SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
December 11, 1998
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Date of Report (Date of Earliest Event Reported)
New England Electric System
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(Exact Name of Registrant as Specified in Charter)
Massachusetts 1-3446 04-1663060
_____________________ ___________ _____________
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
25 Research Drive
Westborough, Massachusetts 01582
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(Address of Principal Executive Offices and Zip Code)
(508) 389-2000
___________________________________________________
(Registrant's Telephone Number, Including Area Code)
N/A
________________________________________________________
(Former Name or Former Address, if Changed Since Last Report)
ITEM 5. OTHER EVENTS.
On December 11, 1998, New England Electric System, a Massachusetts
business trust, (the "Company"), The National Grid Group plc, a public
limited company incorporated under the laws of England and Wales with
registration number 2367004 ("National Grid") and Iosta LLC, a
Massachusetts limited liability company which is directly and indirectly
wholly owned by National Grid ("Iosta"), entered into an Agreement and Plan
of Merger, dated as of December 11, 1998 (the "Merger Agreement"),
providing for a merger transaction among the Company, National Grid and
Iosta. The Merger Agreement and the press release issued in connection
therewith are filed herewith as Exhibits 10 (mm) and 99, respectively, and
are incorporated herein by reference. The description of the Merger
Agreement set forth herein does not purport to be complete and is qualified
in its entirety by the provisions of the Merger Agreement.
Pursuant to the Merger Agreement, Iosta will merge with and into the
Company (the "Merger"), with the Company being the surviving entity and
becoming a wholly-owned subsidiary of National Grid (the "Surviving
Entity"). The Merger, which was unanimously approved by the boards of
directors of each of the Company, National Grid and Iosta, is expected to
occur shortly after all of the conditions to the consummation of the
Merger, including the receipt of certain regulatory approvals, are met or
waived. The Company anticipates that the Merger can be consummated in
early 2000.
Under the terms of the Merger Agreement, each outstanding share of the
Company's common stock, $1.00 par value per share (the "Company Common
Stock"), other than shares, if any, owned by the Company as treasury shares
(except those treasury shares which are held pursuant to the Company's
Rabbi Trust), National Grid, Iosta or any other wholly-owned subsidiary of
National Grid, will be converted into the right to receive $53.75 in cash,
as may be adjusted (the "Merger Consideration"). Such adjustment will
occur if the Closing Date does not occur on or prior to the date that is
the six month anniversary of the date on which the Company Shareholders'
Approval is attained (the "Adjustment Date") then the per share amount
shall be increased by $.003288 each day up to a maximum adjustment of $0.60
per share, for a total of $54.35 per share.
The Board of Directors of the Company has received an opinion from its
investment banker, Merrill Lynch, Pierce, Fenner & Smith Incorporated, to
the effect that, as of the date of the Merger Agreement, the Merger
Consideration to be received by the holders of Company Common Stock in the
Merger is fair from a financial point of view to holders of Company Common
Stock.
The Merger is subject to certain customary closing conditions,
including, without limitation, the receipt of the required approval of the
Company's shareholders, the receipt of the required approval of National
Grid's shareholders, and the receipt of all necessary governmental
approvals and the making of all necessary governmental filings, including
the consent or approval of certain state utility regulators, the approval
of the Federal Energy Regulatory Commission ("FERC"), the approval of the
Securities and Exchange Commission under the Public Utility Holding Company
Act of 1935, as amended (the "1935 Act"), the approval of the Nuclear
Regulatory Commission, the filing of the requisite notification with the
Federal Trade Commission and the Department of Justice under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the
expiration of the applicable waiting period thereunder, and the filing of
the requisite notification under the Exon-Florio Provisions of the Omnibus
Trade and Competitiveness Act of 1988, and the termination of the review
and investigation with no action taken by the President thereunder. A
meeting of the Company's shareholders to vote upon the Merger will be
convened as soon as practicable and is expected to be held in the first
quarter of 1999. A meeting of National Grid's shareholders to vote upon
the Merger will be convened as soon as practicable and is expected to be
held in the first quarter of 1999.
The Merger Agreement contains certain covenants of the parties pending
the consummation of the Merger. Generally, except as required by the terms
of the Company's Settlement Agreements with FERC and certain state utility
regulators, the Company must carry on its business in the ordinary course
consistent with past practice, comply with all laws and preserve intact its
goodwill. The Company is permitted to declare and pay its regular
quarterly dividends. The Merger Agreement contains certain restrictions on
the Company including limitations on, or procedures for: issuance of
securities, termination or failure to renew material contracts, amendments
to the Company's Declaration of Trust or similar governing documents of the
Company's Subsidiaries, capital expenditures, acquisitions, dispositions,
incurrence of indebtedness, modification of employee compensation and
benefits, rate matters, changes in accounting policies and discharge of
liabilities. (See Article VI of the Merger Agreement.)
The Merger Agreement prevents the Company and its subsidiaries from
knowingly initiating, soliciting or encouraging, directly or indirectly,
any inquiry or proposal or offer, or engaging in negotiations with, or
providing confidential information to any third party relating to a
business combination proposal, and requires the Company to terminate
immediately any existing discussions or negotiations and notify National
Grid of any such inquiries relating to a business combination proposal,
unless prior to the Company shareholder approval: (i) the Company's Board
determines, in good faith based upon the advice of its outside legal
counsel with respect to the Board's fiduciary duties, that taking such
action is necessary for the Board to act in a manner consistent with its
fiduciary duties under applicable law; (ii) the Company's Board reasonably
concludes, in good faith after consultation with its financial advisors,
that (A) the party making such proposal has adequate financing sources and
(B) such proposal is likely to be more favorable to stockholders of the
Company than the Merger (a "Superior Proposal"); (iii) prior to furnishing
nonpublic information or entering into negotiations, the Company notifies
National Grid in writing of such furnishing of information or negotiations
(identifying the party making the proposal and the material terms of such
proposal) and enters into a confidentiality agreement with such third
party; and (iv) the Company keeps National Grid promptly informed of the
status and all material information with respect to such discussions or
negotiations. The Company may terminate the Merger Agreement to accept a
Superior Proposal (in which case, the termination fee provision described
below would be applicable). However, before so terminating, the Company
must negotiate with National Grid to adjust the Merger Agreement so as to
enable the parties to proceed with the adjusted Merger Agreement, and the
Company's Board must determine that, based on advice of counsel with
respect to the Board's fiduciary duties and notwithstanding a binding
commitment to consummate the Merger Agreement and notwithstanding all
concessions that may be offered by National Grid in further negotiations
with the Company, the Superior Proposal is more favorable to the Company's
shareholders than the Merger. (See Section 7.08 and Article IX of the
Merger Agreement.)
The Company CEO and one outside director of the Company's Board of
Directors, mutually determined by National Grid and the Company, will be
appointed to the Board of Directors of National Grid. In addition, the
Surviving Entity will have an advisory board, with eleven members from the
Company's Board immediately prior to the Closing, that will advise the
Surviving Entity with respect to general business, among other things. The
Merger Agreement provides that, after the effectiveness of the Merger (the
"Effective Time"), the headquarters of the Surviving Entity will be in
Massachusetts, and utility operations offices will remain in Massachusetts,
New Hampshire and Rhode Island. (See Section 7.07 of the Merger
Agreement.)
The Merger Agreement may be terminated under certain circumstances,
including: (i) by mutual written agreement of the boards of directors of
the parties; (ii) by either party if the Merger has not been effected by
the date nine months from the receipt of the Company shareholder approval
(the "Initial Termination Date"), provided that if the parties are
otherwise ready to close, but certain statutory approvals are not yet
obtained, the Initial Termination date will be extended to the date fifteen
months from the receipt of the Company shareholder' approval (the "Extended
Termination Date"), and provided further that if on the Initial or Extended
Termination Date, a "Financial Disruption" exists, then the Company will
have the right, but not the obligation, to extend such Termination Date six
months beyond such Termination Date (a "Financial Disruption" means any
significant disruption in the financial or capital markets which makes it
impracticable for a company having financial characteristics similar to
those of National Grid as of the date of the Merger Agreement to finance a
transaction of the size and nature as that contemplated under the Merger
Agreement on commercially reasonable financing terms that are available as
of the date of such financing); and (iii) by either party if: (A) the
Company shareholder approval or the National Grid shareholder approval has
not been obtained; or (B) any law, rule or regulation is adopted which
makes the Merger illegal or any final order or injunction permanently
prohibits the Merger. In addition, the Company may terminate the Merger
Agreement: (i) under certain circumstances, in order to accept a Superior
Proposal (subject to the limitations and procedures described above and to
payment of the termination fee described below); (ii) if there has been a
material breach of certain of National Grid's representations and
warranties or a failure by National Grid to perform and comply with its
covenants under the Merger Agreement and such breach or failure has not
been cured; (iii) if National Grid fails to deliver the merger
consideration at a time when all conditions to National Grid's obligation
to close have been satisfied or waived, and such failure is as a result of
Financial Disruption; and (iv) if the Board of National Grid withdraws or
modifies its approval of the merger or its recommendation to its
shareholders. National Grid may terminate the Merger Agreement if: (i)
the Board of the Company approves, recommends or takes no position with
respect to an alternative business combination proposal; (ii) twelve months
after the Company Shareholders' Approval is obtained, the order of the SEC
approving the Merger under the 1935 Act has not been issued, and National
Grid certifies to the Company that it reasonably believes that the SEC will
not issue an order that would comply with the requirements of the
regulatory condition; (iii) the Board of the Company withdraws or modifies
its approval of the merger or its recommendation to its shareholders; and
(iv) there has been a material breach of the Company's representations and
warranties or a failure by the Company to perform and comply with its
covenants under the Merger Agreement and such breach or failure has not
been cured. (See Articles VIII and IX of the Merger Agreement.)
National Grid will pay the Company a termination fee of: (i) $100
million if the Company terminates the Merger Agreement because National
Grid was unable to pay the merger consideration, at a time when all of the
National Grid's closing conditions were met or waived, because of a
Financial Disruption; (ii) $75 million plus up to $10 million for
documented out-of-pocket expenses if National Grid terminates after the
twelve month anniversary of the Company's shareholder approval because an
order from the SEC approving the Merger has not been issued, and National
Grid certifies to the Company that it reasonably believes that the SEC will
not issue an order that would comply with the requirements of the
regulatory condition; and (iii) documented out-of-pocket expenses up to $10
million if the Company terminates because of National Grid's (A) material
breach of its representations and warranties, (B) failure to perform and
comply with its covenants under the Merger Agreement or (C) failure to
obtain its shareholder vote. (See Articles VIII and IX of the Merger
Agreement.)
The Company will pay National Grid a termination fee of (i) $100
million plus up to $10 million for documented out-of-pocket expenses if the
Company terminates the Merger Agreement because the Company became the
target of a third party alternative proposal, and the Company's Board
determined in good faith based upon the advice of outside counsel with
respect to the Board's fiduciary duties, that termination was necessary for
the Board to act consistently with its fiduciary duties under applicable
law; (ii) $100 million plus up to $10 million for documented out-of-pocket
expenses if, at a time when an alternative business proposal is pending,
National Grid terminates the Merger Agreement because: (A) the Company has
materially breached its representations and warranties or has failed to
materially perform and comply with its covenants under the Merger
Agreement, (B) the Company shareholder approval was not obtained, or (C)
the Company terminates the Merger Agreement because the Closing has not
occurred by the termination date, provided, that in the case of (A), (B) or
(C), the Company enters into a merger or acquisition agreement with the
party offering such alternative proposal within two years of such
termination; and (iii) documented out-of-pocket expenses up to $10 million
if National Grid terminates at a time when no alternative business proposal
was outstanding because of the Company's (A) material breach of its
representations and warranties, (B) failure to perform and comply with its
covenants under the Merger Agreement or (C) failure to obtain its
shareholder vote. (See Article IX of the Merger Agreement.)
If the Merger Agreement is terminated because either party's Board
has withdrawn or changed its recommendation with respect to the Merger
prior to such party's shareholder meeting, then the other party must pay a
$100 million termination fee plus documented out-of-pocket expenses up to
$10 million. (See Article IX of the Merger Agreement.)
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS.
(c) Exhibits.
10(mm) Agreement and Plan of Merger, dated as of December 11, 1998,
by and among The National Grid Group plc, Iosta LLC and New
England Electric System.
99 Press Release of New England Electric System issued December
14, 1998.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
Date: December 16, 1998
NEW ENGLAND ELECTRIC SYSTEM
By: /s/ Michael E. Jesanis
__________________________
Michael E. Jesanis
Senior Vice President and
Chief Financial Officer
Exhibit Index
Exhibit Description
10(mm) Agreement and Plan of Merger, dated as of December 11, 1998,
among New England Electric System, The National Grid Group plc,
and Iosta LLC.
99 Press Release of New England Electric System issued December 14,
1998.