,621 39,931 53,241 66,552 79,862 86,922
180,000 32,121 48,181 64,241 80,302 96,362 104,922
210,000 37,621 56,431 75,241 94,052 112,862 122,922
240,000 43,121 64,681 86,241 107,802 129,362 140,922
270,000 48,621 72,931 97,241 121,552 145,862 158,922
300,000 54,121 81,181 108,241 135,302 162,362 176,922
330,000 59,621 89,431 119,241 149,052 178,862 194,922
360,000 65,121 97,681 130,241 162,802 195,362 212,922
390,000 70,621 105,931 141,241 176,552 211,862 230,922
420,000 76,121 114,181 152,241 190,302 228,362 248,922
450,000 81,621 122,431 163,241 204,052 244,862 266,922
</TABLE>
With regard to the annual benefit to be paid under the pension plan federal
law places limits on the amount of benefits which can be paid from qualified
pension plans. Payments made by COM/Energy in excess of the applicable
limitations are made pursuant to the terms of the Executive Salary Continuation
and Excess Benefit Plan for Employees of Commonwealth Energy System and
Subsidiary Companies. For 1998, the maximum annual compensation limit under the
Pension Plan for Employees of Commonwealth Energy System and Subsidiary
Companies was $160,000, and the maximum annual benefit under that Plan was
$130,000.
The pension plan is a non-contributory defined benefit plan. The plan is a
final average earnings type plan under which benefits reflect the employee's
years of credited service. The employee receives the higher of either a social
security integrated or non-integrated formula to realize the maximum retirement
benefit applicable to his or her employment history. Both of the formulae are
based on the average of the three highest consecutive January 1 base salaries
during the ten-year period preceding the employee's retirement or termination.
Retirement benefits are available to employees on or after age fifty-five
provided the sum of their age and years of service is at least seventy-five.
Mr. Wright, Mr. Poist, Ms. McLaughlin, Mr. Rappoli and Mr. Sullivan have 31,
27, 19, 24 and 23 credited years of service, respectively. For the purposes of
calculating the annual retirement benefits of Mr. Wright, Mr. Poist, Ms.
McLaughlin, Mr. Rappoli and Mr. Sullivan pursuant to the plan, only the amounts
set forth in the Summary Compensation Table as "Salary" are utilized to
determine each executive officer's three highest consecutive January 1 base
salaries during the ten-year period preceding the executive officer's
retirement or termination.
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<PAGE>
Supplemental Pension Agreements
Each executive officer of COM/Energy has elected certain pre-retirement
death benefits and supplemental retirement benefits in exchange for waiving
certain standard life insurance benefits (in excess of $50,000), and the
survivor income benefits generally available to all eligible employees. The
alternative program for executive officers provides a pre-retirement death
benefit of either: (a) a lump-sum payment of three times annual base salary or
(b) fifty percent of monthly base salary for one hundred and eighty months. The
supplemental retirement benefit provides that an executive officer may retire
after the attainment of age fifty-five and completion of ten years of service.
Normal retirement at age sixty-five provides an annual payment equal to thirty-
five percent of final base salary per year for life or for a period of one
hundred and eighty months, whichever is longer. Benefits are reduced for
retirement prior to age sixty-five. The supplemental retirement benefits are in
addition to the amounts shown in the table above and are not subject to
limitation. If termination of employment occurs following a change in control,
such as a merger, of COM/Energy after the executive officer's completion of ten
years of service with COM/Energy but before the attainment of age fifty-five,
the executive officer shall be entitled to receive upon attainment of age
fifty-five a retirement benefit equal to the amounts that would have been
payable had the executive officer remained in the employment of COM/Energy
until the date of the executive officer's fifty-fifth birthday and retired on
that date. The merger constitutes a change in control for the purposes of these
agreements. Should the employment of the executive officer terminate for any
reason other than death and before completion of ten years of service and
attainment of age fifty-five, there are no benefits payable under this
alternative program for executive officers. COM/Energy presently estimates that
the maximum value of the additional benefits that the executive officers would
receive under the terms of these agreements, assuming for this purpose that
each officer's employment is terminated immediately following the merger, would
not exceed $6,000,000 in the aggregate.
Change in Control Agreements
COM/Energy has entered into change in control agreements with its executive
officers, including Mr. Wright, Ms. McLaughlin, Mr. Rappoli and Mr. Sullivan.
The change in control agreements provide that in the event of termination of
employment following a change in control, such as a merger, of COM/Energy, as
defined in the change in control agreements, COM/Energy shall pay to the
executive officer a lump sum severance benefit together with other benefits.
The severance benefit payable to Mr. Wright, Ms. McLaughlin, Mr. Rappoli and
Mr. Sullivan under their change in control agreements with COM/Energy is up to
three times their annual salary and annual incentive compensation. No benefit
is payable, however, if the effect of any payment would be to provide benefits
above those normally payable beyond age sixty-five. The merger constitutes a
change in control for the purposes of these agreements. If all executive
officers' employment was terminated following the merger, it is estimated that
these officers would have a right to payment and benefits with an aggregate
value not in excess of $13,000,000.
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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires trustees,
executive officers and persons who beneficially own more than ten percent (10%)
of COM/Energy's common shares to file initial reports of ownership on Form 3
and reports of changes in ownership on Form 4 and/or Form 5 with the SEC and
any national securities exchange on which COM/Energy's securities are
registered. Trustees, executive officers and greater than ten percent (10%)
beneficial owners are required by the SEC regulations to furnish COM/Energy
with copies of all Section 16(a) forms they file.
Based on a review of the copies of these forms furnished to COM/Energy and
written representations from the trustees and executive officers, COM/Energy
believes that all Section 16(a) filing requirements applicable to its trustees,
executive officers and greater than ten percent (10%) beneficial owners were
complied with for 1998.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The executive compensation committee of the COM/Energy board of trustees is
composed of three independent, non-employee trustees. The committee reviews and
approves compensation levels for COM/Energy's chief executive officer and
oversees COM/Energy's executive compensation programs affecting all executive
officers. These programs have been designed to attract, retain, motivate and
reward those individuals who are most responsible for COM/Energy's growth and
profitability. The programs reflect the committee's objectives of tying a
substantial portion of each executive officer's compensation to both
COM/Energy's and the individual's success in meeting designated goals and
objectives and in realizing increases in total shareholder return.
Compensation for executive officers consists of base salary, annual cash
incentive compensation and long-term incentive awards in the form of restricted
stock awards of common shares. Executive officers also participate in the
pension plan and the employee savings plan and receive benefits under medical
and other benefit plans which are available to employees generally.
Base Salary
In setting the base salaries for the chief executive officer and all other
executive officers, the committee evaluates the general responsibilities of the
particular position and the individual's experience in that position and also
applies the data and criteria described in the next paragraph. The chief
executive officer's base salary target is designed generally to match the
market median for the utility reference group described in the next paragraph.
The committee adjusts the chief executive officer's salary in relation to the
salary range target through the evaluation of the same objective criteria used
to determine the chief executive officer's annual incentive award described
below. Less emphasis is placed on base salary adjustments than on incentive
compensation, consistent with the committee's objectives of placing
increasingly greater emphasis on performance based, at-risk incentive
compensation.
In setting the chief executive officer's base salary for 1998, the committee
surveyed and reviewed compensation levels and the reference criteria relating
to such compensation levels within the gas and electric utility industry.
Compensation data and comparisons were provided to the committee by independent
sources and were used by the committee together with market compensation data
provided by COM/Energy's human resources department, compensation reports
contained in proxy materials for companies considered by the committee to be
similar to
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<PAGE>
COM/Energy in size, responsibility and complexity and utility industry
references such as those provided by the Edison Electric Institute. Among the
reference criteria reviewed by the committee in developing external market pay
norms were business type, scope of the business as measured by revenue and
location of the business. All companies in the reference group are investor-
owned utilities located in the northeast region of the U.S. with revenues of
approximately $500 million to $2 billion. This market reference group of
companies represents a subset of Value Line, Inc.'s utility sample.
Annual Incentive Compensation
The chief executive officer is eligible to receive annual cash bonus
compensation under COM/Energy's annual incentive plan. In 1998, the annual
incentive plan provided for awards to the chief executive officer of up to a
maximum of 47% of annual base salary. Both individual and COM/Energy
performance goals and objectives were set. The chief executive officer's award
for 1998 was determined on a weighted basis, with two-thirds of the award
potential attributable to the attainment of COM/Energy goals and objectives and
one-third of the award potential attributable to individual goals and
objectives. For 1998, COM/Energy criteria forming the goals and objectives
applicable to the annual incentive plan were:
(1) meeting pre-established targets comparing COM/Energy actual net income
to budgeted net income for 1998;
(2) success in implementing budgetary constraints in the interest of
controlling costs; and
(3) meeting pre-established benchmark measures of operation and maintenance
expenses per customer, as compared to a peer group of 18 utility
companies recommended by COM/Energy's independent compensation
consultant. Each of the three COM/Energy goals and objectives are
equally weighted, and awards are made based on meeting, exceeding or
reaching maximum attainment of targets.
The goal established for actual net income was to meet or exceed the
approved budgeted amounts. COM/Energy's 1998 net income exceeded targeted net
income by 7.5%. The goal established for cost control was for operation and
maintenance expenses in 1998 to be below the approved budgeted amounts. This
goal was met by COM/Energy having reduced actual operation and maintenance
expenses to 3.8% below established budgets. The goal of maintaining operation
and maintenance expenses per customer within the top 50% of the 18 company
industry peer group was also exceeded, as COM/Energy was rated the fourth most
effective of the 18 companies in controlling operation and maintenance
expenses. In the aggregate, the goals and objectives applicable to COM/Energy
component of the annual incentive plan were rated as 92% achieved.
The individual goals of Mr. Wright for 1998 under the annual incentive plan
included: timely completion of COM/Electric's Restructuring Plan before the
Massachusetts Department of Telecommunications and Energy; the sale of
COM/Electric's generation assets to Southern Energy; the development of
procedures to ensure compliance by COM/Energy with state and federal affiliate
transaction and Standards of Conduct laws and regulations; and the completion
of various investor relations programs as recommended by COM/Energy's investor
relations consultant. Performance relative to achieving individual goals was
rated as 90% achieved, resulting in an aggregate performance rating of 90%
achievement. In addition, Mr. Poist was given a discretionary award of $40,000
under the annual incentive plan.
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<PAGE>
Long-Term Compensation
The long-term incentive plan, approved by shareholders in 1994, measures
performance and provides for the potential for awards of common shares over a
three-year plan period. The plan provides for awards to the chief executive
officer of up to a maximum of 50% of annual base salary, awarded in the form of
restricted common shares. Awards of common shares under the plan are made if
COM/Energy's average three-year total return, which includes share appreciation
and dividends, as compared to the peer group index of utility companies as
established by Value Line, Inc., meets or exceeds the achievement standards set
by the committee at the beginning of a plan period. In this way, the interests
of executive officers and shareholders continue to be aligned.
For the three-year plan period commencing in 1996, the Threshold, Plan
Target and Maximum Shareholder Return achievement standards were 95% of Index
Average, Index Average, and 120% of Index Average, respectively. During this
plan period, COM/Energy's average total return was equal to 150% of the peer
group index, resulting in a maximum award in March of 1999 to Mr. Wright equal
to 50% of his January 1, 1998 base salary (a maximum award of $120,000) in
restricted common shares. Under the terms of the long-term incentive plan, the
restricted common shares generally vest three years from the date they are
issued.
Other Executive Officers
The chief executive officer, in conjunction with COM/Energy's human
resources department and an independent consultant, established salary ranges
for each executive officer. The salary ranges were based in part upon salaries
provided to executive officers in COM/Energy's industry peer group, as reported
by the Edison Electric Institute and from regional salary surveys, so as to
establish salary ranges generally in the median of the peer group. Specific
salary levels were then established through an evaluation of the
responsibilities of the position, the individual's experience in that position
and the executive officer's achievement of goals and performance of duties. The
base salary levels, as recommended by the chief executive officer, were also
reviewed and approved by the executive compensation committee.
In addition to base salary, the named executive officers are also eligible
to receive compensation under the annual incentive plan and the long-term
incentive plan. The named executive officers are eligible to receive
compensation of up to a maximum of 42% (for vice presidents) to 47% (for the
operating companies' president) of annual base salary under the annual
incentive plan and of up to 40% (for vice presidents) to 50% (for the operating
companies' president) of annual base salary in restricted common shares under
the long-term incentive plan. In 1998, COM/Energy goals and objectives
constituting the annual performance criteria and the corresponding weightings
which determined eligibility for awards to the named executive officers under
the annual incentive plan were the same as those applicable to the chief
executive officer. The individual goals and objectives of the other executive
officer annual incentive plan participants included: completion of the purchase
of the MATEP facility; Year 2000 compliance for COM/Energy's shareholder record
systems; continuing and expanding COM/Energy's investor relations program;
completing the sale of COM/Electric's generating assets to Southern Energy; and
timely completion of COM/Electric's Restructuring Plan before the Massachusetts
Department of Telecommunications and Energy as well as other actions to comply
with the state's Electric Restructuring Act on or before March 1, 1998.
The performance criteria applicable to the named executive officers under
the long-term incentive plan are the same as those applicable to the chief
executive officer.
110
<PAGE>
Policy on Deductibility of Compensation
The ability of COM/Energy to deduct the compensation paid to any of the five
most highly paid officers in excess of $1 million is limited by federal law
under Section 162(m) of the Internal Revenue Code. The compensation of each of
COM/Energy's executive officers, however, is lower than the $1 million
threshold at which tax deductions are limited. It is therefore not necessary
that the committee formulate a policy with respect to qualifying compensation
for deductibility under the Internal Revenue Code.
Conclusion
The compensation committee continues to take action to link executive
compensation directly to corporate performance and shareholder total return. A
substantial portion of each executive officer's compensation is now dependent
upon measurable individual performance and COM/Energy common share
appreciation.
THE EXECUTIVE COMPENSATION COMMITTEE
Michael C. Ruettgers, Chairperson
William J. O'Brien
Gerald L. Wilson
111
<PAGE>
COMPARATIVE TOTAL SHAREHOLDER RETURN
The line graph below compares the cumulative total shareholder return for
COM/Energy's common shares to the cumulative total return of the S&P 500 Stock
Index and a peer group index which is composed of 83 utility companies,
including COM/Energy, which are followed by Value Line, Inc. The entities which
comprise the peer group are also set forth hereinafter.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
- ---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
COM/Energy $100 $ 85 $112 $126 $190 $242
- ---------------------------------------------------------------
S&P 500 100 102 140 172 230 295
- ---------------------------------------------------------------
Peer Group 100 90 116 124 168 198
- ---------------------------------------------------------------
</TABLE>
112
<PAGE>
PEER GROUP
<TABLE>
<S> <C>
Allegheny Power System, Inc. MidAmerican Energy Holdings Co.
Ameren Corp. Minnesota Power, Inc.
American Electric Power Co., Inc. Montana Power Co.
Baltimore Gas and Electric Nevada Power Co.
BEC Energy New Century Energies, Inc.
Black Hills Corp. New England Electric System
Carolina Power & Light Co. Niagara Mohawk Power Corp.
Central & South West Corp. NIPSCO Industries, Inc.
Central Hudson Gas & Electric Corp. Northeast Utilities
Central Vermont Public Service Corp. Northern States Power Co.
CILCORP Northwestern Corp.
CINergy Corp. OGE Energy, Inc
CLECO Corp. Orange and Rockland Utilities
CMS Energy Corp. Otter Tail Power Co.
Commonwealth Energy System PacifiCorp.
Conectiv, Inc. PECO Energy Company
Consolidated Edison, Inc. PG&E Corp.
Dominion Resources, Inc. Pinnacle West Capital
DPL, Inc. Potomac Electric Power Co.
DQE, Inc. PP&L Resources, Inc.
DTE Energy Co. Public Service Co. of New Mexico
Duke Power Corp. Public Service Enterprise Group Inc.
Eastern Utilities Associates Puget Sound Energy Inc.
Edison International Rochester Gas and Electric Corp.
Empire District Electric Co. SCANA Corp.
Energy East Corp. Sierra Pacific Resources
Entergy Corp. SIGCORP, Inc.
FirstEnergy Corp. Southern Co.
Florida Progress Corp. St. Joseph Light & Power Co.
FPL Group, Inc. TECO Energy, Inc.
GPU, Inc. Texas Utilities Company
Green Mountain Power Corp. TNP Enterprises, Inc.
Hawaiian Electric Industries, Inc. Unicom Corp.
Houston Industries, Inc. Unisource Energy Corp.
IDACORP, Inc. United Illuminating Co.
Illinova Corp. UtiliCorp United Inc.
Interstate Energy Corp. Washington Water Power Co.
IPALCO Enterprises, Inc. Western Resources, Inc.
Kansas City Power & Light Wisconsin Energy Corp.
LG&E Energy Corp. WPS Resources Corp.
MDU Resources Group Inc.
</TABLE>
113
<PAGE>
SHAREHOLDER PROPOSAL (PROPOSAL NO. 3)
Mr. John Jennings Crapo, of Porter Square Branch, P.O. Box 400151,
Cambridge, Massachusetts, 02140-0002, a holder of 450 common shares, proposes
to submit the following proposal at the 1999 annual meeting:
RESOLVED: That the shareholders of Commonwealth Energy System assembled in
Annual Meeting of Shareholders balloting in person and by proxy hereby request
that the Board of Trustees present to shareholders at the next Annual Meeting
of Shareholders an appropriate amendment to the Declaration of Trust dated
December 31, 1926, as amended, to provide that any elections following the
adoption of the said amendment, Trustees whose terms have expired be elected
annually and not by classes as is now provided. But this amendment shall not
apply to any person holding the office of Trustee when this amendment is
presented to stockholders for ratification at the Annual Meeting of
Shareholders in question.
SUPPORTING STATEMENT: This proposal to de-classify the Board of Trustees
has received considerable support. Proponent believes the proposal will
receive more support now that he has modified it to have the amendment to the
Declaration of Trust not go into effect until Trustees who serve at time as
Trustees no longer serve as Trustee/Trustees. The Trustees make commitments to
serve three years each term as is presently allowed and this dedication is to
be acknowledged by not rudely terminating devoted service to the Commonwealth
Energy System.
BOARD OF TRUSTEES RECOMMENDATION:
The board of trustees recommends a vote AGAINST this proposal for the
following reasons:
This proposal has been submitted at various annual meetings since 1991. It
requests that the board of trustees submit a proposal to shareholders at the
2000 annual meeting calling for the repeal of the classified board, so that
all trustees would be elected on an annual basis. The classified board was
adopted at the 1987 annual meeting, when shareholders voted to amend
COM/Energy's declaration of trust to create three classes of trustees with an
equal number of trustees in each class, and to provide that the trustees would
serve three-year staggered terms, such that three trustees are eligible for
election each year. The classified board is intended to help to ensure
continued familiarity of board members with the business, management and
policies of COM/Energy, since a majority of the trustees at any given time
would have prior experience as board members. These amendments are also
designed to encourage persons seeking to acquire control of COM/Energy to
initiate an acquisition through arms-length negotiations with COM/Energy's
board of trustees and management, by making it more difficult to change the
composition of the board. Also, the amendments may allow COM/Energy's
management to obtain more time and information for evaluating a takeover
proposal, to fully protect the interests of COM/Energy and its shareholders.
Repeal of the classified board requires the affirmative vote or written
consent of three-quarters of the shares entitled to vote, as provided by
COM/Energy's declaration of trust. If the present proposal is adopted, repeal
of the classified board would actually be upon acceptance of a proposed
amendment to the declaration of trust to be offered at the 2000 annual meeting
of shareholders.
The board continues to believe that each trustee is fully accountable to
shareholders throughout each term of office, whether that term is three years
or one year. The board further notes
114
<PAGE>
that the classified board system was determined to be of sufficient merit such
that the Massachusetts legislature has codified that system in its 1990
amendments to the laws pertaining to Massachusetts business corporations. The
foregoing statement is offered by way of analogy only, of course, since
COM/Energy, as a Massachusetts business trust, is not affected by this
legislation.
Accordingly, a vote "AGAINST" the proposal is recommended.
115
<PAGE>
ANNEX A
Agreement and Plan
of Merger, as
amended
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
BEC ENERGY,
COMMONWEALTH ENERGY SYSTEM,
NSTAR,
BEC ACQUISITION, LLC
AND
CES ACQUISITION, LLC
dated as of December 5, 1998
amended and restated as of May 4, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE I.
The Mergers
<C> <S> <C>
Section 1.1 The Mergers.............................................. A-1
Section 1.2 Effects of The Mergers................................... A-1
Section 1.3 Effective Time........................................... A-2
ARTICLE II.
Treatment of Shares and Membership Interests
Section 2.1 Effect of The Mergers on the Membership Interests of BEC
LLC and CES LLC......................................... A-2
Section 2.2 Effect of the CES Merger on the Shares of CES............ A-2
Section 2.3 Effect of the BEC Merger on the Shares of BEC............ A-5
Section 2.4 Effect of the Mergers on Shares of the Company Held by
BEC and CES............................................. A-8
Section 2.5 Exchange of Certificates................................. A-8
ARTICLE III.
The Closing
Section 3.1 Closing.................................................. A-11
ARTICLE IV.
Representations and Warranties of CES
Section 4.1 Organization and Qualification........................... A-12
Section 4.2 Subsidiaries............................................. A-12
Section 4.3 Capitalization........................................... A-13
Section 4.4 Organizational Documents................................. A-13
Section 4.5 Authority................................................ A-13
Section 4.6 No Conflict; Statutory Approvals; Compliance............. A-14
Section 4.7 All Assets Necessary to Conduct Business................. A-15
Section 4.8 Reports and Financial Statements......................... A-15
Section 4.9 Absence of Certain Changes or Events..................... A-16
Section 4.10 Litigation............................................... A-16
Section 4.11 No Undisclosed Liabilities............................... A-16
Section 4.12 Registration Statement and Joint Proxy Statement......... A-17
Section 4.13 Restrictions on Business Activities...................... A-17
Section 4.14 Tax Matters.............................................. A-17
Section 4.15 Employee Matters; ERISA.................................. A-19
Section 4.16 Environmental Protection................................. A-21
Section 4.17 Regulation as a Utility.................................. A-22
Section 4.18 Vote Required............................................ A-23
Section 4.19 Opinion of Financial Advisor............................. A-23
Section 4.20 Ownership of BEC Shares.................................. A-23
Section 4.21 Insurance................................................ A-23
Section 4.22 Change in Control and Severance Payments................. A-23
Section 4.23 Year 2000................................................ A-23
Section 4.24 Non-Applicability of Certain Massachusetts Laws.......... A-24
Section 4.25 Brokers.................................................. A-24
Section 4.26 Operations of Nuclear Power Plant........................ A-24
</TABLE>
A-i
<PAGE>
<TABLE>
<CAPTION>
Page
----
ARTICLE V.
Representations and Warranties of BEC
<C> <S> <C>
Section 5.1 Organization and Qualification............................. A-25
Section 5.2 Subsidiaries............................................... A-25
Section 5.3 Capitalization............................................. A-25
Section 5.4 Organizational Documents................................... A-26
Section 5.5 Authority.................................................. A-26
Section 5.6 No Conflict; Statutory Approvals; Compliance............... A-26
Section 5.7 All Assets Necessary to Conduct The Business............... A-28
Section 5.8 Reports and Financial Statements........................... A-28
Section 5.9 Absence of Certain Changes or Events....................... A-29
Section 5.10 Litigation................................................. A-29
Section 5.11 No Undisclosed Liabilities................................. A-29
Section 5.12 Registration Statement and Joint Proxy Statement........... A-29
Section 5.13 Restrictions on Business Activities........................ A-30
Section 5.14 Tax Matters................................................ A-30
Section 5.15 Employee Matters; ERISA.................................... A-31
Section 5.16 Environmental Protection................................... A-33
Section 5.17 Regulation as a Utility.................................... A-34
Section 5.18 Vote Required.............................................. A-34
Section 5.19 Opinion of Financial Advisor............................... A-34
Section 5.20 Ownership of CES Shares.................................... A-34
Section 5.21 Insurance.................................................. A-34
Section 5.22 Change in Control and Severance Payments................... A-34
Section 5.23 Year 2000.................................................. A-34
Section 5.24 Non-Applicability of Certain Massachusetts Laws............ A-35
Section 5.25 Brokers.................................................... A-35
Section 5.26 Operations of Nuclear Power Plant.......................... A-35
ARTICLE VI.
Conduct of Business Pending The Merger
Section 6.1 Covenants of The Parties................................... A-36
Section 6.2 Covenant of No Solicitation................................ A-41
ARTICLE VII.
Additional Agreements
Section 7.1 Access to Information...................................... A-43
Section 7.2 Joint Proxy Statement and Registration Statement........... A-43
Section 7.3 Regulatory Matters......................................... A-44
Section 7.4 Shareholder Approval....................................... A-45
Section 7.5 Directors' and Officers' Indemnification................... A-45
Section 7.6 Disclosure Schedules....................................... A-47
Section 7.7 Public Announcements....................................... A-47
Section 7.8 Rule 145 Affiliates........................................ A-47
Section 7.9 Certain Employee Agreements................................ A-47
Section 7.10 Employee Benefit Plans..................................... A-47
Section 7.11 Share Plans................................................ A-48
Section 7.12 Expenses................................................... A-48
</TABLE>
A-ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
Section 7.13 Further Assurances....................................... A-48
Section 7.14 Corporate Offices........................................ A-49
Section 7.15 Officers................................................. A-49
Section 7.16 Employment Contracts..................................... A-49
Section 7.17 Workforce Matters........................................ A-49
Section 7.18 Company's Board of Trustees.............................. A-49
Section 7.19 Confidentiality Agreements............................... A-50
ARTICLE VIII.
Conditions to The Mergers
Section 8.1 Conditions to Each Party's Obligation to Effect The
Mergers................................................. A-50
Section 8.2 Additional Conditions to Obligation of BEC to Effect The
Mergers................................................. A-51
Section 8.3 Additional Conditions to Obligation of CES to Effect The
Mergers................................................. A-52
ARTICLE IX.
Termination, Amendment and Waiver
Section 9.1 Termination.............................................. A-53
Section 9.2 Effect of Termination.................................... A-56
Section 9.3 Termination Fee; Expenses................................ A-56
Section 9.4 Amendment................................................ A-57
Section 9.5 Waiver................................................... A-57
ARTICLE X.
General Provisions
Section 10.1 Non-Survival; Effect of Representations and Warranties... A-57
Section 10.2 Notices.................................................. A-57
Section 10.3 Miscellaneous............................................ A-58
Section 10.4 Interpretation........................................... A-59
Section 10.5 Counterparts; Effect..................................... A-59
Section 10.6 Parties in Interest...................................... A-59
Section 10.7 Waiver of Jury Trial and Certain Damages................. A-59
Section 10.8 Enforcement.............................................. A-59
Section 10.9 Massachusetts Business Trust............................. A-59
Section 10.10 Severability............................................. A-60
Section 10.11 Failure or Indulgence Not Waiver; Remedies Cumulative.... A-60
</TABLE>
A-iii
<PAGE>
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER dated as of December 5, 1998
and amended and restated as of May 4, 1999 (the "Agreement") among BEC Energy,
a Massachusetts business trust ("BEC"), Commonwealth Energy System, a
Massachusetts business trust ("CES"), NStar, a Massachusetts business trust of
which BEC and CES together own all of the outstanding interests (the
"Company"), BEC Acquisition, LLC, a Massachusetts limited liability company
directly and indirectly wholly-owned by the Company ("BEC LLC") and CES
Acquisition, LLC, a Massachusetts limited liability company directly and
indirectly wholly-owned by the Company ("CES LLC").
WHEREAS, CES and BEC have determined to engage in a strategic business
combination transaction on the terms stated herein;
WHEREAS, the Boards of Trustees of BEC, CES and the Company, and the members
of BEC LLC and CES LLC, each have determined that it is advisable and in the
best interests of their respective shareholders and members to consummate, and
have approved, the strategic business combination transaction provided herein
in which BEC LLC would merge with and into BEC, and CES LLC would merge with
and into CES, with BEC and CES, respectively, being the surviving entity,
pursuant to the terms and conditions of this Agreement, as a result of which
the Company will own all of the issued and outstanding shares of BEC and CES;
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 Mergers
Section 1.1 The Mergers. Upon the terms and subject to the conditions of
this Agreement, at the Effective Time (as defined in Section 1.3), BEC LLC
shall be merged with and into BEC (the "BEC Merger") and CES LLC shall be
merged with and into CES (the "CES Merger" and, together with the BEC Merger,
the "Mergers") pursuant to Massachusetts General Laws ("M.G.L.") Chapter 156C,
Section 59. BEC and CES, respectively, shall be the surviving entities of the
BEC Merger and CES Merger. The effects and consequences of each of the Mergers
are set forth in Section 1.2.
Section 1.2 Effects of the Mergers. At the Effective Time, (i) the agreement
and declaration of trust of BEC, as in effect immediately prior to the
Effective Time, shall be the declaration of trust of BEC as the surviving
entity in the BEC Merger, (ii) the bylaws of BEC, as in effect immediately
prior to the Effective Time, shall be the bylaws of BEC as the surviving entity
in the BEC Merger, and (iii) the agreement and declaration of trust of CES, as
in effect immediately prior to the Effective Time, shall be the agreement and
declaration of trust of CES as the surviving entity in the CES Merger. Subject
to the foregoing, the additional effects of the Mergers shall be as provided in
the applicable provisions of M.G.L. c. 182 and M.G.L. c. 156C. Without limiting
the generality of the foregoing, and subject thereto, at the Effective Time (i)
all the property, rights, privileges and franchises of BEC LLC and CES LLC
shall vest in BEC or CES, as the case may be, and (ii) all the debts,
liabilities and duties of BEC LLC and CES LLC shall become the debts,
liabilities and duties of BEC or CES, as the case may be.
A-1
<PAGE>
Section 1.3 Effective Time. On the Closing Date (as defined in Section
3.1), a certificate of merger complying with the requirements of M.G.L. c.
156C shall be executed and filed with the Secretary of The Commonwealth of
Massachusetts with respect to each of the Mergers. Each of the Mergers shall
become effective at the time and date agreed upon by BEC and CES with respect
thereto and specified in the certificate of merger therefor; provided that the
BEC Merger and CES Merger shall become effective at the same time, which is
hereinafter referred to as the "Effective Time."
ARTICLE II.
Treatment of Shares and Membership Interests
Section 2.1 Effect of the Mergers on the Membership Interests of BEC LLC
and CES LLC
(a) BEC LLC. As of the Effective Time, by virtue of the BEC Merger and
without any action on the part of any holder thereof, each outstanding 1%
membership interest in BEC LLC shall be converted into one common share of
BEC.
(b) CES LLC. As of the Effective Time, by virtue of the CES Merger and
without any action on the part of any holder thereof, each outstanding 1%
membership interest in CES LLC shall be converted into one common share of
CES.
Section 2.2 Effect of the CES Merger on the Shares of CES. As of the
Effective Time, by virtue of the CES Merger and without any action on the part
of any holder of CES Common Shares:
(a) Conversion of CES Common Shares. Subject to the provisions of
Section 2.5(d), each common share of CES, $2.00 par value per share (the
"CES Common Shares") issued and outstanding immediately prior to the
Effective Time, other than shares canceled pursuant to Section 2.2(b),
shall be converted into the right to receive either (i) $44.10 in cash (the
"CES Cash Consideration") or (ii) 1.05 (the "CES Exchange Ratio") fully
paid and non-assessable common shares of the Company, par value $1.00 per
share, (the "Company Common Shares," such share consideration being
hereinafter referred to as the "CES Share Consideration," and, together
with the CES Cash Consideration, the "CES Merger Consideration"), in each
case as the holder thereof shall have elected or be deemed to have elected,
in accordance with Section 2.2(d). The CES Exchange Ratio shall be adjusted
to reflect fully the effect of any share split, reverse split, share
dividend (including any dividend or distribution of securities convertible
into CES Common Shares), reorganization, recapitalization or other like
change with respect to CES Common Shares occurring after the date hereof
and having a record date prior to the Effective Time.
(b) Cancellation of CES Common Shares; Redemption of CES Preferred
Shares. (i) As of the Effective Time, each CES Common Share that is owned
by CES as treasury shares and all CES Common Shares that are owned,
directly or indirectly, by CES, BEC, the Company or any of their respective
subsidiaries (other than CES Common Shares issued pursuant to
Section 2.1(b) hereof) shall be canceled and shall cease to exist and no
shares of the Company or other consideration shall be delivered in exchange
therefor.
(ii) Prior to the Effective Time, the Board of Trustees of CES shall
call for redemption all outstanding preferred shares of CES, $100.00 par
value per share (the "CES Preferred Shares"), at a redemption price equal
to the amount provided for in the declaration of trust of CES, together
with all dividends accrued and unpaid to the date of such redemption. All
CES Preferred Shares shall be redeemed so that no such shares shall be
outstanding at the time of the CES Special Meeting (as defined in Section
7.4(a)) or entitled to vote on the approval of this Agreement, the Mergers
and the other transactions contemplated hereby.
A-2
<PAGE>
(c) Allocation. The number of CES Common Shares to be converted into the
right to receive the CES Cash Consideration in the Mergers (the "CES Cash
Number") shall be equal to 2,267,573.696. The number of CES Common Shares
to be converted into the right to receive the CES Share Consideration in
the Mergers (the "CES Share Number") shall be equal to (i) the number of
CES Common Shares issued and outstanding immediately prior to the Effective
Time (ignoring for this purpose any CES Common Shares held as treasury
shares and canceled pursuant to Section 2.2(b)) less (ii) the CES Cash
Number. Notwithstanding the foregoing, if the number of CES Common Shares
to be converted into the right to receive the CES Cash Consideration in the
Mergers in the absence of this Section 2.2(c) (the "Elective CES Cash
Number") is greater than 2,267,573.696, and if the Elective BEC Cash Number
(as defined in Section 2.3(c)) is less than 4,535,147.392, then as
illustrated in Exhibit 2.2(c)/2.3(c) the CES Cash Number shall be increased
(but not in an amount that would violate the conditions set forth in
Sections 8.2(e) and 8.3(e)) by the lesser of (i) the Elective CES Cash
Number minus 2,267,573.696 or (ii) 4,535,147.392 minus the Elective BEC
Cash Number. Notwithstanding the foregoing, if the Elective CES Cash Number
is less than 2,267,573.696, and if the Elective BEC Cash Number is greater
than the 4,535,147.392, then as illustrated in Exhibit 2.2(c)/2.3(c) the
CES Cash Number shall be decreased by the number by which the BEC Cash
Number is increased pursuant to the third sentence of Section 2.3(c).
Notwithstanding anything to the contrary herein, CES shall have the option,
with the prior consent of BEC, to change the CES Cash Number and the CES
Share Number to more closely follow the actual elections of the CES
shareholders pursuant to this Section 2.2.
(d) Election. Subject to allocation in accordance with the provisions of
this Section 2.2, each record holder of CES Common Shares (other than
shares to be canceled in accordance with Section 2.2(b)) issued and
outstanding immediately prior to the Election Deadline (as defined in
Section 2.5(b)(i)) shall be entitled, in accordance with Section 2.5(b),
(i) to elect to receive in respect of each such share (A) the CES Cash
Consideration (a "CES Cash Election") or (B) the CES Share Consideration (a
"CES Share Election") or (ii) to indicate that such record holder has no
preference as to the receipt of the CES Cash Consideration or the CES Share
Consideration for all such shares held by such holder (a "CES Non-
Election"). CES Common Shares in respect of which a CES Non-Election is
made or as to which no election is made (collectively, "CES Non-Election
Shares") shall be deemed by CES, with the prior consent of BEC, to be
shares in respect of which CES Cash Elections or CES Share Elections have
been made, as CES shall determine.
(e) Allocation of CES Cash Election Shares. In the event that the
aggregate number of shares in respect of which CES Cash Elections have been
made or are deemed to have been made in accordance with Section 2.2(d) (the
"CES Cash Election Shares") exceeds the CES Cash Number, all CES Common
Shares in respect of which CES Share Elections have been made ("the CES
Share Election Shares") and all CES Non-Election Shares shall be converted
into the right to receive the CES Share Consideration (and cash in lieu of
fractional interests in accordance with Section 2.5(d)), and the CES Cash
Election Shares shall be converted into the right to receive the CES Cash
Consideration or the CES Share Consideration in the following manner:
(i) all record holders of CES Common Shares who (x) own less than
100 CES Common Shares and (y) elect to receive the CES Cash
Consideration in respect of fewer than 100 CES Common Shares (all such
CES Common Shares being herein referred to as the "CES De Minimis Cash
Election Shares") shall be entitled to receive the CES Cash
Consideration without proration;
A-3
<PAGE>
(ii) the number of CES Cash Election Shares, other than CES De
Minimis Cash Election Shares, covered by each Form of Election (as
defined in Section 2.5(b)(i)) to be converted into the CES Cash
Consideration shall be determined by multiplying the number of CES Cash
Election Shares covered by such Form of Election by a fraction, (A) the
numerator of which is the CES Cash Number less the number of CES De
Minimis Cash Election Shares and (B) the denominator of which is the
aggregate number of CES Cash Election Shares less the number of CES De
Minimis Cash Election Shares, rounded down to the nearest whole number;
provided that if the number of CES De Minimis Cash Election Shares
exceeds the CES Cash Number, the CES De Minimis Cash Election Shares
shall be converted into the CES Cash Consideration by selecting, by
lottery or such other method as mutually agreed to by CES and BEC, from
among the record holders of CES De Minimis Cash Election Shares a
sufficient number of such holders (collectively, the "CES Cash
Designees") such that the number of CES Cash Election Shares held by
the CES Cash Designees shall equal as closely as practicable the CES
Cash Number, and all CES Cash Election Shares held by the CES Cash
Designees shall be converted into the right to receive the CES Cash
Consideration; provided, however, that no CES Cash Designee shall
receive both CES Share Consideration and CES Cash Consideration for
such holder's CES Common Shares and that CES may, in accordance with
Section 2.2(c), change the CES Cash Number and the CES Share Number in
order to meet this requirement; and
(iii) all CES Cash Election Shares not converted into CES Cash
Consideration in accordance with Section 2.2(e)(i) or (ii) shall be
converted into the right to receive the CES Share Consideration (and
cash in lieu of fractional interests in accordance with Section
2.5(d)).
(f) Allocation of CES Stock Election Shares. In the event that the
aggregate number of CES Share Election Shares exceeds the CES Share Number,
all CES Cash Election Shares and all CES Non-Election Shares (together, the
"CES Cash Shares") shall be converted into the right to receive the CES
Cash Consideration, and all CES Share Election Shares shall be converted
into the right to receive the CES Cash Consideration or the CES Share
Consideration in the following manner:
(i) the number of CES Share Election Shares covered by each Form of
Election to be converted into CES Cash Consideration shall be
determined by multiplying the number of CES Share Election Shares
covered by such Form of Election by a fraction, (A) the numerator of
which is the CES Cash Number less the number of CES Cash Shares and (B)
the denominator of which is the aggregate number of CES Share Election
Shares, rounded down to the nearest whole number; and
(ii) all CES Share Election Shares not converted into CES Cash
Consideration in accordance with Section 2.2(f)(i) shall be converted
into the right to receive the CES Share Consideration (and cash in lieu
of fractional interests in accordance with Section 2.5(d)).
(g) No Allocation. In the event that neither Section 2.2(e) nor Section
2.2(f) is applicable, all CES Cash Election Shares shall be converted into
the right to receive the CES Cash Consideration, all CES Share Election
Shares shall be converted into the right to receive the CES Share
Consideration (and cash in lieu of fractional interests in accordance with
Section
2.5(d)) and CES Non-Election Shares shall be converted into the right to
receive the CES Cash Consideration or the CES Share Consideration (and cash
in lieu of fractional interests in accordance with Section 2.5(d)) as CES,
with the prior consent of BEC, shall determine.
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(h) Computations. The Exchange Agent, in consultation with CES, shall
make all computations to give effect to this Section 2.2.
(i) Cancellation of Shares. As of the Effective Time, all CES Common
Shares issued and outstanding immediately prior to the Effective Time shall
no longer be outstanding and shall automatically be canceled and retired
and shall cease to exist and each holder of a certificate formerly
representing any such CES Common Shares (a "CES Certificate") shall cease
to have any rights with respect thereto, except the right to receive the
CES Merger Consideration and any additional cash in lieu of fractional CES
Common Shares to be issued or paid in consideration therefor upon surrender
of such CES Certificate in accordance with Section 2.5, without interest.
Section 2.3 Effect of the BEC Merger on the Shares of BEC. As of the
Effective Time, by virtue of the BEC Merger and without any action on the part
of any holder of BEC Common Shares:
(a)
(i) Conversion of BEC Common Shares. Subject to the provisions of
Section 2.5(d), each common share of BEC, $1.00 par value per share
(the "BEC Common Shares") issued and outstanding immediately prior to
the Effective Time, other than shares canceled pursuant to Section
2.3(b), shall be converted into the right to receive either (i) $44.10
in cash (the "BEC Cash Consideration") or (ii) one (the "BEC Exchange
Ratio") fully paid and non-assessable Company Common Share (the " BEC
Share Consideration," and together with the BEC Cash Consideration, the
"BEC Merger Consideration"), in each case as the holder thereof shall
have elected or be deemed to have elected, in accordance with Section
2.3(d). The BEC Exchange Ratio shall be adjusted to reflect fully the
effect of any share split, reverse split, share dividend (including any
dividend or distribution of securities convertible into BEC Common
Shares), reorganization, recapitalization or other like change with
respect to BEC Common Shares occurring after the date hereof and having
a record date prior to the Effective Time.
(ii) Treatment of BEC Stock Options and Other Rights to Receive BEC
Shares. At the Effective Time, each outstanding option or right to
purchase or receive BEC Common Shares, including deferred share rights
(each, a "BEC Share Right"), shall be assumed by the Company in such
manner that it is converted into an option to purchase Company Common
Shares or a right to receive Company Common Shares, as provided below.
Following the Effective Time, each such BEC Share Right shall be
exercisable upon the same terms and conditions as then are applicable
to such BEC Share Right, except that (i) each such BEC Share Right
shall be exercisable for that number of Company Common Shares equal to
the product of (x) the number of BEC Common Shares for which such BEC
Share Right was exercisable and (y) the BEC Exchange Ratio and (ii) the
exercise price of such BEC Share Right shall be equal to the exercise
price of such BEC Share Right as of the date hereof divided by the BEC
Exchange Ratio. From and after the date hereof, no additional options
to purchase or rights to receive BEC Common Shares shall be granted
under the BEC (or any of BEC's subsidiaries) option plans, deferred
share plans or otherwise, except as permitted by Section 6.1(c) of this
Agreement. Except as otherwise agreed by the parties, BEC shall use
reasonable efforts to ensure that no person shall have any right under
any option plan (or any option granted thereunder) or other plan,
program or arrangement with respect to, including any right to acquire,
equity securities of BEC following the Effective Time.
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(b) Cancellation of BEC Common Shares. As of the Effective Time, each
BEC Common Share that is owned by BEC as treasury shares and all BEC Common
Shares that are owned, directly or indirectly, by BEC, CES, the Company or
any of their respective subsidiaries (other than BEC Common Shares issued
pursuant to Section 2.1(a) hereof) shall be canceled and shall cease to
exist and no shares of the Company or other consideration shall be
delivered in exchange therefor.
(c) Allocation. The number of BEC Common Shares to be converted into the
right to receive the BEC Cash Consideration in the Mergers (the "BEC Cash
Number") shall be equal to 4,535,147.392. The number of BEC Common Shares
to be converted into the right to receive the BEC Share Consideration in
the Mergers (the "BEC Share Number") shall be equal to (i) the number of
BEC Common Shares issued and outstanding immediately prior to the Effective
Time (ignoring for this purpose any BEC Common Shares held as treasury
shares and canceled pursuant to Section 2.3(b)) less (ii) the BEC Cash
Number. Notwithstanding the foregoing, if the number of BEC Common Shares
to be converted into the right to receive the BEC Cash Consideration in the
Mergers in the absence of this Section 2.3(c) (the "Elective BEC Cash
Number") is greater than 4,535,147.392, and if the Elective CES Cash Number
is less than 2,267,573.696, then as illustrated in Exhibit 2.2(c)/2.3(c)
the BEC Cash Number shall be increased (but not in an amount that would
violate the conditions set forth in Sections 8.2(e) and 8.3(e)) by the
lesser of (i) the Elective BEC Cash Number minus 4,535,147.392 or (ii)
2,267,573.696 minus the Elective CES Cash Number. Notwithstanding the
foregoing, if the Elective BEC Cash Number is less than 4,535,147.392, and
if the Elective CES Cash Number is greater than 2,267,573.696, then as
illustrated in Exhibit 2.2(c)/2.3(c) the BEC Cash Number shall be decreased
by the number by which the CES Cash Number is increased pursuant to the
third sentence of Section 2.2(c). Notwithstanding anything to the contrary
herein, BEC shall have the option, with the prior consent of CES, to change
the BEC Cash Number and the BEC Share Number to more closely follow the
actual elections of the BEC shareholders pursuant to this Section 2.3.
(d) Election. Subject to allocation in accordance with the provisions of
this Section 2.3, each record holder of BEC Common Shares (other than
shares to be canceled in accordance with Section 2.3(b)) issued and
outstanding immediately prior to the Election Deadline shall be entitled,
in accordance with Section 2.5(b), (i) to elect to receive in respect of
each such share (A) the BEC Cash Consideration (a "BEC Cash Election") or
(B) the BEC Share Consideration (a "BEC Share Election") or (ii) to
indicate that such record holder has no preference as to the receipt of the
BEC Cash Consideration or the BEC Share Consideration for all such shares
held by such holder (a "BEC Non-Election"). Shares of BEC Common Shares in
respect of which a BEC Non-Election is made or as to which no election is
made (collectively, "BEC Non-Election Shares") shall be deemed by BEC, with
the prior consent of CES, to be shares in respect of which BEC Cash
Elections or BEC Share Elections have been made, as BEC shall determine.
(e) Allocation of BEC Cash Election Shares. In the event that the
aggregate number of shares in respect of which BEC Cash Elections have been
made or are deemed to have been made in accordance with Section 2.3(d) (the
"BEC Cash Election Shares") exceeds the BEC Cash Number, all BEC Common
Shares in respect of which BEC Share Elections have been made ("the BEC
Share Election Shares") and all BEC Non-Election Shares shall be converted
into the right to receive the BEC Share Consideration (and cash in lieu of
fractional interests in
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accordance with Section 2.5(d)), and the BEC Cash Election Shares shall be
converted into the
right to receive the BEC Cash Consideration or the BEC Share Consideration
in the following manner:
(i) all record holders of BEC Common Shares who (x) own less than
100 BEC Common Shares and (y) elect to receive the BEC Cash
Consideration in respect of fewer than 100 BEC Common Shares (all such
BEC Common Shares being herein referred to as the "BEC De Minimis Cash
Election Shares") shall be entitled to receive the BEC Cash
Consideration without proration;
(ii) the number of BEC Cash Election Shares, other than BEC De
Minimis Cash Election Shares, covered by each Form of Election to be
converted into the BEC Cash Consideration shall be determined by
multiplying the number of BEC Cash Election Shares covered by such Form
of Election by a fraction, (A) the numerator of which is the BEC Cash
Number less the number of BEC De Minimis Cash Election Shares and (B)
the denominator of which is the aggregate number of BEC Cash Election
Shares less the number of BEC De Minimis Cash Election Shares, rounded
down to the nearest whole number; provided that if the number of BEC De
Minimis Cash Election Shares exceeds the BEC Cash Number, the BEC De
Minimis Cash Election Shares shall be converted into the BEC Cash
Consideration by selecting, by lottery or such other method as mutually
agreed to by BEC and CES, from among the record holders of BEC De
Minimis Cash Election Shares a sufficient number of such holders
(collectively, the "BEC Cash Designees") such that the number of BEC
Cash Election Shares held by the BEC Cash Designees shall equal as
closely as practicable the BEC Cash Number, and all BEC Cash Election
Shares held by the BEC Cash Designees shall be converted into the right
to receive the BEC Cash Consideration; provided, however, that no BEC
Cash Designee shall receive both BEC Share Consideration and BEC Cash
Consideration for such holder's BEC Common Shares and that BEC may, in
accordance with Section 2.3(c), change the BEC Cash Number and the BEC
Share Number in order to meet this requirement; and
(iii) all BEC Cash Election Shares not converted into BEC Cash
Consideration in accordance with Section 2.3(e)(i) or (ii) shall be
converted into the right to receive the BEC Share Consideration (and
cash in lieu of fractional interests in accordance with Section
2.5(d)).
(f) Allocation of BEC Share Election Shares. In the event that the
aggregate number of BEC Share Election Shares exceeds the BEC Share Number,
all BEC Cash Election Shares and all BEC Non-Election Shares (together, the
"BEC Cash Shares") shall be converted into the right to receive the BEC
Cash Consideration, and all BEC Share Election Shares shall be converted
into the right to receive the BEC Cash Consideration or the BEC Share
Consideration in the following manner:
(i) all persons entitled to receive BEC Common Shares under the
Matching Contribution Account under (1) the Boston Edison Savings Plan
(1999 Restatement), (2) the Boston Edison Negotiated Savings Plan For
Production and Maintenance Employees (1994 Restatement), and (3) the
Boston Edison Negotiated Savings Plan For Office, Technical &
Professional Employees (1994 Restatement) shall be entitled to receive
the BEC Share Consideration without proration;
(ii) the number of BEC Share Election Shares covered by each Form of
Election to be converted into BEC Cash Consideration shall be
determined by multiplying the number of BEC Share Election Shares
covered by such Form of Election by a fraction, (A) the
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numerator of which is the BEC Cash Number less the number of BEC Cash
Shares and (B) the denominator of which is the aggregate number of BEC
Share Election Shares, rounded down to the nearest whole number; and
(iii) all BEC Share Election Shares not converted into BEC Cash
Consideration in accordance with Section 2.3(f)(i) shall be converted
into the right to receive the BEC Share Consideration (and cash in lieu
of fractional interests in accordance with Section 2.5(d)).
(g) No Allocation. In the event that neither Section 2.3(e) nor Section
2.3(f) is applicable, all BEC Cash Election Shares shall be converted into
the right to receive the BEC Cash Consideration, all BEC Share Election
Shares shall be converted into the right to receive the BEC Share
Consideration (and cash in lieu of fractional interests in accordance with
Section 2.5(d)) and BEC Non-Election Shares shall be converted into the
right to receive the BEC Cash Consideration or the BEC Share Consideration
(and cash in lieu of fractional interests in accordance with Section
2.5(d)) as BEC, with the prior consent of CES, shall determine.
(h) Computations. The Exchange Agent, in consultation with BEC, shall
make all computations to give effect to this Section 2.3.
(i) Cancellation of Shares. As of the Effective Time, all BEC Common
Shares issued and outstanding immediately prior to the Effective Time shall
no longer be outstanding and shall automatically be canceled and retired
and shall cease to exist and each holder of a certificate formerly
representing any such BEC Common Shares (a "BEC Certificate") shall cease
to have any rights with respect thereto, except the right to receive the
BEC Merger Consideration and any additional cash in lieu of fractional BEC
Common Shares to be issued or paid in consideration therefor upon surrender
of such BEC Certificate in accordance with Section 2.4, without interest.
Section 2.4. Effect of the Mergers on Shares of the Company Held by BEC and
CES. As of the Effective Time, by virtue of the Mergers and without any action
on the part of any holder thereof, all common shares of NSTAR held by BEC or by
CES shall be canceled and shall cease to exist and no consideration shall be
delivered in exchange thereof.
Section 2.5 Exchange of Certificates.
(a) Deposit with Exchange Agent. As soon as practicable after the Effective
Time, BEC shall deposit with a bank or trust company as shall be designated by
the Company (the "Exchange Agent"), in trust for the benefit of the holders of
CES Common Shares and BEC Common Shares, cash equal to the sum of the total
aggregate CES Cash Consideration and BEC Cash Consideration and the Company
shall deposit with the Exchange Agent, in trust for the benefit of the holders
of CES Common Shares and BEC Common Shares, certificates representing the
Company Common Shares (such cash and such Company Common Shares, together with
any dividends or distributions with respect thereto with a record date after
the Effective Time and any cash payable in lieu of any fractional Company
Common Shares, being hereinafter referred to as the "Exchange Fund") issuable
pursuant to Sections 2.2 and 2.3 in exchange for outstanding CES Common Shares
and BEC Common Shares.
(b) Exchange Procedures.
(i) As soon as reasonably practicable after the Closing Date, the
Exchange Agent shall mail a form of election (a "Form of Election") to
holders of record of CES Common Shares and BEC Common Shares as of the
Closing Date. Any election to receive the CES Merger Consideration
contemplated by Section 2.2(d) or the BEC Merger Consideration as
contemplated by Section 2.3(d) (as applicable, the "Merger
Consideration") shall have been properly made only if the Exchange
Agent shall have received at its designated office or
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offices, by 5:00 p.m., Boston time, on the twentieth business day after
the Form of Election was mailed to holders of record of CES Common
Shares and BEC Common Shares (the "Election Deadline"), a Form of
Election properly completed and accompanied by a CES Certificate or a
BEC Certificate, as the case may be (together or as applicable,
"Certificate(s)") for the shares to which such Form of Election
relates, duly endorsed in blank or otherwise acceptable for transfer on
the books of CES or BEC, as the case may be (or an appropriate
guarantee of delivery), as set forth in such Form of Election; provided
that Certificates need not be delivered in the case of shares held
pursuant to any dividend reinvestment plan. An election may be revoked
only by written notice received by the Exchange Agent prior to 5:00
p.m., Boston time, on the Election Deadline. If an election is so
revoked, the Certificate(s) (or guarantee of delivery, as appropriate)
to which such election relates shall be promptly returned to the person
who submitted the same to the Exchange Agent.
(ii) As soon as reasonably practicable after the Election Deadline,
the Exchange Agent shall mail to each holder of record of a
Certificate, whose CES Common Shares or BEC Common Shares
(collectively, the "Shares") were converted into the right to receive
the Merger Consideration and who failed to return a properly completed
Form of Election, (A) a letter of transmittal (which shall specify that
delivery will be effected, and risk of loss and title to the
Certificates will pass, only upon delivery of the Certificates to the
Exchange Agent and shall be in such form and have such other provisions
as CES and BEC may specify consistent with this Agreement) and (B)
instructions for use in effecting the surrender of the Certificates in
exchange for the Merger Consideration.
(iii) As of the Effective Time, with respect to properly made
elections in accordance with Section 2.5(b)(i) and (ii), and upon
surrender of a Certificate for cancellation to the Exchange Agent,
together with such other documents as may reasonably be required by the
Exchange Agent, the holder of such Certificate shall be entitled to
receive in exchange therefor Merger Consideration that such holder has
the right to receive pursuant to the provisions of this Article II, and
the Certificate so surrendered shall forthwith be canceled. In the
event of a transfer of ownership of CES Common Shares or BEC Common
Shares that is not registered in the transfer records of CES or BEC,
payment may be issued to a person other than the person in whose name
the Certificate so surrendered is registered if such Certificate is
properly endorsed or otherwise in proper form for transfer and the
person requesting such issuance pays any transfer or other taxes
required by reason of such payment to a person other than the
registered holder of such Certificate or established to the
satisfaction of CES and BEC that such tax has been paid or is not
applicable. Until surrendered as contemplated by this Section 2.5, each
Certificate shall be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender the Merger
Consideration that the holder thereof has the right to receive in
respect of such Certificate pursuant to the provisions of this Article
II. No interest shall be paid or shall accrue on any cash payable to
holders of Certificates pursuant to the provisions of this Article II.
(iv) Notwithstanding the foregoing provisions of this Section
2.5(b), the parties hereto may decide to require the Exchange Agent to
distribute Forms of Election to holders of BEC Common Shares and
holders of CES Common Shares prior to the Effective Time, upon such
additional terms and conditions as may be agreed to by the parties.
(c) Distributions with Respect to Unexchanged Shares. No dividends or
other distributions declared or made after the Effective Time with respect
to Company Common
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Shares with a record date after the Effective Time shall be paid to the
holder of any unsurrendered Certificate with respect to the Company Common
Shares represented thereby and no cash payment in lieu of fractional shares
shall be paid to any such holder pursuant to Section 2.5(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 Company Common
Shares issued in exchange therefor, without interest, (i) at the time of
such surrender, the amount of any cash payable in lieu of any fractional
Company Common Shares to which such holder is entitled pursuant to Section
2.5(d) and the amount of dividends or other distributions with a record
date after the Effective Time theretofore paid with respect to such whole
Company Common 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 Company Common Shares.
(d) No Fractional Securities. Notwithstanding any other provision of
this Agreement, no certificates or scrip representing fractional Company
Common Shares 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 Company Common Shares;
provided, however, that fractional Company Common Shares may be issued in
exchange for CES Common Shares or BEC Common Shares issued pursuant to any
dividend reinvestment plan. A holder of CES Common Shares or BEC Common
Shares (other than CES Common Shares or BEC Common Shares issued pursuant
to any dividend reinvestment plan), as the case may be, who would otherwise
have been entitled to a fractional Company Common Share 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 CES Cash
Consideration or the BEC Cash Consideration, as applicable, without any
interest thereon.
(e) Closing of Transfer Books. From and after the Effective Time the
share transfer books of CES and BEC shall be closed and no transfer of any
shares 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 Company
Common Shares as provided in this Section 2.5.
(f) Termination of Exchange Agent. Any cash and certificates
representing Company Common Shares deposited with the Exchange Agent
pursuant to Section 2.5(a) and not exchanged within one year after the
Effective Time pursuant to this Section 2.5 shall be returned by the
Exchange Agent to the Company, which shall thereafter act as Exchange
Agent. After that time, any holder of unsurrendered Certificates shall look
as a general creditor only to the Company for payment of such funds to
which such holder may be due, subject to applicable law.
(g) Escheat. None of BEC, BEC LLC, CES, CES LLC or the Company shall 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.
(h) Withholding Rights. The Company or the Exchange Agent shall be
entitled to deduct and withhold from the Merger Consideration otherwise
payable to any holder of CES Common Shares or BEC Common Shares, as the
case may be, such amounts as the Company or the Exchange Agent is required
to deduct and withhold with respect to the making of such payment under the
Internal Revenue Code of 1986, as amended (the "Code"), or any provision of
state,
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local or foreign tax law. To the extent that amounts are so withheld by the
Company or the Exchange Agent, such withheld amounts shall be treated for
all purposes of this Agreement as having been paid to the holder of the CES
Common Shares or BEC Common Shares in respect of which such deduction and
withholding was made by the Company or the Exchange Agent.
(i) No Further Ownership Rights in CES Common Shares or BEC Common
Shares. The Merger Consideration delivered upon the surrender for exchange
of CES Common Shares issued and outstanding immediately prior to the
Effective Time or BEC Common Shares issued and outstanding immediately
prior to the Effective Time, as the case may be, in accordance with the
terms hereof shall be deemed to have been issued in full satisfaction of
all rights pertaining to such CES Common Shares or BEC Common Shares. 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.
(j) Lost, Stolen or Destroyed Certificates. 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
Merger Consideration as may be required pursuant to Article II; provided
however, that the Company may, in its discretion and as a condition
precedent thereof, require the owner of such lost, stolen or destroyed
Certificates to deliver a bond in such sums as it may reasonably direct as
indemnity against any claim that may be made against the Company or the
Exchange Agent with respect to the Certificates alleged to have been lost,
stolen or destroyed.
(k) Taking of Necessary Action: Further Action. Each of BEC, BEC LLC,
CES, CES LLC and the Company shall take all such reasonable and lawful
action as may be necessary or appropriate in order to effectuate the
Mergers 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 effectuate the
transactions contemplated hereby, the officers, trustees and members of
CES, CES LLC, BEC and BEC LLC immediately prior to the Effective Time are
fully authorized in the name of their respective entities or otherwise to
take, and shall take, all such lawful and necessary action.
ARTICLE III.
The Closing
Section 3.1 Closing. Unless this Agreement shall have been terminated and
the transactions herein contemplated shall have been abandoned pursuant to
Section 9.1, the closing of the Mergers (the "Closing") shall take place at
the offices of Ropes & Gray, One International Place, Boston, Massachusetts 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 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 CES and BEC shall
mutually agree (the "Closing Date").
ARTICLE IV.
Representations and Warranties of CES
CES represents and warrants to BEC as follows:
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Section 4.1 Organization and Qualification. Except as set forth in Section
4.1 of the CES Disclosure Schedule, (i) CES is a duly organized and lawfully
existing voluntary association organized under M.G.L. c. 182, (ii) each CES
subsidiary (as defined below) is a corporation, limited liability company, or
trust duly organized, validly existing and in good standing under the laws of
its jurisdiction of incorporation or organization, and (iii) each of CES and
each CES subsidiary has all requisite corporate or other power and authority,
and has been duly authorized by all necessary franchises, grants,
authorizations, licenses, permits, easements, consents, certificates, 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. Each of CES and each CES subsidiary is duly qualified or licensed as
a foreign corporation or other entity to do business, and is in good standing,
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 would not, when taken together with all other such failures, have a
material adverse effect on the business, properties, prospects, condition
(financial or otherwise) or results of operations of CES and its subsidiaries
taken as a whole or prevent the consummation of the transactions contemplated
hereby (any such material adverse effect being hereafter referred to as a "CES
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 or other interests 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. Except as set forth in Section 4.2 of the CES
Disclosure Schedule, CES does not directly or indirectly own any equity or
similar interest in, or any interest convertible into or exchangeable or
exercisable for any equity or similar interest in, any corporation,
partnership, to CES's knowledge, joint venture (as defined below), or any other
business association or entity, with respect to which interest CES has invested
or is required to invest $100,000 or more, excluding securities in any publicly
traded company held for investment by CES and comprising less than five percent
of the outstanding stock of such company. Section 4.2 of the CES Disclosure
Schedule sets forth a description as of the date hereof, of all subsidiaries
and joint ventures of CES, including the name of each such entity, the state or
jurisdiction of its incorporation or organization, CES'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 CES Disclosure Schedule,
all of the issued and outstanding shares of capital stock of each CES
subsidiary are validly issued, fully paid, nonassessable and free of preemptive
rights, and are owned, directly or indirectly, by CES 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
CES 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.
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For the purposes of this Agreement, it is understood that all references to the
knowledge of CES mean solely the knowledge, after due inquiry, of the corporate
officers of CES listed on Section 4.2(b) of the CES Disclosure Schedule.
Section 4.3 Capitalization. The authorized shares of CES consist of
50,000,000 CES Common Shares and 320,000 CES Preferred Shares. As of the close
of business on December 4, 1998, there were issued and outstanding 21,533,820
CES Common Shares and 122,000 CES Preferred Shares. As of the close of business
on December 4, 1998, no CES Common Shares were held by CES in its treasury. No
material change in such capitalization has occurred between December 4, 1998
and the date hereof. All of the issued and outstanding common and preferred
shares of CES are validly issued, fully paid, nonassessable and free of
preemptive rights. Except as set forth in Section 4.3 of the CES 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, instruments,
agreements, arrangements or commitments of any character relating to the issued
or unissued common or preferred shares of CES or obligating CES or any of its
subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold, additional common or preferred shares or other equity or beneficial
interests of CES or any of its subsidiaries, or obligating CES or any of its
subsidiaries to repurchase, redeem or otherwise acquire or cancel any such
shares or other interests or to provide funds to or make any investment (in the
form of a loan, capital contribution, guaranty or otherwise) in any other
entity, or obligating CES to grant, extend or enter into any such agreement or
commitment. None of the outstanding common or preferred shares of CES were
issued in violation of the Securities Act of 1933, as amended (the "Securities
Act"), or the securities or blue sky laws of any state or jurisdiction, which
violation would have a CES Material Adverse Effect.
Section 4.4 Organizational Documents. CES has heretofore furnished to BEC a
complete and correct copy of its Amended Declaration of Trust, as amended to
date. Such Declaration of Trust is in full force and effect. CES is not in
violation of any of the provisions of its Declaration of Trust.
Section 4.5 Authority. CES has the legal capacity, power and authority
(including full corporate (or other) power and authority) to execute and
deliver this Agreement and to perform its obligations hereunder, and, subject
to obtaining the CES Shareholders' Approval (as defined in Section 4.18) and
the CES Required Statutory Approvals (as defined in Section 4.6(c)), to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by CES and the consummation by CES of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate (or other) action on the part of CES and, subject to obtaining the
applicable CES Shareholders' Approval, no other corporate (or other)
proceedings on the part of CES are necessary to authorize this Agreement or to
consummate the transactions contemplated hereby. The Board of Trustees of CES
has determined that it is advisable and in the best interests of CES's
shareholders for CES to enter into a business combination with BEC upon the
terms and subject to the conditions of this Agreement, and has unanimously
recommended that CES's shareholders approve and adopt this Agreement and
approve the Mergers. This Agreement has been duly and validly executed and
delivered by CES and, assuming the due authorization, execution and delivery
hereof by the other signatories hereto, constitutes the valid and binding
obligation of CES enforceable against it in accordance with its terms.
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Section 4.6 No Conflict; Statutory Approvals; Compliance.
(a) No Breaches. Except as disclosed in Section 4.6(a) of the CES
Disclosure Schedule, (i) neither CES nor any of its subsidiaries or, to
CES's knowledge, joint ventures has breached, is in default under, or has
received written notice of any breach of or default under, any (x) loan
agreements, indentures, mortgages, pledges, conditional sale or title
retention agreements, security agreements, equipment obligations,
guaranties, standby letters of credit, equipment leases or lease purchase
agreements to which CES or any of its subsidiaries or, to CES's knowledge,
joint ventures is a party or by which it or any of its subsidiaries or, to
CES's knowledge, joint ventures is bound, (y) contracts, agreements,
commitments or other understandings or arrangements to which CES or any of
its subsidiaries or, to CES's knowledge, joint ventures is a party or by
which such entity or any of its respective properties or assets are bound
or affected, but excluding contracts, agreements, commitments or other
understandings or arrangements entered into in the ordinary course of
business and involving, in each case, payments or receipts by CES or any of
its subsidiaries or, to CES's knowledge, joint ventures of less than
$100,000 in any single instance but not more than $300,000 in the aggregate
or (z) agreements which, as of the date hereof, are required to be filed as
"material contracts" with the Securities and Exchange Commission (the
"SEC") pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, and the SEC's rules and regulations thereunder (the "Exchange
Act"), (ii) to CES's knowledge, no other party to any of the agreements,
contracts or other instruments referred to in subclauses (x), (y) or (z) of
clause (i) above or has breached or is in default of any of its obligations
thereunder, and (iii) each of the agreements, contracts and other
instruments referred to in subclauses (x), (y) or (z) of clause (i) above
is in full force and effect, except in any such case for breaches, defaults
or failures to be in full force and effect that have not had and could not
reasonably be expected to have a CES Material Adverse Effect.
(b) No Conflict. The execution and delivery of this Agreement by CES
does 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
(each, a "Lien") upon any of the properties or assets of CES or any of its
subsidiaries or, to CES's knowledge, joint ventures (any such violation,
conflict, breach, default, right of termination, modification, cancellation
or acceleration, loss or creation, a "Violation" with respect to CES (such
term when used in Article V having a correlative meaning with respect to
BEC) pursuant to any provisions of (i) the declaration of trust, articles
of organization, by-laws or similar governing documents of CES or any of
its subsidiaries or, to CES's knowledge, joint ventures, (ii) subject to
obtaining the CES Required Statutory Approvals and the receipt of the CES
Shareholders' Approval, any statute, law, ordinance, rule, regulation,
judgment, decree, order, injunction, writ, permit or license of any
Governmental Authority (as defined in Section 4.6(c)) applicable to CES or
any of its subsidiaries or, to CES's knowledge, 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 4.6(b) of the
CES Disclosure Schedule (the "CES 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 CES or any of its subsidiaries or, to CES's knowledge, joint
ventures, is a party or by which it or any of its properties or assets may
be bound or affected,
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excluding from the foregoing clauses (ii) and (iii) such Violations that
would not have a CES Material Adverse Effect.
(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 CES or the consummation by CES of the transactions contemplated hereby,
the failure of which to obtain, make or give would have a CES Material
Adverse Effect, except as described in Section 4.6(c) of the CES Disclosure
Schedule (the "CES Required Statutory Approvals"), it being understood that
references in this Agreement to "obtaining" such CES 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 4.6(d), Section 4.12,
Section 4.14, Section 4.15 or Section 4.16 of the CES Disclosure Schedule,
or as disclosed in the CES SEC Reports (as defined in Section 4.8), neither
CES nor any of its subsidiaries nor, to CES's knowledge, any joint venture
of CES, 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 which,
individually or in the aggregate, do not have, and, to CES's knowledge, are
not reasonably likely to have, a CES Material Adverse Effect. Except as set
forth in Section 4.6(d) of the CES Disclosure Schedule or in Section 4.16
of the CES Disclosure Schedule, CES and each of its subsidiaries and, to
CES's knowledge, 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 of which the failure to obtain would not, in the aggregate,
have a CES Material Adverse Effect. Except as set forth in Section 4.6(d)
of the CES Disclosure Schedule, each of CES and each of its subsidiaries
and, to CES's knowledge, joint ventures 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 charter 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 possible violations, breaches or defaults which
individually or in the aggregate would not have a CES Material Adverse
Effect.
Section 4.7 All Assets Necessary to Conduct Business. The assets, properties
and rights of CES and its subsidiaries reflected in the most recent CES
Financial Statements (as defined in Section 4.8) comprise all of the material
assets, properties and rights of every type and description, real, personal,
tangible and intangible used by CES in, and, in the reasonable opinion of the
management of CES, necessary to, the conduct of CES's business as currently
conducted.
Section 4.8 Reports and Financial Statements. The filings required to be
made by CES and its subsidiaries since January 1, 1995 under the Securities
Act, the Exchange Act, the Public Utility Holding Company Act of 1935, as
amended (the "1935 Act"), the Federal Power Act (the "Power Act"), the Atomic
Energy Act of 1954, as amended (the "Atomic Energy Act"), and applicable state
public utility laws and regulations have been filed with the SEC, the Federal
Energy Regulatory
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Commission (the "FERC"), the Nuclear Regulatory Commission (the "NRC"), the
Department of Energy (the "DOE") 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, and such filings 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 CES's most recently filed Form 10-K includes each agreement,
contract or instrument (including all amendments thereto) to which CES or any
of its subsidiaries is a party or by which any of them is bound required to be
included thereon (the "CES Material Contracts"). CES has made available to BEC
a true and complete copy of each report, schedule, registration statement and
definitive proxy statement filed by CES with the SEC since January 1, 1995
through the date of this Agreement (as such documents have since the time of
their filing been amended, the "CES SEC Reports"). As of their respective
dates, the CES 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 CES included in the
CES SEC Reports (collectively, the "CES Financial Statements") complied as to
form in all material respects with the applicable rules of the SEC, have been
prepared in accordance with U.S. generally accepted accounting principles
("GAAP") applied on a consistent basis throughout the periods covered thereby
(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 CES as of the dates
thereof and the consolidated results of operations and cash flows for the
periods then ended.
Section 4.9 Absence of Certain Changes or Events. Except as set forth in
Section 4.9 of the CES Disclosure Schedule or as set forth or reflected in the
CES SEC Reports, since December 31, 1997, CES and each of its subsidiaries,
and, to CES's knowledge, each of its joint ventures, 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 a CES Material Adverse Effect; (ii) any amendments
to or changes in the charters or by-laws of CES or any of its subsidiaries;
(iii) any material change by CES in its accounting methods, principles or
practices; (iv) any revaluation by CES of any assets having a value exceeding
in the aggregate $1,000,000; or (v) any sale, lease, transfer, or assignment of
assets (tangible or intangible) of CES or its subsidiaries having a value
exceeding $1,000,000 per instance.
Section 4.10 Litigation. Except as set forth in Section 4.10 of the CES
Disclosure Schedule or as disclosed in the CES SEC Reports, (i) there are no
claims, suits, actions or proceedings, pending or, to the knowledge of CES,
threatened, nor are there, to the knowledge of CES, any investigations or
reviews pending or threatened against, relating to or affecting CES or any of
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 CES or any of its subsidiaries, except for any of the foregoing under
clauses (i) and (ii) that individually or in the aggregate could not reasonably
be expected to have a CES Material Adverse Effect.
Section 4.11 No Undisclosed Liabilities. Except as disclosed in Section 4.11
of the CES Disclosure Schedule, CES has no liabilities (absolute, accrued,
contingent or otherwise), except
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liabilities (i) in the aggregate adequately provided for in CES's audited
balance sheet (including any related notes thereto) for the fiscal year ended
December 31, 1997 contained in CES's Annual Report on Form 10-K (the "1997 CES
Balance Sheet"), (ii) incurred since December 31, 1997 in the ordinary course
of business consistent with past practice, (iii) incurred in connection with
this Agreement, or (iv) which could not reasonably be expected to have a CES
Material Adverse Effect.
Section 4.12 Registration Statement and Joint Proxy Statement. (i) None of
the information supplied or to be supplied by or on behalf of CES 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 Company Common Shares in
the Mergers (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, in the light of the
circumstances under which they were made, not misleading and (ii) the joint
proxy statement, in definitive form, relating to the meeting of CES
shareholders and the meeting of BEC shareholders to be held in connection with
the Mergers (the "Joint Proxy Statement") shall not, at the dates mailed to
shareholders or at the times of the meetings of shareholders to be held in
connection with the Mergers, 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, or omit to state any material fact necessary to
correct any statement in any earlier communication with respect to the
solicitation of proxies for the shareholder meeting which has become false or
misleading. The Registration Statement and the Joint Proxy Statement, insofar
as they relate to CES or any CES 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. If at any time prior to
the Effective Time any event relating to CES or any of its respective
affiliates, officers or directors should be discovered by CES which should be
set forth in an amendment to the Registration Statement or a supplement to the
Joint Proxy Statement, CES shall promptly inform BEC. Notwithstanding the
foregoing, CES makes no representation or warranty with respect to any
information supplied by BEC which is contained in any of the foregoing
documents.
Section 4.13 Restrictions on Business Activities. Except for this Agreement
or as set forth in Section 4.13 of the CES Disclosure Schedule, or for any
agreement, judgment, injunction, order or decree of general industry
application, to the best of CES's knowledge, there is no agreement, judgment,
injunction, order or decree binding upon CES which has or reasonably could be
expected to have the effect of prohibiting or impairing any business practice
of CES, any acquisition of property by CES or the conduct of business by CES as
currently conducted by CES, except for any prohibition or impairment as could
not reasonably be expected to have a CES Material Adverse Effect.
Section 4.14 Tax Matters. "Tax" or "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
Authority, 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 Authority with
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respect to Taxes including, where permitted or required, combined or
consolidated returns for any group of entities that includes CES or any of its
subsidiaries, or BEC or any of its subsidiaries, as the case may be.
Except as set forth in Section 4.14 of the CES Disclosure Schedule:
(a) Filing of Timely Tax Returns. CES and each of its subsidiaries have
filed (or there has been filed on their behalf) all material 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. CES 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. CES 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 CES or any of
its subsidiaries except liens for Taxes not yet due.
(e) Withholding Taxes. CES 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 CES nor any of
its subsidiaries has requested any extension of time within which to file
any Tax Return, which Tax Return has not since been filed.
(g) Waivers of Statute of Limitations. Neither CES 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) No Deficiency. No deficiency for any Taxes has been proposed,
asserted or assessed against CES 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 CES or any of its subsidiaries.
(j) Powers of Attorney. No power of attorney currently in force has been
granted by CES or any of its subsidiaries concerning any Tax matter.
(k) Tax Rulings. Neither CES 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.
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(l) Availability of Tax Returns. CES has made available to BEC complete
and accurate copies covering all open years of (i) all Tax Returns, and any
amendments thereto, filed by CES or any of its subsidiaries, (ii) all audit
reports received from any taxing authority relating to any Tax Return filed
by CES or any of its subsidiaries and (iii) any Closing Agreements entered
into by CES or any of its subsidiaries with any taxing authority.
(m) Tax Sharing Agreements. Neither CES nor any of its subsidiaries is a
party to any agreement relating to allocating or sharing of Taxes.
(n) Code Section 280G. Neither CES 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 CES nor any of its subsidiaries has
any liability for Taxes of any person other than CES 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 4.15 Employee Matters; ERISA. Except as set forth in Section 4.15 of
the CES Disclosure Schedule:
(a) Benefit Plans. There is no employee benefit plan, program, policy,
arrangement or agreement sponsored, contributed to or maintained by CES or
any of its subsidiaries covering employees, former employees, directors,
former directors, trustees or former trustees of CES or any of its
subsidiaries or their beneficiaries, or providing benefits to any person in
respect of services provided to any such entity, including, but not limited
to, any employee benefit plan 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 CES or any of its subsidiaries and any employee thereof
(collectively, the "CES Benefit Plans"). For purposes of this Section 4.15,
"subsidiary" includes any entity which, under Code section 414(b), (c), (m)
or (o), is required to be considered as a single employer with CES. Neither
CES 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 CES or any of its subsidiaries, to any CES 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 CES Financial Statements.
(c) Qualification; Compliance. Each of the CES 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 the applicable remedial amendment period, is pending, and, to
the knowledge of CES, no circumstances exist that could reasonably be
expected to result in the revocation of any such determination. CES and
each of its subsidiaries are in compliance in all material respects with,
and each of the CES Benefit Plans is and has been operated in all material
respects in compliance with, the terms of such CES Benefit Plan and all
applicable
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laws, rules and regulations governing such CES Benefit Plan, including,
without limitation, ERISA and the Code, except where failure to so comply
or operate would not have a CES Material Adverse Effect. Each CES 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 respects with the terms of such CES Benefit Plan and the
requirements of the applicable provisions of the Code or other laws, rules
and regulations required to provide such income tax benefits, except where
failure to so comply would not have a CES Material Adverse Effect. There
are no pending or, to the knowledge of CES, threatened claims under or in
respect of any CES Benefit Plan by or on behalf of any employee, former
employee, director, former director, trustee, former trustee, or
beneficiary thereof, or otherwise involving any CES Benefit Plan (other
than routine claims for benefits).
(d) ERISA Liabilities. No event has occurred and, to the knowledge of
CES, there exists no condition or set of circumstances, that could subject
CES or any of its subsidiaries or, to CES's knowledge, joint ventures, to
any liability (whether to a Governmental Authority, a multiemployer plan or
any other person or entity) arising under or based upon any provision of
Title I, Title II, or Title IV of ERISA.
(e) Documents Made Available. CES has made or will make available to BEC
a true and correct copy of each collective bargaining agreement to which
CES or any of its subsidiaries is a party or under which CES or any of its
subsidiaries has obligations and, with respect to each CES Benefit Plan,
where applicable, (i) such CES Benefit Plan document or, if not in writing,
a written summary of all material terms of such CES Benefit Plan, including
all amendments thereto, and the most recent summary plan description and
any summary and material modifications issued subsequent thereto, (ii) the
three most recent annual reports filed with the IRS, (iii) each related
trust agreement, custodial agreement, insurance contract and similar
agreements, (iv) the most recent determination letter from the IRS with
respect to the qualified status of such CES Benefit Plan and any related
correspondence with the IRS, (v) the most recent actuarial report or
valuation, (vi) the most recently prepared audited financial statements and
any interim financial statements prepared therefor, and (vii) copies of any
notices, letters or other correspondence from the IRS or the U.S.
Department of Labor. To CES's knowledge, in the case of each CES Benefit
Plan, no employee handbook or similar employee communication relating to
such CES Benefit Plan nor any written communication of benefits under such
CES Benefit Plan from the administrator thereof, in either case that has
not been delivered or made available to BEC, describes the terms of such
CES Benefit Plan in a manner that is materially inconsistent with the
documents and summary plan descriptions relating to such CES Benefit Plan
that have been made available pursuant to the foregoing sentence.
(f) No Post-Retirement Benefits. No CES 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 4980B of the Code or
any other laws, rules or regulations. There is no and never has been any
welfare benefit trust or fund that constitutes or is associated with a CES
Benefit Plan that is intended to be exempt from federal income tax under
Section 501(c)(9) of the Code.
(g) Labor Agreements. As of the date hereof, neither CES nor any of its
subsidiaries is a party to any collective bargaining agreement or other
labor agreement with any union or labor organization. To CES's knowledge,
as of the date hereof, there is no current union representation question
involving employees of CES or any of its subsidiaries, nor does CES know of
any activity or proceeding of any labor organization (or representative
thereof) or
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employee group to organize any such employees. Except as disclosed in the
CES SEC Reports or in Section 4.15(g) of the CES Disclosure Schedule, (i)
there is no unfair labor practice, employment discrimination or other
material complaint against CES or any of its subsidiaries pending or, to
CES's knowledge, threatened, (ii) there is no strike, lockout or material
dispute, slowdown or work stoppage pending, or to CES's knowledge,
threatened, against or involving CES or any of its subsidiaries, (iii)
there is no proceeding, claim, suit, action or governmental investigation
pending or, to CES's knowledge, threatened, in respect of which any
director, officer, employee or agent of CES or any of its subsidiaries is
or may be entitled to claim indemnification from CES or such subsidiary
pursuant to their respective charters or by-laws or as provided in the
indemnification agreements listed in Section 4.15(g) of the CES Disclosure
Schedule and (iv) CES is materially in compliance with all federal, state
and local laws with respect to employment, employment practices, labor
relations and safety and health.
Section 4.16 Environmental Protection. Except as set forth in Section 4.16
of the CES Disclosure Schedule or as disclosed in the CES SEC Reports, and
except in such respects as in the aggregate would not have a CES Material
Adverse Effect:
(a) Compliance. CES and each of its subsidiaries and, to CES's
knowledge, each of its joint ventures, are in compliance with all
applicable Environmental Laws (as defined in Section 4.16(f)(ii)); and
neither CES nor any of its subsidiaries or, to CES's knowledge, joint
ventures, has received any communication from any person or Governmental
Authority that alleges that CES or any of its subsidiaries or, to CES's
knowledge, joint ventures, is not in compliance with applicable
Environmental Laws.
(b) Environmental Permits. CES and each of its subsidiaries and, to
CES's knowledge, joint ventures, 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 CES
and its subsidiaries and, to CES's knowledge, each of its joint ventures
are in compliance with all terms and conditions of the Environmental
Permits, and CES reasonably believes that any transfer, renewal or
reapplication for any Environmental Permit required as a result of the
Mergers can be accomplished in the ordinary course of business.
(c) Environmental Claims. There is no Environmental Claim (as defined in
Section 4.16(f)(i)) pending or threatened (i) against CES or any of its
subsidiaries or, to CES's knowledge, joint ventures or (ii) against any
real or personal property or operations CES or any of its subsidiaries or,
to CES's knowledge, joint ventures owns, leases or operates, in whole or in
part.
(d) Releases. There have been no Releases (as defined in Section
4.16(f)(iv)) of any Hazardous Material (as defined in Section 4.16(f)(iii))
that would be reasonably likely to form the basis of any Environmental
Claim against CES or any of its subsidiaries or, to CES's knowledge, joint
ventures.
(e) Predecessors. CES has no knowledge of any Environmental Claim
pending or threatened, or of any Release of Hazardous Materials that could
be reasonably likely to form the basis of any Environmental Claim, in each
case against any person or entity (including, without
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limitation, any predecessor of CES or any of its subsidiaries) whose
liability CES or any of its subsidiaries or, to CES's knowledge, joint
ventures has or may have retained or assumed either contractually or by
operation of law, or against any real or personal property which CES or any
of its subsidiaries or, to CES's knowledge, joint ventures formerly owned,
leased or operated, 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
CES or BEC or any of their respective subsidiaries or joint ventures
(for purposes of this Section 4.16 and Section 5.16, respectively); 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 applicable federal, state, and
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, mixtures, materials, substances or combination of
materials or substances that 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," "radioactive
materials," "radioactive waste" or words of similar import, under any
Environmental Law; and (C) any other chemical, material, substance or
waste, exposure to which is now prohibited, limited or regulated under
any Environmental Law.
(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 4.17 Regulation as a Utility. CES is an exempt public utility
holding company under Section 3(a)(1) of the 1935 Act. Except as set forth in
Section 4.17 of the CES Disclosure Schedule,
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each of Cambridge Electric Light Company, Canal Electric Company, Commonwealth
Electric Company and Commonwealth Gas Company (collectively, the "CES Utility
Subs") is regulated as an electric company or a gas company in the Commonwealth
of Massachusetts and in no other state.
Section 4.18 Vote Required. Assuming that the CES Preferred Shares has been
redeemed pursuant to Section 2.2(b)(ii), the approval of this Agreement and the
transactions contemplated hereby by two-thirds of the votes entitled to be cast
by all holders of CES Common Shares (the "CES Shareholders' Approval") is the
only vote of the holders of any class or series of the shares or capital stock
of CES or any of its subsidiaries required to approve this Agreement, the
Mergers and the other transactions contemplated hereby.
Section 4.19 Opinion of Financial Advisor. CES has received the opinion of
SG Barr Devlin to the effect that, as of the date hereof, the Merger
Consideration is fair from a financial point of view to the holders of CES
Common Shares.
Section 4.20 Ownership of BEC Shares. Except as set forth in Section 4.20 of
the CES Disclosure Schedule, CES does not "beneficially own" (as such term is
defined for purposes of Section 13(d) of the Exchange Act) any BEC Common
Shares or BEC Preferred Shares (as defined in Section 5.3).
Section 4.21 Insurance. Except as set forth in Section 4.21 of the CES
Disclosure Schedule, CES and each of its subsidiaries and, to CES's knowledge,
joint ventures are, and have been continuously since January 1, 1993, insured
with financially responsible insurers in such amounts and against such risks
and losses as is customary in all material respects for companies conducting
the businesses as conducted by CES and its subsidiaries and, to CES's
knowledge, joint ventures during such time period. Except as set forth in
Section 4.21 of the CES Disclosure Schedule, neither CES nor any of its
subsidiaries or, to CES's knowledge, joint ventures has received any notice of
cancellation or termination with respect to any material insurance policy of
CES or any of its subsidiaries or joint ventures. The insurance policies of CES
and each of its subsidiaries and, to CES's knowledge, joint ventures are valid
and enforceable policies in all material respects.
Section 4.22 Change in Control and Severance Payments. Except as set forth
in Section 4.22 of the CES Disclosure Schedule, neither CES nor any of its
subsidiaries or, to CES's knowledge, joint ventures has any plans, programs or
agreements to which it is party, or to which it is subject, pursuant to which
payments (or acceleration or vesting of benefits) may be required upon, or may
become payable directly or indirectly as a result of, a change of control of
CES or otherwise upon termination of employment of any individual with CES or
any of its subsidiaries or, to CES's knowledge, joint ventures.
Section 4.23 Year 2000. Except as identified in Section 4.23 of the CES
Disclosure Schedule and except for such Year 2000 Defects (as hereinafter
defined) which would not have a CES Material Adverse Effect, to the knowledge
of CES, none of the personal property, equipment or assets owned or utilized by
CES or its subsidiaries, including but not limited to computer software,
databases, hardware, controls and peripherals, has characteristics or qualities
that may cause it to fail to (i) operate and produce data on and after January
1, 2000 (including taking into effect that such year is a leap year), or use
data based on time periods on and after January 1, 2000 (including taking into
effect that such year is a leap year), accurately and without delay,
interruption or error relating to the fact that the time at which and the date
on which such software is operating is on or after 12:00 a.m. on January 1,
2000 (including taking into effect that such year is a leap year) and (ii)
accept,
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calculate, process, maintain, store and output, accurately and without delay,
interruption or error, all times or dates, or both, whether before, on or after
12:00 a.m. January 1, 2000 (including taking into effect that such year is a
leap year), and any time periods determined or to be determined based on such
times or date or both (each of the defects described in clauses (i) and (ii), a
"Year 2000 Defect"). Except as identified in Section 4.23 of the CES Disclosure
Schedule and except as would not have a CES Material Adverse Effect, to the
knowledge of CES, none of the property or assets owned or utilized by CES or
its subsidiaries will fail to perform in any material respect or require any
repair, rewrite, conversion or other adaptation because of, or due in any way
to, a Year 2000 Defect. To the knowledge of CES and except as would not have a
CES Material Adverse Effect, no products sold by CES or its subsidiaries
contain a Year 2000 Defect. To the knowledge of CES and except as would not
have a CES Material Adverse Effect, neither CES nor any of its subsidiaries has
any obligations under warranty agreements, service agreements or otherwise to
rectify a Year 2000 Defect of any customer of CES or any of its subsidiaries,
as the case may be, or to indemnify any customer of CES or any of its
subsidiaries in the event CES or any of its subsidiaries experiences a Year
2000 Defect. CES has no knowledge that a vendor or supplier of CES or any of
its subsidiaries may experience a Year 2000 Defect that could reasonably be
expected to have a CES Material Adverse Effect. Section 4.23 of the CES
Disclosure Schedule sets forth the measures CES and its subsidiaries have taken
to identify potential Year 2000 Defects of CES and its subsidiaries and of
customers, suppliers and vendors of CES and its subsidiaries.
Section 4.24 Non-Applicability of Certain Massachusetts Laws. Assuming the
representations of BEC made in Section 5.20 are correct, none of the "control
share acquisition" provisions of M.G.L. c. 110D, the "business combination"
provisions of M.G.L. c.110F or any other takeover related provisions of any
Massachusetts law (or, to the knowledge of CES, any other similar state
statute) or the Amended Declaration of Trust of CES is applicable to the
transactions contemplated by this Agreement (except as set forth in Section
4.24 of the CES Disclosure Schedule).
Section 4.25 Brokers. No broker, investment banker, financial advisor or
other person, other than SG Barr Devlin, the fees and expenses of which will be
paid by CES, is entitled to any broker's, finder's, financial advisor's or
other similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
CES. CES has made available to BEC prior to the execution of this Agreement a
copy of the engagement letter of SG Barr Devlin and, other than as set forth in
such engagement letter, has no understanding or agreement with SG Barr Devlin
regarding any fees or expenses in connection with the transactions contemplated
by this Agreement.
Section 4.26 Operations of Nuclear Power Plant. To CES's knowledge, except
as set forth in Section 4.26 of the CES Disclosure Schedule or as disclosed in
the CES SEC Reports, CES has not received written notice from any Governmental
Authority that it is not in compliance in all material respects with all laws
applicable to the condition or operation of the CES nuclear facility, (the "CES
Nuclear Facility") and CES has not violated any laws, except for violations
that, in the aggregate, do not, and insofar as can reasonably be foreseen,
would not, have a CES Material Adverse Effect. CES has duly filed all reports
and returns required to be filed by it with Governmental Authorities and
obtained governmental permits and licenses and other governmental consents
which are required in connection with the business of owning and/or operating
the CES Nuclear Facility, the failure of which to file and obtain likely would
have a CES Material Adverse Effect. All such permits, licenses and consents are
in full force and effect and no proceedings for the suspension or cancellation
of any of them is pending or threatened.
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ARTICLE V.
Representations and Warranties of BEC
BEC represents and warrants to CES as follows:
Section 5.1 Organization and Qualification. Except as set forth in Section
5.1 of the BEC Disclosure Schedule, (i) BEC is a duly organized and lawfully
existing voluntary association organized under M.G.L. c. 182, (ii) each BEC
subsidiary is a corporation, limited liability company, or trust duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization, and (iii) each of BEC and each
BEC subsidiary has all requisite corporate or other power and authority, and
has been duly authorized by all necessary franchises, grants, authorizations,
licenses, permits, easements, consents, certificates, 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. Each of
BEC and each BEC subsidiary is duly qualified or licensed as a foreign
corporation or other entity to do business, and is in good standing, 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
would not, when taken together with all other such failures, have a material
adverse effect on the business, properties, prospects, condition (financial or
otherwise) or results of operations of BEC and its subsidiaries taken as a
whole or prevent the consummation of the transactions contemplated hereby (any
such material adverse effect being hereafter referred to as a "BEC Material
Adverse Effect").
Section 5.2 Subsidiaries. Except as set forth in Section 5.2 of the BEC
Disclosure Schedule, BEC does not directly or indirectly own any equity or
similar interest in, or any interest convertible into or exchangeable or
exercisable for any equity or similar interest in, any corporation,
partnership, to BEC's knowledge, joint venture, or any other business
association or entity, with respect to which interest BEC has invested or is
required to invest $100,000 or more, excluding securities in any publicly
traded company held for investment by BEC and comprising less than five percent
of the outstanding stock of such company. Section 5.2 of the BEC Disclosure
Schedule sets forth a description as of the date hereof, of all subsidiaries
and joint ventures of BEC, including the name of each such entity, the state or
jurisdiction of its incorporation or organization, BEC'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 5.2 of the BEC Disclosure Schedule,
all of the issued and outstanding shares of capital stock of each BEC
subsidiary are validly issued, fully paid, nonassessable and free of preemptive
rights, and are owned, directly or indirectly, by BEC 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
BEC Material Adverse Effect. For purposes of this Agreement, it is understood
that all references to the knowledge of BEC mean solely the knowledge, after
due inquiry, of the corporate officers of BEC listed on Section 5.2(b) of the
BEC Disclosure Schedule.
Section 5.3 Capitalization. The authorized shares of BEC consist of
100,000,000 BEC Common Shares and 10,000,000 preferred shares, $1.00 par value
per share (the "BEC Preferred
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Shares"). As of the close of business on November 16, 1998, there were issued
and outstanding 47,184,073 BEC Common Shares and no BEC Preferred Shares. As of
the close of business on November 16, 1998, no BEC Common Shares were held by
BEC in its treasury. No material change in such capitalization has occurred
between November 16, 1998 and the date hereof. All of the issued and
outstanding common and preferred shares of BEC are validly issued, fully paid,
nonassessable and free of preemptive rights. Except as set forth in Section 5.3
of the BEC 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,
instruments, agreements, arrangements or commitments of any character relating
to the issued or unissued common or preferred shares of BEC or obligating BEC
or any of its subsidiaries to issue, deliver or sell, or cause to be issued,
delivered or sold, additional common or preferred shares or other equity or
beneficial interests of BEC or any of its subsidiaries, or obligating BEC or
any of its subsidiaries to repurchase, redeem or otherwise acquire or cancel
any such shares or other interests or to provide funds to or make any
investment (in the form of a loan, capital contribution, guaranty or otherwise)
in any other entity, or obligating BEC to grant, extend or enter into any such
agreement or commitment. None of the outstanding common or preferred shares of
BEC were issued in violation of the Securities Act or the securities or blue
sky laws of any state or jurisdiction, which violation would have a BEC
Material Adverse Effect.
Section 5.4 Organizational Documents. BEC has heretofore furnished to CES a
complete and correct copy of its Declaration of Trust and by-laws, as amended
to date. Such Declaration of Trust and by-laws are in full force and effect.
BEC is not in violation of any of the provisions of its Declaration of Trust or
by-laws.
Section 5.5 Authority. BEC has the legal capacity, power and authority
(including full corporate (or other) power and authority) to execute and
deliver this Agreement and to perform its obligations hereunder, and, subject
to obtaining the BEC Shareholders' Approval (as defined in Section 5.18) and
the BEC Required Statutory Approvals (as defined in Section 5.6(c)), to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by BEC and the consummation by BEC of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate (or other) action on the part of BEC and, subject to obtaining the
applicable BEC Shareholders' Approval, no other corporate (or other)
proceedings on the part of BEC are necessary to authorize this Agreement or to
consummate the transactions contemplated hereby. The Board of Trustees of BEC
has determined that it is advisable and in the best interests of BEC's
shareholders for BEC to enter into a business combination with CES upon the
terms and subject to the conditions of this Agreement, and has unanimously
recommended that BEC's shareholders approve and adopt this Agreement and
approve the Mergers. This Agreement has been duly and validly executed and
delivered by BEC and, assuming the due authorization, execution and delivery
hereof by the other signatories hereto, constitutes the valid and binding
obligation of BEC enforceable against it in accordance with its terms.
Section 5.6 No Conflict; Statutory Approvals; Compliance.
(a) No Breaches. Except as disclosed in Section 5.6(a) of the BEC
Disclosure Schedule, (i) neither BEC, nor any of its subsidiaries or, to
BEC's knowledge, joint ventures has breached, is in default under, or has
received written notice of any breach of or default under, any (x) loan
agreements, indentures, mortgages, pledges, conditional sale or title
retention agreements, security agreements, equipment obligations,
guaranties, standby letters of credit, equipment
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leases or lease purchase agreements to which BEC or any of its subsidiaries
or, to BEC's knowledge, joint ventures is a party or by which it or any of
its subsidiaries or, to BEC's knowledge, joint ventures is bound, (y)
contracts, agreements, commitments or other understandings or arrangements
to which BEC or any of its subsidiaries or, to BEC's knowledge, joint
ventures is a party or by which such entity or any of its respective
properties or assets are bound or affected, but excluding contracts,
agreements, commitments or other understandings or arrangements entered
into in the ordinary course of business and involving, in each case,
payments or receipts by BEC or any of its subsidiaries or, to BEC's
knowledge, joint ventures of less than $100,000 in any single instance but
not more than $300,000 in the aggregate or (z) agreements which, as of the
date hereof, are required to be filed as "material contracts" with the SEC
pursuant to the requirements of the Exchange Act, (ii) to BEC's knowledge,
no other party to any of the agreements, contracts or other instruments
referred to in subclauses (x), (y) or (z) of clause (i) above has breached
or is in default of any of its obligations thereunder, and (iii) each of
the agreements, contracts and other instruments referred to in subclauses
(x), (y) or (z) of clause (i) above is in full force and effect, except in
any such case for breaches, defaults or failures to be in full force and
effect that have not had and could not reasonably be expected to have a BEC
Material Adverse Effect.
(b) No Conflict. The execution and delivery of this Agreement by BEC
does not, and the consummation of the transactions contemplated hereby will
not, result in a Violation pursuant to any provisions of (i) the
declaration of trust, articles of organization, by-laws or similar
governing documents of BEC or any of its subsidiaries or, to BEC's
knowledge, joint ventures, (ii) subject to obtaining the BEC Required
Statutory Approvals and the receipt of the BEC Shareholders' Approval, any
statute, law, ordinance, rule, regulation, judgment, decree, order,
injunction, writ, permit or license of any Governmental Authority
applicable to BEC or any of its subsidiaries or, to BEC's knowledge, 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 5.6(b) of the BEC Disclosure Schedule (the "BEC 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 BEC or any of its subsidiaries
or, to BEC's knowledge, 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 (ii) and (iii) such Violations that would not have a BEC
Material Adverse Effect.
(c) Statutory Approvals. 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
BEC or the consummation by BEC of the transactions contemplated hereby, the
failure of which to obtain, make or give would have a BEC Material Adverse
Effect, except as described in Section 5.6(c) of the BEC Disclosure
Schedule (the "BEC Required Statutory Approvals"), it being understood that
references in this Agreement to "obtaining" such BEC 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 5.6(d), Section 5.12,
Section 5.14, Section 5.15 or Section 5.16 of the BEC Disclosure Schedule,
or as disclosed in the BEC SEC Reports (as defined in Section 5.8), neither
BEC nor any of its subsidiaries nor, to BEC's knowledge, any joint venture
of BEC, 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,
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statute, order, rule, regulation, ordinance or judgment (including, without
limitation, any applicable environmental law, ordinance or regulation) of
any Governmental Authority, except for violations which, individually or in
the aggregate, do not have, and, to BEC's knowledge, are not reasonably
likely to have, a BEC Material Adverse Effect. Except as set forth in
Section 5.6(d) of the BEC Disclosure Schedule or in Section 5.16 of the BEC
Disclosure Schedule, BEC and each of its subsidiaries and, to BEC's
knowledge, 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 of which the failure to obtain would not, in the aggregate, have a
BEC Material Adverse Effect. Except as set forth in Section 5.6(d) of the
BEC Disclosure Schedule, each of BEC and each of its subsidiaries and, to
BEC's knowledge, joint ventures 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 charter 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 possible violations, breaches or defaults which
individually or in the aggregate would not have a BEC Material Adverse
Effect.
Section 5.7 All Assets Necessary to Conduct the Business. The assets,
properties and rights of BEC and its subsidiaries reflected in the most recent
BEC Financial Statements (as defined in Section 5.8) comprise all of the
material assets, properties and rights of every type and description, real,
personal, tangible and intangible used by BEC in, and, in the reasonable
opinion of the management of BEC, necessary to, the conduct of BEC's business
as currently conducted.
Section 5.8 Reports and Financial Statements. The filings required to be
made by BEC and its subsidiaries since January l, 1995 under the Securities
Act, the Exchange Act, the 1935 Act, the Power Act, the Atomic Energy Act and
applicable state public utility laws and regulations have been filed with the
SEC, the FERC, the NRC, the DOE 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, and such filings 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 BEC's most recently filed Form 10-K includes each agreement,
contract or instrument (including all amendments thereto) to which BEC or any
of its subsidiaries is a party or by which any of them is bound required to be
included thereon (the "BEC Material Contracts"). BEC has made available to CES
a true and complete copy of each report, schedule, registration statement and
definitive proxy statement filed by BEC with the SEC since January l, 1995
through the date of this Agreement (as such documents have since the time of
their filing been amended, the "BEC SEC Reports"). As of their respective
dates, the BEC 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 BEC included in the
BEC SEC Reports (collectively, the "BEC Financial Statements") complied as to
form in all material respects with the applicable rules of the SEC, have been
prepared in accordance with GAAP applied on a consistent basis throughout the
periods covered thereby (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 BEC
as of the dates thereof and the consolidated results of operations and cash
flows for the periods then ended.
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Section 5.9 Absence of Certain Changes or Events. Except as set forth in
Section 5.9 of the BEC Disclosure Schedule or as set forth or reflected in the
BEC SEC Reports, since December 31, 1997, BEC and each of its subsidiaries,
and, to BEC's knowledge, each of its joint ventures, 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 a BEC Material Adverse Effect; (ii) any amendments
to or changes in the charters or by-laws of BEC or any of its subsidiaries;
(iii) any material change by BEC in its accounting methods, principles or
practices; (iv) any revaluation by BEC of any assets having a value exceeding
in the aggregate $1,000,000; or (v) any sale, lease, transfer, or assignment of
assets (tangible or intangible) of BEC or its subsidiaries having a value
exceeding $1,000,000 per instance.
Section 5.10 Litigation. Except as set forth in Section 5.10 of the BEC
Disclosure Schedule, (i) there are no claims, suits, actions or proceedings,
pending or, to the knowledge of BEC, threatened, nor are there, to the
knowledge of BEC, any investigations or reviews pending or threatened against,
relating to or affecting BEC or any of 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 BEC or any of its subsidiaries,
except for any of the foregoing under clauses (i) and (ii) that individually or
in the aggregate could not reasonably be expected to have a BEC Material
Adverse Effect.
Section 5.11 No Undisclosed Liabilities. Except as disclosed in Section 5.11
of the BEC Disclosure Schedule or as disclosed in the BEC SEC Reports, BEC has
no liabilities (absolute, accrued, contingent or otherwise), except liabilities
(i) in the aggregate adequately provided for in BEC's audited balance sheet
(including any related notes thereto) for the fiscal year ended December 31,
1997 contained in BEC's Annual Report on Form 10-K (the "1997 BEC Balance
Sheet"), (ii) incurred since December 31, 1997 in the ordinary course of
business consistent with past practice, (iii) incurred in connection with this
Agreement, or (iv) which could not reasonably be expected to have a BEC
Material Adverse Effect.
Section 5.12 Registration Statement and Joint Proxy Statement. (i) None of
the information supplied or to be supplied by or on behalf of BEC for inclusion
or incorporation by reference in 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, in
the light of the circumstances under which they were made, not misleading and
(ii) the Joint Proxy Statement shall not, at the dates mailed to shareholders
or at the times of the meetings of shareholders to be held in connection with
the Mergers, 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, or omit to state any material fact necessary to correct
any statement in any earlier communication with respect to the solicitation of
proxies for the shareholder meeting which has become false or misleading. The
Registration Statement and the Joint Proxy Statement, insofar as they relate to
BEC or any BEC 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. If at any time prior to the Effective
Time any event relating to BEC or any of its respective affiliates, officers or
directors should be discovered by BEC which should be set forth in an amendment
to the Registration Statement or a supplement to the
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Joint Proxy Statement, BEC shall promptly inform CES. Notwithstanding the
foregoing, BEC makes no representation or warranty with respect to any
information supplied by CES which is contained in any of the foregoing
documents.
Section 5.13 Restrictions on Business Activities. Except for this Agreement,
or as set forth in Section 5.13 of the BEC Disclosure Schedule, or for any
agreement, judgment, injunction, order or decree of general industry
application, to the best of BEC's knowledge, there is no agreement, judgment,
injunction, order or decree binding upon BEC which has or reasonably could be
expected to have the effect of prohibiting or impairing any business practice
of BEC, any acquisition of property by BEC or the conduct of business by BEC as
currently conducted by BEC, except for any prohibition or impairment as could
not reasonably be expected to have a BEC Material Adverse Effect.
Section 5.14 Tax Matters. Except as set forth in Section 5.14 of the BEC
Disclosure Schedule:
(a) Filing of Timely Tax Returns. BEC and each of its subsidiaries have
filed (or there has been filed on their behalf) all material 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. BEC 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. BEC 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 BEC or any of
its subsidiaries except liens for Taxes not yet due.
(e) Withholding Taxes. BEC 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 BEC nor any of
its subsidiaries has requested any extension of time within which to file
any Tax Return, which Tax Return has not since been filed.
(g) Waivers of Statute of Limitations. Neither BEC 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) No Deficiency. No deficiency for any Taxes has been proposed,
asserted or assessed against BEC 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 BEC or any of its subsidiaries.
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(j) Powers of Attorney. No power of attorney currently in force has been
granted by BEC or any of its subsidiaries concerning any Tax matter.
(k) Tax Rulings. Neither BEC nor any of its subsidiaries has received a
Tax Ruling or entered into a Closing Agreement with any taxing authority
that would have a continuing adverse effect after the Closing Date.
(l) Availability of Tax Returns. BEC has made available to CES complete
and accurate copies comprising all open years of (i) all Tax Returns, and
any amendments thereto, filed by BEC or any of its subsidiaries, (ii) all
audit reports received from any taxing authority relating to any Tax Return
filed by BEC or any of its subsidiaries and (iii) any Closing Agreements
entered into by BEC or any of its subsidiaries with any taxing authority.
(m) Tax Sharing Agreements. Neither BEC nor any of its subsidiaries is a
party to any agreement relating to allocating or sharing of Taxes.
(n) Code Section 280G. Neither BEC 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 BEC nor any of its subsidiaries has
any liability for Taxes of any person other than BEC 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 5.15 Employee Matters; ERISA. Except as set forth in Section 5.15 of
the BEC Disclosure Schedule:
(a) Benefit Plans. There is no employee benefit plan, program, policy,
arrangement or agreement sponsored, contributed to or maintained by BEC or
any of its subsidiaries covering employees, former employees, directors,
former directors, trustees or former trustees of BEC or any of its
subsidiaries or their beneficiaries, or providing benefits to any person 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 ERISA,
and any severance or change in control agreement, plan, policy or program
between BEC or any of its subsidiaries and any employee thereof
(collectively, the "BEC Benefit Plans"). For purposes of this Section 5.15,
"subsidiary" includes any entity which, under Code section 414(b), (c), (m)
or (o), is required to be considered as a single employer with BEC. Neither
BEC 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 BEC or any of its subsidiaries, to any BEC 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 BEC Financial Statements.
(c) Qualification; Compliance. Each of the BEC Benefit Plans intended to
be "qualified" within the meaning of Section 401(a) of the Code has been
determined by the IRS to be so qualified or an application for such a
determination, which was filed before the expiration of the
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applicable remedial amendment period, is pending, and, to the knowledge of
BEC, no circumstances exist that could reasonably be expected to result in
the revocation of any such determination. BEC and each of its subsidiaries
are in compliance in all material respects with, and each of the BEC
Benefit Plans is and has been operated in all material respects in
compliance with, the terms of such BEC Benefit Plan and all applicable
laws, rules and regulations governing such BEC Benefit Plan, including,
without limitation, ERISA and the Code, except where failure to so comply
or operate would not have a BEC Material Adverse Effect. Each BEC 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 respects with the terms of such BEC Benefit Plan and the
requirements of the applicable provisions of the Code or other laws, rules
and regulations required to provide such income tax benefits, except where
failure to so comply would not have a BEC Material Adverse Effect. There
are no pending or, to the knowledge of BEC, threatened claims under or in
respect of any BEC Benefit Plan by or on behalf of any employee, former
employee, director, former director, trustee, former trustee or beneficiary
thereof, or otherwise involving any BEC Benefit Plan (other than routine
claims for benefits).
(d) ERISA Liabilities. No event has occurred and, to the knowledge of
BEC, there exists no condition or set of circumstances, that could subject
BEC or any of its subsidiaries or, to BEC's knowledge, joint ventures to
any liability (whether to a Governmental Authority, a multiemployer plan or
any other person or entity) arising under or based upon any provision of
Title I, Title II, or Title IV of ERISA.
(e) Documents Made Available. BEC has made or will make available to CES
a true and correct copy of each collective bargaining agreement to which
BEC or any of its subsidiaries is a party or under which BEC or any of its
subsidiaries has obligations and, with respect to each BEC Benefit Plan,
where applicable, (i) such BEC Benefit Plan document or, if not in writing,
a written summary of all material terms of such BEC Benefit Plan, including
all amendments thereto, and the most recent summary plan description and
any summary and material modifications issued subsequent thereto, (ii) the
three most recent annual reports filed with the IRS, (iii) each related
trust agreement, custodial agreement, insurance contract, and similar
agreements, (iv) the most recent determination letter from the IRS with
respect to the qualified status of such BEC Benefit Plan and any related
correspondence with the IRS, (v) the most recent actuarial report or
valuation, (vi) the most recently prepared audited financial statements and
any interim financial statements prepared therefor, and (vii) copies of any
notices, letters or other correspondence from the IRS or the U.S.
Department of Labor. To BEC's knowledge, in the case of each BEC Benefit
Plan, no employee handbook or similar employee communication relating to
such BEC Benefit Plan nor any written communication of benefits under such
BEC Benefit Plan from the administrator thereof, in either case that has
not been delivered or made available to CES, describes the terms of such
BEC Benefit Plan in a manner that is materially inconsistent with the
documents and summary plan descriptions relating to such BEC Benefit Plan
that have been made available pursuant to the foregoing sentence.
(f) No Post-Retirement Benefits. No BEC 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 4980B of the Code or
any other laws, rules or regulations. There is no and never has been any
welfare benefit trust or fund that constitutes or is associated with a BEC
Benefit Plan that is intended to be exempt from federal income tax under
Section 501(c)(9) of the Code.
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(g) Labor Agreements. As of the date hereof, neither BEC nor any of its
subsidiaries is a party to any collective bargaining agreement or other
labor agreement with any union or labor organization. To BEC's knowledge,
as of the date hereof, there is no current union representation question
involving employees of BEC or any of its subsidiaries, nor does BEC 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 BEC SEC Reports or in Section 5.15(g) of the BEC
Disclosure Schedule, (i) there is no unfair labor practice, employment
discrimination or other material complaint against BEC or any of its
subsidiaries pending or, to BEC's knowledge, threatened, (ii) there is no
strike, lockout or material dispute, slowdown or work stoppage pending, or
to BEC's knowledge, threatened, against or involving BEC or any of its
subsidiaries, (iii) there is no proceeding, claim, suit, action or
governmental investigation pending or, to BEC's knowledge, threatened, in
respect of which any director, officer, employee or agent of BEC or any of
its subsidiaries is or may be entitled to claim indemnification from BEC or
such subsidiary pursuant to their respective charters or by-laws or as
provided in the indemnification agreements listed in Section 5.15(g) of the
BEC Disclosure Schedule and (iv) BEC is materially in compliance with all
federal, state and local laws with respect to employment, employment
practices, labor relations and safety and health.
Section 5.16 Environmental Protection. Except as set forth in Section 5.16
of the BEC Disclosure Schedule or as disclosed in the BEC SEC Reports, and
except in such respects as in the aggregate would not have a BEC Material
Adverse Effect:
(a) Compliance. BEC and each of its subsidiaries and, to BEC's
knowledge, each of its joint ventures, are in compliance with all
applicable Environmental Laws; and neither BEC nor any of its subsidiaries
or, to BEC's knowledge, joint ventures, has received any communication from
any person or Governmental Authority that alleges that BEC or any of its
subsidiaries or, to BEC's knowledge, joint ventures is not in compliance
with applicable Environmental Laws.
(b) Environmental Permits. BEC and each of its subsidiaries and, to
BEC's knowledge, joint ventures have obtained or have applied for all
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 BEC and its subsidiaries and, to
BEC's knowledge, each of its joint ventures are in compliance with all
terms and conditions of the Environmental Permits, and BEC reasonably
believes that any transfer, renewal or reapplication for any Environmental
Permit required as a result of the Mergers can be accomplished in the
ordinary course of business.
(c) Environmental Claims. There is no Environmental Claim pending or
threatened (i) against BEC or any of its subsidiaries or, to BEC's
knowledge, joint ventures, or (ii) against any real or personal property or
operations BEC or any of its subsidiaries or, to BEC's knowledge, joint
ventures owns, leases or operates, in whole or in part.
(d) Releases. There have been no Releases of any Hazardous Material that
would be reasonably likely to form the basis of any Environmental Claim
against BEC or any of its subsidiaries or, to BEC's knowledge, joint
ventures.
(e) Predecessors. BEC has no knowledge of any Environmental Claim
pending or threatened, or of any Release of Hazardous Materials that could
be reasonably likely to form the
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basis of any Environmental Claim, in each case against any person or entity
(including, without limitation, any predecessor of BEC or any of its
subsidiaries) whose liability BEC or any of its subsidiaries or, to BEC's
knowledge, joint ventures has or may have retained or assumed either
contractually or by operation of law, or against any real or personal
property which BEC or any of its subsidiaries or, to BEC's knowledge, joint
ventures formerly owned, leased or operated, in whole or in part.
Section 5.17 Regulation as a Utility. BEC is an exempt public utility
holding company under Section 3(a)(1) of the 1935 Act. Each of BEC and each of
Boston Edison Company and Harbor Electric Energy Company is regulated as a
public utility in the Commonwealth of Massachusetts and in no other state.
Section 5.18 Vote Required. The approval of this Agreement and the
transactions contemplated hereby by two-thirds of the votes entitled to be cast
by all holders of BEC Common Shares (the "BEC Shareholders' Approval") is the
only vote of the holders of any class or series of the shares or capital stock
of BEC or any of its subsidiaries required to approve this Agreement, the
Mergers and the other transactions contemplated hereby.
Section 5.19 Opinion of Financial Advisor. BEC has received the opinion of
Goldman, Sachs & Co. to the effect that, as of the date hereof, the Merger
Consideration is fair from a financial point of view to the holders of BEC
Common Shares.
Section 5.20 Ownership of CES Shares. Except as set forth in Section 5.20 of
the BEC Disclosure Schedule, BEC does not "beneficially own" (as such term is
defined for purposes of Section 13(d) of the Exchange Act) any CES Common
Shares or CES Preferred Shares.
Section 5.21 Insurance. Except as set forth in Section 5.21 of the BEC
Disclosure Schedule, BEC and each of its subsidiaries and, to BEC's knowledge,
joint ventures are, and have been continuously since January 1, 1993, insured
with financially responsible insurers in such amounts and against such risks
and losses as is customary in all material respects for companies conducting
the businesses as conducted by BEC and its subsidiaries and, to BEC's
knowledge, joint ventures during such time period. Except as set forth in
Section 5.21 of the BEC Disclosure Schedule, neither BEC nor any of its
subsidiaries or, to BEC's knowledge, joint ventures has received any notice of
cancellation or termination with respect to any material insurance policy of
BEC or any of its subsidiaries or joint ventures. The insurance policies of BEC
and each of its subsidiaries and, to BEC's knowledge, joint ventures are valid
and enforceable policies in all material respects.
Section 5.22 Change in Control and Severance Payments. Except as set forth
in Section 5.22 of the BEC Disclosure Schedule, neither BEC nor any of its
subsidiaries or, to BEC's knowledge, joint ventures has any plans, programs or
agreements to which it is party, or to which it is subject, pursuant to which
payments (or acceleration or vesting of benefits) may be required upon, or may
become payable directly or indirectly as a result of, a change of control of
BEC or otherwise upon termination of employment of any individual with BEC or
any of its subsidiaries or, to BEC's knowledge, joint ventures.
Section 5.23 Year 2000. Except as identified in Section 5.23 of the BEC
Disclosure Schedule and except for such Year 2000 Defects which would not have
a BEC Material Adverse Effect, to the knowledge of BEC, none of the personal
property, equipment or assets owned or utilized by BEC or its subsidiaries,
including but not limited to computer software, databases,
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hardware, controls and peripherals, has characteristics or qualities that may
constitute a Year 2000 Defect. Except as identified in Section 5.23 of the BEC
Disclosure Schedule and except as would not have a BEC Material Adverse Effect,
to the knowledge of BEC, none of the property or assets owned or utilized by
BEC or its subsidiaries will fail to perform in any material respect or require
any repair, rewrite, conversion or other adaptation because of, or due in any
way to, a Year 2000 Defect. To the knowledge of BEC and except as would not
have a BEC Material Adverse Effect, no products sold by BEC or its subsidiaries
contain a Year 2000 Defect. To the knowledge of BEC and except as would not
have a BEC Material Adverse Effect, neither BEC nor any of its subsidiaries has
any obligations under warranty agreements, service agreements or otherwise to
rectify a Year 2000 Defect of any customer of BEC or any of its subsidiaries,
as the case may be, or to indemnify any customer of BEC or any of its
subsidiaries in the event BEC or any of its subsidiaries experiences a Year
2000 Defect. BEC has no knowledge that a vendor or supplier of BEC or any of
its subsidiaries may experience a Year 2000 Defect that could reasonably be
expected to have a BEC Material Adverse Effect. Section 5.23 of the BEC
Disclosure Schedule sets forth the measures BEC and its subsidiaries have taken
to identify potential Year 2000 Defects of BEC and its subsidiaries and of
customers, suppliers and vendors of BEC and its subsidiaries.
Section 5.24 Non-Applicability of Certain Massachusetts Laws. Assuming the
representations of CES made in Section 4.20 are correct, none of the "control
share acquisition" provisions of M.G.L. c. 110D, the "business combination"
provisions of M.G.L. c. 110F or any other takeover related provisions of any
Massachusetts law (or, to the knowledge of BEC, any other similar state
statute) or the Amended and Restated Declaration of Trust of BEC is applicable
to the transactions contemplated by this Agreement (except as set forth in
Section 5.24 of the BEC Disclosure Schedule).
Section 5.25 Brokers. No broker, investment banker, financial advisor or
other person, other than Goldman, Sachs & Co., the fees and expenses of which
will be paid by BEC, is entitled to any broker's, finder's, financial advisor's
or other similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
BEC. BEC has made available to CES prior to the execution of this Agreement a
copy of the engagement letter of Goldman, Sachs & Co., and, other than as set
forth in such engagement letter, has no understanding or agreement with
Goldman, Sachs & Co. regarding any fees or expenses in connection with the
transactions contemplated by this Agreement.
Section 5.26 Operations of Nuclear Power Plant. To BEC's knowledge, except
as set forth in Section 5.26 of the BEC Disclosure Schedule or as disclosed in
the BEC SEC Reports, BEC has not received written notice from any Governmental
Authority that it is not in compliance in all material respects with all laws
applicable to the condition or operation of the Pilgrim nuclear facility, (the
"BEC Nuclear Facility") and BEC has not violated any laws, except for
violations that, in the aggregate, do not, and insofar as can reasonably be
foreseen, would not, have a BEC Material Adverse Effect. BEC has duly filed all
reports and returns required to be filed by it with Governmental Authorities
and obtained governmental permits and licenses and other governmental consents
which are required in connection with the business of owning and/or operating
the BEC Nuclear Facility, the failure of which to file and obtain likely would
have a BEC Material Adverse Effect. All such permits, licenses and consents are
in full force and effect and no proceedings for the suspension or cancellation
of any of them is pending or threatened.
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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, BEC and CES each
agrees as follows, each as to itself and as to each of its respective
subsidiaries, except as expressly contemplated or permitted in this Agreement,
or to the extent that 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 in compliance with applicable laws and regulations
to the extent that failure to be in compliance would constitute a BEC
Material Adverse Effect or a CES Material Adverse Effect, as the case may
be, 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 or planned programs relating to down-sizing, re-engineering and
similar matters currently in force, keep available the services of their
present employees as a group, (iii) maintain and keep material properties
and assets in as good repair and condition as at present, subject to
ordinary wear and tear, and (iv) maintain supplies and inventories in
quantities consistent with past practice. Except as set forth in Section
6.1(a) of the CES Disclosure Schedule or the BEC Disclosure Schedule,
respectively, or except as otherwise expressly provided in this Article VI,
neither party shall, nor shall either party permit any of its subsidiaries
to, enter into a new line of business, or make any change in a line of
business it engaged in as of the date hereof involving any material
investment of assets or resources or any material exposure to liability or
loss, in the case of CES, to CES and its subsidiaries taken as a whole, and
in the case of BEC, to BEC and its subsidiaries taken as a whole, or take
any action that would make it materially less likely that BEC can obtain
the BEC Required Statutory Approvals or that CES can obtain the CES
Required Statutory Approvals.
(b) Dividends.
(i) Except as set forth in Section 6.1(b) of the CES Disclosure
Schedule or the BEC Disclosure Schedule, respectively, neither party
shall, nor shall either party permit any of its subsidiaries to,
declare, set aside, make or pay any dividends on or other distributions
(whether in cash, shares or property or any combination thereof) in
respect of any of its shares or capital stock other than (A) dividends
by a wholly-owned subsidiary to CES or BEC, as the case may be, or
another wholly-owned subsidiary, (B) regular dividends on CES Common
Shares, with usual record and payment dates in any fiscal quarter,
which quarterly dividends shall be consistent with past practices
(including increases consistent with past practice), (C) regular
dividends on BEC Common Shares, with usual record and payment dates in
any fiscal year, which quarterly dividends shall be consistent with
past practices (including increases consistent with past practice), (D)
dividends required to be paid on any BEC Preferred Shares or preferred
stock of any of BEC's subsidiaries in accordance with the terms
thereof, or dividends required to be paid on any CES Preferred Shares
or preferred stock of any of CES's subsidiaries in accordance with the
terms thereof. Neither party shall, nor shall either party permit any
of its subsidiaries to (i) split, combine or reclassify any of its
shares or the capital stock of any subsidiary or issue or authorize or
propose the issuance of
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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 (ii)
amend the terms or change the period of exercisability of, redeem,
repurchase or otherwise acquire any of its shares or the capital stock
of any subsidiary, or any option, warrant or right, directly or
indirectly, to acquire its shares or the capital stock of any
subsidiary, other than (A) redemptions, repurchases and other
acquisitions of shares 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, (B) in connection with refunding of
securities with preferred stock, debt or tax preference preferred
securities at a lower cost of funds or in connection with intercompany
purchases of capital stock, (C) mandatory redemptions (including
optional sinking fund payments) of preferred stock, (D) open market
purchases of BEC Common Shares or CES Common Shares pursuant to any
previously announced share repurchase programs, and (E) the redemption
by CES of all outstanding CES Preferred Shares as provided in Section
2.2(b)(ii).
(ii) Each of BEC and CES shall coordinate with the other regarding
the declaration and payment of dividends in respect of BEC Common
Shares and CES Common Shares and the record dates and payment dates
relating thereto, it being the intention of the parties hereto that no
holder of BEC Common Shares or CES Common Shares shall receive two
dividends, or fail to receive one dividend, for any single calendar
quarter with respect to its BEC Common Shares or CES Common Shares, as
the case may be, and/or any Company Common Shares any such holder
receives in exchange therefor pursuant to the Mergers.
(c) Issuance of Securities. Neither party shall, nor shall either party
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 of its shares or any shares of its 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, or any other ownership interest (including, without limitation,
any phantom interest), other than
(i) in the case of BEC and its subsidiaries, (a) in connection with
refunding of BEC Preferred Shares or preferred stock of any of BEC's
subsidiaries with preferred stock or tax preference preferred
securities at a lower cost of funds or (b) of up to 1,500,000 BEC
Common Shares, including shares to be issued pursuant to all plans,
programs or arrangements existing on the date hereof providing for the
issuance of BEC Common Shares; and
(ii) in the case of CES and its subsidiaries, (a) in connection with
refunding of CES Preferred Shares or preferred stock of any of CES's
subsidiaries with preferred stock or tax preference preferred
securities at a lower cost of funds or (b) of up to 1,000,000 CES
Common Shares, including shares to be issued pursuant to all plans,
programs or arrangements existing on the date hereof providing for the
issuance of CES Common Shares.
(iii) The parties shall promptly furnish to each other such
information as may be reasonably requested (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
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connection with the issuance of securities as contemplated by this
Section 6.1(c), subject to obtaining customary indemnities.
(d) Charter Documents. Neither party shall, and neither party shall
permit any of its subsidiaries to, amend or propose to amend its respective
declaration of trust, articles of organization, by-laws or regulations, or
similar organic documents, as the case may be, except as contemplated
herein.
(e) Acquisitions. Except as (i) disclosed in Section 6.1(e) of the CES
Disclosure Schedule or the BEC Disclosure Schedule, (ii) for acquisitions
by BEC and its affiliates of less than $5 million in the aggregate that are
not set forth in Section 6.1(e) of the BEC Disclosure Schedule, and (iii)
for acquisitions by CES and its affiliates of less than $5 million in the
aggregate that are not set forth in Section 6.1(e) of the CES Disclosure
Schedule, neither party shall, nor shall either party permit any of its
subsidiaries to, acquire, publicly propose 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 other
business organization or division thereof, or alter (through merger,
liquidation, reorganization, restructuring or in any other fashion) the
corporate structures or ownership of such party or such party's
subsidiaries, or otherwise acquire or agree to acquire any material amount
of assets other than in the ordinary course of business consistent with
past practice.
(f) Capital Expenditures. Except as required by law or as reasonably
necessary after consultation with the other party following a catastrophic
event, such as a major storm (a "Catastrophic Event") or as set forth in
Section 6.1(f) of the CES Disclosure Schedule or the BEC Disclosure
Schedule, neither CES or BEC, as the case may be, shall, nor shall either
permit any of its subsidiaries to, make any capital expenditure (or series
of related capital expenditures) in excess of $80 million in the aggregate
per year, in the case of CES, and $160 million in the aggregate per year,
in the case of BEC.
(g) No Dispositions. Other than dispositions by a party and its
subsidiaries of assets (whether directly through a sale of assets or
through the sale of all of the stock of a subsidiary) having a fair market
value (individually or in the aggregate) of less than $5 million, or except
as set forth in Section 6.1(g) of the CES Disclosure Schedule or the BEC
Disclosure Schedule, as the case may be, neither party shall, nor shall
either party permit any of its subsidiaries to, sell, lease, license,
encumber or otherwise dispose of, any of its assets, other than sales,
leases, licenses, encumbrances or dispositions in the ordinary course of
its business consistent with past practice.
(h) Indebtedness. Except as necessary to pay the Cash Consideration or
in the event of securitization financings pursuant to M.G.L. Chapter 164,
Section 1H, neither party shall, nor shall either party 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 or guarantees or "keep well" or other agreements in the
ordinary course of business consistent with past practice (such as the
issuance of commercial paper, the use of credit facilities existing on the
date hereof or hedging activities undertaken in order to
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hedge a balance sheet asset or liability and not for speculative purposes);
(ii) long-term indebtedness or "keep well" or other agreements not
aggregating more than, together with any preferred shares or tax preference
preferred securities issued by BEC or CES, as the case may be, in
accordance with Section 6.1(c), $200 million in the case of BEC and its
subsidiaries or $115 million in the case of CES and its subsidiaries; or
(iii) in connection with the refunding of preferred shares, tax preference
preferred securities or debt at a lower cost of funds permitted in Section
6.1(b).
(i) Compensation, Benefits. Except in the ordinary course of business
consistent with past practice, or as set forth in Section 6.1(i) of the CES
Disclosure Schedule or the BEC Disclosure Schedule, or as may be required
by applicable law, or 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 pursuant to an existing agreement (including
as contemplated by this Agreement), neither party shall, nor shall either
party 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 share or stock options or share 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 trustee,
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, (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 trustee, director, officer or other employee other
than in the ordinary course of business consistent with current industry
practice, provided that such arrangements or contracts (or amendments
thereto) would not, in the aggregate, result in a material increase in
benefits or compensation expense to such party or any of its subsidiaries
or (iii) enter into any employment contract or collective bargaining
agreement, written or oral, or modify or change the terms of any existing
such contract or agreement.
(j) 1935 Act. Except as set forth in Section 6.1(j) of the CES
Disclosure Schedule or the BEC Disclosure Schedule, and except as required
or contemplated by this Agreement, neither party shall, nor shall either
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 or that would impair the ability of either party, or any
subsidiary of either party, to claim an exemption as of right under Section
3(a)(l) of the 1935 Act following the Mergers.
(k) Accounting. Except as set forth in Section 6.1(k) of the CES
Disclosure Schedule or the BEC Disclosure Schedule, neither party shall,
nor shall either party permit any of its subsidiaries to, make any changes
in its accounting methods, except as required by law, rule, regulation or
GAAP.
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(l) Tax-Free Status. Neither party shall, nor shall either party permit
any of its subsidiaries to, or within the exercise of its reasonable best
efforts its joint ventures to, take any actions which would, or would be
reasonably likely to, adversely affect the status of the Mergers as a tax-
free transaction (except as to any cash received) under Section 351 of the
Code, and each party hereto shall use all reasonable efforts to achieve
such result.
(m) Cooperation, Notification. Each party shall, and shall cause its
subsidiaries to, and shall use its reasonable best efforts to cause its
joint ventures to:
(i) cause its appropriate representatives to confer on a regular and
frequent basis with one or more representatives of the other party to
discuss, subject to applicable law, material operational matters and
the general status of its ongoing operations;
(ii) promptly notify the other party of any significant changes in
its business, properties, assets, condition (financial or other),
results of operations or prospects;
(iii) promptly 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 the case of CES, in a CES Material Adverse Effect or, in
the case of BEC, in a BEC Material Adverse Effect (provided that no
such notification shall affect the representations, warranties,
covenants or agreements of the parties hereto (or remedies with respect
thereto) or the conditions to the obligations of the parties hereto
under this Agreement);
(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; and
(v) promptly advise the other party of (y) any representation or
warranty made by it contained in this Agreement that is qualified as to
materiality becoming untrue or accurate in any respect or any such
representation or warranty that is not so qualified becoming untrue or
inaccurate in any material respect or (z) the failure by it to comply
in any material respect with or satisfy in any material respect any
covenant, condition or agreement to be complied with or satisfied by it
under this Agreement.
(n) Third-Party Consents. Each party shall, and shall cause its
subsidiaries to, use all commercially reasonable efforts to obtain all the
CES Required Consents or the BEC Required Consents, as the case may be.
Each party shall promptly notify the other of any failure or prospective
failure to obtain any such consents and, if requested by the other party
shall provide copies of all the Required Consents obtained by such party to
the other party.
(o) No Breach, Etc. Neither party shall, nor shall either 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.
(p) Discharge of Liabilities. Neither party shall, nor shall either
party permit its subsidiaries to, pay, discharge, settle, compromise or
satisfy any material claims, liabilities or obligations (absolute, accrued,
asserted or unasserted, contingent or otherwise), other than the payment,
discharge, settlement, compromise or satisfaction, in the ordinary course
of business
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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 SEC Reports, or incurred in the ordinary course of
business consistent with past practice.
(q) Contracts. Neither party shall, nor shall either party permit its
subsidiaries to or, within the exercise of its reasonable best efforts, its
joint ventures to, except in the ordinary course of business consistent
with past practice, accelerate, 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.
(r) Insurance. Each party shall, and shall cause its subsidiaries to,
and, within the exercise of its reasonable best efforts, its joint ventures
to, maintain with financially responsible insurance companies insurance
coverage (including directors and officers liability insurance) in such
amounts and against such risks and losses as are customary for companies
engaged in (i) the electric and gas utility industries and employing
methods of generating electric power and distributing fuel similar to those
methods used and fuels used by such party or its subsidiaries or (ii) in
the case of a party or its subsidiaries engaged in industries other than
the electric and gas utility industries, in such other industries as such
party or its subsidiaries are engaged in from time to time.
(s) Permits. Each party 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.
(t) No Liens. Except as set forth in Section 6.1(t) of the CES
Disclosure Schedule or the BEC Disclosure Schedule or under any
indebtedness permitted hereunder constituting purchase money security
interests, neither party shall permit, nor shall either party permit any of
its subsidiaries to permit, the creation or imposition of any Lien upon its
or any of its subsidiaries' assets, tangible or intangible.
(u) No Loans. Neither party shall, except in the ordinary course of
business, make any loan to any third party or to any of its or its
subsidiaries' directors, officers and employees.
(v) Tax Elections. Neither party shall make any material tax election
inconsistent with past practice or settle or compromise any material
federal, state, local or foreign tax liability or agree to an extension of
a statute of limitations with respect thereto.
(w) Transition Steering Team. As soon as reasonably practicable after
the date hereof, BEC and CES shall create a special transition steering
team, with representation from CES and BEC, that will develop
recommendations concerning the future structure and operations of the
Company after the Effective Time, subject to applicable law.
Section 6.2 Covenant of No Solicitation.
(a) From and after the date hereof, neither CES nor BEC shall, and shall
cause its subsidiaries not to, and shall not authorize or permit any
Representative (as defined in Section 7.1) to, directly or indirectly, (i)
solicit, initiate or encourage the initiation of any inquiries or
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proposals regarding any merger, sale of substantial assets, sale of shares
or shares of capital stock (including without limitation by way of a tender
offer) or similar transactions involving such party other than the Mergers
(any of the foregoing inquiries or proposals being referred to herein as an
"Acquisition Proposal"), (ii) engage in negotiations or discussions
concerning, or provide any nonpublic information to any person relating to,
any Acquisition Proposal or (iii) agree to, approve or recommend any
Acquisition Proposal. Nothing contained in this Section 6.2(a) shall
prevent the Board of Trustees of CES or the Board of Trustees of BEC, at
any time prior to the time the CES Shareholders' Approval, in the case of
CES, or the BEC Shareholders' Approval, in the case of BEC, has been
obtained, from (x) considering, negotiating, approving and recommending to
the shareholders of CES or BEC, as the case may be, a bona fide Acquisition
Proposal that it reasonably believes in good faith, after consultation with
its financial advisors, may be more favorable to the shareholders of such
party than the Mergers, or (y) furnishing such third party information
concerning itself and its business, properties and assets; provided that
(A) such Board shall have determined in good faith based upon the advice of
outside counsel that failure to do so likely would constitute a breach of
their fiduciary duties and (B) prior to furnishing nonpublic information to
such third party, BEC or CES, as the case may be, shall have received from
such third party an executed confidentiality agreement in customary form on
terms not more favorable to such third party than the terms of the
confidentiality agreement dated June 3, 1998 between CES and BEC, as it may
be amended from time to time (the "Confidentiality Agreement").
(b) Each party shall promptly notify the other party of (i) the receipt
of any Acquisition Proposal, (ii) any request for nonpublic information
relating to such party in connection with an Acquisition Proposal or for
access to the properties, books or records of such party by any person or
entity that informs the Board of Trustees of such party that it is
considering making, or has made, an Acquisition Proposal and (iii) the
status and details (including amendments) of any such request or proposal.
Such notice shall be made orally and in writing within 24 hours of the
receipt of such Acquisition Proposal (or amendment thereof) or request for
information, and shall indicate whether such party is providing or intends
to provide the person making such Acquisition Proposal with access to
information concerning such party.
(c) Each party hereto shall immediately cease and cause to be terminated
any existing discussions or negotiations with any persons (other than the
other parties hereto) conducted heretofore with respect to any of the
foregoing. Each party agrees not to release any third party from the
confidentiality provisions of any confidentiality agreement to which such
party is a party.
(d) Each party hereto shall ensure that its Representatives are aware of
the restrictions described in this Section 6.2.
(e) Nothing contained herein shall prohibit a party from complying with
Rules 14d-9 and 14e-2 promulgated under the Exchange Act, including without
limitation by taking and disclosing to its shareholders a position
contemplated by Rule 14e-2(a) promulgated under the Exchange Act, or from
making any other disclosure to its shareholders if, in the good faith
judgment of its Board of Trustees, after consultation with outside counsel,
failure to do so may reasonably be expected to be inconsistent with its
obligations under applicable law.
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ARTICLE VII.
Additional Agreements
Section 7.1 Access to Information.
(a) Upon reasonable notice and during normal business hours, each party
hereto shall, and shall cause its subsidiaries to, and shall use its
reasonable best efforts to cause its joint ventures to, afford to the
officers, directors, trustees, employees, accountants, counsel, investment
bankers, financial advisors and other representatives of the other parties
(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, and shall use its reasonable best efforts
to cause its joint ventures to, furnish promptly to the other party:
(i) access to each report, schedule and other document filed or
received by it or any of its subsidiaries and, within the exercise of
its reasonable best efforts, its joint ventures pursuant to the
requirements of federal or state securities laws or filed with or sent
to the SEC, the FERC, the NRC, the DOE, the Department of Justice, the
Federal Trade Commission, the Massachusetts Department of
Telecommunications and Energy, and any other federal or state
regulatory agency or commission (including without limitation those
with jurisdiction over Environmental Laws and Hazardous Materials), and
(ii) access to all information concerning itself, its subsidiaries,
operations, facilities, real and leased properties, directors,
trustees, officers and shareholders and such other matters as may be
reasonably requested by the other party or its Representatives in
connection with any filings, applications or approvals required or
contemplated by this Agreement or for any other reason related to the
transactions contemplated by this Agreement.
(b) No review pursuant to this Section 7.1 shall have an effect for the
purpose of determining the accuracy of any representation or warranty given
by any party to the other.
(c) Each party shall, and shall cause its subsidiaries and
Representatives to, hold in strict confidence all documents and information
concerning any other party furnished to it in connection with the
transactions contemplated by this Agreement in accordance with the
Confidentiality Agreement.
Section 7.2 Joint Proxy Statement and Registration Statement.
(a) Preparation and Filing. The parties shall prepare and file with the
SEC as soon as reasonably practicable after the date hereof the
Registration Statement and the Joint Proxy Statement (together, the "Joint
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 Company Common Shares issuable in connection with the
Mergers 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 otherwise will not be, following the
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Mergers, so subject. Each of the parties hereto shall furnish all
information concerning itself which is required or customary for inclusion
in the Joint Proxy/Registration Statement. The parties shall use reasonable
efforts to cause the Company Common Shares issuable in the Mergers 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 Joint
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 hereto for inclusion in the Joint
Proxy/Registration Statement. No filing of, or amendment or supplement to,
the Joint Proxy/Registration Statement shall be made without providing each
party the opportunity to review and comment thereon. If at any time prior
to the Effective Time any information relating to a party, or any of its
affiliates, officers, trustees or directors, should be discovered by any
party which should be set forth in an amendment or supplement to the Joint
Proxy/Registration Statement, so that the Joint Proxy/Registration
Statement would not include any misstatement of a material fact or omit to
state any material fact necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading, the party
hereto that discovers such information shall promptly notify the other
party hereto and an appropriate amendment or supplement describing such
information shall be promptly filed with the SEC and, to the extent
required by law, disseminated to the shareholders of the parties hereto.
(b) Letter of CES's Accountants. CES shall use its best efforts to cause
to be delivered to BEC a letter of Arthur Andersen, LLP, CES's independent
auditors, dated a date within two business days before the date of the
Joint Proxy/Registration Statement, and addressed to BEC, in form and
substance reasonably satisfactory to BEC, and customary in scope and
substance for "cold comfort" letters delivered by independent public
accountants in connection with registration statements on Form S-4.
(c) Letter of BEC's Accountants. BEC shall use its best efforts to
cause to be delivered to CES a letter of PricewaterhouseCoopers, LLP, BEC's
independent auditors, dated a date within two business days before the date
of the Joint Proxy/Registration Statement, and addressed to CES, in form
and substance reasonably satisfactory to CES, and customary in scope and
substance for "cold comfort" letters delivered by independent public
accountants in connection with registration statements on Form S-4.
Section 7.3 Regulatory Matters.
(a) HSR Filings. Each party hereto shall file or cause to be filed with
the Federal Trade Commission and the Department of Justice any
notifications required to be filed by itself or its respective "ultimate
parent" company under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"), and the rules and regulations promulgated
thereunder with respect to the transactions contemplated hereby. The
parties hereto shall use reasonable best efforts to make such filings
promptly, and to respond promptly to any requests for additional
information made by either of such agencies.
(b) Other Regulatory Approvals. 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
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Authorities necessary or advisable to consummate (or in connection with the
consummation of) and make effective, in the most expeditious manner
practicable, the Mergers and other transactions contemplated by this
Agreement, including, without limitation, the CES Required Statutory
Approvals and the BEC Required Statutory Approvals. Each party shall have
the right to review and approve in advance all of the information
concerning such party which appears in any filing made in connection with
the transactions contemplated by this Agreement and the Mergers. Each party
shall allow the other party and its counsel a meaningful opportunity to
consult with respect to, and to participate in, the efforts to obtain all
necessary approvals from Governmental Authorities in connection with the
transactions contemplated by this Agreement and the Mergers (including but
not limited to the FERC, the SEC and the Massachusetts Department of
Telecommunications and Energy), it being understood that all positions
taken in the filings with such Governmental Authorities shall be consistent
with one another and consistent with this Agreement.
Section 7.4 Shareholder Approval.
(a) CES Shareholders. Subject to the provisions of Section 7.4(c), CES
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 "CES Special Meeting") for the purpose of securing
the CES Shareholders' Approval, (ii) distribute to its shareholders the
Joint Proxy/Registration Statement in accordance with applicable federal
and state law and with its charter and by-laws, (iii) subject to the
fiduciary duties of its Board of Trustees, recommend to its shareholders
the approval of this Agreement and the transactions contemplated hereby and
(iv) cooperate and consult with BEC with respect to each of the foregoing
matters.
(b) BEC Shareholders. Subject to the provisions of Section 7.4(c), BEC
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 "BEC Special Meeting") for the purpose of securing
the BEC Shareholders' Approval, (ii) distribute to its shareholders the
Joint Proxy/Registration Statement in accordance with applicable federal
and state law and with its charter and by-laws, (iii) subject to the
fiduciary duties of its Board of Trustees, recommend to its shareholders
the approval of this Agreement and the transactions contemplated hereby and
(iv) cooperate and consult with CES with respect to each of the foregoing
matters.
(c) Meeting Date. The CES Special Meeting for the purpose of securing
the CES Shareholders' Approval and the BEC Special Meeting for the purpose
of securing the BEC Shareholders' Approval shall be held on such dates as
CES and BEC shall determine, respectively, and as soon as practicable after
the date of this Agreement.
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, the Company shall, to the fullest extent permitted by
applicable law and its charter and by-laws, 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, trustee, director or employee of any of the
parties hereto or any subsidiary of any party hereto (each an "Indemnified
Party" and collectively, the "Indemnified Parties") against (i) all losses,
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expenses (including reasonable attorneys' 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, trustee, 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) the Company shall pay the reasonable fees and
expenses of counsel selected by the Indemnified Parties, which counsel
shall be reasonably satisfactory to the Company, promptly after statements
therefor are received and otherwise advance to such Indemnified Party upon
request reimbursement of documented expenses reasonably incurred, (ii) the
Company shall cooperate in the defense of any such matter, and (iii) any
determination required to be made with respect to whether an Indemnified
Party's conduct complies with the standards set forth under Massachusetts
law, and the declaration of trust or by-laws (or similar governing
documents) of the Company (as the same may be amended from time to time)
shall be made by independent counsel mutually acceptable to the Company and
the Indemnified Party; provided, however, that the Company 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, the
Company shall cause to be maintained in effect current policies of
directors' and officers' liability insurance for the benefit of those
persons who are currently covered by such policies of CES and BEC on terms
no less favorable than the terms of such current insurance coverage or
obtain new policies of such insurance with respect to such obligations at
least as favorable as the most favorable coverage offered by policies
currently maintained by CES and BEC; provided, however, that the Company
shall not be required to expend in any year an amount in excess of 200% of
the annual aggregate premiums currently paid by CES and BEC for such
insurance; and provided, further, that if the annual premiums of such
policies exceed such amount, the Company shall be obligated to obtain the
best coverage reasonably available, in the reasonable judgment of the Board
of Trustees of the Company, for a cost not exceeding such amount.
(c) Successors. In the event the Company 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 the Company 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, trustees and
officers of CES and BEC and their respective subsidiaries with respect to
their activities as such prior to the Effective Time, as provided in their
respective charters and by-laws or other organizational documents in effect
on the date hereof, or otherwise
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in effect on the date hereof, shall survive the Mergers 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) BEC has delivered
to CES a schedule (the "BEC Disclosure Schedule"), accompanied by a certificate
signed by the chief financial officer of BEC stating that the BEC Disclosure
Schedule is being delivered pursuant to this Section 7.6(i) and (ii) CES has
delivered to BEC a schedule (the "CES Disclosure Schedule"), accompanied by a
certificate signed by the chief financial officer of CES stating that the CES
Disclosure Schedule is being delivered pursuant to this Section 7.6(ii). The
CES Disclosure Schedule and the BEC 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 any applicable national
securities exchange, CES and BEC shall 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 or thereto without the consent of the other party (which
consent shall not be unreasonably withheld).
Section 7.8 Rule 145 Affiliates. Within 30 days before the Closing Date CES
shall identify in a letter to BEC, and BEC shall identify in a letter to CES,
all persons who were, at the time of the CES Special Meeting or the BEC Special
Meeting, as the case may be, "affiliates" of CES and BEC, respectively, as such
term is used in Rule 145 under the Securities Act. Each of CES and BEC shall
use all reasonable efforts to cause such affiliates to deliver to CES and BEC
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 and Section
7.11 the Company and its subsidiaries shall honor, without modification, all
contracts, agreements, collective bargaining agreements and commitments of the
parties hereto prior to the date hereof which apply to any current or former
employee or current or former director or trustee of the parties hereto and are
disclosed in Section 4.15 or Section 5.15 of the Disclosure Schedules;
provided, however, that this undertaking is not intended to prevent 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.
Section 7.10 Employee Benefit Plans.
(a) Maintenance of CES and BEC Benefit Plans. Subject to Section 7.11
and Section 6.1(i), each of the CES Benefit Plans and BEC Benefit Plans in
effect at the date hereof (or as
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amended in accordance with or as permitted by this Agreement) shall be
maintained in effect with respect to the employees or former employees of
CES and any of its subsidiaries or BEC and any of its subsidiaries,
respectively, who are covered by any such benefit plan immediately prior to
the Closing Date (the "Affiliated Employees") until the Company otherwise
determines on or after the Effective Time; provided, however, that nothing
herein contained shall limit any reserved right contained in any such CES
Benefit Plan or BEC Benefit Plan to amend, modify, suspend, revoke or
terminate any such plan. Without limitation of the foregoing, each
participant in any CES Benefit Plan or BEC Benefit Plan shall receive
credit for purposes of eligibility to participate, vesting and eligibility
to receive benefits (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;
provided, however, that such crediting of service shall not operate to
duplicate any benefit to any such participant or the funding for any such
benefit. No provision in this Section 7.10 shall be deemed to constitute an
employment contract between the Company and any individual, or a waiver of
the Company's right to discharge any employee at any time, with or without
cause.
Section 7.11 Share Plans. With respect to each CES Benefit Plan and each BEC
Benefit Plan listed in Section 7.11 of the CES Disclosure Schedule or Section
7.11 of the BEC Disclosure Schedule that provides for benefits in the form of
CES Common Shares or BEC Common Shares (together, the "Share Plans"), CES and
BEC shall take all trust action necessary or appropriate to (i) provide for the
issuance or purchase in the open market of Company Common Shares rather than
CES Common Shares or BEC Common Shares, as the case may be, pursuant thereto,
and otherwise to amend such Share Plans to reflect this Agreement and the
Mergers, (ii) obtain their respective shareholder approvals with respect to
such Share Plans to the extent such approval is required for purposes of the
Code or other applicable law, or to enable such Share Plans to comply with Rule
16b-3 promulgated under the Exchange Act, (iii) reserve for issuance under such
Share Plans or otherwise provide a sufficient number of Company Common Shares
for delivery upon payment of benefits, grant of awards or exercise of options
under such Share 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 Company Common Shares subject to
such Share Plans to the extent such registration statement is required under
applicable law. The Company 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 Mergers will be subject to the reporting
requirements under Section 16(a) of the Exchange Act, the Company shall
administer the Share Plans, where applicable, in a manner that complies with
Rule 16b-3 promulgated under the Exchange Act.
Section 7.12 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 hereto incurring such expenses, whether or
not the Mergers are consummated, except that those expenses incurred in
connection with the filing, printing and mailing of the Joint
Proxy/Registration Statement and the filings of the premerger notification and
report forms under the HSR Act (including filing fees) shall be shared equally
by CES and BEC.
Section 7.13 Further Assurances. Each party shall, and shall cause its
subsidiaries to, and shall use its reasonable best efforts to cause its joint
ventures to, execute such further documents and
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instruments and take such further actions as may reasonably be required by the
terms hereof, including the defending of any lawsuits or other proceedings,
whether judicial or administrative, challenging this Agreement or the
consummation of the transactions contemplated by this Agreement (including
seeking a stay or temporary restraining order entered by any court or other
Governmental Authority vacated or reversed).
Section 7.14 Corporate Offices. At the Effective Time, the headquarters of
the Company shall be located in Boston, Massachusetts.
Section 7.15 Officers. At the Effective Time, the Chairman, President and
Chief Executive Officer of BEC shall be the Chairman and Chief Executive
Officer of the Company and the Chief Executive Officer and President of CES
shall be the President and Chief Operating Officer of the Company. The
provisions of this Section 7.15 are subject to the specific terms of the
employment contracts referred to in Section 7.16 and the duties and
responsibilities attributable to the positions referred to in this Section 7.15
shall be as set forth in such contracts. The other officers of the Company at
the Effective Time shall be such officers as may be designated by the Board of
Trustees of the Company.
Section 7.16 Employment Contracts. At the Effective Time, the Company shall
enter into employment contracts with BEC's Chief Executive Officer and CES's
Chief Executive Officer in the forms set forth in Exhibit 7.16.1 and Exhibit
7.16.2, respectively.
Section 7.17 Workforce Matters. Subject to compliance with applicable law
and obligations under applicable collective bargaining agreements, for a period
of three years following the Effective Time, any reductions in workforce in
respect of employees of CES or BEC or any of their respective subsidiaries
shall be made on the basis of the objectives to be achieved, giving
consideration to previous work history, job experience, qualifications, and
business needs without regard to whether employment prior to the Effective Time
was with CES or its subsidiaries or BEC 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 the Company and its subsidiaries
shall be done in accordance with all applicable collective bargaining
agreements, and all laws and regulations governing the employment relationship
and termination thereof including, without limitation, the Worker Adjustment
and Retraining Notification Act and regulations promulgated thereunder, and any
comparable state or local law.
Section 7.18 Company's Board of Trustees. Each of BEC's and CES's Boards of
Trustees shall take such action as may be necessary to cause the number of
trustees comprising the full Board of Trustees of the Company at the Effective
Time to consist of 20 members, with 11 members to be selected by BEC and nine
members to be selected by CES. The initial designation of such trustees among
the three classes of the Board of Trustees of the Company shall be agreed
between BEC and CES, the designees of each party to be divided as
proportionally as is feasible among such classes; provided, however, that if,
prior to the Effective Time, any of such designees shall decline or be unable
to serve, the party hereto that designated such person shall designate another
person to serve in such person's stead. At the Effective Time, the Board of
Trustees of the Company shall have such number of standing committees, with
such names and functions as shall be agreed upon by BEC and CES prior to the
Effective Time. CES shall have the right to designate two members of the
Executive Committee, one of whom shall be the Chairman of the Board of CES on
the Effective Date who shall be the Chairman of the Executive Committee.
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Section 7.19 Confidentiality Agreements. During the period from the date of
this Agreement through the Effective Time, neither party shall, and shall not
permit its subsidiaries to, and shall use its reasonable best efforts to not
permit its joint ventures to, terminate, amend, modify or waive any provision
of any confidentiality or standstill agreement to which it or any subsidiary or
joint venture is a party and, during such period, shall (or, in the case of its
joint ventures, shall use reasonable efforts to) enforce or cause to be
enforced to the fullest extent permitted under applicable law, the provisions
of any such agreement, including by obtaining injunctions to prevent any
breaches of such agreements and to specifically enforce the terms and
provisions thereof in any court of the United States of America or of any state
having jurisdiction.
ARTICLE VIII.
Conditions to the Merger
Section 8.1 Conditions to Each Party's Obligation to Effect the Mergers. The
respective obligations of each party to effect the Mergers 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 Approvals. The CES Shareholders' Approval and the BEC
Shareholders' Approval shall have been obtained with respect to this
Agreement and the Mergers.
(b) No Injunctions or Restraints: Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any
court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Mergers shall be in effect, nor shall
any proceeding brought by any administrative agency or commission or other
Governmental Authority or instrumentality, domestic or foreign, of
competent jurisdiction seeking any of the foregoing be pending, and there
shall not be any action taken, or any statute, rule, regulation or order
enacted, entered, enforced or deemed applicable to the Mergers, which makes
the consummation of the Mergers illegal.
(c) Registration Statement. The Registration Statement shall have become
effective in accordance with the provisions of the Securities Act, no stop
order suspending such effectiveness shall have been issued and remain in
effect, and no proceedings for that purpose and no similar proceeding in
respect of the Joint Proxy Statement shall have been initiated or
threatened by the SEC.
(d) Listing of Shares. The Company Common Shares issuable in the Mergers
pursuant to Article II shall have been approved for listing, upon official
notice of issuance, on the New York Stock Exchange.
(e) Statutory Approvals. The CES Required Statutory Approvals and the
BEC Required Statutory Approvals shall have been obtained at or prior to
the Effective Time, such approvals shall have become Final Orders (as
hereinafter defined) 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,
properties, prospects, condition (financial or otherwise) or results of
operations of the Company 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,
"BEC Required Statutory
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Approval" shall include without limitation an approval by the Massachusetts
Department of Telecommunication and Energy of a rate plan to be filed by
the parties (the "Rate Plan") that includes a rate freeze as described in
the Rate Plan and assurances to the reasonable satisfaction of BEC that the
Company and its subsidiaries after the Mergers will be entitled to recover
in rates the amortization and recovery of the acquisition premium (the
excess of the CES Merger Consideration over the net book value of CES'
assets) over a period not to exceed 40 years and transaction costs over a
period not to exceed 10 years incurred by BEC in connection with the
Mergers. As used in this Agreement, "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 be
satisfied before the consummation of such transactions prescribed by law,
regulation or order have been satisfied.
(f) Government Actions. There shall not have been instituted, pending or
threatened any action or proceeding (or any investigation or other inquiry
that might result in such an action or proceeding) by any governmental
authority, administrative agency or court (in any such case of competent
jurisdiction), nor shall there be in effect any judgment, decree or order
of any Governmental Authority, administrative agency or court (in any such
case, of competent jurisdiction), in either case, seeking to prohibit
consummation of the Mergers and the Mergers and the other transactions
contemplated hereby shall not have been prohibited under any applicable
federal or state law or regulation.
(g) Hart-Scott-Rodino Act. All applicable waiting periods under the HSR
Act shall have expired or been terminated.
Section 8.2 Additional Conditions to Obligation of BEC to Effect the
Mergers. The obligation of BEC to effect the Mergers shall be further subject
to the satisfaction, on or prior to the Closing Date, of the following
conditions, except as may be waived by BEC in writing pursuant to Section 9.5:
(a) Performance of Obligations of CES. CES (and/or its appropriate
subsidiaries) shall have performed in all material respects its agreements
and covenants contained in or contemplated by this Agreement to be
performed by it at or prior to the Effective Time, and CES shall have
provided to BEC a certificate to such effect signed by the Chief Financial
Officer of CES.
(b) Representations and Warranties. The representations and warranties
of CES 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 (a) 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 and (b) representations and warranties that are no longer true
and correct as a consequence of action taken by the parties in accordance
with this Agreement) except in each of cases (i) and (ii) for such failures
of representations or warranties (other than the representations and
warranties contained in Section 4.9 of this Agreement) to be true and
correct (without regard to any materiality qualifications contained
therein) which, individually or in the aggregate, would not have or would
not be reasonably likely to result in a CES Material Adverse Effect, and
CES shall have provided to BEC a certificate to such effect signed by the
Chief Financial Officer of CES.
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(c) CES Required Consents. All CES Required Consents shall have been
obtained by CES, except where the failure to receive such CES Required
Consents could not reasonably be expected to (i) have a CES Material
Adverse Effect or a BEC Material Adverse Effect, or (ii) delay or prevent
the consummation of the Mergers.
(d) Affiliate Agreements. CES shall have received Affiliate Agreements,
duly executed by each "affiliate" of CES, substantially in the form of
Exhibit 7.8, as provided in Section 7.8.
(e) Opinion of Counsel. BEC shall have received a written opinion from
Ropes & Gray, which is in form and substance reasonably satisfactory to BEC
and which applies the standards used by the Internal Revenue Service to
issue an advance private letter ruling (assuming for this purpose that
under these standards the factual representations required for such advance
ruling must be true on the date of this Agreement and at the Effective
Time), to the effect that the exchange of BEC Common Shares for NSTAR
Common Shares pursuant to the BEC Merger will constitute a non-taxable
exchange as described in Section 351(a) of the Code.
(f) Blue Sky Laws. The Company shall have received all permits and other
authorizations necessary under applicable blue sky laws to issue Company
Common Shares pursuant to the Mergers.
Section 8.3 Additional Conditions to Obligation of CES to Effect the
Mergers. The obligation of CES to effect the Mergers shall be further subject
to the satisfaction, on or prior to the Closing Date, of the following
conditions, except as may be waived by CES in writing pursuant to Section 9.5:
(a) Performance of Obligations of BEC. BEC (and/or its appropriate
subsidiaries) shall have performed in all material respects its agreements
and covenants contained in or contemplated by this Agreement to be
performed by it at or prior to the Effective Time, and BEC shall have
provided to CES a certificate to such effect signed by the Chief Financial
Officer of BEC.
(b) Representations and Warranties. The representations and warranties
of BEC 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 (a) 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 and (b) representations and warranties that are no longer true
and correct as a consequence of action taken by the parties in accordance
with this Agreement) except in each of cases (i) and (ii) for such failures
of representations or warranties (other than the representations and
warranties contained in Section 5.9 of this Agreement) to be true and
correct (without regard to any materiality qualifications contained
therein) which, individually or in the aggregate, would not have or would
not be reasonably likely to result in a BEC Material Adverse Effect, and
BEC shall have provided to CES a certificate to such effect signed by the
Chief Financial Officer of BEC.
(c) BEC Required Consents. All BEC Required Consents shall have been
obtained by BEC, except where the failure to receive such BEC Required
Consents could not reasonably be expected to (i) have a BEC Material
Adverse Effect or a CES Material Adverse Effect, or (ii) delay or prevent
the consummation of the Mergers.
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(d) Affiliate Agreements. CES shall have received Affiliate Agreements,
duly executed by each "affiliate" of BEC substantially in the form of
Exhibit 7.8, as provided in Section 7.8.
(e) Tax Opinion. CES shall have received a written opinion from LeBoeuf,
Lamb, Greene & MacRae, L.L.P., which is in form and substance reasonably
satisfactory to CES and which applies the standards used by the Internal
Revenue Service to issue an advance private letter ruling (assuming for
this purpose that under these standards the factual representations
required for such advance ruling must be true on the date of this Agreement
and at the Effective Time), to the effect that the exchange of CES Common
Shares for NSTAR Common Shares pursuant to the CES Merger will constitute a
non-taxable exchange as described in Section 351(a) of the Code.
(f) Blue Sky Laws. The Company shall have received all permits and other
authorizations necessary under applicable blue sky laws to issue Company
Common Shares pursuant to the Mergers.
(g) BEC Nuclear Facility. Either (i) Boston Edison Company shall have
consummated the sale of the BEC Nuclear Facility pursuant to the Purchase and
Sale Agreement dated November 18, 1998 (the "Nuclear Sale Agreement") between
Boston Edison Company and Entergy Nuclear Generating Company or another
unaffiliated buyer pursuant to a purchase and sale agreement under which the
indemnification and decommissioning obligations are not materially more onerous
to Boston Edison Company than those in the Nuclear Sale Agreement, or (ii) (A)
the Board of Trustees of the Company and the Board of Directors of Boston
Edison Company shall have voted, and such votes shall be in full force and
effect as of the Effective Time, that in the event the Nuclear Sale Agreement
is terminated for any reason Boston Edison Company will permanently cease
operations of the BEC Nuclear Facility not later than the end of the then
current fuel cycle unless prior thereto Boston Edison Company shall have
consummated the sale of the BEC Nuclear Facility to an unaffiliated buyer
pursuant to a purchase and sale agreement under which the indemnification and
decommissioning obligations are not materially more onerous to Boston Edison
Company than those in the Nuclear Sale Agreement, and (B) the by laws of the
Company and of Boston Edison Company shall have been amended (the "BEC By-law
Amendments") to provide that (1) neither the Company's vote nor Boston Edison
Company's vote may be amended, rescinded or withdrawn and (2) the BEC By-law
Amendments may not be amended, without in either case the approval, as the
Board of Trustees of the Company or as the Board of Directors of the sole
shareholder of Boston Edison Company, as the case may be, of two-thirds of the
members of the Board of Trustees of the Company.
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 Trustees of CES and BEC;
(b) by CES or BEC, by written notice to the other, if the Effective Time
shall not have occurred on or before one year from the date of this
Agreement (the "Initial Termination
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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 Section 8.1(e) shall not have been
fulfilled but all other conditions to the Closing shall be fulfilled or
shall be capable of being fulfilled, and the approvals required by Section
8.1(e) which have not yet been obtained are being pursued with diligence,
then the Initial Termination Date shall be extended for six months beyond
the Initial Termination Date;
(c) by CES or BEC, by written notice to the other, if the CES
Shareholders' Approval shall not have been obtained at a duly held CES
Special Meeting, including any adjournments thereof, or the BEC
Shareholders' Approval shall not have been obtained at a duly held BEC
Special Meeting, including any adjournments thereof;
(d) by CES or BEC, if any state or federal law, order, rule or
regulation is adopted or issued that has the effect, as supported by the
written opinion of outside counsel for such party, of prohibiting either or
both of the Mergers, or if any court of competent jurisdiction or any
Governmental Authority shall have issued a nonappealable final order,
judgment or ruling or taken any other action having the effect of
permanently restraining, enjoining or otherwise prohibiting the Mergers
(provided that the right to terminate this Agreement under this Section
9.1(d) shall not be available to any party that has not defended such
lawsuit or other proceeding (including seeking to have any stay or
temporary restraining order entered by any court or other Governmental
Authority vacated or reversed).
(e) by CES, upon five days' prior notice to BEC, if, as a result of an
Acquisition Proposal for CES, the Board of Trustees of CES determines in
good faith based on the opinion of outside counsel that failure to accept
such Acquisition Proposal may reasonably be expected to constitute a breach
of their fiduciary duties; provided, however, that (i) the Board of
Trustees of CES shall have been advised by outside counsel that
notwithstanding a binding commitment to consummate an agreement of the
nature of this Agreement entered into in the proper exercise of their
applicable fiduciary duties, such fiduciary duties require the Board of
Trustees to reconsider such commitment as a result of such Acquisition
Proposal; (ii) the person making such Acquisition Proposal shall have
acknowledged and agreed in writing to pay the termination and other fees
set forth in Section 9.3 if such Acquisition Proposal is consummated or any
other Acquisition Proposal is consummated with such person or any of its
affiliates and (iii) prior to such termination, CES shall, and shall cause
its respective financial and legal advisors to, negotiate in good faith
with BEC to attempt to make such adjustments in the terms and conditions of
this Agreement as would enable CES to proceed with the transactions
contemplated herein; provided, further, that CES and BEC acknowledge and
affirm that notwithstanding anything in this Section 9.1(e) to the
contrary, the parties hereto intend this Agreement to be an exclusive
agreement and, accordingly, nothing in this Agreement is intended to
constitute a solicitation of an Acquisition Proposal, it being acknowledged
and agreed that any Acquisition Proposal would interfere with the strategic
advantages and benefits that the parties hereto expect to derive from the
Mergers; or
(f) by BEC, upon five days' prior notice to CES, if, as a result of an
Acquisition Proposal for BEC, the Board of Trustees of BEC determines in
good faith based on the opinion of outside counsel that failure to accept
such Acquisition Proposal may reasonably be expected to constitute a breach
of their fiduciary duties; provided, however, that (i) the Board of
Trustees of
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BEC shall have been advised by outside counsel that notwithstanding a
binding commitment to consummate an agreement of the nature of this
Agreement entered into in the proper exercise of their applicable fiduciary
duties, such fiduciary duties require the Board of Trustees to reconsider
such commitment as a result of such Acquisition Proposal; (ii) the person
making such Acquisition Proposal shall have acknowledged and agreed in
writing to pay the termination and other fees set forth in Section 9.3 if
such Acquisition Proposal is consummated or any other Acquisition Proposal
is consummated with such person or any of its affiliates and (iii) prior to
such termination, BEC shall, and shall cause its respective financial and
legal advisors to, negotiate in good faith with CES to attempt to make such
adjustments in the terms and conditions of this Agreement as would enable
BEC to proceed with the transactions contemplated herein; provided,
further, that BEC and CES acknowledge and affirm that notwithstanding
anything in this Section 9.1(f) to the contrary, the parties hereto intend
this Agreement to be an exclusive agreement and, accordingly, nothing in
this Agreement is intended to constitute a solicitation of an Acquisition
Proposal, it being acknowledged and agreed that any Acquisition Proposal
would interfere with the strategic advantages and benefits that the parties
hereto expect to derive from the Mergers; or
(g) by CES, by written notice to BEC, if (i) there shall have been any
material breach of any representation or warranty, or any material breach
of any covenant or agreement, of BEC hereunder, and such breach shall not
have been remedied within twenty days after receipt by BEC of notice in
writing from CES, specifying the nature of such breach and requesting that
it be remedied; or (ii) the Board of Trustees of BEC (A) shall withdraw or
modify in any manner adverse to CES its approval of this Agreement and the
transactions contemplated hereby or its recommendation to its shareholders
regarding the approval of this Agreement, (B) shall fail to reaffirm such
approval or recommendation upon the request of CES, (C) shall approve or
recommend and Acquisition Proposal or (D) shall resolve to take any of the
actions specified in clause (A), (B) or (C); provided, however, that CES
and BEC acknowledge and affirm that notwithstanding anything in clause
(g)(ii) above to the contrary, the parties hereto intend this Agreement to
be an exclusive agreement and, accordingly, nothing in this Agreement is
intended to constitute a solicitation of an Acquisition Proposal, it being
acknowledged and agreed that any such offer or proposal would interfere
with the strategic advantages that the parties hereto expect to derive from
the Mergers; or
(h) by BEC, by written notice to CES, if (i) there shall have been any
material breach of any representation or warranty, or any material breach
of any covenant or agreement, of CES hereunder, and such breach shall not
have been remedied within twenty days after receipt by CES of notice in
writing from BEC, specifying the nature of such breach and requesting that
it be remedied; or (ii) the Board of Trustees of CES (A) shall withdraw or
modify in any manner adverse to BEC its approval of this Agreement and the
transactions contemplated hereby or its recommendation to its shareholders
regarding the approval of this Agreement, (B) shall fail to reaffirm such
approval or recommendation upon the request of BEC, (C) shall approve or
recommend and Acquisition Proposal or (D) shall resolve to take any of the
actions specified in clause (A), (B) or (C); provided, however, that BEC
and CES acknowledge and affirm that notwithstanding anything in clause
(h)(ii) above to the contrary, the parties hereto intend this Agreement to
be an exclusive agreement and, accordingly, nothing in this Agreement is
intended to constitute a solicitation of an Acquisition Proposal, it being
acknowledged and agreed that any such offer or proposal would interfere
with the strategic advantages that the parties hereto expect to derive from
the Mergers.
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Section 9.2 Effect of Termination. In the event of termination of this
Agreement by either CES or BEC pursuant to Section 9.1 there shall be no
liability on the part of either CES or BEC or their respective affiliates,
officers or directors hereunder, except that (i) Section 7.1(c), Section 7.12,
Section 9.3, Section 10.7 and Section 10.8 shall survive the termination, and
(ii) nothing herein shall relieve any party from liability for any breach
hereof.
Section 9.3 Termination Fee; Expenses.
(a) If this Agreement (i) is terminated at such time that this Agreement
is terminable pursuant to Section 9.1 (g)(i) or Section 9.1 (h)(i) or (ii)
is terminated pursuant to Section 9.1(e) or Section 9.1(f), then (A) in the
event of such a termination pursuant to Section 9.1(e) or Section 1(h)(i),
CES shall pay to BEC and (B) in the event of such a termination pursuant to
Section 9.1(f) or Section 9.1 (g)(i), BEC shall pay to CES, promptly (but
not later than five business days after such notice is received pursuant to
Section 9.1(g)(i) or Section 9.1(h)(i) or is given pursuant to Section
9.1(e) or Section 9.1(f)) cash in an amount equal to all documented out-of-
pocket expenses and fees incurred by the other 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 Mergers or the transactions contemplated
by this Agreement) not in excess of $5 million; provided, however, that if
this Agreement is terminated by a party as a result of a willful breach of
a representation, warranty, covenant or agreement by the other party, the
non-breaching party may pursue any remedies available to it at law or in
equity and shall, in addition to the amount of out-of-pocket expenses set
forth above, be entitled to recover such additional amounts as such non-
breaching party may be entitled to receive at law or in equity.
(b) Additional Termination Fees. If (i) this Agreement (w) is terminated
by any party pursuant to Section 9.1(e) or Section 9.1(f), (x) is
terminated following a failure of the shareholders of CES or BEC to grant
the necessary approvals described in Section 4.18 or Section 5.18, (y) is
terminated as a result of such party's material breach of Section 7.4 or
(z) is terminated pursuant to Section 9.1(g)(i) or Section 9.1(h)(i) as a
result of such party's breach, and (ii) at the time of such termination
(or, in the case of clause (i)(x) above, prior to the meeting of such
party's shareholders) there shall have been an Acquisition Proposal
involving such party or its affiliates which at the time of such
termination or of the meeting of such party's shareholders (x) shall not
have been rejected by such party and its Board of Trustees and (y) shall
not have been withdrawn by the third party and (iii) within two years of
any such termination described in clause (i) above, the party hereto or the
affiliate thereof that is the target of such Acquisition Proposal (a
"Target Party") becomes a subsidiary or part of such offeror or a
subsidiary or part of an affiliate of such offeror, or merges with or into
the offeror or a subsidiary or affiliate of the offeror or enters into a
definitive agreement to consummate an Acquisition Proposal with such
offeror or affiliate thereof, then (A) in the event CES or one of its
affiliates is the Target Party, CES shall pay to BEC and (B) in the event
BEC or one of its affiliates is the Target Party, BEC shall pay to CES, at
the closing of the transaction (and as a condition to the closing) in which
such Target Party becomes such a subsidiary or part of such other Person or
the closing of such Acquisition Proposal occurs, an additional termination
fee equal to $35 million in cash.
(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 a party fails to promptly pay
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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 respective
Boards of Trustees of CES and BEC, at any time before or after approval hereof
by the shareholders of CES and BEC and prior to the Effective Time, but after
such approvals, no such amendment shall be made which by law requires further
approval by such shareholders without such further approval. 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 with respect to any other party hereto (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 Mergers, 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 (Directors' and Officers' Indemnification),
Section 7.9 (Certain Employee Agreements), Section 7.10 (Employee Benefit
Plans), Section 7.11 (Share Plans), Section 7.12 (Expenses), Section 7.15
(Officers), Section 7.18 (Company's Board of Trustees), Section 10.6
(Parties in Interest) and Section 10.7 (Waiver of Jury Trial and Certain
Damages). 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.
(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 as provided in Section 9.3(a).
Section 10.2 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 BEC or CES at the following addresses (or at such other
address for such party as shall be specified by like notice):
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(a) If to CES, to:
Commonwealth Energy System
One Main Street
P.O. Box 9150
Cambridge, Massachusetts 02142-9150
Attention: Russell D. Wright, Chief Executive Officer
Telephone: (617) 225-4600
Telecopy: (617) 225-4831
with a copy to:
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
260 Franklin Street
Boston, MA 02110
Attention: Paul K. Connolly, Jr., Esq.
Telephone: (617) 439-9500
Telecopy: (617) 439-0341
(b) If to BEC, to:
BEC Energy
800 Boylston Street
Boston, Massachusetts 02199
Attention: Thomas J. May, Chief Executive Officer
Telephone: (617) 424-2000
Telecopy: (617) 424-3204
with a copy to:
Ropes & Gray
One International Place
Boston, MA 02110-2624
Attention: David A. Fine, Esq.
Telephone: (617) 951-7000
Telecopy: (617) 951-7050
Section 10.3 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 hereto, 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.
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Section 10.4 Interpretation. When a reference is made in this Agreement to
Articles, Sections or Exhibits, such reference shall be to an Article, Section
or Exhibit of this Agreement, respectively, unless otherwise indicated. The
terms "hereof" and "hereto" shall refer to this Agreement as a whole unless
otherwise expressly 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 10.5 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 taken together shall constitute one and the same agreement.
Section 10.6 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,
including, without limitation, by way of subrogation.
Section 10.7 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 10.8 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 10.9 Massachusetts Business Trust.
(a) The name "BEC Energy" means the trustee or trustees for the time
being (as trustee or trustees but not personally) under an Amended and
Restated Declaration of Trust dated March 25, 1997, as amended from time to
time, which is hereby referred to, and a copy of which, as amended, has
been filed with the Secretary of The Commonwealth of Massachusetts. Any
obligation, agreement, or liability made, entered into, or incurred by or
on behalf of BEC binds only its trust estate, and no shareholder, director,
trustee, officer or agent thereof assumes or shall be held to any liability
therefor.
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(b) The name "Commonwealth Energy System" means the trustee or trustees
for the time being (as trustees but not individually) under a Declaration
of Trust dated December 31, 1926, as amended, which is hereby referred to,
and a copy of which has been filed with the Secretary of The Commonwealth
of Massachusetts. Any agreement, obligation or liability made, entered
into, or incurred by or on behalf of CES binds only the trust estate, and
no shareholder, director, trustee, officer or agent assumes, or shall be
held to, any liability by reason thereof.
(c) The name "NSTAR" means the trustee or trustees for the time being
(as trustee or trustees but not personally) under a Declaration of Trust
dated April 20, 1999, as amended from time to time, which is hereby
referred to, and a copy of which, as amended, has been filed with the
Secretary of The Commonwealth of Massachusetts. Any obligation, agreement,
or liability made, entered into, or incurred by or on behalf of NSTAR binds
only its trust estate, and no shareholder, director, trustee, officer or
agent thereof assumes or shall be held to any liability therefor.
Section 10.10 Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law, or
public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties hereto as closely as possible in an acceptable manner to
the end that the transactions contemplated hereby are fulfilled to the fullest
extent possible.
Section 10.11 Failure or Indulgence Not Waiver; Remedies Cumulative. No
failure or delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement
herein, nor shall any single or partial exercise of any such right preclude any
other or further exercise thereof or of any other right. All rights and
remedies existing under this Agreement are cumulative to, and not exclusive of,
any rights or remedies otherwise available.
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In Witness Whereof, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the date
first written above.
BEC Energy
By:
/s/ Thomas J. May
---------------------------------------
Name: Thomas J. May
Title: Chairman, President and Chief
Executive Officer
Commonwealth Energy System
By:
/s/ Russell D. Wright
---------------------------------------
Name: Russell D. Wright
Title: President and Chief Executive
Officer
NSTAR
By:
/s/ Thomas J. May
---------------------------------------
Name: Thomas J. May
Title: Chairman of the Board and Chief
Executive Officer
/s/ Russell D. Wright
---------------------------------------
Name: Russell D. Wright
Title: President and Chief Operating
Officer
BEC Acquisition, LLC
By NSTAR, its sole manager
/s/ Thomas J. May
---------------------------------------
Name: Thomas J. May
Title: Chairman of the Board and Chief
Executive Officer
CES Acquisition, LLC
By NSTAR, its sole manager
/s/ Russell D. Wright
---------------------------------------
Name: Russell D. Wright
Title: President and Chief Operating
Officer
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In signing below, Boston Energy Technology Group, Inc., COM/Energy
Resources, Inc. and BEC Newco, Inc. hereby consent to the attached amendment
and restatement of the Agreement and Plan of Merger by and among BEC Energy,
Boston Energy Technology Group, Inc., Commonwealth Energy System, COM/Energy
Resources, Inc. and BEC Newco, Inc., dated as of December 5, 1998.
Boston Energy Technology Group, Inc.
By:
/s/ Thomas J. May
------------------------------------------
Name: Thomas J. May
Title: Chairman, President and Chief
Executive Officer
By:
/s/ James J. Judge
------------------------------------------
Name: James J. Judge
Title: Senior Vice President and
Treasurer
COM/Energy Resources, Inc.
By:
/s/ James D. Rappoli
------------------------------------------
Name: James D. Rappoli
Title: Financial Vice President and
Treasurer
BEC Newco, Inc.
By:
/s/ Thomas J. May
------------------------------------------
Name: Thomas J. May
Title: Chairman, President and Chief
Executive Officer
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EXHIBIT 2.2(c)/2.3(c)
EXAMPLE ONE
Assume that the Elective CES Cash Number is 2,500,000 and that the Elective
BEC Cash Number is 4,500,000. This would occur if the CES shareholder elected
to receive $110,250,000 ($44.10 X 2,500,000) of cash in the Merger, and the BEC
shareholders elected to receive $198,450,000 of cash in the Merger ($44.10 X
4,500,000).
Under the penultimate sentences of Section 2.2(c), the CES Cash Number would
be increased by the lesser of:
(i) 2,500,000 - 267,573.696, which is 232,426.304; or
(ii) 4,535,147.392 - 4,500,000, which is 35,147.392.
Because 35,147.392 is less than 232,426.304, the CES Cash Number would be
increased by 35,147.392. This means that instead of receiving $100,000,000 of
cash in the Merger, the CES shareholders would receive $101,550,000 ($44.10 X
(2,267,573.696 + 35,147.392)).
Under the last sentence of Section 2.3(c) the BEC Cash Number would be
decreased by 35,147.392. This means that instead of receiving $200,000,000 of
cash in the Merger, the BEC shareholders would receive $198,450,000 ($44.10 X
(4,535,147.392 - 35,147.392)).
EXAMPLE TWO
Assume that the Elective CES Cash Number is 2,000,000 and that the Elective
BEC Cash Number is 5,000,000. This would occur if the CES shareholder elected
to receive $88,200,000 ($44.10 X 2,000,000) of cash in the Merger, and the BEC
shareholders elected to receive $220,500,000 of cash in the Merger ($44.10 X
5,000,000).
Under the penultimate sentence of Section 2.3(c) the BEC Cash Number would
be increased by the lesser of:
(i) 5,000,000 - 4,535,147.392, which is 464,852.608; or
(ii) 2,267,573.696 - 2,000,000), which is 267,573.696.
Because 267,573.696 is less than 464,852.608, the BEC Cash Number would be
increased by 267,573.696. This means that instead of receiving $200,000,000 of
cash in the Merger, the BEC shareholders would receive $211,800,000 ($44.10 X
(4,535,147.392 + 267,573.696)), and as explained below, under the last sentence
of Section 2.2(c), the CES shareholders would receive $88,200,000.
Under the last sentences of Section 2.2(c), the CES Cash Number would be
decreased by 44.10 X 267,573.696, which is 11,800,000. This means that instead
of receiving $100,000,000 of cash in the Merger, the CES shareholders would
receive $88,200,000 ($44.10 X (2,267,573.696 - 267,573.696).
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EXHIBIT 7.16.1
Agreement
AGREEMENT made and entered into on this 11th day of May, 1999 by and
between NSTAR (the "Company"), a Massachusetts business trust with its
principal place of business at Boston, Massachusetts, and Thomas J. May (the
"Executive"). This Agreement shall become effective on the effective date (the
"Effective Date") of the merger transaction between BEC Energy ("BEC") and
Commonwealth Energy System ("Commonwealth") pursuant to the Amended and
Restated Agreement and Plan of Merger dated as of December 5, 1998 and amended
and restated as of May 4, 1999 among BEC, Commonwealth, the Company, BEC
Acquisition, LLC and CES Acquisition, LLC (the "Merger Agreement").
WHEREAS, BEC, Commonwealth, the Company, BEC Acquisition, LLC and CES
Acquisition, LLC have entered into the Merger Agreement, whereby Commonwealth
and BEC will become subsidiaries of the Company (the "Merger"); and
WHEREAS, BEC, Commonwealth and the Company wish to provide for the orderly
succession of management of the Company following the Effective Date; and
WHEREAS, subject to the terms and conditions hereinafter set forth, BEC,
Commonwealth and the Company wish to provide for the employment by the Company
of the Executive and the Executive wishes to accept such employment;
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
promises, terms, provisions and conditions set forth in this Agreement, the
parties hereby agree:
1. Employment. Subject to the terms and conditions set forth in this
Agreement, the Company hereby offers and the Executive hereby accepts
employment.
2. Term. Subject to earlier termination as hereafter provided, the
Executive's employment hereunder shall be for a term of five (5) years,
commencing on the Effective Date, and may be extended or renewed only by
express written agreement signed by the Executive and an expressly authorized
representative of the Board of Trustees of the Company (the "Board").
3. Capacity and Performance.
a. During the term hereof, the Executive shall serve the Company as its
Chairman of the Board and Chief Executive Officer, subject to the direction
and control of the Board. In addition, and without further compensation,
the Executive shall serve as a trustee of the Company's direct wholly-owned
subsidiaries.
b. During the term hereof, the Executive shall be employed by the
Company on a full-time basis and shall perform the duties and
responsibilities of his position and such other duties and responsibilities
on behalf of the Company and its Affiliates as may reasonably be designated
from time to time by the Board.
c. During the term hereof, the Executive shall devote his full business
time and his best efforts, business judgment, skill and knowledge
exclusively to the advancement of the business and interests of the Company
and its Affiliates and to the discharge of his duties and responsibilities
hereunder. The Employee shall not engage in any other business activity for
compensation during the term hereof, but may participate in industry,
trade, professional, charitable and community activities so long as the
Board is informed of such activities and so
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long as such activities do not conflict with the interests of the Company
and its Affiliates or interfere with the discharge of the Executive's
duties and responsibilities to the Company and its Affiliates.
d. The Company agrees to propose to the shareholders of the Company at
each appropriate Annual Meeting of such shareholders during the term hereof
the election or reelection of the Executive as a member of the Board,
provided that the Executive is otherwise eligible for such election.
4. Compensation and Benefits. As compensation for all services performed by
the Executive under and during the term hereof and subject to performance of
the Executive's duties and of the obligations of the Executive to the Company
and its Affiliates, pursuant to this Agreement or otherwise:
a. Base Salary. During the term hereof, the Company shall pay the
Executive a base salary at the rate determined by the Board of Trustees
consistent with the Company's current compensation practices, payable in
accordance with the payroll practices of the Company for its executives and
subject to increase from time to time by the Board, in its sole discretion.
Such base salary, as from time to time increased, is hereafter referred to
as the "Base Salary."
b. Incentive Compensation. The Executive shall be entitled to
participate in any incentive compensation programs made available to
executives of the Company generally, in accordance with the terms thereof,
as in effect from time to time, as determined by the Board of Trustees
consistent with the Company's current compensation practices.
c. Supplemental Executive Retirement Plan. The Executive shall be
entitled to participate in the Company's Supplemental Executive Retirement
Plan ("SERP") on the same terms applicable to executives of the Company
generally, as in effect from time to time.
d. Vacations. During the term hereof, the Executive shall be entitled to
vacation pursuant to the Company's policy for senior executive officers but
not less than six (6) weeks of vacation per annum, to be taken at such
times and intervals as shall be determined by the Executive, subject to the
reasonable business needs of the Company.
e. Other Benefits. During the term hereof, the Executive shall be
entitled to participate in any and all benefit plans and programs from time
to time in effect for executives of the Company generally, except to the
extent such plans are in a category of benefit otherwise provided to the
Executive hereunder (e.g., severance pay plans). Such participation shall
be subject to the terms of the applicable plan documents and generally
applicable Company policies. The Company may alter, modify, add to or
delete its employee benefit plans and programs at any time as it, in its
sole judgment, determines to be appropriate.
f. Business Expenses. The Company shall pay or reimburse the Executive
for all reasonable and necessary business expenses incurred or paid by the
Executive in the performance of his duties and responsibilities hereunder,
subject to any maximum annual limit and other restrictions on such expenses
set by the Board and to such reasonable substantiation and documentation as
may be specified by the Company from time to time.
5. Termination of Employment and Severance Benefits. Notwithstanding the
provisions of Section 2 hereof, the Executive's employment hereunder shall
terminate prior to the expiration of the term under the following
circumstances:
a. Death. In the event of the Executive's death during the term hereof,
the Executive's employment hereunder shall immediately and automatically
terminate. In that event, the Company shall pay to the Executive's
designated beneficiary or, if no beneficiary has been
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designated by the Executive, to his estate, any Base Salary earned and
unpaid, and any vacation time accrued and unpaid, through the date of
death, and any incentive compensation that is earned but unpaid, pro-rated
through the date of his death.
b. Disability.
i. The Company may terminate the Executive's employment hereunder,
upon notice to the Executive, in the event that the Executive becomes
disabled during his employment hereunder through any illness, injury,
accident or condition of either a physical or psychological nature and,
as a result, is unable to perform substantially all of his duties and
responsibilities hereunder for one hundred and eighty (180) days during
any period of three hundred and sixty-five (365) consecutive calendar
days.
ii. The Board may designate another employee to act in the
Executive's place during any period of the Executive's disability.
Notwithstanding any such designation, the Executive shall continue to
receive the Base Salary in accordance with Section 4.a and benefits in
accordance with Sections 4.c, 4.d and 4.e, to the extent permitted by
the then-current terms of the applicable benefit plans, until the
Executive becomes eligible for disability income benefits under the
Company's disability income plan or until the termination of his
employment, whichever shall first occur.
iii. While receiving disability income payments under the Company's
disability income plan, the Executive shall not be entitled to receive
any Base Salary under Section 4.a hereof, but shall continue to
participate in Company benefit plans in accordance with Sections 4.c,
4.d and 4.e and the terms of such plans, until the termination of his
employment.
iv. If any question shall arise as to whether during any period the
Executive is disabled through any illness, injury, accident or
condition of either a physical or psychological nature so as to be
unable to perform substantially all of his duties and responsibilities
hereunder, the Executive may, and at the request of the Company shall,
submit to a medical examination by a physician selected by the Company
to whom the Executive or his duly appointed guardian, if any, has no
reasonable objection to determine whether the Executive is so disabled
and such determination shall for the purposes of this Agreement be
conclusive of the issue. If such question shall arise and the Executive
shall fail to submit to such medical examination, the Company's
determination of the issue shall be binding on the Executive.
c. By the Company for Cause. The Company may terminate the Executive's
employment hereunder for Cause at any time during the term hereof upon
notice to the Executive pursuant to a vote of the Board of Trustees (at
which meeting the Executive was given an opportunity to be heard) setting
forth in reasonable detail the nature of such Cause. The following, as
determined by the Board in its reasonable judgment, shall constitute Cause
for termination: (a) commission of a felony or gross neglect of duty by the
Executive which is intended to result in substantial personal enrichment of
the Executive at the expense of the Company, (b) conviction of a crime
involving moral turpitude or (c) willful failure by the Executive of his
duties to the Company which failure is deliberate on the Executive's part
and results in material injury to the Company. For purposes of this
definition of Cause, no act or omission shall be considered to have been
"willful" unless it was not in good faith and the Executive had knowledge
at the time that the act or omission was not in the best interest of the
Company. Any act, or failure to act, based on authority given pursuant to a
resolution duly adopted by the Board or based on the advice of
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counsel of the Company shall be conclusively presumed to be done, or
omitted to be done, by the Executive in good faith and in the best interest
of the Company. Upon the giving of notice of termination of the Executive's
employment hereunder for Cause, the Company shall have no further
obligation or liability to the Executive, other than for Base Salary earned
and unpaid at the date of termination and vacation time accrued but unused
on that date.
d. By the Company Other than for Cause. The Company may terminate the
Executive's employment hereunder other than for Cause at any time upon
notice to the Executive.
e. By the Executive for Good Reason. The Executive may terminate his
employment hereunder for Good Reason, upon notice to the Company setting
forth in reasonable detail the nature of such Good Reason. The following
shall constitute Good Reason for termination by the Executive: (i) failure
of the Company to continue the Executive in the position of Chief Executive
Officer; (ii) failure of the Company to provide Executive with Base Salary
and target incentive compensation in any year at least equal to the amount
of Base Salary and target incentive compensation payable to Executive
during the first year of this Agreement, (iii) material diminution in the
nature or scope of the Executive's responsibilities, duties or authority;
provided, however, that any diminution of the business of the Company or
any of its Affiliates, including without limitation the sale or transfer of
any or all of the assets of any of the Affiliates, shall not constitute
"Good Reason"; (iv) material failure of the Company to provide the
Executive the Base Salary and benefits in accordance with the terms of
Section 4 hereof; or (v) the Company's relocation of the Executive's office
outside the Greater Boston Metropolitan Area, in each case, without the
Executive's consent.
f. By the Executive Other than for Good Reason. The Executive may
terminate his employment hereunder at any time upon three (3) months'
notice to the Company, unless such termination would violate any obligation
of the Executive to the Company under the Change in Control Agreement
between the Executive and BEC dated July 9, 1996 (the "Change in Control
Agreement") or other agreement between the Executive and BEC or the
Company. In the event of termination of the Executive's employment pursuant
to this Section 5.f, the Board may elect to waive the period of notice, or
any portion thereof, and, if the Board so elects, the Company will pay the
Executive his Base Salary for the notice period (or for any remaining
portion of the period).
g. Upon a Change in Control. In the event that there occurs a Change in
Control, as defined in the Change in Control Agreement, any compensation or
other benefits to which the Executive is entitled upon termination of his
employment shall be governed exclusively by the Change in Control
Agreement, which compensation and benefits shall be in lieu of any
compensation or benefits to which the Executive would otherwise have been
entitled under Section 6 hereof.
h. Post-Agreement Employment. In the event the Executive remains in the
employ of the Company or any of its Affiliates following termination of
this Agreement, by the expiration of the term or otherwise, then such
employment shall be at will.
6. Effect of Termination.
a. In the event of termination of the Executive's employment in
accordance with Section 5.d or 5.e during the term hereof, and provided
that no benefits are payable under the Change in Control Agreement in
accordance with Section 5.g. hereof, the Company shall provide the
Executive the following:
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(i) The Company shall pay the Executive any Base Salary earned but
unpaid on the date of termination and shall pay the Executive for any
vacation time accrued but unused as of that date.
(ii) During a period equal to the remainder of the term of this
Agreement on the date of termination of the Executive's employment (the
"Severance Pay Period"), the Company shall continue to pay the
Executive the Base Salary, at the rate in effect on the date of
termination, such payments to be made in accordance with the Company's
regular payroll practices and at the Company's regular payroll periods.
(iii) During the Severance Pay Period, the Company shall pay the
Executive incentive compensation calculated on the basis of the
incentive compensation paid to the Executive in the most recently
completed fiscal year, pro-rated for any partial fiscal year during the
Severance Pay Period and payable at such time or times as incentive
compensation is paid to executives of the Company generally.
(iv) The Company shall pay the Executive, within 30 days following
the date of termination of his employment, an amount equal to the
excess of (1) the lump-sum actuarial equivalent of the accrued benefit
under (A) the Company's qualified defined benefit Retirement Plan (the
"Retirement Plan") and (B) the SERP which the Executive would receive
if the Executive's employment had continued during the Severance Pay
Period, assuming for these purposes that all accrued benefits are fully
vested and further assuming that the Executive's annual compensation
for purposes of determining benefits under the Retirement Plan and SERP
("Covered Compensation") shall be as set forth in subsections (ii) and
(iii) immediately above, over (2) the lump-sum actuarial equivalent of
the Executive's actual accrued benefit (paid or payable), if any, under
the Retirement Plan and the SERP as of the date of termination.
(v) The Executive, together with his dependents, will continue
during the Severance Pay Period to participate fully at the Company's
expense in all welfare benefit plans and programs maintained or
sponsored by the Company in which they were participating on the date
the Executive's employment terminated or receive substantially the
equivalent coverage (or the full value thereof in cash) from the
Company; provided, however, that if the Executive becomes re-employed
with another employer and is eligible to receive medical or other
welfare benefits under another employer-provided plan, the medical and
other welfare benefits described herein shall be secondary to those
provided under such other plan during such applicable period of
eligibility. For purposes of determining eligibility (but not the time
of commencement of benefits) of the Executive for any retiree benefits
pursuant to such plans or programs, the Executive shall be considered
to have remained employed throughout the Severance Pay Period and to
have retired on the last day of such Period.
b. Provision by the Company of any compensation and benefits due the
Executive in accordance with Section 5 or this Section 6, as applicable,
shall constitute the entire obligation of the Company to the Executive.
Acceptance by the Executive of performance by the Company shall constitute
full settlement of any claim that the Executive might otherwise assert
against the Company, its Affiliates or any of their shareholders, trustees,
directors, officers, employees or agents, successors or assigns on account
of such termination.
c. Any restricted share, share option or cash award granted to the
Executive by the Company which is vested on the date of termination of the
Executive's employment shall be
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governed in accordance with the provisions of each such grant. Any
restricted share, share option or cash award not vested on the date of
termination shall be forfeited as of that date.
d. Provisions of this Agreement shall survive any termination of this
Agreement, by expiration of the term or otherwise, if so provided herein or
if necessary or desirable fully to accomplish the purposes of such
provision, including without limitation the obligations of the Executive
under Sections 7 and 8 hereof. The obligation of the Company to make
payments to or on behalf of the Executive under Section 5.d or 5.e hereof
is expressly conditioned upon the Executive's continued full performance of
obligations under Sections 7 and 8 hereof. The Executive recognizes that,
except as expressly provided in Section 5.d or 5.e, no compensation is
earned after termination of employment.
7. Confidential Information.
a. The Executive acknowledges that the Company and its Affiliates
continually develop Confidential Information, that the Executive may
develop Confidential Information for the Company or its Affiliates and that
the Executive may learn of Confidential Information during the course of
employment. The Executive will comply with the policies and procedures of
the Company and its Affiliates for protecting Confidential Information and
shall never disclose to any Person (except as required by applicable law or
for the proper performance of his duties and responsibilities to the
Company and its Affiliates), or use for his own benefit or gain or that of
another Person, any Confidential Information obtained by the Executive
incident to his employment or other association with the Company or any of
its Affiliates. The Executive understands that this restriction shall
continue to apply after his employment terminates, regardless of the reason
for such termination.
b. All documents, records, tapes and other media of every kind and
description relating to the business, present or otherwise, of the Company
or its Affiliates and any copies, in whole or in part, thereof (the
"Documents"), whether or not prepared by the Executive, shall be the sole
and exclusive property of the Company and its Affiliates. The Executive
shall safeguard all Documents and shall surrender to the Company at the
time his employment terminates, or at such earlier time or times as the
Board or its designee may specify, all Documents then in the Executive's
possession or control.
8. Restricted Activities. The Executive agrees that some restrictions on his
activities during and after his employment are necessary to protect the
goodwill, Confidential Information and other legitimate interests of the
Company and its Affiliates:
a. While the Executive is employed by the Company and, in the event of
termination of the Executive's employment under Section 5.d or 5.e hereof,
throughout the Severance Pay Period, the Executive shall not, directly or
indirectly, whether as owner, partner, investor, consultant, agent,
employee, co-venturer or otherwise, compete with the Company or any of its
Affiliates within Massachusetts or undertake any planning for any business
competitive with the Company or any of its Affiliates. Specifically, but
without limiting the foregoing, the Executive agrees not to engage in any
manner in any activity that is directly or indirectly competitive or
potentially competitive with the business of the Company or any of its
Affiliates as conducted or under consideration at any time during the
Executive's employment.
b. The Executive further agrees that while he is employed by the Company
and for a period of one year following termination of his employment with
the Company, however effected, the Executive will not, directly or
indirectly, hire or attempt to hire any employee of
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the Company or any of its Affiliates, assist in such hiring by any Person,
encourage any such employee to terminate his or her relationship with the
Company or any of its Affiliates, or solicit or encourage any customer or
vendor of the Company or any of its Affiliates, or any independent
contractor providing services to the Company or any of its Affiliates, to
terminate its relationship with them, or, in the case of a customer, to
conduct with any Person any business or activity which such customer
conducts or could conduct with the Company or any of its Affiliates.
9. Enforcement of Covenants. The Executive acknowledges that he has
carefully read and considered all the terms and conditions of this Agreement,
including the restraints imposed upon him pursuant to Sections 7 and 8 hereof.
The Executive agrees that said restraints are necessary for the reasonable and
proper protection of the Company and its Affiliates and that each and every one
of the restraints is reasonable in respect to subject matter, length of time
and geographic area. The Executive further acknowledges that, were he to breach
any of the covenants contained in Sections 7 or 8 hereof, the damage to the
Company would be irreparable. The Executive therefore agrees that the Company,
in addition to any other remedies available to it, shall be entitled to
preliminary and permanent injunctive relief against any breach or threatened
breach by the Executive of any of said covenants, without having to post bond.
The parties further agree that, in the event that any provision of Section 7 or
8 hereof shall be determined by any court of competent jurisdiction to be
unenforceable by reason of its being extended over too great a time, too large
a geographic area or too great a range of activities, such provision shall be
deemed to be modified to permit its enforcement to the maximum extent permitted
by law.
10. Conflicting Agreements. The Executive hereby represents and warrants
that the execution of this Agreement and the performance of his obligations
hereunder will not breach or be in conflict with any other agreement to which
the Executive is a party or is bound and that the Executive is not now subject
to any covenants against competition or similar covenants or other obligations
to third parties that would affect the performance of his obligations
hereunder. The Executive will not disclose to or use on behalf of the Company
any proprietary information of a third party without such party's consent.
11. Definitions. Words or phrases which are initially capitalized or are
within quotation marks shall have the meanings provided in this Section 11 and
as provided elsewhere herein. For purposes of this Agreement, the following
definitions apply:
a. "Affiliates" means all persons and entities directly or indirectly
controlling, controlled by or under common control with the Company, where
control may be by either management authority or equity interest.
b. "Confidential Information" means any and all information of the
Company and its Affiliates that is not generally known by others with whom
they compete or do business, or with whom they plan to compete or do
business, and any and all information, publicly known in whole or in part
or not, which, if disclosed by the Company or its Affiliates would assist
in competition against them. Confidential Information includes without
limitation such information relating to (i) the development, research,
testing, manufacturing, marketing and financial activities of the Company
and its Affiliates, (ii) the products and services of the Company and its
Affiliates, (iii) the costs, sources of supply, financial performance and
strategic plans of the Company and its Affiliates, (iv) the identity and
special needs of the customers of the Company and its Affiliates and (v)
the people and organizations with whom the Company and its Affiliates have
business relationships and those relationships. Confidential Information
also includes any
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information that was received by the Company or any of its Affiliates with
any understanding, express or implied, that it would not be disclosed and
any and all other information treated as confidential by the Company or any
of its Affiliates.
c. "Person" means an individual, a corporation, a limited liability
company, an association, a partnership, an estate, a trust and any other
entity or organization, other than the Company or any of its Affiliates.
12. Withholding. All payments made by the Company under this Agreement shall
be reduced by any tax or other amounts required to be withheld by the Company
under applicable law.
13. Assignment. Neither the Company nor the Executive may make any
assignment of this Agreement or any interest herein, by operation of law or
otherwise, without the prior written consent of the other; provided, however,
that the Company may assign its rights and obligations under this Agreement
without the consent of the Executive in the event that the Company shall
hereafter affect a reorganization, consolidate with, or merge into, any Person
or Affiliate or transfer all or substantially all of its properties or assets
to any Person or Affiliate. This Agreement shall inure to the benefit of and be
binding upon the Company and the Executive, their respective successors,
executors, administrators, heirs and permitted assigns.
14. Severability. If any portion or provision of this Agreement shall to any
extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
15. Waiver. No waiver of any provision hereof shall be effective unless made
in writing and signed by the waiving party. The failure of either party to
require the performance of any term or obligation of this Agreement, or the
waiver by either party of any breach of this Agreement, shall not prevent any
subsequent enforcement of such term or obligation or be deemed a waiver of any
subsequent breach.
16. Notices. Any and all notices, requests, demands and other communications
provided for by this Agreement shall be in writing and shall be effective when
delivered in person or deposited in the United States mail, postage prepaid,
registered or certified, and addressed to the Executive at his last known
address on the books of the Company or, in the case of the Company, at its
principal place of business, attention of the Chairman of the Board, or to such
other address as either party may specify by notice to the other actually
received.
17. Entire Agreement. This Agreement constitutes the entire agreement
between the parties and supersedes all prior communications, agreements and
understandings, written or oral, with respect to the terms and conditions of
the Executive's employment; provided, however, that this Agreement shall not
terminate or supersede the Change in Control Agreement or any additional
obligations of the Executive pursuant to any other agreement with respect to
the confidential information or the like or with respect to any restrictions on
the activities of the Employee or the like or with respect to the securities of
the Company.
18. Amendment. This Agreement may be amended or modified only by a written
instrument signed by the Executive and by a expressly authorized representative
of the Board.
19. Headings. The headings and captions in this Agreement are for
convenience only and in no way define or describe the scope or content of any
provision of this Agreement.
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20. Counterparts. his Agreement may be executed in two or more
counterparts, each of which shall be an original and all of which together
shall constitute one and the same instrument.
21. Governing Law. This is a Massachusetts contract and shall be construed
and enforced under and be governed in all respects by the laws of the
Commonwealth of Massachusetts, without regard to the conflict of laws
principles thereof.
IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument
by the Company, by its duly authorized representative, and by the Executive, as
of the date first above written.
THE EXECUTIVE: NSTAR
/s/ Thomas J. May
----------------------------- By: /s/ Russell D. Wright
Thomas J. May -------------------------------
Russell D. Wright
President, Chief Operating
Officer
and Clerk
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EXHIBIT 7.16.2
Agreement
AGREEMENT made and entered into on this 11th day of May, 1999 by and
between NSTAR (the "Company"), a Massachusetts business trust with its
principal place of business at Boston, Massachusetts, and Russell D. Wright
(the "Executive"). This Agreement shall become effective on the effective date
(the "Effective Date") of the merger transaction between BEC Energy ("BEC")
and Commonwealth Energy System ("Commonwealth") pursuant to the Amended and
Restated Agreement and Plan of Merger dated as of December 5, 1998 and amended
and restated as of May 4, 1999 among BEC, Commonwealth, the Company, BEC
Acquisition, LLC and CES Acquisition, LLC (the "Merger Agreement").
WHEREAS, BEC, Commonwealth, the Company, BEC Acquisition, LLC and CES
Acquisition, LLC have entered into the Merger Agreement, whereby Commonwealth
and BEC will become subsidiaries of the Company (the "Merger"); and
WHEREAS, BEC, Commonwealth and the Company wish to provide for the orderly
succession of management of the Company following the Effective Date; and
WHEREAS, subject to the terms and conditions hereinafter set forth, BEC,
Commonwealth and the Company wish to provide for the employment by the Company
of the Executive and the Executive wishes to accept such employment;
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
promises, terms, provisions and conditions set forth in this Agreement, the
parties hereby agree:
1. Employment. Subject to the terms and conditions set forth in this
Agreement, the Company hereby offers and the Executive hereby accepts
employment.
2. Term. Subject to earlier termination as hereafter provided, the
Executive's employment hereunder shall be for a term of five (5) years,
commencing on the Effective Date, and may be extended or renewed only by
express written agreement signed by the Executive and an expressly authorized
representative of the Company.
3. Capacity and Performance.
a. During the term hereof, the Executive shall serve the Company as its
President and Chief Operating Officer, subject to the direction and control
of the Company's Chief Executive Officer (the "CEO") and the Board of
Trustees of the Company (the "Board"). In addition, and without further
compensation, the Executive shall serve as vice chairman and a director of
the Company's direct wholly-owned subsidiaries.
b. During the term hereof, the Executive shall be employed by the
Company on a full-time basis and shall perform the duties and
responsibilities of his position and such other duties and responsibilities
on behalf of the Company and its Affiliates as may reasonably be designated
from time to time by the CEO or the Board.
c. During the term hereof, the Executive shall devote his full business
time and his best efforts, business judgment, skill and knowledge
exclusively to the advancement of the business and interests of the Company
and its Affiliates and to the discharge of his duties and responsibilities
hereunder. The Employee shall not engage in any other business activity for
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compensation during the term hereof, but may participate in industry,
trade, professional, charitable and community activities so long as the
Board or the CEO is informed of such activities and so long as such
activities do not conflict with the interests of the Company and its
Affiliates or interfere with the discharge of the Executive's duties and
responsibilities to the Company and its Affiliates.
d. The Company agrees to propose to the shareholders of the Company at
each appropriate Annual Meeting of such shareholders during the term hereof
the election or reelection of the Executive as a member of the Board,
provided that the Executive is otherwise eligible for such election.
4. Compensation and Benefits. As compensation for all services performed by
the Executive under and during the term hereof and subject to performance of
the Executive's duties and of the obligations of the Executive to the Company
and its Affiliates, pursuant to this Agreement or otherwise:
a. Base Salary. During the term hereof, the Company shall pay the
Executive a base salary at a rate determined by the Board of Trustees
consistent with the Company's current compensation practices (provided that
the Executive's initial base salary shall be in a range of 75%-80% of the
base salary of the Company's CEO), payable in accordance with the payroll
practices of the Company for its executives and subject to increase from
time to time by the Board, in its sole discretion. Such base salary, as
from time to time increased, is hereafter referred to as the "Base Salary."
b. Incentive Compensation. The Executive shall be entitled to
participate in any incentive compensation programs made available to
executives of the Company generally, in accordance with the terms thereof,
as in effect from time to time, determined by the Board of Trustees
consistent with the Company's current compensation practices .
c. Supplemental Executive Retirement Plan. The Executive shall be
entitled to participate in the Company's Supplemental Executive Retirement
Plan ("SERP") on the same terms applicable to executives of the Company
generally, as in effect from time to time with credit for years of service
at Commonwealth; provided, however, that the annual retirement benefit
which the Executive shall be entitled to receive under the SERP shall be
not less than the amount the Executive would have received had the
Commonwealth supplemental retirement plans continued in effect through the
date of Executive's termination of employment based on Executive's salary
at the effective date of this Agreement.
d. Vacations. During the term hereof, the Executive shall be entitled to
vacation pursuant to the Company's policy for senior executive officers but
not less than six (6) weeks of vacation per annum, to be taken at such
times and intervals as shall be determined by the Executive, subject to the
reasonable business needs of the Company.
e. Other Benefits. During the term hereof, the Executive shall be
entitled to participate in any and all benefit plans and programs from time
to time in effect for executives of the Company generally, except to the
extent such plans are in a category of benefit otherwise provided to the
Executive hereunder (e.g., severance pay plans). Such participation shall
be subject to the terms of the applicable plan documents and generally
applicable Company policies. The Company may alter, modify, add to or
delete its employee benefit plans and programs at any time as it, in its
sole judgment, determines to be appropriate.
f. Business Expenses. The Company shall pay or reimburse the Executive
for all reasonable and necessary business expenses incurred or paid by the
Executive in the performance of his
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duties and responsibilities hereunder, subject to any maximum annual limit
and other restrictions on such expenses set by the Board and to such
reasonable substantiation and documentation as may be specified by the
Company from time to time.
5. Termination of Employment and Severance Benefits. Notwithstanding the
provisions of Section 2 hereof, the Executive's employment hereunder shall
terminate prior to the expiration of the term under the following
circumstances:
a. Death. In the event of the Executive's death during the term hereof,
the Executive's employment hereunder shall immediately and automatically
terminate. In that event, the Company shall pay to the Executive's
designated beneficiary or, if no beneficiary has been designated by the
Executive, to his estate, any Base Salary earned and unpaid, and any
vacation time accrued and unpaid, through the date of death, and any
incentive compensation that is earned but unpaid, pro-rated through the
date of his death.
b. Disability.
i. The Company may terminate the Executive's employment hereunder,
upon notice to the Executive, in the event that the Executive becomes
disabled during his employment hereunder through any illness, injury,
accident or condition of either a physical or psychological nature and,
as a result, is unable to perform substantially all of his duties and
responsibilities hereunder for one hundred and eighty (180) days during
any period of three hundred and sixty-five (365) consecutive calendar
days.
ii. The Board may designate another employee to act in the
Executive's place during any period of the Executive's disability.
Notwithstanding any such designation, the Executive shall continue to
receive the Base Salary in accordance with Section 4.a and benefits in
accordance with Sections 4.c, 4.d and 4.e, to the extent permitted by
the then-current terms of the applicable benefit plans, until the
Executive becomes eligible for disability income benefits under the
Company's disability income plan or until the termination of his
employment, whichever shall first occur.
iii. While receiving disability income payments under the Company's
disability income plan, the Executive shall not be entitled to receive
any Base Salary under Section 4.a hereof, but shall continue to
participate in Company benefit plans in accordance with Sections 4.c,
4.d and 4.e and the terms of such plans, until the termination of his
employment.
iv. If any question shall arise as to whether during any period the
Executive is disabled through any illness, injury, accident or
condition of either a physical or psychological nature so as to be
unable to perform substantially all of his duties and responsibilities
hereunder, the Executive may, and at the request of the Company shall,
submit to a medical examination by a physician selected by the Company
to whom the Executive or his duly appointed guardian, if any, has no
reasonable objection to determine whether the Executive is so disabled
and such determination shall for the purposes of this Agreement be
conclusive of the issue. If such question shall arise and the Executive
shall fail to submit to such medical examination, the Company's
determination of the issue shall be binding on the Executive.
c. By the Company for Cause. The Company may terminate the Executive's
employment hereunder for Cause at any time during the term hereof upon
notice pursuant to a vote of the Board of Trustees (at which meeting the
Executive was given an opportunity to be heard) to the
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Executive setting forth in reasonable detail the nature of such Cause. The
following, as determined by the Board in its reasonable judgment, shall
constitute Cause for termination: (a) commission of a felony or gross
neglect of duty by the Executive which is intended to result in substantial
personal enrichment of the Executive at the expense of the Company, (b)
conviction of a crime involving moral turpitude or (c) willful failure by
the Executive of his duties to the Company which failure is deliberate on
the Executive's part and results in material injury to the Company. For
purposes of this definition of Cause, no act or omission shall be
considered to have been "willful" unless it was not in good faith and the
Executive had knowledge at the time that the act or omission was not in the
best interest of the Company. Any act, or failure to act, based on
authority given pursuant to a resolution duly adopted by the Board or upon
the instructions of the Chief Executive Officer or another senior officer
of the Company or based on the advice of counsel of the Company shall be
conclusively presumed to be done, or omitted to be done, by the Executive
in good faith and in the best interest of the Company. Upon the giving of
notice of termination of the Executive's employment hereunder for Cause,
the Company shall have no further obligation or liability to the Executive,
other than for Base Salary earned and unpaid at the date of termination and
vacation time accrued but unused on that date.
d. By the Company Other than for Cause. The Company may terminate the
Executive's employment hereunder other than for Cause at any time upon
notice to the Executive.
e. By the Executive for Good Reason. The Executive may terminate his
employment hereunder for Good Reason, upon notice to the Company setting
forth in reasonable detail the nature of such Good Reason. The following
shall constitute Good Reason for termination by the Executive: (i) failure
of the Company to continue the Executive in the position of President and
Chief Operating Officer; (ii) failure of the Company to provide Executive
with Base Salary and target incentive compensation in any year at least
equal to the amount of Base Salary and target incentive compensation
payable to Executive during the first year of this Agreement, (iii)
material diminution in the nature or scope of the Executive's
responsibilities, duties or authority; provided, however, that any
diminution of the business of the Company or any of its Affiliates,
including without limitation the sale or transfer of any or all of the
assets of any of the Affiliates, shall not constitute "Good Reason"; (iv)
material failure of the Company to provide the Executive the Base Salary
and benefits in accordance with the terms of Section 4 hereof; or (v) the
Company's relocation of the Executive's office outside the Greater Boston
Metropolitan Area, in each case, without the Executive's consent.
f. By the Executive Other than for Good Reason. The Executive may
terminate his employment hereunder at any time upon three (3) months'
notice to the Company, unless such termination would violate any obligation
of the Executive to the Company under a separate severance agreement. In
the event of termination of the Executive's employment pursuant to this
Section 5.f, the Board may elect to waive the period of notice, or any
portion thereof, and, if the Board so elects, the Company will pay the
Executive his Base Salary for the notice period (or for any remaining
portion of the period).
g. Upon a Change in Control. In the event that there occurs a Change in
Control, as defined in the Change in Control Agreement between the
Executive and the Company of even date (the "Change in Control Agreement"),
any compensation or other benefits to which the Executive is entitled upon
termination of his employment shall be governed exclusively by the Change
in Control Agreement, which compensation and benefits shall be in lieu of
any compensation or benefits to which the Executive would otherwise have
been entitled under Section 6 hereof.
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h. Post-Agreement Employment. In the event the Executive remains in the
employ of the Company or any of its Affiliates following termination of
this Agreement, by the expiration of the term or otherwise, then such
employment shall be at will.
6. Effect of Termination.
a. In the event of termination of the Executive's employment in
accordance with Section 5.d or 5.e during the term hereof, and provided
that no benefits are payable under the Change in Control Agreement in
accordance with Section 5.g. hereof, the Company shall provide the
Executive the following:
(i) The Company shall pay the Executive any Base Salary earned but
unpaid on the date of termination and shall pay the Executive for any
vacation time accrued but unused as of that date.
(ii) During a period equal to the remainder of the term of this
Agreement on the date of termination of the Executive's employment (the
"Severance Pay Period"), the Company shall continue to pay the Executive
the Base Salary, at the rate in effect on the date of termination, such
payments to be made in accordance with the Company's regular payroll
practices and at the Company's regular payroll periods.
(iii) During the Severance Pay Period, the Company shall pay the
Executive incentive compensation calculated on the basis of the incentive
compensation paid to the Executive in the most recently completed fiscal
year, pro-rated for any partial fiscal year during the Severance Pay Period
and payable at such time or times as incentive compensation is paid to
executives of the Company generally. In the event that the Executive's
employment terminates prior to the close of the first fiscal year following
the Effective Date, incentive compensation payable to the Executive during
the Severance Pay Period shall be calculated on the basis of the
Executive's target bonus under the applicable incentive compensation plan
or plans.
(iv) The Company shall pay the Executive, within 30 days following the
date of termination of his employment, an amount equal to the excess of (1)
the lump-sum actuarial equivalent of the accrued benefit under (A) the
Company's qualified defined benefit Retirement Plan (the "Retirement Plan")
and (B) the SERP which the Executive would receive if the Executive's
employment had continued during the Severance Pay Period, assuming for
these purposes that all accrued benefits are fully vested and further
assuming that the Executive's annual compensation for purposes of
determining benefits under the Retirement Plan and SERP ("Covered
Compensation") shall be as set forth in subsections (ii) and (iii)
immediately above, over (2) the lump-sum actuarial equivalent of the
Executive's actual accrued benefit (paid or payable), if any, under the
Retirement Plan and the SERP as of the date of termination.
(v) The Executive, together with his dependents, will continue during
the Severance Pay Period to participate fully at the Company's expense in
all welfare benefit plans and programs maintained or sponsored by the
Company in which they were participating on the date the Executive's
employment terminated or receive substantially the equivalent coverage (or
the full value thereof in cash) from the Company; provided, however, that
if the Executive becomes re-employed with another employer and is eligible
to receive medical or other welfare benefits under another employer-
provided plan, the medical and other welfare benefits described herein
shall be secondary to those provided under such other plan during such
applicable period of eligibility. For purposes of determining eligibility
(but not the time of commencement of benefits) of the Executive for any
retiree benefits pursuant to such plans or programs, the Executive shall be
considered to have remained employed throughout the Severance Pay Period
and to have retired on the last day of such Period.
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b. Provision by the Company of any compensation and benefits due the
Executive in accordance with Section 5 or this Section 6, as applicable,
shall constitute the entire obligation of the Company to the Executive.
Acceptance by the Executive of performance by the Company shall constitute
full settlement of any claim that the Executive might otherwise assert
against the Company, its Affiliates or any of their shareholders, trustees,
directors, officers, employees or agents, successors or assigns on account
of such termination.
c. Any restricted share, share option or cash award granted to the
Executive by the Company which is vested on the date of termination of the
Executive's employment shall be governed in accordance with the provisions
of each such grant. Any restricted share, share option or cash award not
vested on the date of termination shall be forfeited as of that date.
d. Provisions of this Agreement shall survive any termination of this
Agreement, by expiration of the term or otherwise, if so provided herein or
if necessary or desirable fully to accomplish the purposes of such
provision, including without limitation the obligations of the Executive
under Sections 7 and 8 hereof. The obligation of the Company to make
payments to or on behalf of the Executive under Section 5.d or 5.e hereof
is expressly conditioned upon the Executive's continued full performance of
obligations under Sections 7 and 8 hereof. The Executive recognizes that,
except as expressly provided in Section 5.d or 5.e, no compensation is
earned after termination of employment.
7. Confidential Information.
a. The Executive acknowledges that the Company and its Affiliates
continually develop Confidential Information, that the Executive may
develop Confidential Information for the Company or its Affiliates and that
the Executive may learn of Confidential Information during the course of
employment. The Executive will comply with the policies and procedures of
the Company and its Affiliates for protecting Confidential Information and
shall never disclose to any Person (except as required by applicable law or
for the proper performance of his duties and responsibilities to the
Company and its Affiliates), or use for his own benefit or gain or that of
another Person, any Confidential Information obtained by the Executive
incident to his employment or other association with the Company or any of
its Affiliates. The Executive understands that this restriction shall
continue to apply after his employment terminates, regardless of the reason
for such termination.
b. All documents, records, tapes and other media of every kind and
description relating to the business, present or otherwise, of the Company
or its Affiliates and any copies, in whole or in part, thereof (the
"Documents"), whether or not prepared by the Executive, shall be the sole
and exclusive property of the Company and its Affiliates. The Executive
shall safeguard all Documents and shall surrender to the Company at the
time his employment terminates, or at such earlier time or times as the
Board or its designee may specify, all Documents then in the Executive's
possession or control.
8. Restricted Activities. The Executive agrees that some restrictions on his
activities during and after his employment are necessary to protect the
goodwill, Confidential Information and other legitimate interests of the
Company and its Affiliates:
a. While the Executive is employed by the Company and, in the event of
termination of the Executive's employment under Section 5.d or 5.e hereof,
throughout the Severance Pay Period, the Executive shall not, directly or
indirectly, whether as owner, partner, investor, consultant, agent,
employee, co-venturer or otherwise, compete with the Company or any of its
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Affiliates within Massachusetts or undertake any planning for any business
competitive with the Company or any of its Affiliates. Specifically, but
without limiting the foregoing, the Executive agrees not to engage in any
manner in any activity that is directly or indirectly competitive or
potentially competitive with the business of the Company or any of its
Affiliates as conducted or under consideration at any time during the
Executive's employment.
b. The Executive further agrees that while he is employed by the Company
and for a period of one year following termination of his employment with
the Company, however effected, the Executive will not, directly or
indirectly, hire or attempt to hire any employee of the Company or any of
its Affiliates, assist in such hiring by any Person, encourage any such
employee to terminate his or her relationship with the Company or any of
its Affiliates, or solicit or encourage any customer or vendor of the
Company or any of its Affiliates, or any independent contractor providing
services to the Company or any of its Affiliates, to terminate its
relationship with them, or, in the case of a customer, to conduct with any
Person any business or activity which such customer conducts or could
conduct with the Company or any of its Affiliates.
9. Enforcement of Covenants. The Executive acknowledges that he has
carefully read and considered all the terms and conditions of this Agreement,
including the restraints imposed upon him pursuant to Sections 7 and 8 hereof.
The Executive agrees that said restraints are necessary for the reasonable and
proper protection of the Company and its Affiliates and that each and every one
of the restraints is reasonable in respect to subject matter, length of time
and geographic area. The Executive further acknowledges that, were he to breach
any of the covenants contained in Sections 7 or 8 hereof, the damage to the
Company would be irreparable. The Executive therefore agrees that the Company,
in addition to any other remedies available to it, shall be entitled to
preliminary and permanent injunctive relief against any breach or threatened
breach by the Executive of any of said covenants, without having to post bond.
The parties further agree that, in the event that any provision of Section 7 or
8 hereof shall be determined by any court of competent jurisdiction to be
unenforceable by reason of its being extended over too great a time, too large
a geographic area or too great a range of activities, such provision shall be
deemed to be modified to permit its enforcement to the maximum extent permitted
by law.
10. Conflicting Agreements. The Executive hereby represents and warrants
that the execution of this Agreement and the performance of his obligations
hereunder will not breach or be in conflict with any other agreement to which
the Executive is a party or is bound and that the Executive is not now subject
to any covenants against competition or similar covenants or other obligations
to third parties that would affect the performance of his obligations
hereunder. The Executive will not disclose to or use on behalf of the Company
any proprietary information of a third party without such party's consent.
11. Definitions. Words or phrases which are initially capitalized or are
within quotation marks shall have the meanings provided in this Section 11 and
as provided elsewhere herein. For purposes of this Agreement, the following
definitions apply:
a. "Affiliates" means all persons and entities directly or indirectly
controlling, controlled by or under common control with the Company, where
control may be by either management authority or equity interest.
b. "Confidential Information" means any and all information of the
Company and its Affiliates that is not generally known by others with whom
they compete or do business, or with whom they plan to compete or do
business, and any and all information, publicly known in
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<PAGE>
whole or in part or not, which, if disclosed by the Company or its
Affiliates would assist in competition against them. Confidential
Information includes without limitation such information relating to (i)
the development, research, testing, manufacturing, marketing and financial
activities of the Company and its Affiliates, (ii) the products and
services of the Company and its Affiliates, (iii) the costs, sources of
supply, financial performance and strategic plans of the Company and its
Affiliates, (iv) the identity and special needs of the customers of the
Company and its Affiliates and (v) the people and organizations with whom
the Company and its Affiliates have business relationships and those
relationships. Confidential Information also includes any information that
was received by the Company or any of its Affiliates with any
understanding, express or implied, that it would not be disclosed and any
and all other information treated as confidential by the Company or any of
its Affiliates.
c. "Person" means an individual, a corporation, a limited liability
company, an association, a partnership, an estate, a trust and any other
entity or organization, other than the Company or any of its Affiliates.
12. Withholding. All payments made by the Company under this Agreement
shall be reduced by any tax or other amounts required to be withheld by the
Company under applicable law.
13. Assignment. Neither the Company nor the Executive may make any
assignment of this Agreement or any interest herein, by operation of law or
otherwise, without the prior written consent of the other; provided, however,
that the Company may assign its rights and obligations under this Agreement
without the consent of the Executive in the event that the Company shall
hereafter affect a reorganization, consolidate with, or merge into, any Person
or Affiliate or transfer all or substantially all of its properties or assets
to any Person or Affiliate. This Agreement shall inure to the benefit of and be
binding upon the Company and the Executive, their respective successors,
executors, administrators, heirs and permitted assigns.
14. Severability. If any portion or provision of this Agreement shall to any
extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
15. Waiver. No waiver of any provision hereof shall be effective unless made
in writing and signed by the waiving party. The failure of either party to
require the performance of any term or obligation of this Agreement, or the
waiver by either party of any breach of this Agreement, shall not prevent any
subsequent enforcement of such term or obligation or be deemed a waiver of any
subsequent breach.
16. Notices. Any and all notices, requests, demands and other communications
provided for by this Agreement shall be in writing and shall be effective when
delivered in person or deposited in the United States mail, postage prepaid,
registered or certified, and addressed to the Executive at his last known
address on the books of the Company or, in the case of the Company, at its
principal place of business, attention of the CEO, or to such other address as
either party may specify by notice to the other actually received.
17. Entire Agreement. This Agreement constitutes the entire agreement
between the parties and supersedes all prior communications, agreements and
understandings, written or oral, with respect to the terms and conditions of
the Executive's employment; provided, however, that this Agreement
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<PAGE>
shall not terminate or supersede the Change in Control Agreement or any
additional obligations of the Executive pursuant to any other agreement with
respect to the confidential information or the like or with respect to any
restrictions on the activities of the Employee or the like or with respect to
the securities of the Company. The Executive hereby expressly waives any rights
he may have under the Severance Agreement between Commonwealth Energy System
and Executive dated as of , 1998 providing certain benefits to the
Executive in the event of a change of control (the "Pre-Merger Severance
Agreement") as a result of the Merger Agreement or the transactions
contemplated thereby. Executive further agrees that the Pre-Merger Severance
Agreement shall terminate upon the Effective Date and be of no further force
and effect.
18. Amendment. This Agreement may be amended or modified only by a written
instrument signed by the Executive and by a expressly authorized representative
of the Company.
19. Headings. The headings and captions in this Agreement are for
convenience only and in no way define or describe the scope or content of any
provision of this Agreement.
20. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be an original and all of which together
shall constitute one and the same instrument.
21. Governing Law. This is a Massachusetts contract and shall be construed
and enforced under and be governed in all respects by the laws of the
Commonwealth of Massachusetts, without regard to the conflict of laws
principles thereof.
IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument
by the Company, by its duly authorized representative, and by the Executive, as
of the date first above written.
THE EXECUTIVE: NSTAR
/s/ Russell D. Wright
------------------------------- By: /s/ Thomas J. May
Russell D. Wright -------------------------------
Thomas J. May
Chairman of the Board, Chief
Executive Officer and
Treasurer
A-81
<PAGE>
ANNEX B
Opinion of Goldman, Sachs & Co.
December 5, 1998
Board of Directors
BEC Energy
800 Boylston Street
Boston, MA 02199
Ladies and Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to the holders (other than Commonwealth Energy System ("Commonwealth")
and its affiliates) of the outstanding common shares, par value $1.00 per
share (the "BEC Shares"), of BEC Energy (the "Company") of the Stock
Consideration and the Cash Consideration (each as defined below) to be
received by the holders of BEC Shares in the Mergers (as defined below)
pursuant to the Agreement and Plan of Merger, dated as of December 5, 1998
(the "Agreement"), by and among the Company, Boston Energy Technology Group,
Inc., a wholly-owned subsidiary of the Company ("BETG"), Commonwealth,
COM/Energy Resources, Inc., a wholly-owned subsidiary of Commonwealth ("CRI"),
and BEC Newco, Inc., the outstanding common stock of which is owned 50% by
each of the Company and Commonwealth ("Newco").
The Agreement provides that the Company will merge with and into BETG, with
BETG being the surviving corporation (the "BEC Subsidiary Merger"). The
holders of BEC Shares (other than the Company, Commonwealth, Newco and any of
their respective subsidiaries) will receive one share of Common Stock, par
value $1.00 per share, of BETG (the "BETG Shares") for each BEC Share in the
BEC Subsidiary Merger. Immediately following the consummation of the BEC
Subsidiary Merger, BETG will merge with and into Newco, with Newco being the
surviving corporation (the "BEC Newco Merger," and together with the BEC
Subsidiary Merger, the "BEC Mergers"). The holders of outstanding BETG Shares
will have the right to receive with respect to each BETG Share either (i)
$44.10 in cash (the "Cash Consideration") or (ii) one fully paid and non-
assessable share of Common Stock, par value $1.00 per share, of Newco (the
"Newco Shares," and such consideration, the "Stock Consideration"), in each
case as the holder thereof shall have elected or be deemed to have elected
pursuant to the Agreement, subject to certain procedures and limitations
contained in the Agreement, as to which we are expressing no opinion. The
Agreement further provides that as part of the same transaction as the BEC
Mergers, Commonwealth will merge with and into CRI, with CRI being the
surviving corporation (the "Commonwealth Subsidiary Merger"). The holders of
outstanding common shares, par value $2.00 per share, of Commonwealth (the
"Commonwealth Shares") (other than Commonwealth, the Company, Newco and any of
their respective subsidiaries) will receive one share of Common Stock, par
value $2.00 per share, of CRI (the "CRI Shares") for each Commonwealth Share
in the Commonwealth Subsidiary Merger. In addition, immediately following the
consummation of the Commonwealth Subsidiary Merger and concurrently with the
consummation of the BEC Newco Merger, CRI will merge with and into Newco, with
Newco being the surviving corporation (such merger, together with the
Commonwealth Subsidiary Merger and the BEC Mergers, the "Mergers"). The
holders of the outstanding CRI Shares will have the right to receive with
respect to each CRI Share either (i) $44.10 in cash or (ii) 1.05 Newco Shares,
in each case as the holder thereof shall have elected or be deemed to have
elected pursuant to the Agreement, subject to certain procedures and
limitations contained in the Agreement.
B-1
<PAGE>
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. We are
familiar with the Company having provided certain investment banking services
to the Company from time to time, including having acted as its financial
advisor in connection with the sale of the Company's fossil fuel generating
assets to Sithe Energies, Inc. in July 1998, and having acted as its financial
advisor in connection with, and having participated in certain of the
negotiations leading to, the Agreement. We also have provided certain
investment banking services to Commonwealth from time to time, including having
acted as its financial advisor in connection with an agreement to sell certain
generating plants of Commonwealth to an affiliate of Southern Energy, Inc. in
May 1998. In connection with this opinion, we have reviewed, among other
things, the Agreement; Annual Reports to Stockholders and Annual Reports on
Form 10-K of the Company and of Commonwealth for the five years ended December
31, 1997; certain interim reports to stockholders and Quarterly Reports on Form
10-Q of the Company and Commonwealth; certain other communications from the
Company and Commonwealth to their respective stockholders; certain internal
financial analyses and forecasts for the Company and Commonwealth prepared by
their respective managements; certain internal financial analyses and forecasts
for Commonwealth prepared by the management of the Company; and certain cost
savings and operating synergies expected to result from the transactions
contemplated by the Agreement prepared by the managements of the Company and
Commonwealth with the assistance of a third party consultant (the "Synergies").
We also have held discussions with members of the senior management of the
Company and Commonwealth regarding the strategic rationale for, and the
potential benefits of, the transactions contemplated by the Agreement and the
past and current business operations, financial condition and future prospects
of their respective companies. In addition, we have reviewed the reported price
and trading activity for the BEC Shares and the Commonwealth Shares, compared
certain financial and stock market information for the Company and Commonwealth
with similar information for certain other companies the securities of which
are publicly traded, reviewed the financial terms of certain recent business
combinations in the electric and gas utility industry specifically and in other
industries generally, and performed such other studies and analyses as we
considered appropriate.
We have relied upon the accuracy and completeness of all of the financial
and other information reviewed by us and have assumed such accuracy and
completeness for purposes of rendering this opinion. In that regard, we have
assumed with your consent that the Synergies have been reasonably prepared on a
basis reflecting the best currently available estimates and judgments of the
Company and Commonwealth and that such Synergies will be realized in the
amounts and time periods contemplated thereby. In addition, we have not made an
independent evaluation or appraisal of the assets and liabilities of the
Company or Commonwealth or any of their subsidiaries and we have not been
furnished with any such evaluation or appraisal, other than certain third party
appraisals of the Company's investment in a joint venture with RCN Corp., as to
which appraisals we are expressing no opinion. Our advisory services and the
opinion expressed herein are provided for the information and assistance of the
Board of Directors of the Company in connection with its consideration of the
transactions contemplated by the Agreement and such opinion does not constitute
a recommendation as to how any holder of BEC Shares should vote with respect to
such transactions.
Based upon and subject to the foregoing and based upon such other matters as
we consider relevant, it is our opinion that as of the date hereof the Stock
Consideration and the Cash Consideration to be received pursuant to the
Agreement by the holders of BEC Shares, taken as a
B-2
<PAGE>
unitary transaction, are fair from a financial point of view to the holders of
BEC Shares receiving such consideration.
Very truly yours,
/s/ Goldman, Sachs & Co.
________________________
(GOLDMAN, SACHS & CO.)
B-3
<PAGE>
ANNEX C
Opinion of SG Barr Devlin
[LOGO]
May 14, 1999
The Board of Trustees
Commonwealth Energy System
One Main Street
Cambridge, MA 02142-9150
Dear Members of the Board:
We understand that Commonwealth Energy System, a Massachusetts business
trust ("CES"), BEC Energy, a Massachusetts business trust ("BEC"), CES
Acquisition LLC, a Massachusetts limited liability company ("CES LLC"), BEC
Acquisition LLC, a Massachusetts limited liability company ("BEC LLC"), and
NSTAR, a Massachusetts business trust of which CES and BEC together own all of
the outstanding interests (the "Company"), have determined to enter into an
Agreement and Plan of Merger, dated as of December 5, 1998 and amended as of
May 4, 1999 (the "Agreement"). Under the Agreement, the businesses of CES and
BEC would be combined by means of the merger of CES LLC with and into CES and
the merger of BEC LLC with and into BEC (collectively, the "Mergers").
Capitalized terms used herein without definition have the respective meanings
assigned to such terms in the Agreement.
In particular, the Agreement provides for, among other things, the merger,
at the Effective Time, of CES LLC with and into CES (the "CES Merger") whereby
each issued and outstanding share of common stock, $2.00 par value per share,
of CES (the "CES Common Shares") (other than any CES Common Shares held as
treasury shares and canceled pursuant to Section 2.2(b) of the Agreement)
shall be converted into either (i) $44.10 in cash (the "CES Cash
Consideration") or (ii) 1.05 fully paid and non-assessable shares of the
Company, par value $1.00 per share (the "Company Common Shares"), such stock
consideration being referred to as the "CES Share Consideration", in each case
as the holder thereof shall have elected or be deemed to have elected, subject
to certain procedures and limitations contained in the Agreement. In
aggregate, holders of CES Common Shares shall receive CES Cash Consideration
for 2,267,573.696 CES Common Shares and CES Share Consideration for all
remaining CES Common Shares (collectively, the "CES Merger Consideration"),
subject to adjustment as provided pursuant to Section 2.2(c) of the Agreement.
The Agreement also provides for the merger, at the Effective Time, of BEC LLC
with and into BEC (the "BEC Merger") whereby each issued and outstanding share
of common stock, $1.00 par value per share, of BEC (the "BEC Common Shares")
(other than any BEC Common Shares held as treasury shares and canceled
pursuant to Section 2.3(b) of the Agreement) shall be converted into either
(i) $44.10 in cash (the "BEC Cash Consideration") or (ii) one fully paid and
non-assessable Company Common Share (the "BEC Share Consideration"), in each
case as the holder thereof shall have elected or be deemed to have elected,
subject to certain procedures and limitations contained in the Agreement. In
aggregate, holders of BEC Common Shares shall receive BEC Cash Consideration
for 4,535,147.392 BEC Common Shares and BEC Share Consideration for all
remaining BEC Common Shares (collectively, the "BEC Merger Consideration"),
subject to adjustment as provided pursuant to Section 2.3(c) of the Agreement.
The terms and conditions of the Mergers are set forth in more detail in the
Agreement.
[LOGO]
C-1
<PAGE>
We have been requested by CES to render our opinion with respect to the
fairness, from a financial point of view, to holders of CES Common Shares of
the CES Merger Consideration to be issued pursuant to the Agreement.
In arriving at our opinion, we have, among other things:
(1) Reviewed the Annual Reports, Forms 10-K and the related financial
information for the three-year period ended December 31, 1998, for CES;
(2) Reviewed the Annual Reports, Forms 10-K and the related financial
information for the three-year period ended December 31, 1998, for BEC;
(3) Reviewed certain other filings with the Securities and Exchange
Commission and other regulatory authorities made by CES and BEC during the
last three years, including proxy statements, FERC Forms 1 and 2, Forms 8-K
and registration statements;
(4) Reviewed certain internal information, including financial
forecasts, relating to the business, earnings, capital expenditures, cash
flow, assets and prospects of CES and BEC furnished to us by CES and BEC;
(5) Conducted discussions with members of senior management of CES and
BEC concerning their respective businesses, regulatory environments,
prospects, strategic objectives and possible operating and administrative
synergies and other benefits which might be realized for the benefit of the
combined company following the Mergers;
(6) Reviewed the historical market prices and trading activity for CES
Common Shares and BEC Common Shares and compared them with those of certain
publicly traded companies which we deemed to be relevant;
(7) Compared the results of operations of CES and BEC with those of
certain companies which we deemed to be relevant;
(8) Compared the proposed financial terms of the Mergers with the
financial terms of certain business combinations which we deemed to be
relevant;
(9) Analyzed the valuation of CES Common Shares and BEC Common Shares
using various valuation methodologies which we deemed to be appropriate;
(10) Considered the pro forma capitalization, earnings and cash flow of
the combined company;
(11) Compared the pro forma capitalization ratios, earnings per share,
dividends per share, cash flow per share and payout ratio of the combined
company with each of the corresponding current and projected values for CES
and BEC on a stand-alone basis;
(12) Reviewed the Agreement;
(13) Reviewed the Joint Proxy Statement/Prospectus; and
(14) Reviewed such other studies, conducted such other analyses,
considered such other financial, economic and market criteria, performed
such other investigations and taken into account such other matters as we
deemed necessary or appropriate for purposes of this opinion.
In rendering our opinion, we have relied, without independent verification,
upon the accuracy and completeness of all financial and other information
publicly available or otherwise furnished or made available to us by CES and
BEC and have further relied upon the assurances of management of CES and BEC
that they are not aware of any facts that would make such information
inaccurate or misleading. With respect to the financial projections of CES and
BEC, we have relied upon the
C-2
<PAGE>
assurances of management of CES and BEC that such projections have been
reasonably prepared and reflect the best currently available estimates and
judgments of the respective managements of CES and BEC as to the future
financial performance of CES and BEC, as the case may be, and as to the
projected outcomes of legal, regulatory and other contingencies. In arriving at
our opinion, we have not made or been provided with an independent evaluation
or appraisal of the assets or liabilities (contingent or otherwise) of CES or
BEC, nor have we made any physical inspection of the properties or assets of
CES or BEC. We have assumed that the Mergers will be tax-free reorganizations
as described under Section 351 of the Internal Revenue Code of 1986, as
amended, and that holders of CES Common Shares and BEC Common Shares who
exchange their shares solely for the shares of the combined company will
recognize no gain or loss for federal income tax purposes as a result of the
consummation of the Mergers. We have also assumed that the combination will be
accounted for by the purchase method of accounting. You have not authorized us
to solicit, and we have not solicited, any indications of interest from any
third party with respect to the purchase of all or a part of CES. Our opinion
herein is necessarily based upon financial, stock market and other conditions
and circumstances existing and disclosed to us as of the date hereof.
The SG Barr Devlin division of SG Cowen Securities Corporation ("SG Barr
Devlin") has acted as financial advisor to CES in connection with the Mergers
and will receive certain fees for our services. In addition, we have in the
past rendered certain investment banking and financial advisory services to CES
for which we received customary compensation.
Our advisory services and the opinion expressed herein are for the
information of CES' Board of Trustees in evaluating the Mergers. Except for its
publication in the Joint Proxy/Registration Statement which will be distributed
to holders of CES Common Shares and BEC Common Shares in connection with
approval of the Mergers, our opinion may not be published or otherwise used or
referred to without our prior written consent. This opinion is not intended to
be, and does not constitute, a recommendation to any stockholder as to how such
stockholder should act with respect to the Mergers.
Based upon and subject to the foregoing, our experience as investment
bankers and other factors we deem relevant, we are of the opinion that, as of
the date hereof, the CES Merger Consideration to be issued pursuant to the
Agreement is fair, from a financial point of view, to the holders of CES Common
Shares.
Very truly yours,
/s/ SG BARR DEVLIN
SG BARR DEVLIN
C-3
<PAGE>
ANNEX D
Declaration of Trust
of NSTAR
DECLARATION OF TRUST
OF
NSTAR
Dated April 20, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
1.Name; Purpose.......................................................... 1
2.Definitions............................................................ 1
3.Limitations on Liability............................................... 2
4.Nonassessability of Shareholders....................................... 2
5.Reliance of Third Persons.............................................. 2
6.Place of Business...................................................... 3
7.Trust Estate; Conversion into Personal Estate.......................... 3
8.Powers of Trustees..................................................... 3
9.Number and Election.................................................... 7
10.Resignation; Vacancies; Removals....................................... 8
11.Vesting in New Trustees................................................ 8
12.Compensation........................................................... 8
13.Unissued Shares........................................................ 8
14.Determination of Capital and Income.................................... 8
15.Dividends.............................................................. 9
16.Fiscal Year; Accounts.................................................. 9
17.Action by Board; Quorum................................................ 9
18.Bylaws................................................................. 9
19.Certificate Evidencing Votes........................................... 9
20.Trustees and Officers.................................................. 9
21.Liability.............................................................. 10
22.Books and Reports...................................................... 10
23.Advance of Expenses.................................................... 10
24.Rights Not Exclusive; Definitions...................................... 10
25.Shareholders........................................................... 11
26.Shareholders, Trustees, Officers and Agents............................ 11
27.Authorization or Ratification by Shareholders.......................... 11
28.Number; Nonassessable.................................................. 11
29.Shares Personal Property; Trust Only................................... 12
30.Rights of Shareholders; Limitation on Rights of Action................. 12
31.Additional Shares...................................................... 12
32.Preferred Shares....................................................... 12
33.All Other Changes in Shares............................................ 12
34.Consideration for Issue................................................ 13
35.No Preemptive or Preferential Rights of Subscription................... 13
36.Treasury Shares........................................................ 13
37.Transfer Books......................................................... 13
38.Transfer Agent......................................................... 13
39.Share Certificates..................................................... 13
40.Lost, Stolen or Destroyed Share Certificates........................... 13
41.Transfer of Shares..................................................... 13
42.Transfers by Operation of Law.......................................... 14
43.Joint Owners........................................................... 14
44.No Duty to Examine into Trusts, Pledges, etc., to Which Shares Are Sub-
ject..................................................................... 14
45.Annual Meeting......................................................... 14
46.Special Meetings....................................................... 14
47.Presiding Officer...................................................... 14
48.Business to be Transacted.............................................. 15
49.Notices................................................................ 15
</TABLE>
<PAGE>
<TABLE>
<S> <C>
50.Voting; Quorum........................................................... 15
51.Adjournment of Meeting................................................... 15
52.Requisite Vote to Act.................................................... 15
53.Record Date for Voting, Dividends and Offerings.......................... 16
54.Duration of Trust........................................................ 16
55.Death of Shareholder or Trustee Not to Terminate Trust................... 16
56.Termination; Combination; Affiliation.................................... 16
57.Certain Transactions..................................................... 16
58.Amendments............................................................... 20
59.Certificate of Termination or Amendment.................................. 20
60.Disposition of Trust Estate on Termination............................... 20
61.Filing................................................................... 21
62.Protection of Company, Stock of Which Held by Trust...................... 21
63.Authority of the Trustees to Construe Terms Hereof....................... 21
64.Effect of Captions and Table of Contents................................. 21
65.Counterparts............................................................. 21
66.Governing Law............................................................ 21
67.Provisions in Conflict with Law or Regulations........................... 21
</TABLE>
<PAGE>
DECLARATION OF TRUST
OF
NSTAR
This DECLARATION OF TRUST is made in Boston in the County of Suffolk, The
Commonwealth of Massachusetts, this 20th day of April, 1999, by Thomas J. May
of 107 Margery Lane, Westwood, MA 02090, and Russell D. Wright of 139 Bullivant
Farm Road, Marion, MA 02731, who shall be collectively referred to as the
Trustees, such term to include the Trustees for the time being hereunder as
defined below.
WHEREAS it is desired to create under and in accordance with the provisions
of this instrument a voluntary business association with transferable shares
for the acquisition of property and the conduct of business as hereinafter set
forth;
NOW, THEREFORE, this DECLARATION OF TRUST WITNESSETH that said Thomas J. May
and Russell D. Wright, for themselves, their heirs, executors, administrators,
successors and assigns, do hereby declare that they and their successors from
time to time, as Trustees hereunder, will hold, manage and dispose of the trust
estate, as hereinafter defined in trust in the manner and with and subject to
the powers and provisions hereinafter contained concerning the same, for the
benefit of the Shareholders (as hereinafter defined) according to the number
and kind of shares held by them respectively.
Name; Purpose
1. Name; Purpose. The Trustees as trustees hereunder, though not in their
individual capacities, shall be designated NSTAR and are hereinafter referred
to as the "Company." So far as may be practicable, all things relating to the
trust hereby created shall be done under such name. The purpose of the Company
shall be to engage, either directly or through direct or indirect subsidiaries,
joint ventures, partnerships, limited liability companies or other combinations
or associations, in any manufacturing, mercantile, selling, management, service
or other business, operation or activity related to energy generation,
transmission or distribution, utilization, conservation or transportation,
construction, telecommunications, or any other manufacturing, mercantile,
selling, management, service or other business, operation or activity, whether
or not related to the foregoing enumerated areas, that a corporation organized
under the Business Corporation Law of The Commonwealth of Massachusetts could
carry on.
Definitions
2. Definitions. Except where the context otherwise requires, the following
terms when used herein shall mean the following:
(a) "Trustee" or "Trustees" means the person which is the trustee
hereunder for the time being, if there is only one, or if more than one,
the persons who are the trustees hereunder for the time being, whether, in
each case, original, additional or successor;
(b) "Trust estate" means the property at any time received by the
Trustees or otherwise acquired and held on behalf of the Company as
hereinafter provided;
(c) "Shareholder" or "Shareholders" means the person or persons,
natural or corporate, at the time registered as the holder or holders of
the shares of the Company and, except to the
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extent limited by any subscription or by any subscription certificate or
part-paid shares accepted or issued, include the person or persons, natural
or corporate, at the time registered as the holder or holders of such
subscription certificates and part-paid shares; and
(d) "Share" or "shares" means the transferable share or shares of
beneficial interest provided for in Article 29 and includes any
subscription certificate or part-paid share issued except to the extent
limited in such subscription certificate or part-paid share.
Rights of Third Persons
3. Limitations on Liability. The Trust estate shall be directly liable for
the payment and satisfaction of all obligations and liabilities incurred in the
carrying on of the business of the Company. No Trustee shall be held to any
liability whatsoever for the payment of any sum of money, or for damages or
otherwise under any contract, obligation or undertaking made, entered into or
issued by the Company or by any Trustee, officer, agent or representative
thereof, or in tort or otherwise, and no such contract, obligation or
undertaking shall be enforceable against the Trustees, the Shareholders, or the
officers, agents or other representatives of the Company or any of them in
their, his or her individual capacities or capacity and all such contracts,
obligations and undertakings shall be enforceable only against the Company; and
every person, firm, association, trust and corporation shall look only to the
Trust estate for the payment or satisfaction of any liability, damages, claim
or demand. In every agreement and obligation entered into and in every writing
by or on behalf of the Company, reference shall be made to this Declaration of
Trust, and the substance of such parts of the preceding sentence of this
Article 3 as are applicable shall be set forth; and neither the Trustees nor
any officer, agent or representative of the Company shall have any power or
authority to enter into any agreement or obligation on behalf of the Company
except in accordance with the provisions of this Article 3. Failure to comply
with the provisions of this Article shall, however, in no event render any
Trustee, Shareholder, officer, or agent personally liable to the Company or its
Shareholders.
4. Nonassessability of Shareholders. No Trustee, officer, agent or
representative of the Company shall be entitled to look to the Shareholders
personally for indemnity against any liability incurred by them in the
execution of this trust or to call upon the Shareholders for the payment of any
sum of money or any assessment whatever, except when and to the extent that
shares in the Company are by their express terms issued part-paid and
assessable.
5. Reliance of Third Persons. The receipts of the Company for moneys or
things paid or delivered to it shall be effective discharges to the person,
firm, association, trust or corporation paying or delivering the same and from
all liability to see to the application thereof. No purchaser or person, firm,
association, trust or corporation dealing with the Company or with the
Trustees, officers, agents or representatives of the Company shall be bound to
ascertain or inquire whether any consent, resolution or other authorization of
the Trustees or Shareholders, as is herein required or provided for, has been
obtained or passed or as to the existence or occurrence of any event or purpose
in or for which a sale, lease, mortgage, pledge or charge is herein authorized
or directed, or otherwise as to the purpose or regularity of any of the acts of
the Trustees or the officers, agents or representatives of the Company
purporting to be done pursuant to the trust or powers herein contained, or as
to the regularity of the removal, resignation or appointment of any Trustee or
any officer, agent or representative; and a transfer of the Trust estate, or
any part thereof, executed by the Trustees in whom the same shall be vested at
the time of any such removal, resignation or appointment (including any
retiring Trustee who shall be willing to act and shall act in executing such
transfer but not otherwise including any such retiring Trustee) for the purpose
of vesting the
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same in a successor Trustee or providing evidence of such vesting independently
of such removal, resignation or appointment, shall, as to the property
comprising such transfer, be conclusive evidence in favor of any such purchaser
or other person, firm, association, trust or corporation dealing with the
Company of the validity of such transfer and of the matters therein recited
relating to such removal, resignation or appointment or the occasion thereof or
the occasion of such transfer.
Place of Business; Trust Estate
6. Place of Business. The principal place of business of the Company shall
be 800 Boylston Street, Boston, MA 02199, or at such other place in
Massachusetts as the Trustees shall from time to time determine.
7. Trust Estate; Conversion into Personal Estate. All property at any time
and from time to time subject to this trust shall, subject to the provisions of
Articles 8(c) and 8(g), be transferred to and vested in such of the Trustees as
are residents of Massachusetts. Notwithstanding any other provisions hereof,
all real estate at any time forming part of the Trust estate shall be held upon
trust for sale and conversion into personal estate at such time or times and in
such manner and upon such terms as the Trustee shall approve, but the Trustees
shall have power, until the termination of this trust, to postpone such
conversion so long as they in their uncontrolled discretion shall think fit,
and for the purpose of determining the nature of the interest of the
Shareholders therein, all such real estate shall at all times be considered as
personal estate; and the real estate and personal property comprising the Trust
estate shall constitute a single fund. For the purpose of such sale and
conversion of real estate the Trustees shall have full power to sell or
exchange the same and to execute and deliver proper deeds and instruments of
conveyance thereof.
The Trustees
8. Powers of Trustees. Subject to the provisions and conditions contained
herein, the Trustees shall have power from time to time, in addition to the
specific powers and authorities herein expressly granted, to take any action
which they deem to be necessary or convenient to carry out the business of the
Company, including without limitation of the generality of the foregoing, the
powers hereinafter specified:
(a) Hold Investments. To purchase, subscribe for or otherwise acquire
stocks, shares, bonds or other securities, property or obligations of any
corporation, wherever incorporated, or of any trust, association or other
entity, or of any nation, state, municipality or other governmental or
public agency, division or body or certificates or other evidences of
interest in any real or personal property, and to be a member of any
limited liability company, syndicate, joint undertaking, or other company,
or the beneficiary of any trust, and all whether or not any such company be
domestic or foreign, and whether or not the purposes of or character of
business carried on or assets held by any such limited liability company,
syndicate, joint undertaking or other company, or comprising any such real
or personal property, be similar to the purposes of or business carried on
or assets held by the Company, and whether or not any such securities,
membership or beneficial interest might be considered speculative,
hazardous, nonproductive or wasting or would ordinarily be considered a
proper or prudent investment or activity for a trustee and, whether or not
any contingent or other liability may arise or exist in respect thereof and
irrespective of the proportion of the Trust estate invested in one or more
of said securities, properties or companies, and to exercise all the rights
and privileges of an owner thereof and, without limiting the generality of
the foregoing, to acquire, by exchange, purchase
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or otherwise, the shares and dividend and profit rights in, and the bonds
and other securities and obligations of, the Company;
(b) Assume Obligations. To assume any obligations or liabilities of any
corporation, wherever incorporated, or of any trust, association or other
entity, and to discharge or liquidate such obligations or liabilities;
(c) Borrow. To borrow money for the purposes of the Company, and to
issue, whether for borrowed money or for other consideration, bonds or
other securities or obligations therefor if desired, which may mature at
any time or times, and may be convertible or after the issuance thereof may
be made convertible, with or without additional consideration for such
conversion right, into other securities of the Company or into other
securities, all for such periods and upon such terms as the Trustees may
determine, and to secure the payment thereof if desired by mortgage,
pledge, assignment, transfer or conveyance of or charge on the whole or any
part of the Trust estate then owned or thereafter acquired, which bonds or
other securities or obligations may be signed on behalf of the Company by
the chairman, the president or a vice president and by the treasurer or an
assistant treasurer, or by facsimiles of such signatures if the bonds or
other securities or obligations are authenticated or certified by a Trustee
or by a registrar other than a Trustee, officer or employee of the Company,
and may have affixed thereto the common seal of the Company or a facsimile
thereof and may carry interest coupons authenticated by the facsimile
signature of the treasurer; provided that no mortgage, pledge, assignment,
transfer or conveyance of or charge on the Trust estate as a whole or
substantially as a whole shall be made without authorization or approval by
vote, at a meeting duly called and held, of the holders of a majority of
the shares outstanding and entitled to vote thereon; and provided further
that even though any officer who has signed or whose facsimile signature
has been placed on any bond or other security or obligation shall have
ceased to be such officer before such bond, security or obligation is
issued, such bond, security or obligation may nonetheless be issued by the
Company;
(d) Lend and Aid. To advance or lend money to, and otherwise aid by
endorsement, guarantee or otherwise, and with or without security, and to
make capital contributions to, any corporation, trust, association or other
entity, any of the stocks, shares, bonds or other securities or obligations
of which shall have been acquired or subscribed for by or on behalf of the
Company or in which the Company has any business interest (including,
without limitation of the generality of the foregoing, the power to
guarantee the performance of any undertaking or obligation or the payment
of dividends on stock), and to discharge and cancel without payment any
indebtedness thus arising or to convert the same into stocks, shares,
bonds, or other obligations of such corporation, trust association or other
entity, or any other with or into which it may be consolidated or merged,
or to which its property may be transferred or leased, and in like manner
to advance or lend money to and otherwise aid any person or company
(whether or not a Shareholder), whenever the Trustees shall deem such
action to be necessary or convenient in the business or conducive to the
advantage of the Company;
(e) Exercise Powers of Holder of Investments. To exercise any and all
powers and rights belonging to the holder of any stocks, shares, bonds,
securities, property or obligations forming part of the Trust estate,
whether by voting or by giving any consent, request or notice, or
otherwise, either in person or by proxy or attorney, and to give proxies or
powers of attorney therefor, with or without power of substitution, which
proxies and powers of attorney may be for meetings or action generally or
for any particular meeting, meetings or action, and may include the
exercise of any discretionary powers; and, without limiting the generality
of the foregoing, to vote in favor of or to consent to the creation of any
mortgage, lien or other
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encumbrance upon all or part of the franchises and property, real and
personal, then owned or thereafter acquired, of any or all of the
corporations, trusts, associations and other entities, any of the stocks,
shares, bonds, securities or obligations of which may at the time be
subject to this trust, or to vote in favor of or to consent to the merger
or consolidation of any such corporation, trust association or other entity
with any other corporation, trust association or other entity, or the sale,
lease, surrender or abandonment of all or part of the franchises and
property, real and personal, of any such corporation, trust association or
other entity;
(f) Sell. To sell at public auction or by private contract or otherwise
use and deal in and with the whole or any part of the Trust estate, free
and discharged of this trust, and to convert, exchange or refund the whole
or any part of the Trust estate for or into any shares, bonds or other
securities or obligations, property or effects in which the Company might,
under the provisions hereof, invest any moneys; provided, however, that
except as provided in Article 8(o), Article 57 or Article 60, no sale or
other disposition of the Trust estate as a whole or substantially as a
whole shall be made without authorization or approval by vote, at a meeting
duly called and held, of the holders of two-thirds of the shares
outstanding and entitled to vote thereon, but this proviso shall not apply
to any disposition pursuant to any mortgage, pledge, or charge;
(g) Transfer Securities Into Names of Others. To cause any real or
personal property, including without limitation of the generality of the
foregoing, securities forming all or part of the Trust estate, to be
transferred into the name of the Company or transferred into the name of or
vested in the Trustees, or to cause or allow any real or personal property
to remain in the name of, or to be transferred into the name of, any other
person, firm, association, or other entity, trust, corporation or other
entity and in any such case in such manner as not to give notice that the
same are affected by any trust;
(h) Delegate Powers. To employ and act through and to delegate any or
all of the powers and discretions of the Company to, and to permit any or
all of such powers and discretions to be exercised by, any of the officers,
agents or representatives of the Company or of the Trustees, including
without limitation the officers, employees, agents and representatives
referred to in the last paragraph of this Article 8 (except for the
declaration of dividends and the filling of vacancies in the Trustees);
(i) Collect Funds. To collect, sue for, receive and receipt for all sums
of money coming due to the Company, to consent to the extension of the time
for payment, or to the renewal, of any bonds or other securities, property
or obligations subject to this trust, and to prosecute, defend, compound,
compromise, abandon or adjust, by arbitration or otherwise, any actions,
suits, proceedings, disputes, claims, demands and things relating to the
Trust estate, and to extend time, with or without security, for the payment
or delivery of any debts or property and to execute and enter into
releases, agreements and other instruments and to pay or satisfy any debts
or claims upon any evidence that the Trustees shall think sufficient;
(j) Deposit Funds. To deposit any moneys included in the Trust estate in
any bank or trust company including any bank or trust company that may at
the time be the Trustee, and to entrust to any such bank or trust company
for safekeeping any of the stock or share certificates, bonds or other
securities, property or obligations and any documents and papers comprised
in or relating to the Trust estate;
(k) Pay Taxes. To pay any and all taxes or liens of whatever nature or
kind imposed upon or against the Company or the Trustee in connection with
the Trust estate, or upon or against the Trust estate or any part thereof;
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(l) Establish Surplus Funds. To set apart, from time to time, as surplus
funds, such sums as the Trustees may deem proper out of any sources which
according to generally accepted accounting principles may be considered
surplus, which surplus funds shall be applicable to any purposes to which
money forming part of the capital or income of the Trust estate may be
applied, including the payment of dividends;
(m) Adopt Seal. To adopt and use a common seal;
(n) Purchase Insurance. To take out and maintain insurance or establish
self-insurance programs in such amounts and of such kinds and in such
companies and through such brokers and agents as may be necessary,
convenient or desirable, including insurance policies insuring the
Trustees, officers, employees and agents of the Company against claims and
liabilities of every nature arising by reason of holding, being or having
held any such office or position, or by reason of any action alleged to
have been taken or omitted by any such person as a Trustee, officer,
employee or agent, including any action taken or omitted that may be
determined to constitute negligence, whether or not the Company would have
the power to indemnify such person against such liability;
(o) Transfer to New Trust or Corporation. When authorized by a majority
vote of Shareholders at a meeting, to sell and convey as an entirety and
going concern all the property and assets of the Company to a corporation
or a new association or trust organized for the purpose of acquiring the
same and organized with the same authorized classes of shares as the
Company shall then have with the same or substantially the same
preferences, voting powers, restrictions and qualifications thereof as
attach to the shares of the Company, the consideration for such sale and
conveyance to be the assumption by such new corporation, association or
trust of all liabilities and obligations of the Company then outstanding
and the issuance and delivery by such new corporation or association or
trust to the Company, or upon its order, for distribution as hereinafter
provided for, of such shares as will enable the Company to exchange its
shares, share for share and class for class, for the shares of such new
corporation or association or trust and thereupon such exchange shall be
made, and this trust shall be terminated, and each Shareholder of the
Company by becoming a Shareholder shall agree to receive and accept in such
case the shares of such new corporation or association or trust in exchange
on the basis aforesaid as a full and final distributive share of the
proceeds in liquidation of such sale and conveyance, and further agrees
that in such case his or her shares in the Company shall thereafter have no
rights and privileges whatsoever except the right and privilege of being
exchanged for shares of such new corporation or association or trust on the
basis aforesaid;
(p) Invest Capital. To invest and re-invest the capital or other funds
of this trust in real or personal property of any kind, or in any interest
therein;
(q) Establish Pension and Other Compensation Plans. To establish and
carry out pension, profit-sharing, share bonus, share purchase, share
option, savings, thrift and other retirement, incentive, health, welfare
and benefit plans, trusts and provisions for any or all of the Trustees,
officers, employees, agents and consultants of the Company or of any of its
subsidiaries;
(r) Enter into Other Entities or Combinations. To enter into or become
partners or members in joint ventures, general or limited partnerships,
limited liability companies and any other combinations or associations;
(s) Acquire, Hold and Dispose of Other Business, Property or Rights. To
purchase, acquire, hold, utilize, lease, carry on, sell, exchange and
dispose of any other business or
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property, rights, or privileges which may be deemed to be suitable,
convenient or profitable for or in connection with any of the purposes of
the Company;
(t) Grant Options and Issue Warrants. To grant rights or options good
for any period of time, including an unlimited period of time (but not
exceeding the duration of the Company) to purchase from the Company any
securities of the Company which have been authorized but remain unissued or
are held in the treasury, at such prices and on such terms and conditions
as may be fixed from time to time by the Trustees; and to create and issue
warrants or other instruments representing such rights or options in such
form as the trustees mat determine;
(u) Perform Other Necessary Things. To do each and every thing
necessary, suitable, desirable, convenient or proper for the accomplishment
of any of the purposes or the attainment of any one or more of the objects
hereinbefore enumerated or incidental to the powers herein named and,
without limiting the generality of the foregoing, to deal with the Trust
estate and manage and conduct the business of the trust hereunder as fully
as if the Company were the absolute owner of the Trust estate and in so
doing to execute all contracts, agreements, deeds, covenants and
instruments, and do all such things as the Trustees may deem proper for the
purposes of the Company, whether or not involving action of a kind or
extent legal or customary for a trustee or for the management of trust
funds.
The powers and authority, whether discretionary or otherwise, conferred upon
the Trustees by this Article 8 and elsewhere in this Declaration of Trust may
be delegated to committees consisting of one or more Trustees, and (except for
the declaration of dividends and the filling of vacancies in the Trustees) to
officers, employees, agents and representatives of the Company, and shall not
be deemed to be mandatory but shall, together with any and all implied powers
and discretions, be exercised by the Trustees from time to time to the extent
deemed to be advantageous to the Company, and may be exercised either alone or
in association with others and to the same extent and as fully as individuals
might or could do as principals, agents, contractors or otherwise and either
alone or in conjunction with or in partnership with others, and both within and
without The Commonwealth of Massachusetts. The acts of any committee, officers
and agents, within the scope of their respective authorities, shall be as
agents and delegates of the Trustees, and shall be deemed to be the acts of the
Trustees and not of the Shareholders. When authorized by the Trustees,
mortgages, conveyances and other instruments of transfer of real or other
property may be executed by any officer of the Company on behalf of the
Trustees or, as authorized, such officers as are residents of Massachusetts.
The Trustees
9. Number and Election. The persons signing this Declaration of Trust shall
be the original Trustees. At such time as the outstanding shares of the Company
are not wholly owned by BEC Energy and Commonwealth Energy System (the
"Transition Date"), the following provisions shall apply. The number of
Trustees shall be determined from time to time by the Trustees but shall not be
less than ten. Divided into classes and elected for terms as set forth below,
the Trustees shall be elected at the annual meeting of the Shareholders by such
Shareholders as have the right to vote at such election. The number of Trustees
may be increased or decreased to any number not less than ten by the
Shareholders or by the Trustees upon a vote of the majority of Trustees then in
office. Subject to restrictions discussed below regarding class size, such
changes in the number of Trustees may be undertaken at any time or from time to
time, except that, other than in connection with the election of trustees at
the annual meetings of Shareholders, the number of Trustees shall be decreased
only to eliminate vacancies existing by reason of the death, resignation or
removal of one or more Trustees.
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The Trustees shall be elected as follows. The Trustees shall be divided as
nearly equally as possible into three classes, with each class to consist of
approximately one-third of the number of Trustees. The term of office of the
Trustees of the first class shall continue until the first annual meeting of
the Shareholders following the Transition Date, the term of office of the
Trustees of the second class shall continue until the second annual meeting of
the Shareholders following the Transition Date, and the term of office of the
Trustees of the third class shall continue until the third annual meeting of
the Shareholders following the Transition Date, and, in each case, until their
respective successors are chosen and qualified (unless otherwise required by
law) or until the Trustee sooner dies, resigns or is removed.
At each annual meeting beginning with the first annual meeting of the
Shareholders following the Transition Date, the Trustees elected to succeed
those whose terms expire shall be of one class and shall be elected for a term
which shall continue until the third succeeding annual meeting, and until a
successor shall be elected (unless otherwise required by law) or until the
Trustee sooner dies, resigns or is removed. Any Trustee elected to fill a
vacancy caused by death, resignation or removal shall be elected for a term
which shall coincide with the term of the class of the vacant trusteeship. Any
Trustee elected to fill an additional trusteeship resulting from an increase in
the number of Trustees shall be of the class whose term continues and shall be
elected to serve until the annual meeting of the Shareholders closest to three
years from the date of the increase, and until a successor shall be elected and
qualified (unless otherwise required by law) or until the Trustee sooner dies,
resigns or is removed. The number of Trustees shall not be increased or
decreased at a time when, or to the extent that, it would result in the
Trustees not being divided as nearly equally as possible into three classes
each consisting of approximately one-third of the number of Trustees. The total
number of Trustees need not be an exact multiple of three. A Trustee may
succeed himself or herself. Whenever the holders of any one or more classes or
series of shares of the Company other than common shares shall have the right,
voting separately by class or series, to elect Trustees at an annual or special
meeting of stockholders, the election, term of office, filling of vacancies and
other features of such trusteeship shall be governed by the terms of such class
or series of shares, and such Trustees shall not be divided into classes
pursuant to this Article 9 unless expressly provided by such terms. References
in this Article 9 to an annual meeting of Shareholders shall be deemed to
include a special meeting held in place of an annual meeting. This Article 9
may be amended only by vote of the holders of 80% of the shares issued and
outstanding and entitled to vote generally in the election of Trustees;
provided, however, that such 80% vote shall not be required for any alteration,
amendment or repeal that has been recommended by 80% of the Trustees then in
office.
10. Resignation; Vacancies; Removals. A Trustee may resign by presenting his
or her resignation in writing at a meeting of the Trustees or delivering the
same at the principal office of the Company, addressed to the chairman,
president or clerk of the Company, and its acceptance by the Trustees shall not
be required unless so stated in the resignation. Any vacancy in the number of
Trustees not required to be filled by the Shareholders may be filled by the
Trustees by vote of a majority of the remaining Trustees although less than a
quorum. Any Trustees so chosen shall continue in office for the remainder of
the full term of the class of Trustees in which the new trusteeship was created
or the vacancy occurred and until his or her successor, if there be one, is
chosen and qualified. The remaining Trustees may act notwithstanding any
vacancy in their numbers. Except as otherwise provided in this Declaration of
Trust, a Trustee (including persons elected by the Trustees to fill any
vacancies) may be removed from office: (i) for cause by the vote of the holders
of a majority of the shares issued and outstanding and entitled to vote
generally in the election of Trustees; (ii) without cause by the vote of 80% of
the shares issued and outstanding and entitled to
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vote generally in the election of Trustees; or (iii) for cause by vote of a
majority of the Trustees then in office. A Trustee may be removed for cause
only after reasonable notice and opportunity to be heard before the body
proposing to remove him or her. Except where a right to receive compensation
shall be expressly provided in a duly authorized written agreement with the
Company, no Trustee resigning or removed shall have any right to any
compensation as such Trustee for any period following his or her resignation or
removal, or any right to damages on account of such removal, whether his or her
compensation be by the month or by the year or otherwise, unless the body
acting on the removal, shall in their or its discretion provide for
compensation.
11. Vesting in New Trustees. Upon the resignation or removal of a Trustee
hereunder and upon the election or appointment of a new Trustee hereunder, such
instruments shall be executed, acknowledged and delivered as the remaining
Trustees or the new Trustees shall deem necessary or convenient for confirming
or providing evidence of the vesting of the Trust estate in the Trustees for
the time being who are residents of Massachusetts. Notwithstanding the failure
to execute any conveyance, the Trust estate shall always (not restricting the
same to the above enumerated cases) vest in the Trustees for the time being
hereunder and the Trust estate shall always vest in such Trustees as are
residents of Massachusetts.
12. Compensation. Each Trustee shall receive such reasonable compensation as
the Trustees may determine, and shall not be limited by any provision of law
with regard to the compensation of trustees of an express trust.
13. Unissued Shares. In particular, and without limiting the generality of
the foregoing, the Trustees may, subject to any requirement of law, at any time
issue all or from time to time any part of the unissued shares of the Company
from time to time authorized and may determine, subject to any requirements of
law, the consideration for which such shares is to be issued and the manner of
allocating such consideration between capital and surplus. Unless the Trustees
otherwise specify, the excess of the consideration for any share with par value
issued by it over such par value shall be paid-in surplus. The Trustees may
allocate to capital stock less than all of the consideration for any share
without par value issued by it, in which case the balance of such consideration
shall be paid-in surplus. All surplus shall be available for any corporate
purpose, including the payment of dividends.
14. Determination of Capital and Income. The Trustees shall have power to
determine what constitutes capital or income, what constitutes the income of
the Trust estate for any year or other period, in what manner any expenses or
disbursements are to be allocated between capital and income, and the amount of
the net earnings and of the earned surplus; and every such determination,
whether express or implied in the acts or proceedings of the Trustees, shall be
conclusive and binding upon all persons interested.
15. Dividends. The Trustees may from time to time in their discretion
declare dividends out of the net earnings of the Trust estate or out of the
earned surplus or capital surplus, payable out of the Trust estate, at any date
fixed by the Trustees, in cash or property, including without limitation bonds
or other obligations of and the shares in the Company, and for that purpose may
capitalize all or any part of the earned surplus; but no Shareholder shall have
any right to any dividends except when and as the same are declared by the
Trustees, and no Trustee or Shareholder, officer, agent or representative of
the Company shall be liable therefor, and any Shareholder entitled thereto
shall look only to the Trust estate for the payment of any such dividends. The
Company shall pay and distribute the said dividends so declared to the
Shareholders according to the number of shares held by them respectively.
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16. Fiscal Year; Accounts. The Trustees may determine the fiscal year for
the Company, and the form in which the accounts of the Company shall be kept,
and may from time to time change the fiscal year or form of accounts.
17. Action by Board; Quorum. The action of the Trustees in respect of any
matter shall be by vote passed by the Trustees at a meeting or by a written
vote without a meeting (with or without notice to the other Trustees) signed by
at least a majority of the Trustees. At any meeting of the Trustees, a majority
of the Trustees then in office shall constitute a quorum for the transaction of
business. Any meeting may be adjourned from time to time by a majority of the
votes cast on the question, and the meeting may be held as adjourned without
further notice. Except as herein otherwise provided, when a quorum is present
at any meeting a majority of the Trustees in attendance thereat shall decide
any questions before such meeting. Nothing in this Article 17 shall be
construed as limiting the delegation of any power to a committee of the
Trustees.
18. Bylaws. The Trustees may by vote of a majority of the Trustees then in
office, make and from time to time amend, add to or rescind bylaws for the
Company (the "Bylaws"). The Bylaws may, subject to the provisions of this
Declaration of Trust: (a) fix the fiscal year; (b) regulate the affairs of the
Trustees, including provisions for the nomination thereof; (c) provide for such
committees as the Trustees shall deem appropriate, including an executive
committee which shall be vested with all of the powers and authorities of the
Trustees in the intervals between meetings of the Trustees; (d) provide for the
appointment of a chairman of the Trustees, a president, one or more vice
presidents, a treasurer, a clerk and such other officers as the Trustees may
deem appropriate, and the manner of their appointment and removal, and their
respective powers and duties; (e) provide for the manner in which documents
shall be executed, including share certificates; (f) provide for the
appointment of transfer agents or officers and registrars, and (g) contain such
further provisions relating to the above matters or otherwise, incidental or in
addition to but not inconsistent with the provisions of this Declaration of
Trust, as the Trustees shall deem appropriate.
19. Certificate Evidencing Votes. A certificate signed by the chairman, the
president, the treasurer, the clerk or any assistant or temporary clerk, or one
or more of the Trustees, shall be conclusive evidence, in favor of every
person, firm, association, trust and corporation acting in good faith in
reliance thereon, as to the contents of any vote of the Trustees, or any
committee thereof, or of the Shareholders, and as to all matters in such
certificate contained relating to the meeting, if any, at which any vote is
therein certified to have been passed, including the regularity of the said
meeting and the passage of any vote thereat, and as to all other matters and
things stated in such certificate, and no person, firm, association, trust or
corporation shall be obligated to make any inquiry as to any of the said
matters, or as to the election or appointment of any person acting as a Trustee
at such meeting, or as to the holding of any shares by any person, firm,
association, trust or corporation acting as a Shareholder at such meeting, or
be affected by actual or implied notice of any irregularity whatsoever therein.
Indemnification and Limitation of Liability
20. Trustees and Officers. To the extent legally permissible, each of the
Company's Trustees and officers, as defined in Article 24, shall be indemnified
by the Trust estate against any loss, liability or expense, including amounts
paid in satisfaction of judgments, in compromise or as fines and penalties, and
counsel fees, imposed upon or reasonably incurred by such person in connection
with the defense or disposition of any action, suit or other proceeding,
whether civil or criminal, in
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which such person may be involved or with which such person may be threatened,
while in office or thereafter, by reason of such person's being or having been
such a Trustee or officer, except with respect to any matter as to which such
person shall have been adjudicated in such action, suit or proceeding not to
have acted in good faith in the reasonable belief that his or her action was in
the best interests of the Company; 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 the Company, after notice that it involves such
indemnification, (i) by a disinterested majority of the Trustees then in
office, or (ii) by a majority of the disinterested Trustees then in office,
provided that there has been obtained 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 the Company, or (iii) by the vote, at a meeting duly called and
held, of the holders of a majority of the shares outstanding and entitled to
vote thereon, exclusive of any shares owned by any interested Trustee or
officer.
21. Liability. No Trustee, officer or agent of the Company shall be liable
except for acts or failures to act which at the time would impose liability on
him or her if this trust were a Massachusetts business corporation and he or
she were a director, officer or agent thereof respectively. In determining what
he or she reasonably believes to be in the best interests of the Company, a
Trustee may consider the interests of the Company's employees, suppliers,
creditors and customers, the economy of the state, region and nation, community
and societal considerations, and the long-term and short-term interests of the
Company, its subsidiaries and its Shareholders, including the possibility that
these interests may best be served by the continued independence of the
Company. Notwithstanding any provision of law or this Article 21 or any other
provision contained in this Declaration of Trust, a Trustee shall not be liable
to the Company or any Shareholder for monetary damages for breach of fiduciary
duty 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 the Company or its Shareholders,
(ii) to have acted not in good faith, or omitted to act in good faith, (iii) to
have knowingly violated the law or intentionally engaged in misconduct, or (iv)
to have derived any improper personal benefit from a transaction. No amendment
to or repeal of this Article shall apply to or have any effect on the liability
or alleged liability of any Trustee for or with respect to any acts or
omissions of such Trustee occurring prior to such amendment or repeal.
22. Books and Reports. In discharging his or her duties a Trustee or officer
of the Company, when acting in good faith, shall be fully protected in relying
upon the books of account of the Company or of another organization in which he
or she serves as contemplated by Article 24, reports made to the Company or to
such other organization by any of its officers or employees or by counsel,
accountants, appraisers or other experts or consultants selected with
reasonable care by the Trustees or similar governing body of such other
organization, or upon other records of the Company or of such other
organization.
23. Advance of Expenses. Expenses, including counsel fees, reasonably
incurred by any Trustee or officer with respect to the defense or disposition
of any action, suit or proceeding referred to in Article 20 may be advanced by
the Company prior to the final disposition of such action, suit or proceeding,
upon receipt of an undertaking by or on behalf of the recipient to repay such
amount unless it is ultimately determined that he or she is entitled to
indemnification.
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24. Rights Not Exclusive; Definitions. The rights of indemnification
provided in Article 20 shall not be exclusive of or affect any other rights to
which any Trustee or officer may be entitled and such rights shall inure to the
benefit of his or her successors, heirs, executors, administrators and other
legal representatives. Such other rights shall include all powers, immunities
and rights of reimbursement which would be allowed under the laws of The
Commonwealth of Massachusetts were the Company a business corporation organized
under such laws. As used in Articles 20, 21, 22 and 23 and this Article 24, the
terms "Trustee" and "officer" include persons who serve at the request of the
Company as directors, officers, or trustees of another organization in which
the Company has any direct or indirect interest as a shareholder, creditor or
otherwise. An "interested" Trustee or officer is one against whom in such
capacity the proceeding in question or another proceeding on the same or
similar grounds is then pending. Nothing contained in Articles 20, 21, 22 and
23 and this Article 24 shall affect any rights to indemnification to which
Company personnel other than Trustees and officers may be entitled by contract
or otherwise under law. No Trustee shall be obligated to give any bond or other
security for the performance of any of his or her duties.
25. Shareholders. In case any Shareholder shall at any time for any reason
be held to or be under any personal liability solely by reason of his or her
being or having been a Shareholder and not by reason of his or her acts or
omissions as a Shareholder, then such Shareholder (or his or her heirs,
executors, administrators, or other legal representatives) shall be entitled
out of the Trust estate to be held harmless from, and indemnified against, all
loss, liability or expense by reason of such liability.
Interested Trustees, Shareholders, and Officers; Ratification by Shareholders
26. Shareholders, Trustees, Officers and Agents. No agreement, dealing,
relationship or arrangement of any kind with the Company, or with any company
which may be controlled by the Company or in which the Company may have any
interest, in which any Shareholder, Trustee, officer, agent or other
representative of the Company shall have a personal interest shall be void or
voidable or otherwise affected by such interest nor shall such Shareholder,
Trustee, officer, agent or other representative so interested be liable to
account in respect thereof, except such effect or liability, if any, as would
have resulted under the same circumstances had the Company been a business
corporation organized under the laws of The Commonwealth of Massachusetts. No
Trustee, officer, agent or other representative of the Company shall be
precluded, by his or her office, from acquiring shares or stock in or bonds or
other obligations of or from holding any office or place of profit in the
Company or any company in which the Company shall be interested as stockholder
or otherwise. No Shareholder, by reason of his or her holding such shares,
however great in amount, shall be precluded from holding any office or place of
profit hereunder or under any company in which the Company or the Trustees
shall be interested as stockholder or otherwise.
27. Authorization or Ratification by Shareholders. Regardless of whether the
foregoing provisions have or have not been complied with, any agreement,
dealing, relationship or arrangement entered into by or on behalf of the
Company or by the Trustees, officers, agents or other representatives of the
Company, or by or on behalf of any company in which the Company or the Trustees
shall be interested as stockholder, or otherwise, shall not be voided by reason
of the interest therein of any Shareholder, Trustee, officer, agent or other
representative nor shall any Shareholder, Trustee, officer, agent or other
representative being so interested be liable to account to the Company or to
the Trustees, officers or Shareholders, or otherwise, for any profit or benefit
realized through any such agreement, dealing, relationship or arrangement by
reason of such Shareholder, Trustee, officer, agent or other representative
holding that position or of the fiduciary relation thereby
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established, if such agreement, dealing, relationship or arrangement shall have
been authorized or ratified by the Shareholders or by the stockholders of any
such company, as the case may be, after notice of the fact of the interest
therein (including a general statement of the nature and extent of such
interest) of such Shareholder, Trustee, officer, agent or other representative,
except that if such agreement, dealing, relationship or arrangement was with a
Shareholder or Shareholders the authorization or ratification shall be by a
majority vote of disinterested Shareholders at a meeting.
Shares of Beneficial Interest
28. Number; Nonassessable. The entire beneficial interest in the Trust
estate and in all business conducted by the Company and all profits earned by
it shall be, and during the continuance of this trust shall remain, in the
owners from time to time of transferable shares of beneficial interest. The
shares of beneficial interest shall consist of (i) 100,000,000 common shares
all of the same class and each with a par value of one dollar ($1.00), and (ii)
10,000,000 preferred shares, each with a par value of one dollar ($1.00) and
may be issued from time to time by the Trustees without the necessity of
obtaining the consent of the Shareholders. Subject to the limitations
prescribed by law and the provisions of this declaration of trust, the Trustees
are authorized to issue the preferred shares from time to time in one or more
series, each of such series to have such voting powers, full or limited, or no
voting powers, participating, optional or other special rights, and such
qualifications, limitations or restrictions thereof, as shall be determined by
the Trustees in a resolution or resolutions providing for the issue of such
preferred shares. Subject to the powers, preferences and rights of any
preferred shares, including any series thereof, having any preference or
priority over, or rights superior to, the common shares and except as otherwise
provided by law, the holders of the common shares shall have and possess all
powers and voting and other rights pertaining to the shares of this Company and
each common share shall be entitled to one vote. All shares issued and to be
issued shall be fully paid and nonassessable except to the extent otherwise
specifically provided in the certificates representing such shares. In any
issue of common shares, fractional shares may be issued if authorized by the
Trustees; and in lieu thereof the Trustees may issue transferable or
nontransferable instruments representing or relating to fractional interests
(on such terms and in such form as the Trustees shall determine) and may
appoint an exchange agent or exchange agents to assist Shareholders in buying
or selling such fractional interests.
29. Shares Personal Property; Trust Only. Shares shall be personal property
entitling the holders only to the rights and interest in the Trust estate set
forth in these presents, and it is expressly declared and agreed by and between
the Shareholders, Trustees and officers of the Company that a trust and not a
partnership is deemed to be created by this instrument and that irrespective of
whether any different status may be held to exist as far as others are
concerned, nevertheless as between the said Shareholders, Trustees and officers
the Shareholders shall be deemed to hold only the relationship of cestuis que
trustent to the Trustees, with only such rights as are conferred upon them as
such cestuis que trustent hereunder.
30. Rights of Shareholders; Limitation on Rights of Action. No Shareholder
shall have or acquire at any time any interest in any specific property, real
or personal, at any time forming part of the Trust estate, or any right to any
division or partition thereof or any other rights with reference thereto,
except to have said property dealt with as herein provided, to receive
dividends therefrom, as herein provided, and to share in the distribution of
the cash proceeds thereof, or distributions in kind, or both, upon the
termination of the trust, as herein provided. No action may be brought by a
Shareholder on behalf of the Company unless a prior demand regarding such
matter has been made on the Trustees and the Shareholders of the Company.
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31. Additional Shares. Additional common shares may be authorized from time
to time by a majority vote of the Shareholders at a meeting. Such additional
common shares shall rank equally and be in all respects identical with the
common shares originally authorized and may be issued from time to time by the
Trustees without the necessity of obtaining the consent of the Shareholders.
32. Preferred Shares. Additional preferred shares may be authorized from
time to time by vote, at a meeting duly called and held, of the holders of two-
thirds of the shares outstanding and entitled to vote thereon, and such
additional shares may be issued in one or more classes and in one or more
series within a class and shall have such voting powers, full or limited, or no
voting powers, participating, optional or other special rights, and such
qualifications, limitations or restrictions thereof, as shall be determined in
the vote authorizing them or by the Trustees pursuant to authority granted to
it by such vote or as provided in Article 29.
33. All Other Changes in Shares. Any authorized shares, whether issued or
unissued, may, by vote, at a meeting duly called and held, of the holders of a
majority of the shares outstanding and entitled to vote thereon, be changed by
increasing or decreasing their par value, be reduced in number, be changed into
the same or a different number of shares of any class or classes with or
without par value, or be classified or reclassified. In connection with any of
the foregoing, the Trustees may increase, decrease or adjust the capital
accounts of the Company.
34. Consideration for Issue. Unless otherwise prescribed by vote of the
Shareholders, all shares may be issued for money, services or property
(including other shares of the Company at the time outstanding), or as a
distribution to Shareholders, and upon such terms as to valuation of shares,
services or property and otherwise, as the Trustees may in their absolute
discretion determine.
35. No Preemptive or Preferential Rights of Subscription. No holder of
shares of any class and no holder of other securities of the Company,
convertible or otherwise, shall have any preemptive or preferential right of
subscription to, or purchase of, any securities of the Company.
36. Treasury Shares. Shares in the Company acquired by the Company may be
canceled and the number of shares issued may thereby be reduced, or such shares
may be held in the treasury and be disposed of by the Company, when authorized
by the Trustees, as the Trustees may from time to time determine; but such
shares while so held in the treasury shall not be entitled to any voting rights
or to any dividends and shall not be deemed outstanding in computing
proportions or percentages of shares hereunder or for any other purpose hereof.
Shares canceled pursuant to this Article 36 shall have the status of authorized
but unissued shares.
37. Transfer Books. A register or registers shall be kept under the
direction of the Trustees, which shall contain the names and addresses of the
Shareholders and the number and kind of shares held by them respectively and a
record of all transfers thereof. No Shareholder shall be entitled to receive
payment of any dividend declared, nor to have any notice given to him or her as
herein provided, until he or she has given his or her address to the transfer
agent, or such other officer or agent of the Company as shall keep the said
register, for entry thereon.
38. Transfer Agent. The Company, when authorized by the Trustees, may employ
in the City of Boston or in any other cities the Trustees may designate a
transfer agent or transfer agents and a registrar or registrars. The transfer
agent or transfer agents shall keep the said registers and record therein the
transfers of any of the said shares and countersign certificates of shares
issued to the persons entitled to the same. The transfer agents and registrars
shall perform the duties usually
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performed by transfer agents and registrars of certificates of stock in a
corporation, except as modified by the Trustees.
39. Share Certificates. No certificates certifying the ownership of shares
need be issued unless the Trustees otherwise determine from time to time. The
Trustees may make such rules as they consider appropriate for the issuance of
share certificates, the form thereof, and similar matters.
40. Lost, Stolen or Destroyed Share Certificates. In the event the Trustees
authorize the issuance of share certificates, a new certificate may be issued
to replace any certificate previously issued, on satisfactory evidence that the
said certificate previously issued has been worn out, mutilated, lost or
destroyed and on such terms, if any, as to indemnity and otherwise, as the
Trustees shall deem proper.
41. Transfer of Shares. Every transfer of any certificated shares (otherwise
than by operation of law) shall be signed by the transferor or by his or her
agent thereunto duly authorized in writing, and upon delivery thereof to the
Company or a transfer agent of the Company, accompanied by the existing
certificate for such shares and such evidence of the genuineness of such
transfer, authorization and other matters as may reasonably be required, shall
be recorded in the register, and a new certificate therefor shall be issued to
the transferee, and in case of a transfer of only a part of the shares
represented by any certificate a new certificate for the residue thereof shall
be issued to the transferor. A Shareholder of record shall be deemed to be the
holder of the share or shares represented thereby for all purposes hereof, and
neither the Trustees nor any transfer agent or registrar nor any officer or
agent of the Company shall be affected by any notice of a transfer until due
presentment of the certificate for such share or shares for registration of
transfer. The Trustees may determine from time to time procedures for the
transfer of uncertificated shares.
42. Transfers by Operation of Law. Any person becoming entitled to any
shares in consequence of the death, bankruptcy or insolvency of any
Shareholder, or otherwise by operation of law, shall be recorded in the
register as the holder of the said shares, and receive a new certificate for
the same, upon production of the proper evidence thereof and delivery of the
existing certificate to the Company or a transfer agent of the Company. Until
such production of evidence and delivery of the existing certificate, the
Shareholder of record shall be deemed to be the holder of such shares for all
purposes hereof, and neither the Trustees nor any transfer agent or registrar
nor any officer or agent of the Company shall be affected by any notice of such
death, bankruptcy, insolvency or other event. The Trustees may determine from
time to time procedures for the transfer by operation of law of uncertificated
shares.
43. Joint Owners. Any two or more persons in whose names any share is
registered shall be treated as joint owners of the entire interest therein, and
no entry shall be made in the register or in any certificate that any person is
entitled to any future, limited or contingent interest in any share. However,
any person registered as a holder of any share may, subject to the provisions
hereinafter contained, be described in the register or in any certificate as a
trustee or fiduciary of any kind, and appropriate words may be added to the
description to identify such trust.
44. No Duty to Examine into Trusts, Pledges, etc., to Which Shares Are
Subject. The Company shall not, nor shall the Trustees or the Shareholders or
any officer of the Company or any transfer agent or other agents of the
Company, or the Trustees, be bound to take notice or be affected by notice of
any trust, whether express, implied or constructive, or of any charge, pledge
or equity to which any of the said shares or the interest of any of the
Shareholders in this trust may be subject, or
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to ascertain or inquire whether any sale or transfer of any such shares or
interest by any such Shareholder or his or her personal representatives is
authorized by such trust, charge, pledge or equity, or to recognize any person
as having any interest therein, except the persons registered as such
Shareholders. The receipt of the person in whose name any share is registered,
or, if such share is registered in the names of more than one person, the
receipt of any one of such persons, or the receipt of the duly authorized agent
of any such person, shall be a sufficient discharge for all dividends and other
money and for all shares, bonds, obligations and other property payable,
issuable or deliverable in respect of such share and from all liability to see
to the application thereof.
Meetings of Shareholders
45. Annual Meeting. An annual meeting of the Shareholders shall be held on
the last Tuesday of April in every year, or on such other date as the Trustees
or the chairman or the president may from time to time fix, at the principal
office of the Company or at such other place in Massachusetts as may be
designated by the Trustees, the chairman or the president, for the purpose of
electing Trustees and for such other purposes as may be prescribed by law and
hereby or as may be specified in the notice by the Trustees or by the chairman
or by the president of the Company. If such annual meeting is omitted on the
day herein provided for, a special meeting may be held in lieu thereof, and any
business transacted or election held at such special meeting shall have the
same effect as if transacted or held at such annual meeting.
46. Special Meetings. The Trustees, chairman or president of the Company
may, whenever any of them think fit, call or direct any officer of the Company
to call a special meeting of the Shareholders to be held at the principal
office of the Company or, in their discretion, at any other place in
Massachusetts, and such special meeting shall be so called by the clerk, or in
the case of the death, incapacity or refusal of the clerk, by another officer,
upon written application of one or more Shareholders who hold at least forty
percent in interest of the shares entitled to vote at such special meeting.
47. Presiding Officer. The chairman or, if there is no chairman or the
chairman is absent, the president shall preside at every meeting of the
Shareholders, but if neither the chairman nor the president is present at the
commencement of the meeting or, being present, shall not be willing to preside,
the Shareholders present in person or by proxy shall choose the chairman of
such meeting.
48. Business to be Transacted. At any annual or special meeting of
Shareholders, no business shall be transacted other than such as is referred to
in the notice of the meeting.
49. Notices. A written or printed notice of each meeting of the
Shareholders, whether annual or special, specifying the time, place and
purposes thereof, shall be given as hereinafter provided by the clerk or any
assistant clerk or by an officer designated by the Trustees to each of the
Shareholders entitled to vote thereat at least seven (7) days (including
Sundays and holidays) before such meeting. Every notice to any Shareholder
required or provided for herein may be given to him or her personally or by
mailing it to him or her, postage prepaid, at his or her address specified in
the records of the Company. Notice shall be deemed to have been given at the
time when it is so mailed. In respect of any share held jointly by several
persons, notice so given to any one of them shall be sufficient notice to all
of them. Any notice so sent to the address of any Shareholder shall be deemed
to have been duly sent in respect of any such share whether held by him or her
solely or jointly with others, notwithstanding he or she be then deceased or be
bankrupt or insolvent or legally
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incompetent, and whether the Trustees or any person sending such notice have
knowledge or not of his or her death, bankruptcy or insolvency or legal
incompetence, until some other person or persons shall be registered as
holders. The certificate of the person or persons giving such notice shall be
sufficient evidence thereof, and shall protect all persons acting in good faith
in reliance on such certificate. Whenever notice of meeting is required to be
given to a Shareholder under any provision of Massachusetts law applicable to
the Company or of this declaration of trust, a written waiver thereof, executed
before or after the meeting by such Shareholder or Shareholder's attorney
thereunto authorized and filed with the records of the meeting, shall be deemed
equivalent to such notice.
50. Voting; Quorum. At all meetings every Shareholder shall, subject to the
provisions of Article 53, have one vote for each share held by him or her and
may vote at any meeting or any adjournment or adjournments thereof in person or
by proxy in writing dated not more than six months before the meeting named
therein, which proxies shall be filed with the clerk or other person
responsible to record the proceedings of the meeting before being voted; and,
except as otherwise provided herein, the holders of a majority of all the
shares issued and outstanding and entitled to vote shall constitute a quorum
for the transaction of business. The delivery of a proxy on behalf of a
Shareholder consistent with telephonic or electronically transmitted
instructions obtained pursuant to procedures of the Company reasonably designed
to verify that such instructions have been authorized by such Shareholder,
shall constitute execution and delivery of the proxy by or on behalf of the
Shareholder. Shares owned directly or indirectly by the Company, if any, shall
not be deemed outstanding for this purpose, and the Company shall not, directly
or indirectly, vote any share of its own shares. When any share is held jointly
by several persons, any one of them may vote at any meeting in person or by
proxy in respect of such share, but if more than one of them shall be present
at such meeting in person or by proxy, and such joint owners or their proxies
so present disagree as to any vote to be cast, such vote shall not be received
in respect of such share. If the holder of any share is a minor or a person of
unsound mind, or subject to guardianship or to the legal control of any other
person as regards the charge or management of such share, he or she may vote by
his or her guardian or such other person appointed or having such control, and
such vote may be given in person or by proxy. No ballot shall be required for
any election unless requested by a Shareholder present or represented at the
meeting and entitled to vote in the election.
51. Adjournment of Meeting. Any meeting (or portion thereof) may be
adjourned from time to time by a majority of the votes properly cast upon the
question, whether or not a quorum is present, and the meeting (or portion
thereof) may be held as adjourned without further notice.
52. Requisite Vote to Act. Except as otherwise herein provided, when a
quorum is present at any meeting, a plurality of votes properly cast for
election to any office shall elect to such office, and a majority of the shares
represented at the meeting and entitled to vote upon any question properly
brought before the meeting shall decide such question. Provisions hereunder for
a majority vote of Shareholders at a meeting mean a vote of the holders of a
majority of those shares entitled to vote thereon which are represented in
person or by proxy at such meeting.
53. Record Date for Voting, Dividends and Offerings. For the purpose of
determining the Shareholders who are entitled to vote or act at any meeting or
any adjournment thereof, or who are entitled to receive payment of any dividend
or of any other distribution or offering, the trustees may from time to time
fix in advance a time, which shall be not more than sixty (60) days before the
date of any meeting of Shareholders or the date for the payment of any dividend
or of any other distribution or the date of the offering, as the record date
for determining the Shareholders having the
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right to notice of and to vote at such meeting and any adjournment thereof or
the right to receive such dividend or distribution or such offering, and in
such case only Shareholders of record on such record date shall have such
right, notwithstanding any transfer of shares on the books of the Company after
the record date; or without fixing such record date the Trustees may for any of
such purposes close the register or transfer books for all or any part of such
period. If no record date is fixed and the transfer books are not closed, (i)
the record date for determining Shareholders having the right to notice of or
to vote at a meeting of Shareholders shall be at the close of business on the
date next preceding the day on which notice is given, and (ii) the record date
for determining Shareholders for any other purpose shall be at the close of
business on the day on which the Trustees acts with respect thereto.
Duration and Termination of Trust;
Combination; Amendments
54. Duration of Trust. Unless terminated as provided in Article 8(o) or
Article 56, this trust shall continue without limitation of time.
55. Death of Shareholder or Trustee Not to Terminate Trust. The death of a
Trustee hereunder or of a Shareholder or the dissolution of a Shareholder
hereunder during the continuance of this trust shall not operate to terminate
this trust, nor shall it entitle the legal representatives of any such Trustee
or Shareholder to an accounting or to take any action in the courts or
otherwise.
56. Termination; Combination; Affiliation. Except as provided in Article
57 below, the Trustees may terminate this trust at any time, or may cause the
Company to be merged, combined, consolidated or otherwise affiliated with
another trust, association, corporation, limited liability company, or other
company or entity, if such termination, merger, combination, consolidation, or
affiliation has been authorized by vote, at a meeting duly called and held, of
the holders of two-thirds of the shares outstanding and entitled to vote
thereon or has been authorized pursuant to Article 8(o). Such termination,
merger, combination, consolidation or affiliation shall become effective only
upon presentation to the Trustees, as required by Article 59, of the
counterpart of the certificate referred to in said Article 59, or at such later
time as may be specified in the vote effecting such action.
57. Certain Transactions.
A. Higher Vote for Certain Business Transactions. In addition to any
affirmative vote required by law or otherwise in this declaration of trust, and
except as otherwise expressly provided in Section C of this Article 57:
(1) any merger or consolidation of the Company or any Subsidiary (as
hereinafter defined) with (a) any Interested Shareholder (as hereinafter
defined) or (b) any other company (whether or not itself an Interested
Shareholder) which is or after such merger or consolidation would be an
Affiliate (as hereinafter defined) or Associate (as hereinafter defined) of
an Interested Shareholder; or
(2) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) to or with any
Interested Shareholder or any Affiliate or Associate of any Interested
Shareholder involving any assets or securities of the Company, any
Subsidiary or any Interested Shareholder or any Affiliate or Associate of
any Interested Shareholder having an aggregate Fair Market Value (as
hereinafter defined) in excess of 5% of the total consolidated book value
of the total assets of the Company and its Subsidiaries as of the end of
the Company's most recent fiscal year prior to the time the determination
is made; or
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(3) the adoption of any plan or proposal for the termination,
liquidation or dissolution of the Company proposed by or on behalf of an
Interested Shareholder or any Affiliate or Associate of any Interested
Shareholder; or
(4) any reclassification of securities (including any reverse stock
split) or recapitalization of the Company or any merger or consolidation of
the Company with any of its Subsidiaries or any other transaction (whether
or not with or otherwise involving an Interested Shareholder) that has the
effect, directly or indirectly, of increasing the proportionate share of
any class or series of Capital Stock (as hereinafter defined), or any
securities convertible into Capital Stock or into equity securities of any
Subsidiary, that is beneficially owned by any Interested Shareholder or any
Affiliate or Associate of any Interested Shareholder; or
(5) any tender offer or exchange offer made by the Company for shares of
Capital Stock which may have the effect of increasing an Interested
Shareholder's percentage beneficial ownership (as hereinafter defined) so
that following the completion of the tender offer or exchange offer the
Interested Shareholder's percentage beneficial ownership of the outstanding
Capital Stock may exceed 110% of the Interested Shareholder's percentage
beneficial ownership immediately prior to the commencement of such tender
offer or exchange offer; or
(6) any agreement, contract or other arrangement providing for any one
or more of the actions specified in the foregoing clauses (1) to (5);
shall require the affirmative vote of the holders of Voting Shares (as
hereinafter defined) representing shares equal to the sum of (i) a majority of
the then outstanding Voting Shares, excluding Voting Shares of which such
Interested Shareholder is the beneficial owner, plus (ii) the number of Voting
Shares of which such Interested Shareholder is the beneficial owner, voting
together as a single class. Such affirmative vote shall be required
notwithstanding the fact that no vote may be required, or that a lesser
percentage may be specified, by law or any agreement with any national
securities exchange or otherwise.
B. Definition of "Business Transaction". For the purposes of this Article 57
the term "Business Transaction" shall mean any transaction that is referred to
in any one or more of clauses (1) through (6) of Section A of this Article 57.
C. When Higher Vote is Not Required. The provisions of Section A of this
Article 57 shall not be applicable to any direct or indirect purchase or other
acquisition by the Company or any Subsidiary of any shares of Capital Stock
from an Interested Shareholder. The provisions of Section A of this Article 57
shall also not be applicable to any particular Business Transaction involving
an Interested Shareholder, and such Business Transaction shall require only
such affirmative vote, if any, as is required by law or by any other provision
of this declaration of trust if the Business Transaction shall have been
approved by a majority of the Disinterested Trustees (whether such approval is
made prior to or subsequent to the acquisition of beneficial ownership of the
Voting Shares that caused the Interested Shareholder to become an Interested
Shareholder).
D. Certain Definitions. For purposes of this Article 57:
(1) The term "Capital Stock" shall mean all the shares of beneficial
interest of the Company authorized to be issued from time to time under Article
28 of this declaration of trust.
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(2) The term "person" shall mean any individual, firm, corporation or
other entity and shall include any group comprised of any person and any
other person with whom such person or any Affiliate or Associate of such
person has any agreement, arrangement or understanding, directly or
indirectly, for the purpose of acquiring, holding, voting or disposing of
Capital Stock.
(3) The term "Interested Shareholder" shall mean any person (other than
the Company or any Subsidiary and other than any profit-sharing, employee
stock ownership or other employee benefit plan of the Company or any
Subsidiary or any trustee of or fiduciary with respect to any such plan
when acting in such capacity) who or which (a) is the beneficial owner of
Voting Shares representing 5% or more of the votes entitled to be cast by
the holders of all then outstanding Voting Shares; or (b) is an Affiliate
of the Company and at any time within the two-year period immediately prior
to the date in question was the beneficial owner of Voting Shares
representing 5% or more of the votes entitled to be cast by the holders of
all the outstanding Voting Shares.
(4) A person shall be a "beneficial owner" of any Capital Stock (a)
which such person or any of its Affiliates or Associates beneficially owns,
directly or indirectly; (b) which such person or any of its Affiliates or
Associates has, directly or indirectly, (i) the right to acquire (whether
such right is exercisable immediately or subject only to the passage of
time), pursuant to any agreement, arrangement or understanding or upon the
exercise of conversion rights, exchange rights, warrants or options, or
otherwise, (ii) the right to vote pursuant to any agreement, arrangement or
understanding, or (iii) which is beneficially owned, directly or
indirectly, by any other person with which such person or any of its
Affiliates or Associates has any agreement, arrangement or understanding
for the purpose of acquiring, holding, voting or disposing of any shares of
Capital Stock. For the purposes of determining whether a person is an
Interested Shareholder pursuant to Paragraph (3) above, the number of
shares of Capital Stock deemed to be outstanding shall include shares
deemed beneficially owned by such person through application of this
Paragraph (4), but shall not include any other shares of Capital Stock that
may be issuable pursuant to any agreement, arrangement or understanding, or
upon exercise of conversion rights, warrants or options, or otherwise.
(5) An "Affiliate" of a specified person is a person that directly, or
indirectly through one or more intermediaries, controls, or is controlled
by, or is under common control with, the person specified.
(6) The term "Associate" used to indicate a relationship with any person
means (a) any company (other than the Company or any Subsidiary) of which
such person is an officer or partner or is, directly or indirectly, the
beneficial owner of 10% or more of any class of equity securities, (b) any
trust or other estate in which such person has a substantial beneficial
interest or as to which such person serves as trustee or in a similar
fiduciary capacity, and (c) any relative or spouse of such person, or any
relative of such spouse, who has the same home as such person or who is a
Trustee or officer of the Company or any of its parents or subsidiaries.
(7) The term "Subsidiary" means any company of which a majority of any
class of equity security is beneficially owned by the Company, provided,
however, that for the purposes of the definition of Interested Shareholder
set forth in Paragraph (3) above and the definition of Associate set forth
in Paragraph (6) above, the term "Subsidiary" shall mean only a company of
which a majority of each class of equity security is beneficially owned by
the Company.
(8) The term "Disinterested Trustee" means any Trustee who is not an
Affiliate or Associate or representative of the Interested Shareholder and
was a Trustee prior to the time that the Interested Shareholder became an
Interested Shareholder, and any Trustee who is a
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successor of a Disinterested Trustee, is not an Affiliate or Associate or
representative of the Interested Shareholder and is recommended or elected
to succeed the Disinterested Trustee by a majority of the Disinterested
Trustees.
(9) The term "Fair Market Value" means (a) in the case of cash, the
amount of such cash, (b) in the case of stock, the highest closing sale
price during the 30-day period immediately preceding the date in question
of a share of such stock on the Composite Tape for New York Stock Exchange
Listed Stocks, or, if such stock is not quoted on the Composite Tape, on
the New York Stock Exchange, or, if such stock is not listed on such
Exchange, on the principal United States securities exchange registered
under the Securities Exchange Act of 1934 on which such stock is listed,
or, if such stock is not listed on any such exchange, the highest closing
bid quotation with respect to a share of such stock during the 30-day
period immediately preceding the date in question on the National
Association of Securities Dealers, Inc. Automated Quotations System or any
similar system then in use, or if no such quotation is available, the fair
market value on the date in question of a share of such stock as determined
by a majority of the Disinterested Trustees in good faith; and (c) in the
case of property other than cash or stock, the fair market value of such
property on the date in question as determined in good faith by a majority
of the Disinterested Trustees.
(10) The term "Voting Shares" means all Capital Stock which by its terms
may be voted generally in the election of Trustees of the Company.
E. Powers of the Disinterested Trustees. A majority of the Disinterested
Trustees shall have the power and duty to determine for purposes of this
Article 57, on the basis of information known to them after reasonable inquiry,
(1) whether a person is an Interested Shareholder, (2) the number of shares of
Capital Stock or other securities beneficially owned by any person, (3) whether
a person is an Affiliate or Associate of another, and (4) whether the assets
that are the subject of any Business Transaction have, or the consideration to
be received for the issuance or transfer of securities by the Company or any
Subsidiary in any Business Transaction has, an aggregate Fair Market Value in
excess of the amount set forth in clause (2) of Section A of this Article 57.
Any such determination made in good faith shall be binding and conclusive for
all the purposes of this Article 57.
F. No Effect on Fiduciary Obligations of Interested Shareholders. Nothing
contained in this Article 57 shall be construed to relieve any Interested
Shareholder from any fiduciary obligation imposed by law.
G. Alteration, Amendment, Repeal. Notwithstanding any other provisions of
this Declaration of Trust (and notwithstanding the fact that a lesser
percentage or separate class vote may be specified by law or this Declaration
of Trust), the affirmative vote of the holders of 80% of the then outstanding
Voting Shares shall be required to alter, amend or repeal this Article 57;
provided, however, that this Section G shall not apply to, and such 80% vote
shall not be required for, any alteration, amendment or repeal recommended by a
majority of the Disinterested Trustees.
58. Amendments. This Declaration of Trust may be altered, amended, added to
or rescinded by an instrument in writing signed by a majority of the Trustees,
if the same has been authorized by majority vote of the Shareholders at a
meeting, and such other vote, if any, as may be required by the rights or
preferences relating to any class or series of shares; provided that if such
alteration, amendment, addition or rescission shall in the judgment of the
Trustees be of a fundamental character it shall require authorization by vote,
at such a meeting, of the holders of a majority of the shares outstanding and
entitled to vote thereon; and provided further that any alteration, amendment,
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addition or rescission of any provision requiring a vote of the holders of a
specified percentage of the shares shall be only by vote of the holders of such
percentage; and provided further that the provisions of Articles 3 and 4
exempting from personal liability the Shareholders, Trustees, officers, agents
and other representatives of the Company may be amended only by unanimous vote
of the holders of all shares entitled to vote at the time such vote is taken
and such amendment shall take effect only prospectively. Such alteration,
amendment, addition or rescission shall become effective at such time as may be
specified in the vote effecting such action. Notwithstanding anything preceding
in this Article to the contrary but subject to the provisions of Article 57,
the vote of the holders of 80% of the shares issued and outstanding and
entitled to vote generally in the election of Trustees shall be required for
any alteration, amendment or repeal of Articles 9 and 10; provided, however,
that such 80% vote shall not be required for any alteration, amendment or
repeal adopted or recommended by 80% of the Trustees then in office. Amendments
for the purpose of changing the name of the Company or of supplying any
omission, curing any ambiguity or curing, correcting or supplementing any
defective or inconsistent provision contained in this declaration of trust
shall not require authorization by vote of the Shareholders.
59. Certificate of Termination or Amendment. In case this trust shall be
terminated or any merger, combination, consolidation or affiliation shall be
effected, or any of the terms, powers and provisions herein contained shall be
altered, amended, added to or rescinded, pursuant to the provisions of Article
8(o), Article 56 or Article 58 or other authority, a certificate in any number
of counterparts deemed desirable, setting forth such termination, alteration,
amendment, addition or rescission or the terms of such merger, combination,
consolidation or affiliation and either that the Shareholders have authorized
the same in accordance with the provisions of said Article 8(o), Article 56 or
Article 58, or the other authority pursuant to which the same has been made,
shall be signed by the chairman or president and by the clerk or any assistant
clerk and shall be acknowledged by either the chairman or president signing the
same and shall be recorded or filed in the various public offices, if any, in
which this Declaration of Trust is then recorded or filed and at the principal
office of the Company and in such places as may be required by law, but failure
to record or file any such vote or resolution shall not affect the validity
thereof.
60. Disposition of Trust Estate on Termination. Upon the termination of this
trust, the Trustees shall, upon such terms as shall be determined by the
Trustees, sell and convert into money or into shares, bonds or other securities
or obligations, whether of the purchaser or otherwise, 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
Shareholders in accordance with their respective rights ratably according to
the number and kind of shares held by them respectively. In making any sale
under this provision the Trustees shall have power to sell by public auction or
private contract and to buy in or rescind or vary any contract of sale and to
resell, without being answerable for loss, and for the said purposes to execute
or cause to be executed all proper deeds and instruments and to do all proper
things. The Trustees may, after the distribution of the full amounts of money,
if any, due upon liquidation or termination on any preferred shares of any
class or series which may be outstanding, divide the whole or any part of the
remaining Trust estate in its actual state of investment among the Shareholders
in accordance with their respective rights ratably according to the number and
kind of shares held by them respectively, and for such purposes the Trustees
shall have power to determine the values of the property comprising said
remaining Trust estate.
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Miscellaneous
61. Filing. This instrument and any amendment hereto shall be filed with the
Secretary of The Commonwealth of Massachusetts and in such other places as may
be required under the laws of The Commonwealth of Massachusetts and may also be
filed or recorded in such other places as the Trustees deem appropriate. Unless
any such amendment sets forth some later time for the effectiveness of such
amendment, such amendment shall be effective upon its filing with the Secretary
of The Commonwealth of Massachusetts. A restated declaration of trust,
integrating into a single instrument all of the provisions of this instrument
which are then in effect and operative, may be executed from time to time by
the Trustees and shall, upon filing with the Secretary of The Commonwealth of
Massachusetts, be conclusive evidence of all amendments contained therein and
may hereafter be referred to in lieu of this instrument and the various
amendments thereto.
62. Protection of Company, Stock of Which Held by Trust. No corporation,
trust, association or body politic shall be affected by notice that any of its
shares or bonds or other securities or obligations are subject to this trust or
be bound to see to the execution of this trust or to ascertain or inquire
whether any transfer of any such shares, bonds or securities or obligations by
the Company is authorized, notwithstanding such authority may be disputed by
some other person, firm, association, trust or corporation.
63. Authority of the Trustees to Construe Terms Hereof. The Trustees shall
have the authority to construe any of the terms, powers and provisions herein
contained and to act on any such construction, and its construction of the same
and any action taken pursuant thereto by the Trustees, or any committee,
officer or agent in good faith shall be final and conclusive.
64. Effect of Captions and Table of Contents. The captions and Table of
Contents are inserted for convenience of reference, and are not to be taken as
any part of this instrument or to control or affect the meaning, construction
or effect of the same.
65. Counterparts. This instrument may be simultaneously executed in several
counterparts, each of which shall be deemed to be an original, and such
counterparts, together, shall constitute one and the same instrument, which
shall be sufficiently evidenced by any such original counterpart.
66. Governing Law. This instrument is executed by the original Trustees and
delivered in The Commonwealth of Massachusetts, and with reference to the
statutes and law thereof, and the rights of all parties and the construction
and effect of every provision hereof shall be subject to and construed
according to the statutes and law of said Commonwealth.
67. Provisions in Conflict with Law or Regulations. The provisions of this
instrument are severable, and if the Trustees shall determine, with the advice
of counsel, that any of such provisions would be inconsistent with any of the
conditions necessary for qualification of the Company as an exempted holding
company within the meaning of the Public Utility Holding Company Act of 1935,
as amended, and the rules and regulations thereunder or is inconsistent with
other applicable laws and regulations, such provision shall be deemed never to
have constituted a part of this instrument, provided that such determination
shall not affect any of the remaining provisions of this instrument or render
invalid or improper any action taken or omitted prior to such determination. If
any provision of this instrument shall be held invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall attach only to such
provision in such jurisdiction and shall not in any manner affect such
provision in any other jurisdiction or any other provision of this instrument
in any jurisdiction.
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IN WITNESS WHEREOF we have hereunto set our hands and seals at Boston in The
Commonwealth of Massachusetts on the date first above mentioned.
/s/ Thomas J. May
[SEAL] _____________________________________
Thomas J. May
/s/ Russell D. Wright
[SEAL] _____________________________________
Russell D. Wright
COMMONWEALTH OF MASSACHUSETTS
COUNTY OF SUFFOLK, SS.
April 20, 1999
Then personally appeared before me the above-named Thomas J. May and
acknowledged the foregoing instrument to be his free act and deed.
WITNESS MY HAND and official seal at Boston, Massachusetts.
/s/ Theodora S. Convisser
NOTARIAL SEAL _____________________________________
My commission expires March 10, 2000
Notary Public in and for The Commonwealth of Massachusetts
COMMONWEALTH OF MASSACHUSETTS
COUNTY OF SUFFOLK, SS.
April 20, 1999
Then personally appeared before me the above-named Russell D. Wright and
acknowledged the foregoing instrument to be his free act and deed.
WITNESS MY HAND and official seal at Boston, Massachusetts.
/s/ Richard J. Morrison
NOTARIAL SEAL _____________________________________
My commission expires September 23, 1999
Notary Public in and for The Commonwealth of Massachusetts
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ANNEX E
Bylaws of NSTAR
BYLAWS
OF
NSTAR
Section 1. DECLARATION OF TRUST
1.1 Declaration of Trust. References herein to the Declaration of Trust
shall apply to the Declaration of Trust establishing NSTAR (the "Company"),
dated April 20, 1999, as the same shall be amended from time to time. These
Bylaws and all matters concerning the conduct and regulation of the business
and affairs of the Company shall be subject to such provisions in regard
thereto, if any, as are set forth in the Declaration of Trust as from time to
time in effect.
Section 2. TRUSTEES
2.1. Nominations. Nominations for the election of Trustees at an annual
meeting may be made by the Trustees or a committee appointed by the Trustees
or by any Shareholder entitled to vote generally in the election of Trustees;
however, any Shareholder entitled to vote generally in the election of
Trustees may nominate one or more persons for election as Trustees at an
annual meeting only if written notice of such Shareholder's intent to make
such nomination or nominations has been given, postage prepaid, to the clerk
not later than forty-five days prior to the anniversary of the date of the
immediately preceding annual meeting. Each such notice shall set forth: (a)
the name and address of the Shareholder who intends to make the nomination and
of the person or persons to be nominated; (b) a representation that the
Shareholder is a holder of record of the Company 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; (c) a description of all
arrangements or understandings between the Shareholder 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 Shareholder; (d) such
other information regarding each nominee proposed by such Shareholder as would
be required to be included in a proxy statement filed pursuant to the proxy
rules of the Securities and Exchange Commission; and (e) 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.
2.2 Action by Trustees. The action of the Trustees in respect of any matter
shall be by vote passed by the Trustees at a meeting or by a written vote
without a meeting (with or without notice to the other Trustees) signed by at
least a majority of the Trustees.
2.3. Regular Meetings. Regular meetings of the Trustees may be held at such
places and at such times as the Trustees may by vote from time to time
determine, and if so determined no notice thereof need be given, provided,
however, that notice of the first regular meeting following any such
determination shall be given to absent Trustees. A regular meeting of the
Trustees may be held without notice immediately after and at the same place as
the annual meeting of the Shareholders or a special meeting of the
Shareholders held in lieu of such annual meeting.
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2.4. Special Meetings. A special meeting of the Trustees may be held at any
time and at any place when called by the chairman, president, clerk or three or
more Trustees, by giving to each of the Trustees reasonable notice thereof.
2.5. Notice. Without implied limitation, a notice thereof, mailed prepaid,
addressed to any Trustee, at his or her usual address, and posted in the City
of Boston, or where the principal office of the Company is situated, at least
forty-eight (48) hours before such meeting, or a notice given by telephone or
telefax at least twenty-four (24) hours before such meeting, shall be deemed
sufficient notice to such Trustee, whether the same be received by him or her
or not. It shall not be necessary to give notice of any such meeting to any
Trustee who is present at the meeting, or who executes, before or after the
meeting, a written waiver of such notice; and if under the foregoing provisions
there is no Trustee to whom notice of a meeting need be given, such meeting may
be held without call at any time and at any place.
2.6. Minutes of Meetings. The Trustees shall cause to be kept minutes of all
meetings of the Trustees and minutes of all meetings of the Shareholders, and
all such minutes, if signed or certified by the clerk or any assistant or
temporary clerk, shall be conclusive evidence of the matters therein stated.
2.7. Presence Through Communications Equipment. Unless otherwise prohibited
by law, members of the Trustees may participate in a meeting by means of a
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other at the same time and
participation by such means shall constitute presence in person at a meeting.
2.8. Committees. The Trustees shall, by a vote of the majority of the
Trustees then in office, elect from their number an executive committee which
shall include the chairman of the Trustees, if any, and the president, and
which shall have and exercise all powers of the Trustees which may lawfully be
delegated in the intervals between the meetings of the Trustees. The Trustees
may also from time to time appoint such other committees as it may determine
and such committees shall have such powers as shall be specified by vote of the
Trustees. Except as the Trustees may otherwise determine, any such committee
may make rules for the conduct of its business, but unless otherwise provided
by the Trustees or such rules, its business shall be conducted as nearly as may
be in the same manner as is provided by the Declaration of Trust for the
conduct of business by the Trustees.
Section 3. OFFICERS AND AGENTS
3.1. Enumeration; Qualification. The officers of the Company shall be a
president, a treasurer and a clerk and any other officers, including a chairman
of the Trustees, as the Trustees may from time to time in their discretion
elect or appoint. The Trustees may likewise from time to time appoint or employ
or authorize the appointment or employment of agents, employees or
representatives of the Company, may fix their compensation, term of employment,
duties and powers, or authorize the same to be fixed, and may remove them or
terminate their employment or authorize the same to be done. The clerk shall be
a resident of Massachusetts unless the Company has a resident agent appointed
for the purpose of service of process. Any action taken and any obligations
entered into by such officers or agents on behalf of the Company pursuant to
authority granted to them shall be binding upon the Trust estate. The Trustees
may fix the compensation and duties and powers of the officers or authorize the
same to be fixed. Any officer may be but need not be a Shareholder or
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Trustee and any two or more offices may be held by the same person. Any officer
may be required by the Trustees to give bond for the faithful performance of
his or her duties to the Company in such amounts and with such sureties as the
Trustees may determine.
3.2 Resignation and Removals. Any officer may resign at any time by
delivering his or her resignation in writing to the chairman of the Trustees,
if any, the president, the treasurer or the clerk or to a meeting of the
Trustees. Such resignation shall be effective upon its receipt unless specified
to be effective at some other time. The Trustees may remove any officer elected
or appointed by them with or without cause by the vote of a majority of the
Trustees then in office. An officer may be removed for cause only after
reasonable notice and opportunity to be heard before the Trustees. Except where
a right to receive compensation shall be expressly provided in a duly
authorized written agreement with the Company, no officer resigning or removed
shall have any right to any compensation as such officer for any period
following his or her resignation or removal, or any right to damages on account
of such removal, whether his or her compensation be by the month or by the year
or otherwise, unless the Trustees shall in their discretion provide for
compensation.
3.3. Powers. Subject to law, to the Declaration of Trust, and the other
provisions of these Bylaws, unless and until the Trustees otherwise determine,
the several officers shall have the authority and perform the duties usually
incident to their respective offices in the case of corporations and such other
duties and powers as the Trustees may from time to time designate.
3.4. Election. The chairman of the Trustees, if any, and the president,
treasurer and clerk shall be elected annually by the Trustees at their first
meeting following the annual meeting of the Shareholders. Other officers, if
any, may be elected or appointed by the Trustees at said meeting or at any
other time. If the office of the president or the treasurer or clerk becomes
vacant, the Trustees may elect a successor by vote of a majority of the
Trustees then in office. If the office of any other officer becomes vacant, the
Trustees may elect a successor by vote of a majority of the Trustees present.
Each such successor shall hold office until his or her successor is chosen and
qualified, or until such officer sooner dies, resigns, is removed or becomes
disqualified.
3.5. Tenure. The chairman of the trustees, the president, the treasurer and
the clerk shall continue in office until the first meeting of the Trustees
following the next succeeding annual meeting of the Shareholders or the special
meeting of the Shareholders held in lieu of such annual meeting, and until his
or her successor, if any, is chosen and qualified, and other officers shall
hold office until any such officer sooner dies, resigns, is removed or becomes
disqualified. Each agent shall retain his or her authority at the pleasure of
the Trustees.
3.6. Chief Executive Officer, Chairman of the Trustees, President and Vice
Presidents. The Trustees shall designate either the chairman of the Trustees or
the president as the chief executive officer of the Company who shall have
general charge and supervision of the business of the Company, subject to the
control of the Trustees.
The president, if not designated as the chief executive officer, and any
vice presidents shall have the duties and powers as shall be designated by the
Trustees from time to time or by the chief executive officer of the Company.
3.7. Treasurer and Assistant Treasurers. The treasurer shall be in charge of
the Company's funds and valuable papers, books of account and accounting
records and shall have such other duties and powers as may be designated from
time to time by the Trustees or by the chief executive officer of the Company.
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Any assistant treasurer shall have such duties and powers as shall be
designated from time to time by the Trustees or the chief executive officer of
the Company.
3.8. Clerk and Assistant Clerks. The clerk shall record all proceedings of
the stockholders in a book or series of books to be kept therefor, which book
or books shall be kept in the principal office of the Company or at the office
of its transfer agent or of its clerk and shall be open at all reasonable times
to the inspection of any Shareholder. In the absence of the clerk from any
meeting of Shareholders, an assistant clerk, or if there be none or the
assistant clerk be absent, a temporary clerk chosen at the meeting, shall
record the proceedings thereof in the aforesaid book. Unless a transfer agent
has been appointed, the clerk shall keep or cause to be kept the stock and
transfer records of the Company, which shall contain the names and record
addresses of all the Shareholders and the amount of stock held by each. The
clerk shall keep a true record of the proceedings of all meetings of the
Trustees and in the clerk's absence from any such meeting an assistant clerk,
or if there be none or the assistant clerk is absent, a temporary clerk chosen
at the meeting, shall record the proceedings thereof.
Any assistant clerk shall have such duties and powers as shall be designated
from time to time by the Trustees or the chief executive officer of the
Company.
Section 4. CAPITAL STOCK
4.1. Stock Certificates. Every Shareholder shall be entitled to receive a
certificate or certificates specifying the number and kind of shares held by
such Shareholder, with such description, if any, as may be necessary to
distinguish them from other shares to which different rights are attached. Such
certificates shall be signed by the chairman, the president or a vice president
and by the treasurer or an assistant treasurer of the Company and countersigned
by the transfer agent, if any, and registered by or on behalf of the Trustees
or by a registrar, if any, and a notation of such registration shall be
endorsed thereon. Such signatures may be facsimiles if the certificate is
signed by a transfer agent or by a registrar other than a Trustee, officer or
employee of the Company. Even though any officer who has signed or whose
facsimile signature has been placed on such certificate shall have ceased to be
such officer before such certificate is issued, such certificate may
nevertheless be issued by the Company.
Notwithstanding the foregoing, in lieu of issuing share certificates, the
Trustees or the transfer agent may either issue receipts therefor or keep
accounts upon the books of the Company for the record holders of such shares,
who shall in either case be deemed, for all purposes hereunder, to be the
holders of certificates for such shares as if they had accepted such
certificates and shall be held to have expressly assented and agreed to the
terms hereof.
4.2. Lost, Stolen or Destroyed Share Certificates. In the event the Trustees
authorized the issuance of share certificates, subject to Section 4.1, a new
certificate may be issued to replace any certificate previously issued, on
satisfactory evidence that the certificate previously issued has been worn out,
mutilated, lost or destroyed and on such terms, if any, as to indemnity and
otherwise, as the Trustees shall deem proper.
Section 5. COMMON SEAL
The seal of the Company shall, subject to alteration by the Trustees,
consist of a flat-faced circular die with the word "Massachusetts," together
with the name of the trust and its year of organization, cut or engraved
thereon.
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Section 6. EXECUTION OF PAPERS
Except as the Trustees may generally or in particular cases authorize the
execution thereof in some other manner, all deeds, leases, transfers,
contracts, bonds, notes, checks, drafts, and other obligations made, accepted
or endorsed on behalf of the Company shall be signed by the chairman of the
Trustees, if any, or by the president or by one or more of the vice presidents
or the treasurer.
Section 7. FISCAL YEAR
Until the Trustees shall change it, the fiscal year shall end on the last
day of December in each year.
Section 8. CONTROL SHARE ACQUISITIONS
The provisions of Massachusetts General Laws Chapter 110D as in effect from
time to time shall not apply to control share acquisitions of the Company.
Section 9. AMENDMENTS
These Bylaws may be altered, amended or repealed by vote of the majority of
the Trustees then in office, except with respect to any provision which by law
or by a provision of the Declaration of Trust requires action by the
Shareholders.
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