-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GJnnPYh/ESoFdtiT7QOq3hVV9gvi2IQ2q9/yI+DTtp+6qqWKTd8JGdnjdJFqF3ZT e7gv52vFpr5eZYVUzhOEEw== 0000910647-98-000061.txt : 19980225 0000910647-98-000061.hdr.sgml : 19980225 ACCESSION NUMBER: 0000910647-98-000061 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 12 FILED AS OF DATE: 19980224 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BERKSHIRE ENERGY RESOURCES CENTRAL INDEX KEY: 0001056255 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: MA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-46799 FILM NUMBER: 98548122 BUSINESS ADDRESS: STREET 1: 115 CHESHIRE RD CITY: PITTSFIELD STATE: MA ZIP: 01201-1879 BUSINESS PHONE: 4134421511 MAIL ADDRESS: STREET 1: 115 CHESHIRE RD CITY: PITTSFIELD STATE: MA ZIP: 01201-1879 S-4 1 BODY OF FORM S-4 As filed with the Securities and Exchange Commission on February 24, 1998 Registration No. 33-_______ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _______________________ FORM S-4 Registration Statement under The Securities Act of 1933 _______________________________________________________ BERKSHIRE ENERGY RESOURCES (Exact name of Registrant as specified in its charter) ______________________________________________________ Massachusetts 6719 04-3408946 State or other jurisdiction (Primary standard industrial (I.R.S. employer of incorporation or classification code number) identification no.) organization) 115 Cheshire Road, Pittsfield, MA 01201-1879, (413) 442-1511 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) Cheryl M. Clark Secretary 115 Cheshire Road, Pittsfield, MA 01201-1879, (413) 442-1511 (Name, address, including zip code, and telephone number, including area code, of agent for service) _____________________ 1 With Copies To: James M. Avery, Esq. Rich, May, Bilodeau & Flaherty, P.C. 294 Washington Street Boston, Massachusetts 02108 (617) 482-1360 ______________ Approximate date of commencement of proposed sale of the securities to the public: At the effective time of the merger of a wholly-owned subsidiary of the Registrant with and into The Berkshire Gas Company, which shall occur as soon as practicable after the effective date of this Registration Statement and the satisfaction or waiver of all conditions to closing of such merger as described in the enclosed Proxy Statement/Prospectus. If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box: [ ] If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] ___ If this form is a post-effective amendment filed pursuant to Rule 462 (d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. [ ] _________________ ________________________ CALCULATION OF REGISTRATION FEE
Title of Each Class of Proposed Maximum Proposed Maximum Amount of Securities to be Registered Amount to be Registered Offering Price Per Unit Aggregate Offering Price Registration Fee Common Shares, without par value 2,385,252 shares $22-11/16(1) $54,115,404.75(1) $15,964.05(1) - -------------------- The Registration Fee was calculated in accordance with Rule 457(f)(1), based on the average of the high and low sales prices for shares of Common Stock of The Berkshire Gas Company as quoted in the NASDAQ National Market System on February 18, 1998.
____________________ The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that 2 this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. [THE BERKSHIRE GAS COMPANY LETTERHEAD] _________ __, 1998 Dear Shareholder: You are cordially invited to attend the Special Meeting of Shareholders of The Berkshire Gas Company ("Berkshire Gas") on _________, _________ __, 1998 at 10:00 a.m. at the Berkshire Gas offices, 115 Cheshire Road, Pittsfield, Massachusetts 01201-1879. At the Special Meeting you will be asked to consider and vote on a proposal to form a holding company for Berkshire Gas. The Board of Directors and management of Berkshire Gas consider this change to be in the best interests of Berkshire Gas and its shareholders. The new structure is designed to enable Berkshire Gas to respond more effectively and efficiently to competitive changes occurring in the natural gas utility industry and to new business opportunities that may arise from these changes. The new structure will allow clear separation of the new holding company's regulated and unregulated lines of business in a manner consistent with the utility industry restructuring principles outlined by the Massachusetts Department of Telecommunications and Energy (formerly the Department of Public Utilities) and in recent amendments to legislation affecting Massachusetts gas companies. Nearly all Massachusetts investor-owned electric utilities are already organized in this manner, as are a number of Massachusetts investor-owned natural gas utilities. The attached series of questions and answers provides information on the proposed holding company, what it is and how it would affect the individual shareholder. The enclosed Proxy Statement/Prospectus contains a more extensive discussion of the proposal. The Board of Directors and management of Berkshire Gas unanimously recommend approval of the holding company structure and urge you to vote for the proposed restructuring. A two-thirds majority of all shareholders is required to approve the proposal, and your vote is critical to achieving a successful outcome. Your vote at the Special Meeting is important, regardless of the number of shares that you own. Whether or not you plan to attend the Special Meeting, please sign, date and return your proxy as soon as possible in the envelope provided. Sincerely, 3 ___________________________ __________________________ Franklin M. Hundley Scott S. Robinson Chairman of the Board President and Chief Executive Officer THE HOLDING COMPANY AND HOW IT WOULD AFFECT YOU The proxy statement for the Special Meeting contains an extensive discussion of a proposal to form a holding company structure for The Berkshire Gas Company ("Berkshire Gas"). This proposal is briefly summarized below. Each answer references to the page or pages of the Proxy Statement/Prospectus in which the topic is discussed in more detail. Shareholders are urged to read the Proxy Statement/Prospectus and the appendices thereto in their entirety. WHAT IS BEING PROPOSED? The Board of Directors of Berkshire Gas proposes to form a holding company, a structure which is commonly used throughout the utility industry, including Massachusetts, where nearly every investor-owned electric utility already has such a structure, as well as several investor-owned natural gas utilities. Berkshire Gas would become a subsidiary of the new holding company. Current holders of Berkshire Gas' common stock would own common shares of the holding company instead of stock in Berkshire Gas itself. (Please see pages ___ to ___ of the Proxy Statement/Prospectus.) New subsidiary companies could be formed, which would be separate from Berkshire Gas, but owned by the new holding company. First, retail propane operations now performed through a division of Berkshire Gas would be transferred to a new subsidiary. Second, a management services company would be formed to provide certain administrative services to Berkshire Gas, the new holding company and other subsidiaries of the holding company for a charge based upon the cost attributable to providing such services. Finally, in the event that new business opportunities in the competitive marketplace are pursued, a new subsidiary company (or companies) could be formed. The charts below depict Berkshire Gas' current structure and the proposed holding company structure: ___________________________________________________________________________ | CURRENT STRUCTURE | |___________________________________________________________________________| | | | HOLDERS OF COMMON STOCK | | AND HOLDERS OF 4.8% CUMULATIVE PREFERRED STOCK | | : | | : | | Berkshire Gas | |___________________________________________________________________________| ___________________________________________________________________________ | | | PROPOSED STRUCTURE | |___________________________________________________________________________| | HOLDERS OF COMMON SHARES | | : | | : | 4 |HOLDERS OF 4.8% CUMULATIVE Holding | |PREFERRED STOCK Company | | : : | | : : | | : ........................................... | | : : : : : | | : : : : : | | Berkshire Gas Berkshire Potential New Management Services | | Propane Subsidiaries Company | |___________________________________________________________________________| WHY IS A HOLDING COMPANY BEING FORMED? In recent years, many state utility commissions, including the Massachusetts Department of Telecommunications and Energy ("Massachusetts DTE"; formerly the Department of Public Utilities), have initiated inquiries into restructuring the natural gas utility industry with a goal of promoting competition and extending to all customers the broadest possible choice of natural gas suppliers. In November, 1997 the Massachusetts legislature enacted a comprehensive bill to restructure the electric utility industry (the "Restructuring Act"), many provisions of which will affect gas utilities. The Massachusetts DTE's decisions, as well as the Restructuring Act, are establishing new competitive markets for energy and other related services. The Massachusetts DTE has specifically recognized the changing nature of the energy marketplace and the need for utilities to restructure in order to participate effectively in these new markets while, at the same time, protecting ratepayers' interests. Berkshire Gas' management believes that the Massachusetts DTE's rules and decisions and the Restructuring Act suggest that an effective means for gas utilities to participate in these competitive markets is through unregulated affiliates within a holding company corporate structure. The Massachusetts DTE's decisions regarding the restructuring of the electricity and natural gas markets, as well as the Restructuring Act, advance several central components to seek an appropriate balance of the needs of all participants in the natural gas market. First, the Massachusetts DTE's decisions and the Restructuring Act have sought to achieve the "functional separation" and distinct pricing of the services traditionally provided on a consolidated or "bundled" basis by gas utilities so as to enhance the development of certain competitive markets. On July 18, 1997, the Massachusetts DTE sent a letter to Berkshire Gas and other Massachusetts local distribution companies mandating the establishment of a collaborative forum to establish principles and procedures for such functional separation and pricing, sometimes referred to as "unbundling," of all natural gas and local distribution companies' ("LDC's") services with a goal of creating a more competitive natural gas market. The Massachusetts DTE stated that a more competitive gas market would: 1) provide the broadest possible customer choice; 2) provide all customers with an opportunity to share in the benefits of increased competition; 3) ensure full and fair competition in the gas supply market; 4) functionally separate supply from local distribution services; 5) support and further the goals of environmental regulation; and, 6) rely on incentive regulation where a fully competitive market cannot exist, or does not exist. Such collaborative forum is currently underway. In addition, in a letter of August 18, 1997 to 5 Massachusetts LDC's, the Massachusetts DTE stated that each Massachusetts LDC eventually will be required to submit its own unbundling proposal for the Massachusetts DTE's review and that, as a condition precedent to a meaningful unbundling proposal, each LDC will be required to provide fully unbundled rates for each rate class served by each local distribution company. Specifically, the Department stated that it expects that Berkshire Gas will submit, for an effective date no later than November 1, 1998, such fully unbundled rates for each rate class. The second component of the above-described utility industry restructuring initiatives involves the continuing regulation of other traditional utility activities, such as the distribution function, by the Massachusetts DTE so as to ensure the continuing provision of safe and reliable service to customers at reasonable rates. After the proposed corporate restructuring, Berkshire Gas will continue to provide many traditional utility services and will be subject to the continuing regulation of the Massachusetts DTE. The third component of Massachusetts DTE and legislative restructuring initiatives relates to the development of competitive markets for energy and other related services, with utilities participating in such markets through affiliates subject to appropriate standards of conduct. Berkshire Gas' opportunities for long-term growth will, in part, be dependent upon its ability to compete in new competitive markets. The Massachusetts DTE's rules and the Restructuring Act both include provisions relating to the specific limitations upon which regulated utilities may participate in the new competitive energy markets so as to avoid unfair competitive advantages or the cross-subsidization of such activities by utility ratepayers. The Massachusetts DTE's rules include specific requirements relating to the functional and legal separation of the activities of regulated utilities and their competitive affiliates. Given this emerging regulatory structure, the Massachusetts DTE has recognized a utility company's need for flexibility and speed in order to respond in a timely manner to the opportunities and challenges in the changing energy marketplace. Many competitive opportunities could be frustrated or lost if pursued by a utility or through a subsidiary of a utility due to the requirements of the regulatory process, including, for example, the need to obtain Massachusetts DTE approval for a gas company to invest in a subsidiary. The Massachusetts DTE has also recognized that alternative organizational structures may afford a utility the flexibility to accomplish its objectives while also furthering the Massachusetts DTE's goals of unbundling and fostering competition, maintaining appropriate separation between regulated and non-regulated activities and also streamlining regulatory review. The Massachusetts DTE has acknowledged that the holding company structure is one means by which a utility may achieve these objectives. Assuming that natural gas industry restructuring in Massachusetts continues to proceed consistent with the above described requirements, at a minimum, Berkshire Gas has identified the need to adopt a corporate structure that: 1) can facilitate such unbundling; 2) permits the necessary separation of regulated and competitive operations; and 3) will afford the appropriate flexibility to pursue opportunities in new competitive markets. Berkshire Gas' management believes that the increasingly competitive natural gas industry, together with new energy-related technologies, may create significant new opportunities for energy service providers like Berkshire Gas in non-utility business ventures. Berkshire Gas' management believes 6 that the pursuit of these new opportunities can be well accommodated in a holding company structure and is a key element of Berkshire Gas' strategy for long-term growth to benefit its shareholders and customers. The holding company structure is a well-established form of organization for companies conducting multiple lines of business, particularly entities engaging in both regulated and unregulated activities. The holding company structure would provide increased financial, managerial and organizational flexibility in order to better position Berkshire Gas to operate in this changing natural gas utility industry. Moreover, the new structure will facilitate clear separation of the new holding company's regulated and unregulated lines of business in a manner consistent with the principles outlined by the Massachusetts DTE and mandated in applicable legislation and regulation regarding competitive affiliates of Massachusetts gas companies. (Please see pages ___ to ___ of the Proxy Statement/Prospectus.) IN WHAT TYPES OF BUSINESSES WOULD THE HOLDING COMPANY INVEST? The primary focus of the holding company initially would be maintaining the strength of Berkshire Gas' core business of serving the natural gas utility and propane needs of its customers. While authorized to engage in any form of business, the new holding company would initially endeavor to develop businesses that are generally related to the provision of energy and energy- related services. For example, on February 6, 1998 Berkshire Gas formed a limited strategic marketing alliance with Conectiv/CNE, LLC, a joint venture of a subsidiary of Connecticut Energy Corporation, a public utility holding company, and a subsidiary of Delmarva Power & Light Company, a Delaware public utility, to market electricity, natural gas and energy-related services to customers in Massachusetts, Connecticut, Vermont and New York states. The holding company system would provide the flexibility for the legal and functional separation of such strategic marketing alliance (and other non-utility businesses) from the core business of Berkshire Gas. (Please see pages ___ to ___ of the Proxy Statement/Prospectus.) WHY WOULD THE NEW HOLDING COMPANY BE ORGANIZED AS A MASSACHUSETTS BUSINESS TRUST INSTEAD OF A CORPORATION? The new holding company would be formed as a Massachusetts business trust rather than a corporation due primarily to the potential Massachusetts income tax savings to the trust. The parent holding companies of all other investor-owned Massachusetts utility holding systems are also organized as business trusts. (Please see pages __ to __ of the Proxy Statement/Prospectus.) HOW WOULD MY OWNERSHIP OF BERKSHIRE GAS STOCK BE AFFECTED BY THE NEW STRUCTURE? Owners of Berkshire Gas' common stock automatically would become owners of the holding company's common shares on a share-for-share basis. It is expected that the holding company's common shares would be traded on the NASDAQ National Market System under the symbol "BERK." (Please see pages ___ to ___ of the Proxy Statement/Prospectus.) 7 HOW WOULD THE HOLDING COMPANY STRUCTURE AFFECT COMMON AND PREFERRED STOCK DIVIDENDS? While future dividends on the new holding company's common shares would depend primarily upon the earnings, financial condition and capital requirements of its subsidiaries, the trustees of the proposed holding company have no current intention to change the current Berkshire Gas dividend policy. In addition, it is expected that such dividends of the holding company would be declared and paid on approximately the same schedule of dates as that now followed by Berkshire Gas with respect to its common stock dividends. The preferred stock would continue to be a security of Berkshire Gas, not the holding company, and holders of the preferred stock would continue to have priority as to Berkshire Gas dividends. (Please see pages ___ to ___ of the Proxy Statement/Prospectus.) WHAT WOULD HAPPEN TO BERKSHIRE GAS' SHARE OWNER DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN? Berkshire Gas' Share Owner Dividend Reinvestment and Stock Purchase Plan would be assumed by the holding company. Participants in the Plan automatically would become participants in the corresponding holding company plan. (Please see page ___ of the Proxy Statement/Prospectus.) WOULD SHAREHOLDERS NEED TO TURN IN THEIR CURRENT STOCK CERTIFICATES? It would not be necessary for holders of Berkshire Gas' common stock to exchange their stock certificates. Certificates for Berkshire Gas' common stock automatically would represent the same number of common shares of the holding company. New certificates bearing the name of the holding company would be issued in the future as outstanding certificates are presented for transfer. (Please see page ___ of the Proxy Statement/Prospectus.) HOW WOULD FORMATION OF A HOLDING COMPANY AFFECT PERSONAL FEDERAL INCOME TAXES? Berkshire Gas' management believes that the formation of a holding company would not affect personal federal income taxes. The proposed transaction was structured so that there would be no gain or loss to you for federal income tax purposes on the conversion of your shares of Berkshire Gas common stock into the holding company shares pursuant to the restructuring. For capital gain purposes, the tax basis of the holding company shares received in exchange for shares of Berkshire Gas' common stock would be the same as the tax basis of your shares in Berkshire Gas, and the holding period of the holding company shares would include the holding period of your shares of Berkshire Gas' common stock, provided such stock is held as a capital asset at the time of the exchange. (Please see pages ___ to ___ of the Proxy Statement/Prospectus.) WHAT EFFECT WOULD THERE BE ON HOLDERS OF BERKSHIRE GAS' PREFERRED STOCK AND DEBT SECURITIES? Berkshire Gas' preferred stock and long-term debt securities, consisting primarily of first mortgage bonds and medium-term and senior notes, would be 8 maintained in the reorganization and would remain as preferred stock and debt securities of Berkshire Gas. Berkshire Gas expects to negotiate acceptable consents with the holders of its long-term debt securities so as to effect the reorganization. (Please see pages ___ to ___ of the Proxy Statement/Prospectus.) WHAT WOULD THE NEW HOLDING COMPANY BE CALLED? The name for the holding company is "Berkshire Energy Resources." (Please see page __ of the Proxy Statement/Prospectus.) WHO WOULD MANAGE THE HOLDING COMPANY AFTER THE HOLDING COMPANY STRUCTURE IS APPROVED BY THE SHAREHOLDERS? The Board of Directors and the principal executive officers of Berkshire Gas would serve as the trustees and executive officers of the holding company upon completion of the reorganization. (Please see pages __ to __ of the Proxy Statement/Prospectus.) HOW SOON WOULD THE HOLDING COMPANY STRUCTURE BE FORMED IF IT IS APPROVED BY THE SHAREHOLDERS? Management intends to form the holding company structure by the end of 1998. However, any delays in obtaining the required approvals from regulatory agencies, such as the Massachusetts DTE, could impact that schedule. (Please see pages ___ to ___ of the Proxy Statement/Prospectus.) WHAT VOTE IS REQUIRED TO APPROVE THE HOLDING COMPANY PROPOSAL? In order for the holding company proposal to be approved under Massachusetts law, it must receive favorable votes, in person or by proxy, of the holders of two-thirds of the outstanding shares of Berkshire Gas' common stock. (Please see pages ___ to ___ of the Proxy Statement/Prospectus.) In addition, the consent of the holders of at least two-thirds of the total number of shares of Berkshire Gas' 4.8% Cumulative Preferred Stock then outstanding will be required in connection with the reorganization. CAN THE BROKER WHO HOLDS MY SHARES OF BERKSHIRE GAS COMMON STOCK VOTE THOSE SHARES ON MY BEHALF? Your broker may not vote your shares without your specific direction because the National Association of Securities Dealers considers votes to form a holding company as non-discretionary. Your vote at the Special Meeting is important regardless of the number of shares that you own. Whether or not you plan to attend, please sign, date and return your proxy card as soon as possible in the envelope provided so that your shares can be voted in accordance with your instructions. (Please see pages ___ to ___ of the Proxy Statement/Prospectus.) THE ENCLOSED PROXY STATEMENT/PROSPECTUS CONTAINS A THOROUGH AND DETAILED DISCUSSION OF 9 BERKSHIRE GAS' PROPOSAL TO FORM A HOLDING COMPANY STRUCTURE. (Berkshire Gas Logo) THE BERKSHIRE GAS COMPANY THE BERKSHIRE GAS COMPANY 115 Cheshire Road Pittsfield, Massachusetts 01201-1879 Notice of Special Meeting of Shareholders to be held on _________ __, 1998 To the Holders of Common Stock: The Special Meeting of Shareholders of The Berkshire Gas Company ("Berkshire Gas") will be held at the company's offices, 115 Cheshire Road, Pittsfield, Massachusetts 01201-1879, on _________, _________ __, 1998 at 10:00 a.m., for the following purposes: 1. To approve a proposal to adopt a holding company structure for Berkshire Gas, all as more fully described in the accompanying Proxy Statement/Prospectus. 2. To transact any other business which may properly come before the Special Meeting or any adjournment thereof. Further information as to the matters to be considered and acted on at the Special Meeting can be found in the accompanying Proxy Statement/Prospectus. Only the holders of common stock of Berkshire Gas as of the close of business on _________ __, 1998, are entitled to notice of and to vote at the Special Meeting or any adjournment thereof. Please sign, date and return the accompanying proxy in the enclosed addressed envelope, which requires no postage if mailed in the United States. Your proxy may be revoked at any time before the vote is taken by delivering to the Clerk a written revocation or a proxy bearing a later date or by oral revocation in person to the Clerk at the Special Meeting. By Order of the Board of Directors, Cheryl M. Clark Clerk Pittsfield, Massachusetts ________ __, 1998 Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the 10 Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any state in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state. THE BERKSHIRE GAS COMPANY 115 Cheshire Road Pittsfield, Massachusetts 01201-1879 (413) 442-1511 PROXY STATEMENT/PROSPECTUS This Proxy Statement/Prospectus, together with the accompanying proxy, is being furnished to shareholders of The Berkshire Gas Company, a Massachusetts gas company ("Berkshire Gas"), in connection with solicitation of proxies by the Board of Directors of Berkshire Gas to be voted at the Special Meeting of Shareholders to be held on _________, ______ __, 1998 at Berkshire Gas' offices, 115 Cheshire Road, Pittsfield, Massachusetts (the "Special Meeting") for the following purposes: 1. To approve a proposal to adopt a holding company structure for Berkshire Gas, all as more fully described in this Proxy Statement/Prospectus. 2. To transact any other business which may properly come before the Special Meeting or any adjournment thereof. At the Special Meeting, the shareholders will be asked to approve the formation of a holding company structure for Berkshire Gas. The holding company structure will be established pursuant to a transaction governed by an Agreement and Plan of Merger (the "Merger Agreement") among Berkshire Gas, Berkshire Energy Resources, a Massachusetts business trust formed by Berkshire Gas ("Holdco"), and Berkshire Gas Mergeco Gas Company, Inc., a Massachusetts gas company formed by Holdco ("Mergeco"). At the time of the transaction contemplated within the Merger Agreement, Mergeco will be a wholly-owned subsidiary of Holdco, formed solely for the purpose of the transaction necessary to establish a holding company. Pursuant to the Merger Agreement, Mergeco will (i) merge with and into Berkshire Gas (the "Merger") with Berkshire Gas being the surviving company and (ii) each outstanding share of the common stock of Berkshire Gas, $2.50 par value per share ("Berkshire Gas Common Stock"), will automatically be converted into one common share of Holdco ("Holdco Common Share"). As a result of the Merger, Berkshire Gas will therefore become a subsidiary of Holdco and the holders of Berkshire Gas Common Stock will become holders of Holdco Common Shares. The outstanding shares of Berkshire Gas 4.8% Cumulative Preferred Stock will be unchanged and will continue to be outstanding securities of Berkshire Gas. See "Proposal Regarding Plan of Restructuring -- General." If the restructuring is implemented, it will not be necessary for holders of Berkshire Gas Common Stock to surrender their existing stock certificates for Holdco share certificates. See "Proposal Regarding Plan of 11 Restructuring -- Exchange of Certificates Not Required." This Proxy Statement/Prospectus also serves as the prospectus for Holdco under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the issuance of up to 2,385,252 common shares of Holdco in connection with the restructuring. Further information concerning the shares offered hereby is contained in "Proposal Regarding Plan of Restructuring -- Holdco's Declaration of Trust and Comparative Shareholders' Rights" and "Proposal Regarding Plan of Restructuring -- Holdco Common Shares." ____________________ NEITHER THE MERGER NOR THE HOLDCO COMMON SHARES TO BE ISSUED IN CONNECTION WITH THE MERGER PROPOSED HEREIN HAVE BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ____________________ The principal executive offices of Berkshire Gas and Holdco are located at 115 Cheshire Road, Pittsfield, Massachusetts 01201-1879, telephone number (413) 442-1511. This Proxy Statement/Prospectus and the accompanying proxy, solicited on behalf of the Board of Directors of Berkshire Gas, were first mailed to shareholders on or about _________ __, 1998. The accompanying proxy, if properly executed and delivered by a shareholder entitled to vote, will be voted at the Special Meeting as specified in the proxy, but may be revoked at any time before the vote is taken by the signer delivering to the Clerk of Berkshire Gas a written revocation or a proxy bearing a later date or by oral revocation in person to the Clerk at the Special Meeting. If choices are not specified on the accompanying proxy, the shares will be voted FOR the Proposal Regarding Plan of Restructuring. All the costs of preparing, assembling and mailing the enclosed material and any additional material which may be sent in connection with the solicitation of the enclosed proxies will be paid by Berkshire Gas, and no part thereof will be paid directly or indirectly by any other person. Berkshire Gas has retained Corporate Investor Communications, Inc. to assist in the solicitation of proxies at a fee of $4,000, plus usual and customary expenses. Some employees may devote a part of their time to the solicitation of proxies or for attendance at the Special Meeting but no additional compensation will be paid to them for the time so employed and the cost of such additional solicitation will be nominal. Berkshire Gas will reimburse brokerage firms, banks, trustees and others for their actual out-of-pocket expenses in forwarding proxy material to the beneficial owners of Berkshire Gas Common Stock. On January 31, 1998, there were issued and outstanding 2,269,820 shares of Berkshire Gas Common Stock (and 115,432 shares of Berkshire Gas Common Stock reserved for issuance pursuant to Berkshire Gas' Share Owner Dividend Reinvestment and Stock Purchase Plan). Only holders of record of 12 Berkshire Gas Common Stock at the close of business on that date shall be entitled to notice of and to vote at the Special Meeting or any adjournments thereof, and those entitled to vote will have one vote for each share held. To the knowledge of management, no person owns beneficially more than 5 percent of the outstanding voting securities of Berkshire Gas. The date of this Proxy Statement/Prospectus is _______, 1998. TABLE OF CONTENTS AVAILABLE INFORMATION 1 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE 2 SUMMARY OF PROXY STATEMENT/PROSPECTUS 4 Proposal Regarding Plan of Restructuring 4 THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE PROPOSED RESTRUCTURING TO FORM A HOLDING COMPANY 4 Business of Berkshire Gas 4 Proposed Restructuring 4 Berkshire Gas Shareholders Meeting 5 Special Considerations Applicable to the Restructuring 5 Reasons for the Restructuring 5 Certain Effects on Shareholders 7 Vote Required 8 Exchange of Certificates Not Required 8 Stock Listing 8 Conditions to the Restructuring 8 Dividend Policy 9 Certain Federal Income Tax Consequences 9 No Appraisal Rights 9 PROPOSAL REGARDING PLAN OF RESTRUCTURING 10 General 10 Business of Berkshire Gas 10 The Restructuring 11 Special Considerations Applicable to the Restructuring 13 Reasons for the Restructuring 14 Benefits of Holding Company Structure 16 Recommendations of the Board 17 Vote Required 17 Exchange of Certificates Not Required 18 Merger Agreement 18 Amendment or Termination of Plan of Merger 19 Effectiveness of the Restructuring 19 Certain Federal Income Tax Consequences 19 Treatment of Preferred Stock 21 Treatment of Indebtedness 21 Dividend Policy 21 Stock Listing 22 Regulatory Approval of the Restructuring 22 Regulatory Matters 22 Holdco's Declaration of Trust and Comparative Shareholders' Rights 23 13 Holdco Common Shares 26 Trustees and Management of Holdco 27 No Appraisal Rights 28 Share Owner Dividend Reinvestment and Stock Purchase Plan 28 Price Range of Berkshire Gas Common Stock 28 Stock Ownership by Directors and Executive Officers 29 Transfer Agent and Registrar 30 Financial Statements 31 Legal Opinion 31 Experts 31 OTHER MATTERS 31 Voting Procedures 31 Adjournment of Meeting 32 Independent Accountants 32 Proposals of Shareholders 32 Other Business 32 APPENDICES A. Agreement and Plan of Merger between and among The Berkshire Gas Company, Berkshire Energy Resources and Berkshire Gas Mergeco Gas Company, Inc. A-1 B. Declaration of Trust of Berkshire Energy Resources B-1 C. By-laws of Berkshire Energy Resources C-1 NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN OR INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT/PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN OFFER TO PURCHASE, ANY OF THE SECURITIES OFFERED BY THIS PROXY STATEMENT/PROSPECTUS, OR THE SOLICITATION OF A PROXY IN ANY JURISDICTION TO OR FROM ANY PERSON TO OR FROM WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION OF AN OFFER OR PROXY SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR THE ISSUANCE OR SALE OF ANY SECURITIES HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN OR INCORPORATED HEREIN BY REFERENCE SINCE THE DATE HEREOF. AVAILABLE INFORMATION Berkshire Gas is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission (the "SEC"). Such reports, proxy statements and other information may be inspected and copied at the Public Reference Facilities maintained by the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at the SEC's regional offices at 7 World Trade Center, Suite 1300, New York, New York 10048 and at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such material may be obtained at prescribed rates from the Public Reference Facilities maintained by the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 14 20549. Berkshire Gas' common stock is traded on the NASDAQ National Market System ("NASDAQ-NMS"), where reports, proxy statements and other information concerning Berkshire Gas may also be inspected. The SEC maintains a Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC, including Berkshire Gas. The address of such Web site is http://www.sec.gov. Following completion of the Merger, Holdco will file such reports and other information as required under the Exchange Act and the rules of NASDAQ. Holdco has filed with the SEC a registration statement on Form S-4 (together with all amendments and exhibits thereto, the "Registration Statement") under the Securities Act of 1933, as amended (the "Securities Act"), registering the Holdco Common Shares that will be issued in exchange for shares of Berkshire Gas Common Stock pursuant to the Merger described herein. See "Proposal Regarding Plan of Restructuring." This Proxy Statement/Prospectus, which constitutes a part of the Registration Statement, does not contain all of the information set forth in the Registration Statement, certain items of which are contained in schedules and exhibits to the Registration Statement as permitted by the rules and regulations of the SEC. Statements made in this Proxy Statement/Prospectus as to the contents of any contract, agreement or other document referred to are not necessarily complete. With respect to each such contract, agreement or other document filed as an exhibit to the Registration Statement, reference is made to the exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference. Items and information omitted from this Proxy Statement/Prospectus but contained in the Registration Statement may be inspected and copied at the Public Reference Facilities maintained by the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. Upon completion of the Merger, the Holdco Common Shares will be listed on the NASDAQ NMS. At the time of such listing, Berkshire Gas Common Stock will be withdrawn from listing and registration under Section 12 of the Exchange Act. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE THIS PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE CERTAIN DOCUMENTS WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF ANY SUCH DOCUMENTS, OTHER THAN EXHIBITS TO SUCH DOCUMENTS UNLESS THEY ARE SPECIFICALLY INCORPORATED BY REFERENCE, ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS PROXY STATEMENT/PROSPECTUS IS DELIVERED UPON WRITTEN OR ORAL REQUEST TO: CHERYL M. CLARK, CLERK, THE BERKSHIRE GAS COMPANY, 115 CHESHIRE ROAD, PITTSFIELD, MASSACHUSETTS 01201-1879, TELEPHONE: (413) 442-1511. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY _________ __, 1998. The following documents filed with the SEC (File No. 0-1857-3) pursuant to the Exchange Act are incorporated by reference into this Proxy Statement/Prospectus: 1. Berkshire Gas' Annual Report on Form 10-K for the year ended June 30, 1997, (and Berkshire Gas' Annual Report to Shareholders for the year ended June 30, 1997 and Berkshire Gas' definitive 15 proxy statement filed with the SEC on October 3, 1997 incorporated therein); and 2. Berkshire Gas' Quarterly Reports on Form 10-Q for the quarters ended September 30, 1997 and December 31, 1997. This Proxy Statement/Prospectus is accompanied by Berkshire Gas' Annual Report on Form 10-K for the year ended June 30, 1997, Annual Report to Shareholders for the year ended June 30, 1997, definitive Proxy Statement filed with the SEC on October 3, 1997 and Quarterly Reports on Form 10-Q for the quarters ended September 30, 1997 and December 31, 1997. All other documents filed by Berkshire Gas pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Proxy Statement/Prospectus and prior to the termination of the offering made hereby shall be deemed to be incorporated by reference herein and to be a part hereof from the date of filing such documents. Any statement contained herein or in any document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Proxy Statement/Prospectus to the extent that a statement contained herein or in any subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Proxy Statement/Prospectus. SUMMARY OF PROXY STATEMENT/PROSPECTUS The following is intended as a summary of the information contained in the Proxy Statement/Prospectus. Reference is made to, and this summary is qualified in its entirety by, the more detailed information contained in, attached to or incorporated by reference in this Proxy Statement/Prospectus and the Appendices hereto. Shareholders are urged to read this Proxy Statement/Prospectus and the Appendices in their entirety. Proposal Regarding Plan of Restructuring THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE PROPOSED PLAN OF RESTRUCTURING TO FORM A HOLDING COMPANY Business of Berkshire Gas Berkshire Gas is a Massachusetts gas utility company engaged in the distribution and sale of natural gas for residential, commercial and industrial use. Berkshire Gas also markets liquefied petroleum gas and maintains an appliance division that sells and leases gas burning equipment. See "Proposal Regarding Plan of Restructuring -- Business of Berkshire Gas." Proposed Restructuring The Berkshire Gas Board of Directors has authorized, subject to shareholder and regulatory approval, a plan to restructure the corporate 16 organization of Berkshire Gas to form a holding company structure. The result of the restructuring will be to have Berkshire Gas become a separate subsidiary of a parent holding company, Berkshire Energy Resources ("Holdco"). The holding company structure will be established pursuant to a merger transaction (the "Merger") governed by an Agreement and Plan of Merger (the "Merger Agreement") among Berkshire Gas, Holdco, that was organized by Berkshire Gas as a Massachusetts business trust, and Berkshire Gas Mergeco Gas Company, Inc., a Massachusetts gas company formed and wholly-owned by Holdco. The formation of a holding company structure will be achieved by way of the merger of Mergeco with and into Berkshire Gas, with holders of Berkshire Gas Common Stock exchanging their shares for Holdco Common Shares on a share-for-share basis and Holdco becoming the sole holder of Berkshire Gas Common Stock. Accordingly, the present holders of Berkshire Gas Common Stock will become holders of Holdco Common Shares. Berkshire Gas' 4.8% Cumulative Preferred Stock will remain as securities and obligations of Berkshire Gas. Berkshire Gas will seek to negotiate acceptable consents with the holders of its long-term debt securities so as to effect the reorganization. (These proposed changes to the corporate structure of Berkshire Gas are generally referred to in this Proxy Statement/Prospectus as the "restructuring.") Berkshire Gas Shareholders Meeting Berkshire Gas' shareholders will meet at Berkshire Gas' offices at 115 Cheshire Road, Pittsfield, Massachusetts on ______________, ___________ __, 1998 at 10:00 a.m. The purpose of the meeting is to consider and vote upon a proposal to adopt a holding company corporate structure, as more fully described in the Proxy Statement/Prospectus. The record date for determining shareholders of Berkshire Gas who are entitled to notice of and to vote at the Berkshire Gas shareholders meeting is __________, 1998 (the "Record Date'). On the record date there were approximately _______ record holders of Berkshire Gas Common Stock and _______ shares of Berkshire Gas Common Stock outstanding. The presence in person or by proxy of the holders of a majority of the outstanding shares of Berkshire Gas Common Stock constitutes a quorum. The affirmative vote of at least two-thirds of the outstanding shares of Common Stock entitled to vote at the special meeting, in person or by proxy, is required to adopt and approve the proposed restructuring and the Merger. Special Considerations Applicable to the Restructuring The restructuring proposal involves certain special factors that should be considered by shareholders, including the fact that non-utility business opportunities pursued after the restructuring may involve more risk, initially dividends on Holdco common shares will be dependent upon common stock dividends paid by Berkshire Gas and from propane operations, and the potential effects on shareholders of a business trust. See "Proposal Regarding Plan of Restructuring -- Special Considerations Applicable to the Restructuring" and "Proposal Regarding Plan of Restructuring -- Holdco's Declaration of Trust and Comparative Shareholders' Rights." Reasons for the Restructuring 17 In recent years, many state utility commissions, including the Massachusetts Department of Telecommunications and Energy ("Massachusetts DTE"; formerly the Department of Public Utilities), have initiated inquiries into restructuring the natural gas utility industry with a goal of promoting competition and extending to all customers the broadest possible choice of natural gas suppliers. Further in November, 1997 the Massachusetts legislature recently enacted a comprehensive bill to restructure the electric utility industry (the "Restructuring Act"), many provisions of which will affect gas utilities. The Massachusetts DTE's decisions, as well as the Restructuring Act, are establishing new competitive markets for energy and other related services. The Massachusetts DTE's rules and decisions and the Restructuring Act suggest that the best means for gas utilities to participate in these competitive markets is through unregulated affiliates. The Massachusetts DTE has specifically recognized the changing nature of the energy marketplace and the need for utilities to restructure in order to participate effectively in these new markets while, at the same time, protecting ratepayers' interests. The Massachusetts DTE's decisions regarding the restructuring of the electricity and natural gas markets as well as the Restructuring Act advance several central components to seek an appropriate balance of the needs of all participants in the natural gas market. First, the Massachusetts DTE's decisions and the Restructuring Act have sought to achieve the "functional separation" and distinct pricing of the services traditionally provided on a consolidated or "bundled" basis by gas utilities so as to enhance the development of certain competitive markets. On July 18, 1997, the Massachusetts DTE sent a letter to Berkshire Gas and other Massachusetts local distribution companies mandating the establishment of a collaborative forum to establish principles and procedures for such functional separation and pricing, sometimes referred to as "unbundling," of all natural gas and local distribution companies ("LDC's") services with a goal of creating a more competitive natural gas market. Such collaborative forum is currently underway. In addition, in a letter of August 18, 1997, the Massachusetts DTE stated that each Massachusetts LDC eventually will be required to submit its own unbundling proposal for Massachusetts DTE review and that, as a condition precedent to a meaningful unbundling proposal, each LDC will be required to provide fully unbundled rates for each rate class served by such local distribution company. Specifically, the Department stated that it expects that Berkshire Gas will submit, for an effective date no later than November 1, 1998, such fully unbundled rates for each rate class. The second component of the above-described utility industry restructuring initiatives involves the continuing regulation of other traditional utility activities, such as the distribution function, by the Massachusetts DTE so as to ensure the continuing provision of safe and reliable service to customers at reasonable rates. After the proposed corporate restructuring, Berkshire Gas will continue to provide many traditional utility services and will be subject to the continuing regulation of the Massachusetts DTE. The third component of Massachusetts DTE and legislative restructuring initiatives relates to the development of competitive markets for energy and other related services, with utilities participating in such markets through affiliates subject to appropriate standards of conduct. Berkshire Gas' opportunities for long-term growth will, in part, be dependent upon its 18 ability to compete in new competitive markets. The Massachusetts DTE's rules and the Restructuring Act both include provisions relating to the specific limitations under which regulated utilities may participate in the new competitive energy markets so as to avoid unfair competitive advantages or the cross-subsidization of such activities by utility ratepayers. The Massachusetts DTE's rules include specific requirements relating to the functional and legal separation of the activities of regulated utilities and their competitive affiliates. Given this emerging regulatory structure, the Massachusetts DTE has recognized a utility company's need for flexibility and speed in order to respond in a timely manner to the opportunities and challenges in the changing energy marketplace. Many competitive opportunities could be frustrated or lost if pursued by a utility or through a subsidiary of a utility due to the requirements of the regulatory process, including, for example, the need to obtain Massachusetts DTE approval for a gas company to invest in a subsidiary. The Massachusetts DTE has also recognized that alternative organizational structures may afford a utility the flexibility to accomplish its objectives while also furthering the Massachusetts DTE's goals of unbundling and fostering competition, maintaining appropriate separation between regulated and non-regulated activities and streamlining regulatory review. The Massachusetts DTE has acknowledged that the holding company structure is one means by which a utility may achieve these objectives. Assuming that natural gas industry restructuring in Massachusetts continues to proceed consistent with the above described requirements, at a minimum, Berkshire Gas has identified the need to adopt a corporate structure that: 1) can facilitate such unbundling; 2) permit the necessary separation of regulated and competitive operations; and 3) will afford the appropriate flexibility to pursue opportunities in new competitive markets. Berkshire Gas' management believes that the increasingly competitive natural gas industry, together with new energy-related technologies, may create significant new opportunities for energy service providers like Berkshire Gas in non-utility business ventures. Berkshire Gas' management believes that the pursuit of these new opportunities can be well accommodated in a holding company structure and is a key element of Berkshire Gas' strategy for long-term growth to benefit its shareholders and customers. The holding company structure is a well-established form of organization for companies conducting multiple lines of business, particularly entities engaging in both regulated and unregulated activities. Berkshire Gas' management believes that the holding company structure would provide increased financial, managerial and organizational flexibility in order to better position Berkshire Gas to operate in this changing natural gas utility industry. Moreover, the new structure will facilitate separation of the new holding company's regulated and unregulated lines of business in a manner consistent with the principles outlined by the Massachusetts DTE and mandated in applicable legislation and regulation regarding competitive affiliates of Massachusetts gas companies. See "Proposal Regarding Plan of Restructuring -- Reasons for Restructuring" and "Proposal Regarding Plan of Restructuring -- Benefits of Holding Company Structure." Certain Effects on Shareholders Holdco has been formed as a Massachusetts business trust primarily due 19 to the potential Massachusetts income tax savings to the trust. Holdco's shareholders will have rights and liabilities generally comparable to those of shareholders of a corporation. Pursuant to certain decisions of the Massachusetts courts, shareholders of a Massachusetts business trust that exercise too much control over the affairs of a Massachusetts business trust may be held personally liable as partners for the obligations of a trust to the extent not satisfied by the trust. Even if, however, Holdco was held to be a partnership, the possibility of its shareholders incurring personal liability is remote because (a) Holdco's Declaration of Trust (as defined below) contains an express disclaimer of shareholder liability for the obligations of Holdco, requires that notice of such disclaimer be given in each agreement, obligation or instrument entered into or executed by Holdco and provides that no person has authority to enter into an agreement, obligation or instrument except in accordance with those requirements, (b) most of Holdco's operations will be conducted by incorporated subsidiaries such that the activities of Holdco will be limited to the ownership of securities rather than the operation of physical assets (c) Holdco will maintain insurance against tort liability, and (d) Holdco's Declaration of Trust provides for indemnification out of the trust property for any shareholder held personally liable for the obligations of Holdco. Use of a Massachusetts business trust as the parent holding company of a Massachusetts public utility is a common practice. The parent holding companies of all other investor-owned Massachusetts utility holding systems are also organized as business trusts. See "Proposal Regarding Plan of Restructuring -- Special Considerations Applicable to the Restructuring" and "Proposal Regarding Plan of Restructuring, Holdco's Declaration of Trust and Comparative Shareholders' Rights." Vote Required Only holders of record of Berkshire Gas Common Stock as of the record date will be entitled to receive notice of and vote at the Special Meeting and any adjournments thereof with respect to approval of the Merger Agreement and the restructuring. Holders of Berkshire Gas Common Stock entitled to vote will have one vote for each share held. In order for the holding company proposal to be approved under Massachusetts law, it must receive the favorable vote, in person or by proxy, of the holders of two- thirds of the outstanding shares of Berkshire Gas Common Stock. As of the record date, __________ shares of Berkshire Gas Common Stock were issued and outstanding. To the knowledge of management, no person owns beneficially more than 5 percent of the outstanding voting securities of Berkshire Gas. The consent of the holders of at least two-thirds of the total number of shares of Berkshire Gas' 4.8% Cumulative Preferred Stock then outstanding will be required in connection with the reorganization. See "Proposal Regarding Plan of Restructuring -- Vote Required" and "Proposal Regarding Plan of Restructuring -- Stock Ownership of Directors and Executive Officers." Exchange of Certificates Not Required If the new holding company structure is implemented, it will not be necessary for holders of Berkshire Gas Common Stock to surrender their existing stock certificates for Holdco share certificates. Certificates representing Berkshire Gas Common Stock will automatically represent the corresponding number of Holdco Common Shares upon consummation of the Merger. See "Proposal Regarding Plan of Restructuring -- Exchange of Certificates Not Required." 20 Stock Listing Shares of Berkshire Gas Common Stock are currently traded on the NASDAQ National Market System under the stock symbol "BGAS." Application will be made so that Holdco Common Shares may be traded on the NASDAQ National Market System ("NASDAQ-NMS"), with such shares expected to be traded under the stock symbol "BERK." See "Proposal Regarding Plan of Restructuring -- Stock Listing." Conditions to the Restructuring The Merger Agreement provides that the consummation of the Merger and the restructuring into a holding company is subject to approval of the Merger Agreement by the shareholders of Berkshire Gas, Holdco and Mergeco, as is set forth more fully below under "Proposal Regarding Plan of Restructuring -- Vote Required," and to the approval by the National Association of Securities Dealers of Holdco Common Shares for trading on the NASDAQ-NMS. If the shareholders of Berkshire Gas approve the Merger, Berkshire Gas will then cause the shares of Holdco and Mergeco to be voted in favor of the restructuring into a holding company. In addition, the decision to proceed with the Merger and restructuring is subject to, among other things, the receipt, on terms satisfactory to the Board of Directors of Berkshire Gas, of authorization from the Massachusetts DTE to form a holding company structure for Berkshire Gas and such other consents and approvals as the Board may deem necessary or appropriate, including, without limitation, appropriate waivers or consents from the holders of Berkshire Gas' long-term debt securities. Following the restructuring, Holdco is expected to qualify for an exemption under the Public Utility Holding Company Act of 1935 (the "Holding Company Act"). See "Proposal Regarding Plan of Restructuring -- Regulatory Approval of the Restructuring" and "Proposal Regarding Plan of Restructuring -- Regulatory Matters." Dividend Policy While future dividends on Holdco Common Shares will depend primarily upon the earnings, financial condition and capital requirements of its subsidiaries, it is contemplated that Holdco initially will make dividend payments on Holdco Common Shares at the rate currently applicable to Berkshire Gas Common Stock. In addition, it is expected that such dividends of Holdco will be declared and paid on approximately the same schedule of dates as that now followed by Berkshire Gas with respect to Berkshire Gas Common Stock dividends. The most recent dividend declared by the Board of Directors of Berkshire Gas was $0.285 per share of Berkshire Gas Common Stock and was paid on January 15, 1998. See "Proposal Regarding Plan of Restructuring -- Dividend Policy." Certain Federal Income Tax Consequences Berkshire Gas' management believes that, for federal income tax purposes, no gain or loss will be recognized by the holders of shares of Berkshire Gas Common Stock whose shares are exchanged for Holdco Common Shares. See "Proposal Regarding Plan of Restructuring -- Certain Federal Income Tax Consequences." No Appraisal Rights 21 Under Massachusetts law governing the proposed Merger, neither a dissenting holder of Berkshire Gas Common Stock nor a holder of Berkshire Gas 4.8% Cumulative Preferred Stock, has a right to demand payment of the fair value of his or her shares if the Merger is consummated. PROPOSAL REGARDING PLAN OF RESTRUCTURING General The Board of Directors and management of Berkshire Gas consider it to be in the best interests of Berkshire Gas and its shareholders to revise its corporate structure to establish a holding company structure whereby Berkshire Gas will become a separate, wholly-owned subsidiary of a new parent company. Pursuant to the proposed restructuring, the present holders of Berkshire Gas Common Stock will become shareholders of the new parent. It is currently contemplated that several new subsidiaries will be formed, that would be legally and functionally separate from Berkshire Gas. See "Proposal Regarding Plan of Restructuring -- The Restructuring" and "Proposal Regarding Plan of Restructuring -- Reasons for the Restructuring." The holding company structure is a well-established form of organization for companies conducting multiple lines of businesses, particularly entities engaging in both regulated and unregulated activities. Nearly all investor-owned Massachusetts electric utilities are currently organized in a holding company structure, as are several investor-owned Massachusetts natural gas utilities. The holding company structure is intended to provide increased financial, managerial and organizational flexibility in order to better position Berkshire Gas to operate in the changing natural gas utility industry. Specifically, the new structure would allow increased flexibility and will facilitate the clear separation of Holdco's regulated and unregulated lines of business, enabling it to pursue non-utility business ventures in a manner consistent with the utility industry restructuring principles outlined by the Massachusetts Department of Telecommunications and Energy ("Massachusetts DTE") and the Massachusetts legislature. Such separation will facilitate the financing of each separate line of business consistent with the requirements of each industry in which Holdco is engaged. Although Berkshire Gas could seek to continue to pursue non-utility business opportunities on its own, management and the Board of Directors believe it is in the best interests of Berkshire Gas and its shareholders to allow the flexibility to conduct such non-utility activities through a holding company structure. See "Proposal Regarding Plan of Restructuring -- Benefits of Holding Company Structure." Business of Berkshire Gas Berkshire Gas was incorporated in the Commonwealth of Massachusetts in 1853 and is a publicly-held utility company engaged in the distribution and sale of natural gas for residential, commercial and industrial use. Berkshire Gas maintains an appliance rental division that sells and leases gas burning equipment. Through its Berkshire Propane division, Berkshire Gas markets liquefied petroleum gas. Berkshire Gas' utility service territory includes 19 communities in the western portion of the Commonwealth of Massachusetts, including the cities of Pittsfield and North Adams, the towns of Adams, Amherst, Great Barrington, Greenfield and Williamstown, and twelve smaller municipalities. The population of the area served is approximately 190,000 and is primarily 22 residential in character, but the territory also includes industrial, agricultural, educational, cultural and resort facilities. Berkshire Gas also markets propane throughout the western portion of Massachusetts, eastern New York and southern Vermont. Berkshire Gas currently serves over 32,000 natural gas and 5,000 propane customers. Berkshire Gas has recently formed a strategic marketing alliance with Conectiv/CNE, LLC, a joint venture formed by a subsidiary of Connecticut Energy Corporation, a public utility holding company, and a subsidiary of Delmarva Power and Light Company, a Delaware public utility, to market electricity, natural gas and energy-related services to customers in Massachusetts, Vermont, Connecticut and New York states. Such marketing alliance is in the start-up phase and has not yet secured any customers. The new holding company would initially endeavor to develop these businesses, as well as identify other non-utility businesses which are related to the provision of energy and energy-related services. The holding company system would provide the flexibility for the legal and functional separation of regulated and competitive activities, including the marketing and sale of propane or other competitive opportunities that may be pursued. See "Proposal Regarding Plan of Restructuring -- The Restructuring." Berkshire Gas is and will remain subject to the regulatory authority of the Massachusetts DTE with respect to various matters, including rates, financing, certain gas supply contracts, demand-side management programs and planning and safety matters. Berkshire Gas is and will remain subject to standards prescribed by the Secretary of Transportation under the Natural Gas Pipeline Safety Act of 1968 with respect to the design, installation, testing, construction and maintenance of pipeline facilities. The enforcement of these standards has been delegated to the Massachusetts DTE which has taken an active role in such enforcement. The regulation of prices, terms and conditions of interstate pipeline transportation and sales of natural gas is subject to the jurisdiction of the Federal Energy Regulation Commission (FERC). Berkshire Gas is not under the direct jurisdiction of FERC, but monitors, and periodically participates in, proceedings before FERC which involve Berkshire Gas' pipeline gas suppliers/transporters and other matters pertinent to Berkshire Gas' business. The current corporate structure of Berkshire Gas is as follows: ___________________________________________________________________________ | HOLDERS OF COMMON STOCK | | AND HOLDERS OF 4.8% CUMULATIVE PREFERRED STOCK | | : | | : | | Berkshire Gas | |___________________________________________________________________________| The Restructuring To carry out the restructuring, Berkshire Gas has formed Berkshire Energy Resources ("Holdco"), a Massachusetts business trust, and Holdco's wholly-owned subsidiary, Berkshire Gas Mergeco Gas Company, Inc. ("Mergeco"), a Massachusetts utility corporation, neither of which entities has any present business or operations of its own. The outstanding Holdco Common Shares are currently owned by Berkshire Gas, while the authorized 23 stock of Mergeco is presently subscribed for by Holdco and will be issued to Holdco upon approval of the Massachusetts DTE. Berkshire Gas, Mergeco and Holdco have entered into an Agreement and Plan of Merger (the "Merger Agreement") under which, subject to certain conditions, including shareholder approval, as required by Massachusetts law, and approval by the Massachusetts DTE, Berkshire Gas will become a subsidiary of Holdco through the merger of Mergeco with and into Berkshire Gas. In the Merger, the Berkshire Gas Common Stock will be exchanged share-for-share for Holdco Common Shares. A copy of the Merger Agreement is attached to this Proxy Statement/Prospectus as Appendix A. After the restructuring, Holdco will also have the flexibility to engage in non-utility business activities through a new subsidiary or subsidiaries, as deemed appropriate in the future, in order to separate legally and functionally its regulated and unregulated businesses. Berkshire Gas expects that several new subsidiaries could be formed by Holdco that would be separate from Berkshire Gas, but owned by Holdco. First, the retail propane operations now pursued through a division of Berkshire Gas would be transferred to a new subsidiary. Second, a management services company would be formed to provide certain administrative services to Berkshire Gas, Holdco or other subsidiaries of Holdco for a charge based upon the cost attributable to providing such services. Finally, in the event that new business opportunities in the competitive marketplace are pursued, a new subsidiary company (or companies) could be formed. If the proposed restructuring is consummated, it is intended that advances to and other investments in non-utility businesses will be made primarily by Holdco rather than by Berkshire Gas and that the proceeds of financings by Berkshire Gas will be used entirely in the conduct of its natural gas utility business. Berkshire Gas' 4.8% Cumulative Preferred Stock will, assuming the requisite consent of holders thereof, continue to be outstanding securities and obligations of Berkshire Gas. Berkshire Gas expects to negotiate acceptable consents with the holders of its long-term debt securities, consisting primarily of first mortgage bonds and medium-term and senior notes in order to effect the proposed restructuring. Berkshire Gas' management and the Board of Directors believe that the restructuring will have no adverse affect on the holders of its 4.8% Cumulative Preferred Stock and debt securities. See "Proposal Regarding Plan of Restructuring -- Treatment of Preferred Stock" and "Proposal Regarding Plan of Restructuring - -- Treatment of Indebtedness." Except for the contemplated transfer of certain of Berkshire Gas' propane assets to a subsidiary of Holdco, assets and liabilities of Berkshire Gas immediately before the Merger and restructuring will be substantially the same as the assets and liabilities of Berkshire Gas immediately after the Merger and restructuring. The reorganized corporate structure of Holdco and Berkshire Gas after the Merger and completion of the proposed restructuring is expected to be as follows: ___________________________________________________________________________ | PROPOSED STRUCTURE | |___________________________________________________________________________| | | | HOLDERS OF COMMON SHARES | 24 | : | | : | |HOLDERS OF 4.8% CUMULATIVE Holding | |PREFERRED STOCK Company | | : : | | : : | | : | | : : : : : | | : : : : : | | Berkshire Gas Berkshire Potential New Management Services | | Propane Subsidiaries Company | |___________________________________________________________________________| Special Considerations Applicable to Restructuring The following factors should be considered carefully in evaluating the proposal to establish a holding company corporate structure to be considered at the Special Meeting of Berkshire Gas. Non-Utility Business Activities May Involve More Risk. The future performance of Holdco and the future value of Holdco Common Shares cannot be predicted. Following consummation of the restructuring, Holdco will be able to make investments in non-utility businesses and issue securities for the purpose of financing such investments without obtaining the prior approval of the Massachusetts DTE. The restructuring, therefore, will provide Holdco with more flexibility to pursue business opportunities that might involve a higher degree of risk than would be permitted for a regulated utility, but with the possibility of higher potential returns commensurate with such risk. Pursuit of business opportunities with greater risk could, in turn, have either a positive or an adverse effect on the value of a shareholder's investment, depending upon the return actually realized from such opportunities. Such business opportunities may encounter competitive and other business factors not previously experienced by Berkshire Gas to the same degree and may have different, and perhaps greater, investment risk than those involved in Berkshire Gas' regulated natural gas supply and distribution business. There can be no assurance that such businesses will be successful or, if unsuccessful, that they will not have a direct or indirect adverse effect on Holdco. Any losses incurred by such businesses will not be recoverable in Berkshire Gas' regulated rates. To the extent Holdco becomes increasingly engaged in non-utility business activities, such activities will have an increasing impact on the market price of Holdco's Common Shares. Initially Dividends On Holdco Common Shares Will Be Dependent Upon Common Stock Dividends Paid By Berkshire Gas and From Propane Operations. For a period of time following the restructuring, the funds required by Holdco to enable it to pay dividends on Holdco's Common Shares are expected to be derived primarily from the dividends paid to Holdco by Berkshire Gas and from the subsidiary expected to be formed to engage in the non-regulated sale of liquid propane now performed by a division of Berkshire Gas. Accordingly, the ability of Holdco to pay such dividends, as a practical matter, will be governed by the ability of Berkshire Gas and the new subsidiary of Holdco that will be engaged in propane operations to pay dividends on their common stock. The ability of Berkshire Gas to pay dividends on its common stock will continue to be subject to the preferential dividend rights of the holders of the outstanding Berkshire Gas 4.8% Cumulative Preferred Stock. In addition, although it has no current 25 intention to do so, it is expected that Berkshire Gas may need to issue additional preferred stock in the future to meet its capital needs. Such additional preferred stock is likely to also have preferential dividend rights. The trustees of Holdco have no current intention to change the current Berkshire Gas dividend policy with respect to the continuing operations of Berkshire Gas or the subsidiary that will engage in propane operations. Potential Effects on Shareholders. Holdco has been formed as a Massachusetts business trust primarily due to the potential Massachusetts income tax savings to the trust. Holdco's shareholders will have rights and liabilities generally comparable to those of shareholders of a corporation. Pursuant to certain decisions of the Massachusetts courts, shareholders who exercise too much control over the affairs of a Massachusetts business trust may be held personally liable as partners for the obligations of a trust to the extent not satisfied by the trust, with respect to tort claims, contract claims (where shareholder liability is not negated as described below), claims for taxes and certain statutory liabilities. Even if, however, Holdco were held to be a partnership, the possibility of its shareholders incurring personal liability is remote because (a) Holdco's Declaration of Trust contains an express disclaimer of shareholder liability for the obligations of Holdco, requires that notice of such disclaimer be given in each agreement, obligation or instrument entered into or executed by Holdco and provides that no person has authority to enter into an agreement, obligation or instrument except in accordance with those requirements, (b) most of Holdco's operations will be conducted by incorporated subsidiaries such that the activities of Holdco will be limited to the ownership of securities rather than the operation of physical assets (c) Holdco will maintain insurance against tort liability, and (d) Holdco's Declaration of Trust provides for indemnification out of the trust property for any shareholder held personally liable for the obligations of Holdco. See Proposal Regarding Plan of Restructuring -- Holdco's Declaration of Trust and Comparative Shareholders' Rights." Reasons for the Restructuring In recent years, many state utility commissions, including the Massachusetts DTE, have initiated inquiries into restructuring the natural gas utility industry with a goal of promoting competition and extending to all customers the broadest possible choice of natural gas suppliers. In November, 1997 the Massachusetts legislature enacted the comprehensive Restructuring Act to restructure the electric utility industry, many provisions of which will affect gas utilities. The Massachusetts DTE's decisions, as well as the Restructuring Act, are establishing new competitive markets for energy and other related services. The Massachusetts DTE has specifically recognized the changing nature of the energy marketplace and the need for utilities to restructure in order to participate effectively in these new markets while, at the same time, protecting ratepayers' interests. Berkshire Gas' management believes that the Massachusetts DTE's rules and decisions and the Restructuring Act suggest that an effective means for gas utilities to participate in these competitive markets is through unregulated affiliates within a holding company corporate structure. The Massachusetts DTE's decisions regarding the restructuring of the electricity and natural gas markets, as well as the Restructuring Act, 26 advance several central components to seek an appropriate balance of the needs of all participants in the natural gas market. First, the Massachusetts DTE's decisions and the Restructuring Act have sought to achieve the "functional separation" and distinct pricing of the services traditionally provided on a consolidated or "bundled" basis by gas utilities so as to enhance the development of certain competitive markets. On July 18, 1997, the Massachusetts DTE sent a letter to Berkshire Gas and other Massachusetts local distribution companies mandating the establishment of a collaborative forum to establish principles and procedures for such functional separation and pricing, sometimes referred to as "unbundling," of all LDC's services with a goal of creating a more competitive natural gas market. The Massachusetts DTE stated that a more competitive gas market would: 1) provide the broadest possible customer choice; 2) provide all customers with an opportunity to share in the benefits of increased competition; 3) ensure full and fair competition in the gas supply market; 4) functionally separate supply from local distribution services; 5) support and further the goals of environmental regulation; and, 6) rely on incentive regulation where a fully competitive market cannot exist, or does not exist. Such collaborative forum is currently underway. In addition, in a letter of August 18, 1997 to Massachusetts LDC's, the Massachusetts DTE stated that each Massachusetts LDC eventually will be required to submit its own unbundling proposal for the Massachusetts DTE's review and that, as a condition precedent to a meaningful unbundling proposal, each LDC will be required to provide fully unbundled rates for each rate class served by such local distribution company. Specifically, the Department stated that it expects that Berkshire Gas will submit, for an effective date no later than November 1, 1998, such fully unbundled rates for each rate class. The second component of the above-described utility industry restructuring initiatives involves the continuing regulation of other traditional utility activities, such as the distribution function, by the Massachusetts DTE so as to ensure the continuing provision of safe and reliable service to customers at reasonable rates. After the proposed corporate restructuring, Berkshire Gas will continue to provide many traditional utility services and will be subject to the continuing regulation of the Massachusetts DTE. The third component of Massachusetts DTE and legislative restructuring initiatives relates to the development of competitive markets for energy and other related services, with utilities participating in such markets through affiliates subject to appropriate standards of conduct. Berkshire Gas' opportunities for long-term growth will, in part, be dependent upon its ability to compete in new competitive markets. The Massachusetts DTE's rules and the Restructuring Act both include provisions relating to the specific limitations upon which regulated utilities may participate in the new competitive energy markets so as to avoid unfair competitive advantages or the cross-subsidization of such activities by utility ratepayers. The Massachusetts DTE's rules include specific requirements relating to the functional and legal separation of the activities of regulated utilities and their competitive affiliates. Given this emerging regulatory structure, the Massachusetts DTE has recognized a utility company's need for flexibility and speed in order to respond in a timely manner to the opportunities and challenges in the changing energy marketplace. Many competitive opportunities could be frustrated or lost if pursued by a utility or through a subsidiary of a utility due to the requirements of the regulatory process, including, for 27 example, the need to obtain Massachusetts DTE approval for a gas company to invest in a subsidiary. The Massachusetts DTE has also recognized that alternative organizational structures may afford a utility the flexibility to accomplish its objectives while also furthering the Massachusetts DTE's goals of unbundling and fostering competition, maintaining appropriate separation between regulated and non-regulated activities and streamlining regulatory review. The Massachusetts DTE has acknowledged that the holding company structure is one means by which a utility may achieve these objectives. Assuming that natural gas industry restructuring in Massachusetts continues to proceed consistent with the above described requirements, at a minimum, Berkshire Gas has identified the need to adopt a corporate structure that: 1) can facilitate such unbundling; 2) permits the necessary separation of regulated and competitive operations; and 3) will afford the appropriate flexibility to pursue opportunities in new competitive markets. Berkshire Gas' management believes that the increasingly competitive natural gas industry, together with new energy-related technologies, may create significant new opportunities for energy service providers like Berkshire Gas in non-utility business ventures. Berkshire Gas' management believes that the pursuit of these new opportunities can be well accommodated in a holding company structure and is a key element of Berkshire Gas' strategy for long-term growth to benefit its shareholders and customers. Benefits of Holding Company Structure The holding company structure is a well-established form of organization for companies conducting multiple lines of business, particularly entities engaging in both regulated and unregulated activities. The holding company structure would provide increased financial, managerial and organizational flexibility in order to better position Berkshire Gas to operate in this changing natural gas utility industry. Moreover, the new structure will facilitate clear separation of the new holding company's regulated and unregulated lines of business in a manner consistent with the principles outlined by the Massachusetts DTE and mandated in applicable legislation and regulation regarding competitive affiliates of Massachusetts gas companies. Many electric and gas utilities have been organized as holding companies for many years, and other utilities have recently changed their organization to a holding company structure. While Berkshire Gas could seek to continue to pursue non-utility business opportunities on its own, the Board of Directors and management believe it is more desirable in the long- term to adopt a framework that provides the flexibility to conduct non- utility activities through a holding company structure. The benefits of a holding company structure include: Timely Response to Business Opportunities. The holding company structure, by providing flexibility to separate non-utility businesses into corporations that will not be subsidiaries of Berkshire Gas, will enable Holdco to pursue non-utility business opportunities without the delays inherent in the regulatory process. For example, the holding company structure will enable Holdco to make investments in non-utility businesses, and to issue securities for the purpose of financing such investments, without obtaining the approval of the Massachusetts DTE. This will allow Holdco to respond to competitive forces and pursue non-utility businesses in a more timely and responsive fashion. 28 Flexible Financing Opportunities. The holding company corporate structure also will permit the use of financings that are more directly suited to the particular requirements, characteristics and risks of non- utility operations without affecting the capital structure or creditworthiness of Berkshire Gas. The holding company structure will allow the design and implementation of capitalization ratios appropriate for the capital and business requirements of each industry in which Holdco is engaged. Separation. The holding company structure will separate Berkshire Gas' natural gas utility business from the non-utility businesses of other Holdco subsidiaries. As a result, it will provide a better structure for regulators to assure that there is no cross-subsidization of cost or transfer of business risk from unregulated to regulated lines of business. In addition, the holding company structure will facilitate the analysis and valuation of the holding company's individual lines of business by the investment community. The holding company structure also will mitigate the potential impact on Berkshire Gas, its preferred stock and debt security holders and its customers, of the risks of non-utility businesses and will permit the capital structure of Berkshire Gas to continue to be managed efficiently. Recommendations of the Board The Board of Directors and management of Berkshire Gas recommend the approval of the restructuring as proposed in the accompanying Notice of Special Meeting. The Board of Directors and management believe that the restructuring is in the best interest of Berkshire Gas and its shareholders. In making its decision to recommend the restructuring to the shareholders, the Board of Directors considered many factors, including the factors set forth above under "Proposal Regarding Plan of Restructuring -- Reasons for the Restructuring" and "Proposal Regarding Plan of Restructuring -- Benefits of Holding Company Structure." Vote Required In order for the restructuring into a holding company to be approved under Massachusetts law, it must receive favorable votes, in person or by proxy, of the holders of two-thirds of the outstanding shares of Berkshire Gas Common Stock. In addition, Berkshire Gas' articles of organization require that the restructuring be approved by the holders of at least two- thirds of the outstanding shares of its 4.8% Cumulative Preferred Stock. See "Other Matters -- Voting Procedures." The persons named in the accompanying proxy intend to vote such proxy in favor of the restructuring unless a contrary choice is indicated thereon. Exchange of Certificates Not Required If the proposed restructuring is consummated, it will not be necessary for holders of shares of Berkshire Gas Common Stock to exchange their existing stock certificates for Holdco share certificates. Holders of Berkshire Gas Common Stock will automatically become holders of Holdco Common Shares, and their stock certificates will automatically represent Holdco Common Shares. After the restructuring, whenever presently outstanding certificates are presented for transfer, new certificates bearing the name of Holdco will be issued. 29 Merger Agreement The Merger Agreement has been unanimously approved by the Boards of Directors or Trustees of Berkshire Gas, Holdco and Mergeco, and these companies have executed the Merger Agreement, subject to certain conditions including the approval and adoption thereof by vote of Berkshire Gas' shareholders as required by Massachusetts law and described herein. The Merger Agreement provides that: (1) Mergeco will merge with and into Berkshire Gas with Berkshire Gas being the surviving company. (2) each outstanding share of Berkshire Gas Common Stock, $2.50 par value per share, will be converted into one Holdco Common Share; (3) each outstanding share of Berkshire Gas 4.8% Cumulative Preferred Stock, $100 par value per share, will continue as one issued and outstanding share of Berkshire Gas 4.8% Cumulative Preferred Stock, $100 par value per share, with the same preferences, designations, relative rights, privileges and powers, and subject to the same restrictions, limitations and qualifications as were applicable to such stock prior to the Merger; (4) each outstanding share of Mergeco Common Stock, $1.00 par value per share, will be converted into one new share of Berkshire Gas Common Stock, $2.50 par value per share, all of which will then be owned by Holdco; and (5) the Holdco Common Shares presently held by Berkshire Gas will be canceled. As a result of the Merger, Berkshire Gas will become a subsidiary of Holdco, and all of the Holdco Common Shares outstanding immediately after the Merger will be owned by the holders of Berkshire Gas Common Stock outstanding at the effective time of the Merger. If and when the Merger becomes effective, holders of Berkshire Gas Common Stock will automatically become holders of Holdco Common Shares. The terms, conditions and provisions of Berkshire Gas 4.8% Cumulative Preferred Stock will not be altered in the Merger. Berkshire Gas will seek to negotiate acceptable consents with the holders of its long-term debt securities so as to effect the reorganization. Amendment or Termination of Plan of Merger By mutual consent of their respective Boards of Directors or Trustees, Berkshire Gas, Holdco and Mergeco may amend, modify or supplement the Merger Agreement in such manner as may be agreed upon by them in writing at any time before or after approval of the Merger Agreement by the shareholders of Berkshire Gas; provided, however, that no such amendment, modification or supplement shall, in the sole judgment of the Board of Directors of Berkshire Gas, materially and adversely affect the rights of the holders of Berkshire Gas Common Stock. The Merger Agreement provides that it may be terminated, and the Merger and other transactions incident to the restructuring plan abandoned, at any time, whether before or after approval of the Merger Agreement by the 30 shareholders of Berkshire Gas, by action of the Board of Directors of Berkshire Gas if the Board determines for any reason that the consummation of the restructuring would for any reason be inadvisable or not in the best interests of Berkshire Gas or its shareholders. The Board of Directors of Berkshire Gas expects to terminate and abandon the restructuring if Berkshire Gas has not received, within a reasonable period after shareholder approval, satisfactory approval of the Merger by the Massachusetts DTE as required by Massachusetts law (see "Proposal Regarding Plan of Restructuring - -- Regulatory Approval of the Restructuring"), acceptable consents from the holders of its 4.8% Cumulative Preferred Stock and its long-term debt securities or approval for the trading of Holdco Common Shares on the NASDAQ-NMS National Market System (see "Proposal Regarding Plan of Restructuring -- Stock Exchange Listing"). Berkshire Gas is unable to predict under what other circumstances the restructuring would be terminated and abandoned. Effectiveness of the Restructuring The Merger Agreement contemplates that the Merger will become effective, and all other steps in the restructuring plan will be completed, as soon as practical after the required shareholder and regulatory approvals, consents and listing authorization for Holdco Common Shares have been received, unless the Board of Directors of Berkshire Gas theretofore has elected to abandon such plan. Certain Federal Income Tax Consequences General. The following general discussion summarizes certain federal income tax considerations relating to the Merger. This summary is provided for general information only, and does not discuss all aspects of income taxation that may be relevant to a particular holder of Berkshire Gas Common Stock in light of the holder's personal tax circumstances or to certain types of holders of Berkshire Gas Common Stock subject to special treatment under the income tax laws of any jurisdiction including persons who are not United States persons, dealers in securities, tax-exempt entities, and shareholders who do not hold Berkshire Gas Common Stock as "capital assets" within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"). The legal conclusions set forth in this summary reflect the opinion of Berkshire Gas' counsel, Rich, May, Bilodeau & Flaherty, P.C. No ruling has been requested from the Internal Revenue Service. EACH HOLDER OF BERKSHIRE GAS COMMON STOCK SHOULD CONSULT SUCH HOLDER'S OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO SUCH HOLDER, INCLUDING THE APPLICATION AND EFFECT OF FOREIGN, STATE OR LOCAL INCOME AND OTHER TAX LAWS. The following discussion is based on existing statutes, existing and proposed regulations and existing administrative interpretations and court decisions. Future legislation, regulations, administration interpretations, or court decisions could significantly change such authorities either prospectively or retroactively, and could affect the legal conclusions set forth in the following discussions. For federal income tax purposes, the Merger is intended to qualify as a tax-free exchange pursuant to Section 351 of the Internal Revenue Code. Tax Implications to the Holders of Berkshire Gas Common Stock. For 31 federal income tax purposes, no gain or loss will be recognized by the holders of Berkshire Gas Common Stock on their exchange of Berkshire Gas Common Stock for Holdco Common Shares pursuant to the Merger. For federal income tax purposes, the tax basis of the Holdco Common Shares received by each such holder pursuant to the Merger will be the same as the holder's basis in the Berkshire Gas Common Stock surrendered in the Merger, and the holding period of such Holdco Common Shares will include the period during which such holder held the Berkshire Gas Common Stock surrendered in the Merger, provided that such Berkshire Gas Common Stock was held as a capital asset on the date of the exchange. Other Tax Aspects. Apart from the federal income tax consequences of the Merger discussed herein, no attempt has been made to determine the tax consequences to a holder of Berkshire Gas Common Stock under the laws of any country, state or jurisdiction. Holders of Berkshire Gas Common Stock may be subject to special federal income tax treatment or to other taxes, such as state or local income taxes that may be imposed by various jurisdictions, and also may be subject to intangible property, estate and inheritance taxes in their state of domicile. Each holder of Berkshire Gas Common Stock should consult the holder's own tax advisors to determine the particular tax consequences of the Merger to the holder. THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INTENDED TO PROVIDE ONLY A GENERAL SUMMARY AND DOES NOT ADDRESS TAX CONSEQUENCES WHICH MAY VARY WITH, OR ARE CONTINGENT UPON, INDIVIDUAL CIRCUMSTANCES. MOREOVER, THIS DISCUSSION DOES NOT ADDRESS ANY FOREIGN, FEDERAL, STATE OR LOCAL TAX CONSEQUENCES OF THE DISPOSITION OF STOCK IN BERKSHIRE GAS BEFORE OR IN HOLDCO AFTER THE MERGER. ACCORDINGLY, EACH HOLDER OF SUCH STOCK IS STRONGLY URGED TO CONSULT WITH SUCH HOLDER'S TAX ADVISORS TO DETERMINE THE PARTICULAR TAX CONSEQUENCES OF THE MERGER OR SUCH DISPOSITION TO SUCH HOLDER. Treatment of Preferred Stock Berkshire Gas will seek the requisite consent of the holders of its 4.8% Cumulative Preferred Stock for the proposed restructuring. The proposed restructuring is not expected to result in any change in Berkshire Gas' 4.8% Cumulative Preferred Stock. The decision by the Board of Directors and management to have the 4.8% Cumulative Preferred Stock continue as securities of Berkshire Gas is based upon, among other factors, a desire not to alter or potentially alter substantially the nature of the investment essentially represented by such series of stock, namely investment in a regulated utility. Subject to the negotiation of acceptable consents, there will be no change in the preferences, designations, relative rights, privileges and powers of the 4.8% Cumulative Preferred Stock, and the shares will be subject to the same restrictions, limitations and qualifications as were applicable thereto prior to the restructuring. Treatment of Indebtedness Berkshire Gas will seek to negotiate acceptable consents with the holders of its long-term debt securities. Such debt securities contain covenants or restrictions that directly or indirectly preclude the proposed restructuring. Subject to the negotiation of acceptable consents, all of Berkshire Gas' long-term indebtedness outstanding immediately prior to the Merger, is expected to continue to be outstanding indebtedness of Berkshire Gas after the Merger. The decision to have the indebtedness of Berkshire Gas continue as obligations of Berkshire Gas is based upon a desire not to 32 alter, or potentially alter, substantially the nature of the investment essentially represented by such obligations, namely a direct investment in a regulated utility, or to require any additional financing by Berkshire Gas. Dividend Policy While future dividends on Holdco Common Shares will depend primarily upon the earnings, financial condition and capital requirements of its subsidiaries, it is contemplated that Holdco initially will make dividend payments on Holdco Common Shares at the rate currently applicable to Berkshire Gas Common Stock. In addition, it is expected that such dividends of Holdco will be declared and paid on approximately the same schedule of dates as that now followed by Berkshire Gas with respect to Berkshire Gas Common Stock dividends. The most recent quarterly dividend declared by the Board of Directors of Berkshire Gas was $0.285 per share of Berkshire Gas Common Stock and was paid on January 15, 1998. Subject to the availability of earnings and the needs of its natural gas utility business, Berkshire Gas intends to make regular cash payments to Holdco in the form of dividends on Berkshire Gas Common Stock in amounts which, to the extent not otherwise provided by Holdco's other subsidiaries, if any, would be sufficient for Holdco to pay cash dividends on Holdco Common Shares as referred to above, for operating expenses of Holdco and for such other purposes as the Board of Trustees of Holdco may determine. Berkshire Gas does not currently contemplate any material loans or advances to Holdco in the near future and would not be free to make such loans or advances without prior approval of the Massachusetts DTE. Berkshire Gas is not party to any agreement or subject to any laws or regulations which materially restrict the payment of dividends by it to Holdco, other than pursuant to its long-term debt obligations and its 4.8% Cumulative Preferred Stock. Berkshire Gas anticipates negotiating acceptable waivers or consents with respect to such restrictions. See "Proposal Regarding Plan of Restructuring -- Treatment of Indebtedness." Dividends on the Berkshire Gas 4.8% Cumulative Preferred Stock will continue to be paid at the times and at the rates provided for such stock, depending upon the earnings, financial condition and other factors affecting Berkshire Gas. Stock Listing Holdco will apply for authorization to trade Holdco Common Shares on the NASDAQ-NMS. It is expected that such authorization will become effective on the effective date of the Merger, subject to NASD rules, and that such shares would be traded under the stock symbol "BERK." At the time of the listing of Holdco Common Shares, Berkshire Gas Common Stock will be delisted from trading on NASDAQ-NMS. Regulatory Approval of the Restructuring The proposed Merger of Berkshire Gas and Mergeco must be approved by the Massachusetts DTE before the restructuring can become effective. Under applicable state law, the application for approval by the Massachusetts DTE cannot be filed until after the holders of Berkshire Gas Common Stock have approved the Merger. Upon filing of the application, the Massachusetts DTE, after notice and a public hearing, must determine that the Merger and the terms thereof are consistent with the public interest. See "Proposal 33 Regarding Plan of Restructuring -- Regulatory Matters." Regulatory Matters After the restructuring, Berkshire Gas will continue to operate its natural gas utility businesses and will remain subject to regulation by the Massachusetts DTE. Holdco, however, will not be subject to regulation by the Massachusetts DTE, except that Holdco will be required to file an annual statement of ownership of Berkshire Gas with the Massachusetts DTE, which may examine the books, accounts, contracts, records and memoranda of Holdco and may require it to furnish reports and information with respect to its relations and dealings with Berkshire Gas. In addition, the reasonableness of any payment, charge, contract, purchase, sale, obligation or other arrangement between Berkshire Gas and Holdco or any subsidiary of Holdco may come into question in retail rate making and finance proceedings before the Massachusetts DTE. In that event, Berkshire Gas will have the burden of establishing and proving such reasonableness. After the restructuring is completed, Holdco will be a public utility holding company under the Public Utility Holding Company Act of 1935 (the "Holding Company Act"). Nevertheless, upon the filing of an appropriate exemption statement pursuant to Rule U-2 under Section 3(a)(1) of the Holding Company Act (and subject to the filing of annual exemption statements thereafter), Berkshire Gas' management believes that Holdco will be entitled to an exemption from regulation as a "registered holding company" under the Holding Company Act. The basis of the exemption is that Berkshire Gas, Holdco's only public utility subsidiary, is organized in the same state as Holdco (i.e. Massachusetts), and is predominantly intrastate in character and carries on its business substantially in the state of its incorporation. The exemption will be available as long as the utility business of Berkshire Gas, and of any other public utility subsidiary from which Holdco derives a material portion of its income, are organized in Massachusetts and remain predominantly intrastate in character. The exemption from the provisions of the Holding Company Act may be revoked on a finding by the SEC that such exemption may be detrimental to the public interests or the interest of investors or consumers. The prior approval of the SEC under the Holding Company Act would be required if Holdco proposed the acquisition or creation, directly or indirectly, of additional utility subsidiaries. Moreover, there also may be limits on the extent to which Holdco and any non-utility subsidiaries can diversify without raising questions about Holdco's exempt status. Current SEC policies regarding the scope of permissible non-utility activities are subject to change. Holdco intends to rely upon and comply with regulations relating to the foregoing exemption and has no present intention of becoming a registered holding company subject to regulation by the SEC under the Holding Company Act. In June 1995, the SEC Division of Investment Management issued a report recommending significant revisions to, or limited repeal of, the Holding Company Act. Several proposals regarding the repeal or amendment of the Holding Company Act have been considered in Congressional hearings. Holdco and Berkshire Gas, however, cannot predict whether Congress will take any such action. Pending such action, the SEC indicated that it would revise its rules and interpretations to modernize and simplify holding company regulation. At this time, however, neither Holdco nor Berkshire Gas can predict the likelihood, timing or impact of such actions. 34 Following the restructuring, Holdco will be subject to the reporting requirements of the Exchange Act by virtue of having securities registered thereunder. Holdco's Declaration of Trust and Comparative Shareholders' Rights Holdco has been organized under Chapter 182 of the Massachusetts General Laws as an unincorporated voluntary association with transferable shares of beneficial interest, commonly referred to as a "Massachusetts business trust." Holdco was organized as a Massachusetts business trust, rather than a corporation, primarily because of the potential Massachusetts income tax savings to the trust. While a publicly traded parent holding company formed as a Massachusetts business trust would be taxed as a corporation for federal tax purposes, it would not be treated as a corporation for Massachusetts tax purposes and therefore would not be subject to tax with respect to its income or net worth under the Massachusetts corporate excise, or subject to the utility franchise tax on income. Although Massachusetts business trusts are generally subject to the Massachusetts personal income tax, the personal income tax does not apply at the entity level to a Massachusetts business trust that qualifies as a "holding company" under Massachusetts law (the Board of Directors of Berkshire Gas currently intends to operate Holdco so that it will so qualify). Instead, dividends paid by such a trust would generally be subject to tax. This entity-level tax treatment contrasts with the Massachusetts tax treatment of a parent corporate holding company, which would be subject to a tax on 5% of dividends received from subsidiaries and on 100% of any other income (in each case after apportionment, which in the case of a holding company for Berkshire Gas, would likely be, at least initially, at or near 100% in Massachusetts) at the rate of 9.5%. In Massachusetts, corporate holding companies are also subject to a "net worth" tax. The Board of Directors and management of Berkshire Gas believe that the extent of potential savings associated with organizing Holdco as a Massachusetts business trust could be significant since they depend, in large part, upon the amount and nature of any dividends received by Holdco from Berkshire Gas. As previously described, at least initially, dividends from Berkshire Gas and from a subsidiary of Holdco that will engage in propane operations will be Holdco's primary sources of income for the payment of dividends to its shareholders. The following summary should be read in the context of, and is qualified by reference to, Holdco's Declaration of Trust (the "Declaration of Trust") and Holdco's By-laws, copies of which substantially in the form they will be in as of the effective date of the Merger are attached as Appendices B and C, respectively, to this Proxy Statement/Prospectus and incorporated herein by reference. The rights of holders of Berkshire Gas Common Stock are governed by Chapter 164 of the Massachusetts General Laws governing electric and gas utilities, and by Berkshire Gas' Articles of Organization and By-laws. If the Merger is consummated, the rights of the present holders of Berkshire Gas Common Stock thereafter will be determined by Holdco's Declaration of Trust and By-laws. Except as noted below, the rights of holders of Holdco Common Shares will be largely the same as the present rights of the holders of Berkshire Gas Common Stock. Pursuant to certain decisions of the Massachusetts courts, shareholders who exercise too much control over the affairs of a 35 Massachusetts business trust may be held personally liable as partners for the obligations of a trust to the extent not satisfied by the trust, with respect to tort claims, contract claims (where shareholder liability is not negated as described below), claims for taxes and certain statutory liabilities. Even if, however, Holdco were held to be a partnership, the possibility of its shareholders incurring personal liability is remote because (a) Holdco's Declaration of Trust contains an express disclaimer of shareholder liability for the obligations of Holdco, requires that notice of such disclaimer be given in each agreement, obligation or instrument entered into or executed by Holdco and provides that no person has authority to enter into an agreement, obligation or instrument except in accordance with those requirements, (b) most of Holdco's operations will be conducted by incorporated subsidiaries such that the activities of Holdco will be limited to the ownership of securities rather than the operation of physical assets (c) Holdco will maintain insurance against tort liability, and (d) Holdco's Declaration of Trust provides for indemnification out of the trust property for any shareholder held personally liable for the obligations of Holdco. Holdco's Declaration of Trust provides that the property and affairs of Holdco will be held and managed by its trustees who will have all of the powers and authority necessary and convenient to carry out Holdco's business. The trustees may appoint officers and agents to carry out Holdco's business. See "Proposal Regarding Plan of Restructuring -- Trustees and Management of Holdco." The powers and responsibilities of the trustees and officers of Holdco will be comparable to those of directors and officers of a corporation with no material differences. The trustees will be selected by a plurality of the vote of the holders of Holdco Common Shares properly cast at an annual meeting. Holdco's Declaration of Trust includes "super-majority" and "classified board" provisions comparable to those adopted by Berkshire Gas' shareholders (see "Proposal Regarding Plan of Restructuring -- Holdco Common Shares" below) and comparable indemnification and limitations on directors' liability provisions (applicable to the trustees) that were adopted by Berkshire Gas' shareholders to enhance Berkshire Gas' ability to attract and retain qualified directors and officers. Under Chapter 164, Berkshire Gas may be merged with another utility subject to Chapter 164 upon a two-thirds vote of each class of stock outstanding and entitled to vote on the matter, and the approval of the Massachusetts DTE. Subject to the "super-majority" provisions in the Declaration of Trust, Holdco, like a Massachusetts business corporation, may be merged with another trust or corporation, or terminated and liquidated, upon a two-thirds vote of the shares outstanding and entitled to vote thereon (except that a change of form into another trust or into a corporation may be done on approval of a majority of the common shareholders). Under Chapter 164, shareholders of an natural gas utility company have no appraisal rights. Similarly, Holdco's Declaration of Trust provides that shareholders shall have no appraisal rights. Under Chapter 164, the Articles of Organization of Berkshire Gas may be amended upon a majority vote of the common shareholders, except with respect to certain provisions requiring a two-thirds vote of Berkshire Gas' common shareholders. The Holdco Declaration of Trust may be amended by a written instrument signed by a majority of the trustees then in office if 36 such amendment has been authorized by a majority vote of Holdco's common shareholders, and such other vote, if any, as may be required by the rights and preferences relating to any class or series of shares provided that amendments which, in the judgment of the trustees, are of a fundamental character must be approved by a vote of the holders of a majority of the shares outstanding and entitled to vote thereupon. In addition, the "classified board" provisions can only be amended upon a vote of 75% of the outstanding Holdco Common Shares unless such amendment is authorized or recommended by at least two-thirds of the trustees. Certain other provisions cannot be changed without a two-thirds vote as provided in the Declaration of Trust. Amendments for the purpose of changing the name of Holdco or of supplying any ambiguity or curing, correcting or supplementing any defective or inconsistent provision contained in the Declaration of Trust shall not require authorization by vote of the shareholders. Under Massachusetts law, the authority to adopt, amend or repeal the bylaws of a Massachusetts corporation is in the shareholders; provided that if authorized by the Articles of Organization, the By-laws may provide that the directors may also make, amend or repeal the bylaws. Berkshire Gas' By- laws provide such authority to the Board of Directors. Holdco's Declaration of Trust, among other provisions, authorizes the trustees to adopt By-laws in order to fix the fiscal year; regulate the affairs of the trustees, including provisions for the nomination thereof; 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 when the trustees are not in session; provide for the appointment of a chairman of the trustees, a president, one or more vice presidents, a treasurer, a secretary and such other officers as the trustees may deem appropriate, and the manner of their appointment and removal, and their respective powers and duties; provide for the appointment of transfer agents or officers and registrars, and contain such further provisions relating to the above matters or otherwise, incidental or in addition to but not inconsistent with the provisions of the Declaration of Trust, as the trustees shall deem appropriate. The By-laws may only be amended by the trustees. Under Massachusetts law and Berkshire Gas' By-laws, the Board of Directors can act without a meeting only by unanimous written consent. Under Holdco's Declaration of Trust, the trustees may act without a meeting only by unanimous written consent of the trustees. As with a Massachusetts business corporation, Holdco's Declaration of Trust provides that no action may be brought by a shareholder on behalf of Holdco unless a prior demand regarding such matter has been made on the trustees and the shareholders. Holdco's Declaration of Trust, like the Articles of Organization of Berkshire Gas, contains certain provisions that may be viewed as having an anti-takeover effect, including provisions establishing classes of trustees and requiring a super-majority vote of the disinterested shareholders to approve certain business transactions. Holdco is also subject to Chapter 110F of the Massachusetts General Laws, which, in general, provides that for three years after an acquiror has purchased 5% or more of the stock of a company, the acquiror may not complete the acquisition through merger, sell or pledge the assets of the company, or engage in other self-dealing transactions. The Holdco Declaration of Trust will also contain a provision (substantially the same as provisions of Massachusetts law currently 37 applicable to Berkshire Gas) allowing the trustees to consider various constituencies and community and societal considerations, as well as the long-term and short-term interests of the company, in determining what he or she reasonably believes to be in the best interests of the Holdco. Holdco Common Shares Holdco will issue shares of beneficial interest, referred to in this Proxy Statement as "Holdco Common Shares," and may in the future issue other equity and debt securities. The initial authorized capital stock of Holdco will be 10,000,000 common shares, without par value, and 1,000,000 preferred shares, par value $100 per share. The authorized capital shares may be issued from time to time by the trustees without the necessity of obtaining further consent of the shareholders or any approvals from the Massachusetts DTE. Holdco capital shares may be issued for money, services or property, or as a distribution to shareholders, and upon such terms as the trustees may in their absolute discretion determine. Upon consummation of the Merger, the number of outstanding Holdco Common Shares will be the same as the number of outstanding shares of Berkshire Gas Common Stock immediately prior to the Merger and no Holdco preferred shares will be outstanding. Holdco preferred shares may be issued by the trustees in one or more classes or series within a class and shall have such designations, preferences, voting rights, voting powers, full or limited, or no voting rights, participating, optional or other special rights, and such preferences, relative rights, qualifications, limitations or restrictions, all as may be determined by the trustees. Authorization of preferred shares in addition to the 1,000,000 shares initially authorized in the Declaration of Trust requires the vote of the holders of two-thirds of the shares outstanding and entitled to vote thereon. Under current provisions of the Holding Company Act, and the rules and regulations thereunder, issuance of Holdco preferred shares may be restricted. The holders of the Holdco Common Shares, subject to any prior rights or preferences of Holdco preferred shares outstanding at the time, will be entitled to such dividends thereon as the trustees in their discretion lawfully declare (see "Proposal Regarding Plan of Restructuring -- Dividend Policy" above) and will be vested with all voting rights. Each Holdco Common Share will be entitled to one vote. The Holdco Common Shares will not have cumulative voting rights in the election of trustees. In the event of voluntary or involuntary liquidation or dissolution, the holders of the Holdco Common Shares, subject to any prior rights or preferences of Holdco preferred shares outstanding at the time, will share ratably in the assets of Holdco. Holdco will have no right to call the Holdco Common Shares for redemption. The holders of the Holdco Common Shares will have no preemptive rights to subscribe to additional shares issued by Holdco. Holdco has no agreement, understanding or plan for the issuance of any Holdco Common Shares, except in connection with the proposed Merger and except in connection with Holdco's assumption of Berkshire Gas' Share Owner Dividend Reinvestment and Stock Purchase Plan, or any Holdco preferred shares. Holdco may issue and sell Holdco Common Shares in connection with the acquisition of stock or assets of other companies, to finance expenditures, additions and improvements to the property of Berkshire Gas or any of its subsidiaries, which have not been financed with other permanent securities and for other corporate purposes, or to repay or refinance outstanding indebtedness. Dividend requirements and any redemption, sinking 38 fund or conversion provisions pertaining to Holdco preferred shares, if authorized and issued, may have an adverse effect on the availability of earnings for distribution to holders of the Holdco Common Shares and for use with respect to other corporate purposes. See also "Proposal Regarding Plan of Restructuring -- Share Owner Dividend Reinvestment and Stock Purchase Plan" below for information concerning Holdco's intention to issue additional Holdco Common Shares pursuant to such plan. Trustees and Management of Holdco The current directors of Berkshire Gas will be the trustees of Holdco upon the completion of the restructuring plan. In approving the restructuring, shareholders will be considered to have ratified the election of the following persons, now serving as directors of Berkshire Gas, as trustees of Holdco: Class A Trustees whose terms expire at the 2000 Annual Meeting. Paul L. Gioia Franklin M. Hundley Scott S. Robinson Class B Trustees whose terms expire at the 1998 Annual Meeting. George R. Baldwin John W. Bond Class C Trustees whose terms expire at the 1999 Annual Meeting. James R. Keys Robert B. Trask The officers of Holdco, each of whom currently holds a comparable office in Berkshire Gas, are as follows: Name Office - ---- ------ Scott S. Robinson President and Chief Executive Officer Michael J. Marrone Vice President, Treasurer and Chief Financial Officer Cheryl M. Clark Secretary Initially, Holdco does not expect to have any employees of its own and does not expect to render services to Berkshire Gas or any other subsidiary, although it may do so in the future. Following the restructuring and subject to their continuing qualification for such office, the present officers of Berkshire Gas will, at least initially, continue to hold their present offices and enjoy substantially the same remuneration and employee benefits now afforded. Following the restructuring, most of the present members of Berkshire Gas' Board of Directors will resign. Michael J. Marrone and Robert M. Allessio, currently officers of Berkshire Gas, will be elected to serve on the Board of Directors of Berkshire Gas with Scott S. Robinson. Separate Boards of Directors and officers will be appointed for the management services company, the subsidiary for propane operations and any other subsidiary company established to pursue non-regulated market opportunities. Given 39 that Holdco will be the sole Stockholder of Berkshire Gas and other subsidiary companies, the Trustees of Holdco will have authority to vote such shares and to elect the directors of Berkshire Gas and any other subsidiary company. See "Proposed Regarding Plan of Restructuring -- The Restructuring." No Appraisal Rights Under Massachusetts law governing the proposed Merger, neither a dissenting holder of Berkshire Gas Common Stock nor the holders of Berkshire Gas 4.8% Cumulative Preferred Stock has a right to demand payment of the fair value of his or her shares if the Merger is consummated. Share Owner Dividend Reinvestment and Stock Purchase Plan Following the effectiveness of the restructuring, Holdco will assume Berkshire Gas' existing Share Owner Dividend Reinvestment and Stock Purchase Plan. Participants in such plan will continue to be able to make initial purchases of Holdco Common Shares, reinvest their dividends on Holdco Common Shares to purchase additional Holdco Common Shares and to make optional payments to acquire additional Holdco Common Shares. Price Range of Berkshire Gas Common Stock The Company's Common Stock is traded on the NASDAQ-NMS and quoted through the NASDAQ System. The table below sets forth the high and low average of the bid and asked prices for shares of the Company's Common Stock, as reported by the National Quotation Bureau, Incorporated, for the periods indicated. High Low ---- --- 1996: First Quarter $16-3/4 $15 Second Quarter 16 14-3/4 Third Quarter 16-3/4 14-7/8 Fourth Quarter 18 15-1/4 1997: First Quarter 17-1/2 15-1/4 Second Quarter 16 15 Third Quarter 17-3/8 15-1/4 Fourth Quarter 23-1/2 16-1/4 1998: First Quarter 23-1/2 21-1/2 (through February 18, 1998) These quotations represent prices between dealers and do not include retail markup, markdown or commission. They do not necessarily represent actual transactions. The daily high and low sales prices on February 18, 1998 were $22-7/8 and $22-1/2, respectively. Stock Ownership by Directors and Executive Officers The following table sets forth the number of shares of Berkshire Gas Common Stock beneficially owned as of January 31, 1998 by each director of Berkshire Gas as well as the executive officers named in the Summary 40 Compensation Table of the proxy statement for Berkshire Gas' 1997 annual meeting, and the directors and executive officers of Berkshire Gas as a group. Except as indicated below, all of the shares listed are held by the persons named with both sole voting power and sole investment power.
Percentage of Shares Shares of Common Stock of Common Stock Beneficially Owned Outstanding as Name of Beneficial Owner as of January 31, 1998* of January 31, 1998** ------------------------ ----------------------- --------------------- George R. Baldwin 2,221 .10% John W. Bond 4,136 (1) .18 Paul L. Gioia 3,568 (2) .16 Les H. Hotman 220 .01 Franklin M. Hundley 2,642 .11 James R. Keys 1,185 .05 Michael J. Marrone 1,195 .05 Scott S. Robinson 6,591 (3) .29 Robert B. Trask 8,945 (4) .39 All directors and officers of Berkshire gas, 10 persons as a group 30,895 (5) 1.36 As used in this Proxy Statement/prospectus, "beneficial ownership" means direct or indirect, sole or shared power to vote, or to direct the voting of, and/or investment power to dispose of, or to direct the disposition of, shares of the Common Stock of Berkshire Gas. Except as indicated in the footnotes below, the listed beneficial owners held direct and sole voting and investment power with respect to the stated shares. As of January 31, 1998 there were 2,269,820 shares of Berkshire Gas Common Stock outstanding. Includes 273 shares held Mr. Bond's spouse, who has sole voting and investment power over such shares. All of Mr. Giola's shares are held jointly with his spouse, with shared voting and investment power over such shares. Comprised of 6,145 shares are held in trust, for which Mr. Robinson and his spouse are joint Trustees, with shared voting and investment power. 6,045 of Mr. Trask's shares are held jointly with his spouse, with shared voting and investment power over such shares. 2,900 of Mr. Trask's shares are owned by a private, non-profit foundation of which Mr. Trask is a trustee. Aggregate record or imputed beneficial ownership, with sole or shared voting and investment power.
Transfer Agent and Registrar The State Street Bank and Trust Company, the Transfer Agent and Registrar of the Berkshire Gas Common Stock, will serve in the same 41 capacities for the Holdco Common Shares. Financial Statements No consolidated financial statements of Holdco and its subsidiary are presented herein since Holdco presently has no assets or liabilities other than the stock of Mergeco, and any pro forma consolidated financial statements of Holdco would reflect no change from the financial statements of Berkshire Gas prior to implementation of the restructuring plan. Legal Opinion The validity of the Holdco Common Shares to be issued upon consummation of the Merger is being passed upon by Rich, May, Bilodeau & Flaherty, P.C., 294 Washington Street, Boston, Massachusetts 02108. Franklin M. Hundley, Of Counsel to Rich, May, Bilodeau & Flaherty, P.C., and formerly a Managing Director of such firm, is Chairman of the Board of Berkshire Gas. Experts The financial statements and the related financial statement schedule incorporated in this Proxy Statement/Prospectus by reference from the Company's Annual Report on Form 10-K for the year ended June 30, 1997 and the Berkshire Gas Company's Annual Report to Shareholders for the year ended June 30, 1997 have been audited by Deloitte & Touche LLP independent auditors, as stated in their reports, which are incorporated herein by reference, and have been so incorporated in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing. OTHER MATTERS Voting Procedures Consistent with state law and under Berkshire Gas' Bylaws, a majority of the shares entitled to be cast on a particular matter, present in person or represented by proxy, constitutes a quorum as to such matter. Votes cast by proxy or in person at the Special Meeting will be counted by persons appointed by Berkshire Gas to act as election inspectors for the meeting. The Proposal Regarding Plan of Restructuring requires the affirmative vote of two-thirds of the outstanding Berkshire Gas Common Stock. The election inspectors will count the total number of votes cast "for" approval of the Proposal Regarding Plan of Restructuring for purposes of determining whether sufficient affirmative votes have been cast. The election inspectors will count shares represented by proxies that reflect abstentions and "broker non-votes" (i.e., shares represented at the meeting held by brokers or nominees as to which (i) instructions have not been received from the beneficial owners or persons entitled to vote and (ii) the broker or nominee does not have the discretionary voting power on a particular matter) only as shares that are present and entitled to vote on the matter for purposes of determining the presence of a quorum. For purposes of the Proposal Regarding Plan of Restructuring, abstentions and broker non-votes have the effect of votes cast against the proposal. Adjournment of Meeting 42 If sufficient votes in favor of the proposal set forth in the Notice of Special Meeting are not received by the time scheduled for the meeting, the persons named as proxies may propose one or more adjournments of the meeting to permit further solicitation of proxies with respect to any such proposal. Any adjournment will require the affirmative vote of a majority of the votes cast on the question in person or by proxy at the session of the meeting to be adjourned. The persons named as proxies will vote in favor of such adjournment those proxies which they are entitled to vote in favor of such proposal. They will vote against any such adjournment those proxies required to be voted against such proposal. Berkshire Gas will pay the costs of any additional solicitation and of any adjourned session. Independent Accountants Representatives of Deloitte & Touche, LLP, Berkshire Gas' independent accountants, will not be present at the Special Meeting. Proposals of Shareholders Shareholders' proposals intended to be presented at the 1998 Annual Meeting must be received by the Office of the Clerk of The Berkshire Gas Company, 115 Cheshire Road, Pittsfield, Massachusetts 01201-1879 by June 6, 1998. Other Business The management has no reason to believe that any other business will be presented at the Special Meeting, but if any other business shall be properly presented, votes pursuant to the proxy will be cast thereon in accordance with the discretion of the persons named in the accompanying proxy. The greater part of the stock of Berkshire Gas is widely held in small lots. It is important, therefore, in order to secure representation at the Special Meeting of the number of shares necessary to take action, that all shareholders who cannot be present in person, however small their holdings, fill in, sign and return the enclosed proxy without delay to State Street Bank and Trust Company, Corporate Services Department, P.O. Box 592, Boston, MA 02102. A self-addressed, stamped envelope is enclosed for this purpose. SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING. IF YOU PLAN TO ATTEND, PLEASE SO INDICATE ON THE ENCLOSED PROXY CARD. PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 20. Indemnification of Trustees and Officers. Holdco's Declaration of Trust (the "Declaration Trust") provides that, to the extent legally permissible, each of Holdco's Trustees and officers 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 which such person may be involved or with which such person may be threatened, while in 43 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 Holdco. In discharging his or her duties, a Trustee or officer of Holdco, when acting in good faith, shall be fully protected in relying upon the books of account of Holdco or of another organization in which he or she serves as contemplated by the indemnification provisions of the Declaration of Trust, 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 Holdco or of such other organization. The rights of indemnification provided in the Declaration of Trust 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. As used in this provision, the terms "Trustee" and "officer" include persons who serve at the request of Holdco as directors, officers, or trustees of another organization in which Holdco has any direct or indirect interest as a shareholder, creditor or otherwise. 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 the indemnification provisions of the Declaration of Trust may be advanced by Holdco 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. Nothing contained in this provision shall affect any rights to indemnification to which Holdco 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. Holdco maintains a policy of insurance covering Trustees' and officers' liability and reimbursement of Holdco for indemnification of a Trustee or officer. The policy covering Trustees' and officers' liability provides for payment on behalf of a Trustee or officer of any Ultimate Net Loss (defined to include among other things damages, judgments, settlements, costs and expenses) arising from claims against such Trustee or officer by reason of any Wrongful Act (as defined therein) subject to certain exclusions. Item 21. Exhibits and Financial Statement Schedules. The following exhibits are being filed herewith: EXHIBIT NUMBER DESCRIPTION OF DOCUMENT - ------ ----------------------- 2.1 Agreement and Plan of Merger dated as of February 19, 1998 (attached as Appendix A). 44 3.1.1 Declaration of Trust of Berkshire Energy Resources (attached as Appendix B). 3.1.2 By-laws of Berkshire Energy Resources (attached as Appendix C). 5.1 Opinion of Rich, May, Bilodeau & Flaherty, P.C. as to the legality of the securities being issued. 8.1 Form of Opinion of Rich, May, Bilodeau & Flaherty, P.C. as to certain federal income tax consequences of the Merger. 13.1 Annual report to Berkshire Gas' shareholders on Form 10-K for the year ended June 30, 1997 (and Berkshire Gas' Annual Report to Shareholders for the year ended June 30, 1997 incorporated therein). 13.2 Berkshire Gas' definitive Proxy Statement filed with SEC on October 3, 1997. 13.3 Quarterly report to Berkshire Gas' shareholders on Form 10-Q for the quarter ended September 30, 1997. 13.4 Quarterly report to Berkshire Gas' shareholders on Form 10-Q for the quarter ended December 31, 1997. 23.1 Consent of Rich, May, Bilodeau & Flaherty, P.C. (included in its Opinions filed as Exhibits 5.1 and 8.1, respectively). 23.2 Consent of Deloitte & Touche, LLP. 99.1 Form of Proxy. Item 22. Undertakings. The undersigned Registrant hereby undertakes: (1) That, for purposes of determining any liability under the Securities Act of 1933 (the "Securities Act"), each filing of the Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act") (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in the Registration Statement shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (2) To deliver or cause to be delivered with the prospectus, to each person to whom the prospectus is sent or given, the latest annual report, to security holders that is incorporated by reference in the prospectus and furnished pursuant to and meeting the requirements of Rule14a-3 or Rule 14c- 3 under the Exchange Act; and, where interim financial information required to be presented by Article 3 of Regulation S-X is not set forth in the prospectus, to deliver, or cause to be delivered to each person to whom the prospectus is sent or given, the latest quarterly report that is specifically incorporated by reference in the prospectus to provide such interim financial information. 45 (3) That prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this Registration Statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the Registrant undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form. (4) That every prospectus (i) that is filed pursuant to the immediately preceding paragraph, or (ii) that purports to meet the requirements of Section 10(a)(3) of the Securities Act and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the Registration Statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (5) That insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. (6) To respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the Registration Statement through the date of responding to the request. (7) To supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the Registration Statement when it became effective. SIGNATURES Pursuant to the requirements of the Securities Act, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Pittsfield, 46 Commonwealth of Massachusetts, on February 24, 1998. BERKSHIRE ENERGY RESOURCES /s/ Scott S. Robinson _____________________________ Scott S. Robinson President and Chief Executive Officer Each person whose signature appears below hereby authorizes each of Scott S. Robinson and Michael J. Marrone with full power of substitution, to execute in the name and on behalf of such person any amendment or any post- effective amendment to this Registration Statement and to file the same, with exhibits thereto, and other documents in connection therewith, making such changes in this Registration Statement as the Registrant deems appropriate, and appoints each of Scott S. Robinson and Michael J. Marrone with full power of substitution, attorney-in-fact to sign any amendment and any post-effective amendment to this Registration Statement and to file the same, with exhibits thereto, and other documents in connection therewith. Pursuant to the requirements of the Securities Act, this Registration Statement has been signed below on February 24, 1998 by the following persons in the capacities. Signature Capacity - --------- -------- /s/ Scott S. Robinson ___________________________________ Scott S. Robinson Trustee, President, Chief Executive Officer (principal executive officer) /s/ Michael J. Marrone ___________________________________ Michael J. Marrone Trustee, Vice President, Treasurer, Chief Financial Officer (principal financial and accounting officer) /s/ Cheryl M. Clark ___________________________________ Cheryl M. Clark Trustee, Secretary INDEX TO EXHIBITS EXHIBIT NUMBER DESCRIPTION OF DOCUMENT PAGE - ------ ----------------------- ---- 2.1 Agreement and Plan of Merger dated as of February 19, 1998 (attached as Appendix A). 48 47 3.1.1 Declaration of Trust of Berkshire Energy Resources (attached as Appendix B). 56 3.1.2 By-laws of Berkshire Energy Resources (attached as Appendix C). 84 5.1 Opinion of Rich, May, Bilodeau & Flaherty, P.C. as to the legality of the securities being issued. 90 8.1 Form of Opinion of Rich, May, Bilodeau & Flaherty, P.C. as to certain federal income tax consequences of the Merger. 91 13.1 Annual report to Berkshire Gas' Shareholders on Form 10-K for the year ended June 30, 1997 (and Berkshire Gas' Annual Report to Shareholders for the year ended June 30, 1997 incorporated therein). 93 13.2 Berkshire Gas' definitive Proxy Statement filed with the SEC on October 3, 1997. 154 13.3 Quarterly report to Berkshire Gas' shareholders on Form 10-Q for the quarter ended September 30, 1997. 169 13.4 Quarterly report to Berkshire Gas' shareholders on Form 10-Q for the quarter ended December 31, 1997. 183 23.1 Consent of Rich, May, Bilodeau & Flaherty, P.C. (included in its Opinions filed as Exhibits 5.1 and 8.1, respectively). - 23.2 Consent of Deloitte & Touche, LLP. 199 99.1 Form of Proxy. 200 EX-2 2 EXHIBIT 2.1 AGREEMENT AND PLAN OF MERGER EXHIBIT 2.1 APPENDIX A AGREEMENT AND PLAN OF MERGER AGREEMENT AND PLAN OF MERGER ("Agreement") dated as of February 19, 1998, by and among The Berkshire Gas Company, a Massachusetts gas utility corporation ("Berkshire Gas"), Berkshire Gas Mergeco Gas Company, Inc., a Massachusetts gas utility corporation ("Mergeco"), and Berkshire Energy Resources, a Massachusetts business trust ("Holdco"). 48 WITNESSETH: WHEREAS, Berkshire Gas has an authorized capitalization consisting of (i) 4,600,000 shares of common stock, par value $2.50 per share ("Berkshire Gas Common Stock"), of which 2,269,821 shares are issued and outstanding and 115,432 shares have been reserved for issuance pursuant to Berkshire Gas's Share Owner Dividend Reinvestment and Stock Purchase Plan; and (ii) 105,000 shares of cumulative preferred stock, par value $100.00 per share ("Berkshire Gas Preferred Stock"), 3,212 shares of which are issued and outstanding; the number of shares of issued and outstanding Berkshire Gas Common Stock being subject to increase to the extent that shares reserved for issuance are issued prior to the Effective Time (as defined below) of the Merger; WHEREAS, Mergeco has an authorized capitalization consisting of 200,000 shares of common stock, par value $1.00 per share ("Mergeco Common Stock"), of which 100 shares have been subscribed for by Holdco and, once the issuance thereof has been approved by the Massachusetts Department of Telecommunications and Energy as required by law, will be issued to and owned beneficially and of record by Holdco; WHEREAS, Holdco has an authorized capitalization consisting of (i) 10,000,000 shares of beneficial interest, without par value ("Holdco Common Shares", each a "Holdco Common Share"), of which 100 shares are issued and outstanding and owned beneficially and of record by Berkshire Gas; and (ii) 1,000,000 preferred shares, par value $100.00 per share, of which no shares are issued and outstanding; and WHEREAS, the Boards of Directors or the Board of Trustees of the respective parties hereto deem it advisable and in the best interests of Berkshire Gas and its shareholders to merge Mergeco with and into Berkshire Gas (the "Merger") in accordance with Section 96 of Chapter 164 of the Massachusetts General Laws and pursuant to this Agreement and the Articles of Merger attached hereto as ANNEX I and incorporated herein (the "Articles"), whereby the holders of shares of Berkshire Gas Common Stock will exchange their shares for Holdco Common Shares; NOW, THEREFORE, in consideration of the premises and the representations, warranties and agreements herein contained, the parties hereto agree that Mergeco shall be merged with and into Berkshire Gas, which shall be the corporation surviving the Merger, and that the terms and conditions of the Merger, the mode of carrying it into effect, and the manner of converting and exchanging shares shall be as follows: ARTICLE I THE MERGER (a) Subject to and in accordance with the provisions of this Agreement, the Articles shall be executed and acknowledged by each of Berkshire Gas and Mergeco and thereafter delivered to the Secretary of State of The Commonwealth of Massachusetts for filing, as provided in Section 102A of Chapter 164 of the Massachusetts General Laws. The Merger shall become effective at such time as the Articles are filed as required by law with the Secretary of State of The Commonwealth of Massachusetts or such date, not more than thirty days after such filing, as may be specified in the Articles (the "Effective Time"). At the Effective Time, the separate existence of 49 Mergeco shall cease and Mergeco shall be merged with and into Berkshire Gas (Mergeco and Berkshire Gas being sometimes referred to collectively herein as the "Constituent Corporations" and Berkshire Gas, the corporation designated in the Articles as the surviving corporation being sometimes referred to herein as the "Surviving Corporation"); (b) Prior to and after the Effective Time, Holdco, Berkshire Gas and Mergeco, respectively, shall take all such actions as may be necessary or appropriate in order to effectuate the Merger. In this connection, Holdco shall issue the Holdco Common Shares which the holders of Berkshire Gas Common Stock are entitled to receive as provided in Article II hereof. In the event that at any time after the Effective Time any further action is necessary or desirable to carry out the purposes of this Agreement and to vest the Surviving Corporation with full title to all properties, assets, rights, approvals, immunities and franchises of either of the Constituent Corporations, the officers and directors of each of the Constituent Corporations as of the Effective Time shall take all such further action. ARTICLE II TERMS OF CONVERSION AND EXCHANGE OF SHARES At the Effective Time: (a) Each share of Berkshire Gas Common Stock issued and outstanding immediately prior to the Merger thereupon shall be changed and converted into one Holdco Common Share, which thereupon shall be issued, fully paid and nonassessable; (b) The shares of Berkshire Gas Preferred Stock issued and outstanding immediately prior to the Merger shall not be converted or otherwise affected by the Merger, and each such share shall continue to be issued and outstanding and to be one fully paid and nonassessable share of the particular series of preferred stock of the Surviving Corporation; (c) Each share of Mergeco Common Stock issued and outstanding immediately prior to the Merger shall be converted into one share of common stock of the Surviving Corporation, which thereupon shall be issued, fully paid and nonassessable; and (d) Each Holdco Common Share issued and outstanding immediately prior to the Merger shall be canceled. ARTICLE III ARTICLES OF ORGANIZATION AND BYLAWS From and after the Effective Time, and until thereafter amended as provided by law, the Articles of Organization of Berkshire Gas as in effect immediately prior to the Merger shall be and continue to be the Articles of Organization of the Surviving Corporation. The purposes of the Surviving Corporation, the total number of shares and par value of each class of stock which the Surviving Corporation is authorized to issue and a description of each class of stock authorized at the Effective Time, with the preferences, voting powers, qualifications, special or relative rights or privileges as to each class and any series thereof then established, are as stated in such Articles of Organization, which are attached hereto as Annex II and 50 incorporated herein. From and after the Effective Time, the Bylaws of Berkshire Gas shall be and continue to be the Bylaws of the Surviving Corporation until amended in accordance with law. ARTICLE IV DIRECTORS AND OFFICERS The persons who are directors and officers of Berkshire Gas immediately prior to the Merger shall continue as directors and officers, respectively, of the Surviving Corporation and shall continue to hold office as provided in the Bylaws of the Surviving Corporation. If, at or following the Effective Time, a vacancy shall exist in the Board of Directors or in the position of any officer of the Surviving Corporation, such vacancy may be filled in the manner provided in the Bylaws of the Surviving Corporation. ARTICLE V STOCK CERTIFICATES Following the Effective Time, each holder of an outstanding certificate or certificates theretofore representing shares of Berkshire Gas Common Stock may, but shall not be required to, surrender the same to Holdco for cancellation or transfer, and each such holder or transferee will be entitled to receive certificates representing the same number of Holdco Common Shares as shares of Berkshire Gas Common Stock previously represented by the surrendered stock certificates. Until so surrendered or presented for transfer, each outstanding certificate which, prior to the Effective Time, represented Berkshire Gas Common Stock shall be deemed and treated for all corporate purposes to represent the ownership of the same number of Holdco Common Shares as though such surrender or transfer and exchange had taken place. The stock transfer books for the Berkshire Gas Common Stock shall be deemed to be closed at the Effective Time and no transfer of outstanding shares of Berkshire Gas Common Stock outstanding prior to the Effective Time shall be made thereafter on such books. ARTICLE VI CONDITIONS OF THE MERGER Consummation of the Merger is subject to the satisfaction of the following conditions: (a) The Merger shall have received the approval of the holders of each class of common stock outstanding and entitled to vote thereupon of each of the Constituent Corporations as required by Section 96 of Chapter 164 of the Massachusetts General Laws. (b) The issuance of Mergeco Common Stock and the Merger shall have been approved by the Massachusetts Department of Telecommunications and Energy as required by Chapter 164 of the Massachusetts General Laws and all other governmental agencies whose approval is necessary, appropriate or desirable. (c) The Holdco Common Shares to be issued and to be reserved for issuance pursuant to the Merger shall have been approved for trading on the NASDAQ National Market System. 51 (d) Rich, May, Bilodeau & Flaherty, P.C. or such other counsel as shall be acceptable to the Board shall have delivered an opinion, satisfactory to the Board of Directors of Berkshire Gas, with respect to the tax consequences of the Merger. ARTICLE VII AMENDMENT AND TERMINATION The parties hereto by mutual consent of their respective Boards of Directors may amend, modify or supplement this Agreement in such manner as may be agreed upon by them in writing, at any time before or after approval of this Agreement by the stockholders of Berkshire Gas; PROVIDED, HOWEVER, that no such amendment, modification or supplement shall, in the sole judgment of the Board of Directors of Berkshire Gas, materially and adversely affect the rights of the stockholders of Berkshire Gas. This Agreement may be terminated and the Merger and other transactions herein provided for abandoned at any time, whether before or after approval of this Agreement by the stockholders of Berkshire Gas, by action of the Board of Directors of Berkshire Gas if said Board of Directors determines for any reason that the consummation of the transactions provided for herein would for any reason be inadvisable or not in the best interests of Berkshire Gas or its stockholders. ARTICLE VIII EFFECTIVE TIME OF THE MERGER Subject to the prior satisfaction of the conditions of the Merger set forth in Article VI hereof and the authority to terminate this Agreement as set forth in Article VII hereof, the Constituent Corporations and Holdco shall do all such acts and things as shall be necessary or desirable in order to make the Effective Time occur as soon thereafter as practicable. ARTICLE IX ASSUMPTION OF BERKSHIRE GAS'S STOCK PLAN Holdco shall take all required action to assume Berkshire Gas's obligations under the Share Owner Dividend Reinvestment and Stock Purchase Plan. ARTICLE X MISCELLANEOUS This Agreement may be executed in counterparts, each of which when so executed shall be deemed to be an original, and such counterparts shall together constitute but one and the same instrument. IN WITNESS WHEREOF, Berkshire Gas, Mergeco and Holdco, pursuant to approval and authorization duly given by resolutions adopted by their respective Boards of Directors or Board of Trustees, have each caused this Agreement and Plan of Merger to be executed as of the date first written above by its President or one of its Vice Presidents and Treasurer or Assistant Treasurer and its corporate or common seal to be affixed hereto and attested by its Clerk or Secretary. 52 ATTEST: THE BERKSHIRE GAS COMPANY /s/ Cheryl M. Clark By: /s/ Scott S. Robinson - ----------------------------------- -------------------------------- Cheryl M. Clark, Clerk Name: Scott S. Robinson Title: President and Chief Executive Officer [THE BERKSHIRE GAS COMPANY SEAL] By: /s/ Michael J. Marrone -------------------------------- Name: Michael J. Marrone Title: Vice President, Treasurer and Chief Financial Officer ATTEST: BERKSHIRE GAS MERGECO GAS COMPANY, INC. /s/ Cheryl M. Clark By: /s/ Scott S. Robinson - ----------------------------------- -------------------------------- Cheryl M. Clark, Clerk Name: Scott S. Robinson Title: President and Chief Executive Officer [THE BERKSHIRE GAS MERGECO GAS By: /s/ Scott S. Robinson -------------------------------- COMPANY, INC. SEAL Name: Michael J. Marrone Title: Vice President and Treasurer ATTEST: BERKSHIRE ENERGY RESOURCES /s/ Cheryl M. Clark By: /s/ Scott S. Robinson - ----------------------------------- -------------------------------- Cheryl M. Clark, Secretary Name: Scott S. Robinson Title: President and Chief Executive Officer [BERKSHIRE ENERGY RESOURCES SEAL] By: /s/ Michael J. Marrone -------------------------------- Name: Michael J. Marrone Title: Vice President, Treasurer and Chief Financial Officer ANNEX I to Agreement and Plan of Merger ARTICLES OF MERGER 53 of THE BERKSHIRE GAS COMPANY (A Massachusetts Utility Corporation) and BERKSHIRE GAS MERGECO GAS COMPANY, INC. (A Massachusetts Utility Corporation) and BERKSHIRE ENERGY RESOURCES (A Massachusetts Business Trust) Pursuant to the provisions of Section 102A of Chapter 164 of the Massachusetts General Laws, the undersigned corporations adopt the following Articles of Merger for the purpose of merging Berkshire Gas Mergeco Gas Company, Inc. with and into The Berkshire Gas Company, which shall be the Surviving Corporation: 1. Attached hereto and incorporated herein by reference is the Agreement and Plan of Merger dated as of February __, 1998, of the undersigned corporations. The Surviving Corporation will furnish a copy of said agreement to any of its stockholders, or to any person who was a stockholder of a Constituent Corporation, upon written request and without charge. The Effective Time as defined therein is 5:00 P.M., Boston time on ____________, 1998. 2. The undersigned president or vice president and clerk or secretary or assistant clerk or secretary of each undersigned corporation hereby state under the penalties of perjury that the attached Agreement and Plan of Merger has been duly executed on behalf of such corporation and has been approved by the stockholders of such corporation and by the Department of Telecommunications and Energy of The Commonwealth of Massachusetts in the manner required by Section 96 of Chapter 164 of the Massachusetts General Laws. 3. The post office address of the initial principal office of the Surviving Corporation is 115 Cheshire Road, Pittsfield, Massachusetts 01201. 4. The name, residence and post office address of each of the initial directors and the chairman, president, treasurer and clerk of the Surviving Corporation are as follows:
POST OFFICE NAME TITLE RESIDENCE ADDRESS George R. Baldwin Director c/o 115 Cheshire Road Pittsfield, MA 01201 John W. Bond Director c/o 115 Cheshire Road 54 Pittsfield, MA 01201 Paul L. Gioia Director c/o 115 Cheshire Road Pittsfield, MA 01201 Franklin M. Hundley Chairman and c/o 115 Cheshire Road Director Pittsfield, MA 01201 James R. Keys Director c/o 115 Cheshire Road Pittsfield, MA 01201 Robert B. Trask Director c/o 115 Cheshire Road Pittsfield, MA 01201 Scott S. Robinson Director, 115 Cheshire Road President and Pittsfield, MA 01201 Chief Executive Officer Michael J. Marrone Vice President, 115 Cheshire Road Treasurer and Pittsfield, MA 01201 Chief Financial Officer Cheryl M. Clark Clerk 115 Cheshire Road Pittsfield, MA 02101
5. The fiscal year of the Surviving Corporation initially adopted shall end on the last day of the month of June in each year. 6. The date and time initially fixed in the Bylaws for the annual meeting of the stockholders of the Surviving Corporation is 10:00 a.m. on the second Wednesday in November of each year. IN WITNESS WHEREOF, Berkshire Gas, Mergeco and Holdco, pursuant to approval and authorization duly given by resolutions adopted by their respective Boards of Directors or Board of Trustees, have each caused these Articles of Merger to be executed by its president or one of its vice presidents and its clerk or one of its assistant clerks. Dated: _________________ THE BERKSHIRE GAS COMPANY By: ______________________________ Name: Scott S. Robinson Title: President and Chief Executive Officer By: _____________________________ Name: Cheryl M. Clark Title: Clerk BERKSHIRE GAS MERGECO GAS COMPANY, INC. 55 By: _________________________ Name: Scott S. Robinson Title: President and Chief Executive Officer By: _____________________________ Name: Cheryl M. Clark Title: Clerk BERKSHIRE ENERGY RESOURCES By: _____________________________ Name: Scott S. Robinson Title: President and Chief Executive Officer By: _____________________________ Name: Cheryl M. Clark Title: Secretary EX-3 3 EXHIBIT 3.1.1 DECLARATION OF TRUST APPENDIX B DECLARATION OF TRUST OF BERKSHIRE ENERGY RESOURCES Dated February 17, 1998 TABLE OF CONTENTS 1. NAME; PURPOSE 1 2. DEFINITIONS 1 3. LIMITATIONS ON LIABILITY 2 4. NONASSESSABILITY OF SHAREHOLDERS 2 5. RELIANCE OF THIRD PERSONS 3 56 6. PLACE OF BUSINESS 3 7. TRUST ESTATE; CONVERSION INTO PERSONAL ESTATE 3 8. POWERS OF TRUSTEES 3 9. NUMBER AND ELECTION 8 10. RESIGNATION; VACANCIES; REMOVALS 9 11. VESTING IN NEW TRUSTEES 10 12. COMPENSATION 10 13. UNISSUED SHARES 10 14. DETERMINATION OF CAPITAL AND INCOME 10 15. DIVIDENDS 10 16. FISCAL YEAR; ACCOUNTS 11 17. ACTION BY BOARD; QUORUM 11 18. BY-LAWS 11 19. CERTIFICATE EVIDENCING VOTES 11 20. TRUSTEES AND OFFICERS 12 21. LIABILITY 12 22. BOOKS AND REPORTS 12 23. ADVANCE OF EXPENSES 12 24. RIGHTS NOT EXCLUSIVE; DEFINITIONS 13 25. SHAREHOLDERS 13 26. SHAREHOLDERS, TRUSTEES, OFFICERS AND AGENTS 13 27. AUTHORIZATION OR RATIFICATION BY SHAREHOLDERS 13 28. NUMBER; NONASSESSABLE 14 29. SHARES PERSONAL PROPERTY; TRUST ONLY 14 30. RIGHTS OF SHAREHOLDERS; LIMITATION ON RIGHTS OF ACTION 15 31. ADDITIONAL SHARES 15 32. PREFERRED SHARES 15 33. ALL OTHER CHANGES IN SHARES 15 34. CONSIDERATION FOR ISSUE 15 35. NO PREEMPTIVE OR PREFERENTIAL RIGHTS OF SUBSCRIPTION 15 36. TREASURY SHARES 16 37. TRANSFER BOOKS 16 38. TRANSFER AGENT 16 39. SHARE CERTIFICATES 16 40. LOST, STOLEN OR DESTROYED SHARE CERTIFICATES 16 41. TRANSFER OF SHARES 16 42. TRANSFERS BY OPERATION OF LAW 17 43. JOINT OWNERS 17 44. NO DUTY TO EXAMINE INTO TRUSTS, PLEDGES, ETC., TO WHICH SHARES ARE SUBJECT 17 45. ANNUAL MEETING 17 46. SPECIAL MEETINGS 18 47. PRESIDING OFFICER 18 48. BUSINESS TO BE TRANSACTED 18 49. NOTICES 18 50. VOTING; QUORUM 18 51. ADJOURNMENT OF MEETING 19 52. REQUISITE VOTE TO ACT 19 53. RECORD DATE FOR VOTING, DIVIDENDS AND OFFERINGS 19 54. DURATION OF TRUST 20 55. DEATH OF SHAREHOLDER OR TRUSTEE NOT TO TERMINATE TRUST 20 56. TERMINATION; COMBINATION; AFFILIATION 20 57. CERTAIN TRANSACTIONS 20 58. AMENDMENTS 23 59. CERTIFICATE OF TERMINATION OR AMENDMENT 24 60. DISPOSITION OF TRUST ESTATE ON TERMINATION 24 61. FILING 25 57 62. PROTECTION OF COMPANY, STOCK OF WHICH HELD BY TRUST 25 63. AUTHORITY OF THE TRUSTEES TO CONSTRUE TERMS HEREOF 25 64. EFFECT OF CAPTIONS AND TABLE OF CONTENTS 25 65. COUNTERPARTS 25 66. GOVERNING LAW 25 67. PROVISIONS IN CONFLICT WITH LAW OR REGULATIONS 25 DECLARATION OF TRUST OF BERKSHIRE ENERGY RESOURCES THIS DECLARATION OF TRUST made this 17th day of February, 1998 at Pittsfield, in Berkshire County, The Commonwealth of Massachusetts, by and between Scott S. Robinson of 741 East Street, Lenox, MA 01240, Michael J. Marrone of Colonial Acres, Rural Route #3, Pittsfield, MA 01201, and Cheryl M. Clark of 1645 Dublin Road, Richmond, MA 01254, and those who shall hold certificates of shares to be issued hereunder. 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 Scott S. Robinson, Michael J. Marrone and Cheryl M. Clark, 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 Berkshire Energy Resources 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 forgoing enumerated areas, that a corporation organized under the Business Corporation Law of The Commonwealth of Massachusetts could carry on. DEFINITIONS 58 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" mean 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 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" mean the transferable share or shares of beneficial interest provided for in Article 29 and include 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 whatever 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 59 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 in pursuance of 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 same in a successor Trustee or providing evidence of such vesting independently of such removal, resignation or appointment, shall, as to the property comprised in 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 115 Cheshire Road, Pittsfield, MA 01201, 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 the Trustees. 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 comprised in 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. 60 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 company, syndicate or joint undertaking, 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 company, syndicate or joint undertaking, or comprised of 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 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, 61 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 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 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 62 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; (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 Trustees in connection with the Trust estate, or upon or against the Trust estate or any part thereof; (l) ESTABLISH SURPLUS FUNDS. To set apart, from time to 63 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, 64 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 and retired employees of the Company or of any of its subsidiaries; (r) PARTNERSHIPS AND OTHER VENTURES. 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 AND DISPOSE OF PROPERTY AND RIGHTS. To purchase, acquire, hold, utilize, lease, carry on, sell, exchange and dispose of any other business or 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 RIGHTS OR OPTIONS. 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 may 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, 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 65 other instruments of transfer of real or other property may be executed by any officer of the Company on behalf of the Trustees. 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 The Berkshire Gas Company (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 three nor more than nine, divided into classes and elected for terms as set forth below, 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 at any time or from time to time to any number not more than nine either by the Shareholders or by the Trustees by vote of a majority of the Trustees then in office. The number of Trustees may be decreased to any number not less than three at any time or from time to time either by the Shareholders or by the Trustees by a vote of a majority of the Trustees then in office, but only to eliminate vacancies existing by reason of the death, resignation or removal of one or more Trustees. No decrease in the number of Trustees should shorten the term of any Trustee. 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 first Trustees of the Company shall consist of the directors of The Berkshire Gas Company divided into the same three classes. 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 66 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 75% of the shares issued and outstanding and entitled to vote generally in the election of Trustees; provided, however, that such 75% vote shall not be required for any alteration, amendment or repeal that has been recommended by two-thirds vote 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 secretary 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 then in office. 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 75% of the shares issued and outstanding and entitled to 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 or providing evidence of such vesting independently of such election or appointment. 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 acting hereunder. 12. COMPENSATION. Each Trustee shall receive such reasonable compensation as the Trustees may determine, and shall not be limited by any 67 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 are 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. 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 signed by all of the Trustees. At any meeting of the Trustees, a majority of the Trustees then in office shall constitute a quorum. 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. BY-LAWS. The Trustees may by vote of a majority of the Trustees 68 then in office, make and from time to time amend, add to or rescind by-laws for the Company (the "By-laws"). The By-laws 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 secretary 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 secretary or any assistant or temporary secretary, 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 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. 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 69 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 in this declaration of trust contained, a Trustee shall not be liable to the Company or any Shareholder for monetary damages for breach of fiduciary duty as a Trustee. 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. 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 70 against, all loss, liability or expense by reason of such liability. INTERESTED TRUSTEE, 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 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) 10,000,000 common shares all of the same class, without par value, and (ii) 1,000,000 preferred shares, each with a par value of one hundred dollars ($100.00) and 71 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. 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 72 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 them by such vote or as provided in Article 28. 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 performed by transfer agents and registrars of certificates of stock in a corporation, except as modified by the Trustees. 73 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 shares 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 74 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 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 such date as shall be established in the By-laws of the Company or 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 as 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 secretary, or in the case of the death, incapacity or refusal of the secretary, 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, a vice president or the treasurer shall preside at the meeting of the Shareholders. 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 secretary or any assistant secretary 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 75 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 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 secretary 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 placing of a shareholder's name on a proxy pursuant to telephonic or electronically transmitted instructions obtained pursuant to procedures reasonably designed to verify that such instructions have been authorized by such shareholders shall constitute execution of such proxy by or on behalf of such 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 76 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 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, company, corporation or other 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 77 addition to any affirmative vote required by law or otherwise in this declaration of trust, and except as otherwise expressly provided in 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 (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 seventy-five percent (75%) of the then outstanding Voting Shares, provided that the 78 75% voting requirement shall not be applicable to the approval by the Company's shareholders of a Business Transaction (as hereinafter defined) authorized by a two-thirds vote of the Trustees. The provisions of this Section A of this Article 57 shall also 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. 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. 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. (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, or (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 79 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 "Voting Shares" means all Capital Stock which by its terms may be voted generally in the election of Trustees of the Company. (9) 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 successor of a Disinterested Trustee, is not an Affiliate or Associate or representative of the Interested Shareholder and is recommenced or elected to succeed the Disinterested Trustee by a majority of the Disinterested Trustees. D. 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 80 person, and (3) whether a person is an Affiliate or Associate of another. E. 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. F. 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 in this declaration of trust), the affirmative vote of the holders of 75% of the then outstanding Voting Shares shall be required to alter, amend or repeal this Article 57; PROVIDED, HOWEVER, that this Section F shall not apply to, and such 75% vote shall not be required for, any alteration, amendment or repeal recommended by a two-thirds vote of the Trustees. 58. AMENDMENTS. The 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, 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 75% 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 75% vote shall not be required for any alteration, amendment or repeal adopted or recommended by 75% 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 81 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 secretary or any assistant secretary 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. 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 82 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. *** IN WITNESS WHEREOF we have hereunto set our hands and seals at Pittsfield in The Commonwealth of Massachusetts on the date first above mentioned. /s/ Scott S. Robinson ------------------------------------ Scott S. Robinson /s/ Michael J. Marrone ------------------------------------ Michael J. Marrone 83 /s/ Cheryl M. Clark ------------------------------------ Cheryl M. Clark COMMONWEALTH OF MASSACHUSETTS COUNTY OF BERKSHIRE, SS. February 17, 1998 Then personally appeared before me the above-named Scott S. Robinson, Michael J. Marrone and Cheryl M. Clark, and severally acknowledged the foregoing instrument to be their free act and deed. WITNESS MY HAND and official seal at Pittsfield, Massachusetts. NOTARIAL SEAL /s/ James M. Avery ------------------------------------ James M. Avery, Notary Public My commission expires: March 8, 2002 Notary Public in and for The Commonwealth of Massachusetts EX-3 4 EXHIBIT 3.1.2 BY-LAWS EXHIBIT 3.1.2 APPENDIX C BY-LAWS OF BERKSHIRE ENERGY RESOURCES 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 Berkshire Energy Resources dated February __, 1998, as the same shall be amended from time to time. These By-laws 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 84 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 secretary not less than 14 days nor more than 50 days prior to any meeting of the Shareholders called for the election of Trustees. 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. INSPECTORS. The annual election of Trustees, and of such other officers as may be required to be elected by the Shareholders, shall be conducted by two inspectors appointed by the presiding officer of the meeting, which inspectors shall be duly sworn, and shall in writing certify to the returns. No person who is a candidate for any of the offices to be filled by such election shall act as inspector, judge or clerk of such an election. 2.3. 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 signed by all of the Trustees. 2.4. 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. 2.5. SPECIAL MEETINGS. A special meeting of the Trustees may be held at any time and at any place when called by the chairman, president, secretary or three or more Trustees, by giving to each of the Trustees reasonable notice thereof. 2.6. ADJOURNMENTS OF MEETINGS. If the holders of the amount of shares necessary to constitute a quorum shall fail to attend in person or by proxy at the place, day and hour set by notice for any meetings of the Shareholders, a majority in interest of the Shareholders present in person or by proxy may adjourn from time to time, without notice other than by announcement at the meeting, until holders of the amount of shares requisite to constitute a quorum shall attend in person or by proxy. 2.7. NOTICE. Without implied limitation, a notice thereof, mailed prepaid, addressed to any Trustee, at his or her usual address, and posted in the Commonwealth of Massachusetts, or where the principal office of the Company 85 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. 2.8. VOTING. All elections for Trustees shall be by written ballot, and the polls at every such election shall remain open as long as may be reasonably necessary to permit all Shareholders present in person or by proxy to cast their votes. On other matters, upon which Shareholders shall be entitled to vote, voting may be oral. 2.9. PROXY. The person entitled to vote any share of the Company may delegate his power to vote that share by a proxy, signed by the person, or by the holder of his or her duly authorized and executed power of attorney. Such proxy shall be valid for not more than three years from its date. The proxy must be delivered to the secretary of the Company before the time when it is to be used. 2.10. 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 secretary or any assistant or temporary secretary, shall be conclusive evidence of the matters therein stated. 2.11. 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. 2.12. COMMITTEES. The Trustees shall, by a vote of the majority of the Trustees then in office, elect from their number an Executive Committee as described in Section 2.13. 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. 2.13. EXECUTIVE COMMITTEE. The Executive Committee shall consist of three of the members of the Trustees, which three members shall include the Chairman of the Trustees, which shall fix its own rules of proceedings and shall meet where and as provided by such rules of proceeding or by resolution of the Trustees, and at every meeting the presence of a majority shall be necessary to constitute a quorum. All action by the Executive Committee shall be reported to the Trustees at its meeting next succeeding such action. The Chairman of the Trustees shall be Chairman of the Executive Committee and preside at its meetings. During the intervals between the meetings of the Trustees, the Executive Committee shall possess 86 and may exercise all the powers of the Trustees in the management and direction of the business and conduct the affairs of the Company, in such manner as the Executive Committee shall deem best for the interest of the Company, except the election of Trustees and members of the Executive Committee and the declaration of dividends. Section 3. OFFICERS AND AGENTS 3.1. ENUMERATION; QUALIFICATION. The officers of the Company shall be a president, a treasurer and a secretary 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 secretary 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 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 secretary 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 By-laws, 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 secretary shall be elected annually by the Trustees at their first meeting following the annual meeting of the stockholders. 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 secretary becomes vacant, the Trustees may elect a successor by 87 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 secretary 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 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. 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. SECRETARY AND ASSISTANT SECRETARIES. The secretary shall record all proceedings of the Shareholders 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 secretary and shall be open at all reasonable times to the inspection of any shareholder. In the absence of the secretary from any meeting of Shareholders, an assistant secretary, or if there be none or the assistant secretary be absent, a temporary secretary chosen at the meeting, shall record the proceedings thereof in the aforesaid book. Unless a transfer agent has been appointed, the secretary 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 shares held by each. The secretary shall keep a true record of the proceedings of all meetings of the Trustees and in the secretary's absence from any such meeting an assistant secretary, or if there be none or the assistant secretary is absent, a temporary secretary chosen at the meeting, shall record the proceedings thereof. Any assistant secretary 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. 88 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. 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 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. Section 5. COMMON SEAL The seal of the Company shall bear the inscription: BERKSHIRE ENERGY RESOURCES -- 1998 -- Massachusetts. It may, at any time, be changed by resolution of the Trustees. 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 the same, the fiscal year shall begin on the first day of July 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. 89 Section 9. AMENDMENTS These By-laws 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 this trust requires action by the Shareholders. EX-5 5 EXHIBIT 5.1 OPINION EXHIBIT 5.1 OPINION OF RICH, MAY, BILODEAU & FLAHERTY, P.C. AS TO LEGALITY [RICH, MAY, BILODEAU & FLAHERTY, P.C. LETTERHEAD] February 24, 1998 Berkshire Energy Resources 115 Cheshire Road Pittsfield, MA 01201-1879 Re: Issuance of Shares of Beneficial Interest in Connection with the Formation of a Holding Company Structure for The Berkshire Gas Company Ladies and Gentlemen: At your request, we have examined the Registration Statement on Form S-4 (the "Registration Statement") in the form being filed by Berkshire Energy Resources, a Massachusetts business trust ("Holdco"), with the Securities and Exchange Commission relating to the registration under the Securities Act of 1933, as amended, of up to 2,385,252 shares of beneficial interest of Holdco (the "Holdco Common Shares") in connection with a merger that will cause Holdco to become the parent holding company of The Berkshire Gas Company, a Massachusetts gas company. We have acted as counsel for Holdco in connection with the proposed issue and sale of the Holdco Common Shares. We are familiar with the proceedings taken by Holdco in respect thereof and have examined originals or certified or attested copies of such certificates, records and documents as we have deemed necessary for the purposes of this opinion. Basing our opinion on the foregoing, we are of the opinion that: (1) Holdco is a business trust validly organized and existing under the laws of the Commonwealth of Massachusetts and is duly qualified to carry on the business which it is now conducting; 90 and (2) When the Registration Statement has been declared effective, the issuance of the Holdco Common Shares has been duly authorized by appropriate corporate action and by appropriate action of regulatory authorities having jurisdiction, including the Massachusetts Department of Telecommunications and Energy, and the Holdco Common Shares have been issued in accordance with the terms of the Registration Statement, including the Agreement and Plan of Merger constituting APPENDIX A to the Proxy Statement/Prospectus contained in the Registration Statement, the Holdco Common Shares will be validly issued, fully paid and non-assessable. We express no opinion as to matters of law in jurisdictions other than the Commonwealth of Massachusetts and the federal law of the United States, and express no opinion as to the applicability of the so-called "blue sky" or securities laws of the several states, including Massachusetts. We understand that this opinion is to be used in connection with the above-referenced Registration Statement and consent to the filing of this opinion with and as part of said Registration Statement and the use of our name therein and in the related Proxy Statement/Prospectus under the captions "Legal Opinions" and "Experts." Very truly yours, /s/ Rich, May, Bilodeau & Flaherty, P.C. __________________________________ Rich, May, Bilodeau & Flaherty, P.C. EX-8 6 EXHIBIT 8.1 FORM OF OPINION EXHIBIT 8.1 FORM OF OPINION OF RICH, MAY, BILODEAU & FLAHERTY, P.C. [RICH, MAY, BILODEAU & FLAHERTY, P.C. LETTERHEAD] ________ __, 1998 The Berkshire Gas Company 115 Cheshire Road Pittsfield, MA 01201-1879 Re: Certain Federal Income Tax Consequences in Connection with the Formation of a Holding Company Structure for The Berkshire Gas Company 91 Ladies and Gentlemen: We have acted as counsel to The Berkshire Gas Company, a Massachusetts gas company ("Berkshire Gas"), in connection with the contemplated formation of a holding company structure for Berkshire Gas and a related Agreement and Plan of Merger (the "Merger Agreement") among Berkshire Gas, Berkshire Energy Resources, a Massachusetts business trust formed by Berkshire Gas ("Holdco"), and Berkshire Gas Mergeco Gas Company, Inc., a Massachusetts gas company ("Mergeco"). All capitalized terms used herein, unless otherwise specified, have the meanings assigned to them in the Merger Agreement. In rendering this opinion, we have examined and relied upon (without any independent investigation or review thereof) the accuracy and completeness of the facts, information, covenants and representations contained in originals or copies, certified or otherwise identified to our satisfaction, of the Merger Agreement, the Registration Statement on Form S- 4 filed by Holdco with the Securities and Exchange Commission (the "Registration Statement"), and such other documents as we have deemed necessary or appropriate as a basis for the opinion set forth below. In addition, we have relied upon certain statements and representations made by executives of Berkshire Gas, as well as other statements, representations and assumptions. Our opinion is conditioned on, among other things, the initial and continuing accuracy of such facts, information, covenants, representations and assumptions. In our examination, we have assumed the genuineness of all signatures, the legal capacity of natural persons, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified or photostatic copies, the authenticity of the originals of such documents and that there has been (or will be by the Effective Time of the Merger) due execution and delivery of all documents where due execution and delivery are prerequisites to effectiveness thereof. We have assumed that the Merger will be consummated pursuant to applicable state law in accordance with the Merger Agreement and as described in the Registration Statement. We have also assumed that any representation or statement made "to the best of knowledge" or similarly qualified is correct without such qualification. As to all matters in which a person or entity making a representation referred to above has represented that such person or entity either is not a party to, does not have, or is not aware of, any plan or intention, understanding or agreement, we have assumed that there is in fact no such plan, intention, understanding or agreement. Based upon and subject to the foregoing, we are of the opinion that the Merger will be tax-free under section 351 of the Internal Revenue Code of 1986, as amended (the "Code"). As a result: 1. No gain or loss will be recognized by the holders of Berkshire Gas Common Stock upon the exchange of their shares of Berkshire Gas Common Stock solely for Holdco Common Shares pursuant to the Merger. 2. The tax basis of the Holdco Common Shares received pursuant to the Merger will be the same as the basis of the shares of Berkshire Gas Common Stock exchanged therefor. 3. The holding period for Holdco Common Shares received pursuant to the Merger will include the period that the shares of Berkshire Gas Common 92 Stock exchanged therefor were held by the holder, provided such shares were a capital asset of the holder. Our opinion is based upon the Code, Treasury Regulations, Internal Revenue Service rulings, judicial decisions, and other applicable authority, all as in effect on the date of this opinion. The legal authorities on which this opinion is based may be changed at any time. Any such changes may be retroactively applied and could modify the opinions expressed above. We disclaim any obligation to notify you or any other person after the date hereof if any change in fact and/or law should change our opinion with respect to any matters set forth herein. This opinion does not address any tax considerations under foreign, state or local laws, or any special tax considerations applicable to certain holders of Berkshire Gas Common Stock in light of their particular circumstances, including persons who are not United States persons, dealers in securities, tax-exempt entities, and stockholders who do not hold Berkshire Gas Common Stock as "capital assets" within the meaning of Section 1221 of the Code. This opinion is rendered solely for your benefit and for the benefit of holders of Berkshire Gas Common Stock and shall not be relied upon, circulated or quoted, in whole or in part, by any other party and shall not be referred to in any report or document furnished to any other party without our prior written consent. We hereby consent, however, to the inclusion of this opinion as an exhibit to the Registration Statement and the reference to this firm under the caption "Certain Federal Income Tax Consequences" therein. Very truly yours, Rich, May, Bilodeau & Flaherty, P.C. EX-13 7 EXHIBIT 13.1 ANNUAL REPORT ON FORM 10-K EXHIBIT 13.1 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K (Mark One) [X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (Fee required) For the fiscal year ended June 30, 1997 or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (No fee required) For the transition period from ________________ to _______________ 93 Commission File Number 0-1857-3 ---------- The Berkshire Gas Company - ------------------------------------------------------------------------------- (Exact Name of Registrant as Specified in Its Charter) Massachusetts 04-1731220 - ------------------------------------- ------------------------------------- (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 115 Cheshire Road, Pittsfield, MA 01201-1879 - ---------------------------------------- ---------------------------------- (Address of Principal Executive Offices) (Zip Code) (413) 442-1511 - ------------------------------------------------------------------------------- (Registrant's Telephone Number, Including Area Code) Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class on Which Registered ------------------- --------------------- ___________________ _____________________ Securities registered pursuant to Section 12(g) of the Act: Common Stock, Par Value $2.50 Per Share - ------------------------------------------------------------------------------- (Title of Class) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Aggregate market value of shares of Common Stock, $2.50 par value of the Registrant held by non-affiliates as of July 31, 1997 was $33,005,685. Total shares of common stock of the Registrant outstanding as of July 31, 1997 were 2,221,606. 94 Documents Incorporated by Reference: 1. The Berkshire Gas Company's Annual Report to Shareholders for the fiscal year ended June 30, 1997 (Items 5, 6, 7, and 8 of Part II). 2. The Berkshire Gas Company's definitive Proxy Statement, to be filed on October 3, 1997, pursuant to Regulation 14A under the Securities and Exchange Act of 1934 (Items 10, 11, 12 and 13 of Part III). FORM 10-K THE BERKSHIRE GAS COMPANY PART I ------ Table of Contents
Item Page Number Number ------ ------ Business 1 3 Properties 2 12 Legal Proceedings 3 12 Submission of Matters to a Vote of Security Holders 4 12 Additional Items - 13 (Executive Officers of the Registrant) PART II ------- Market For Registrant's Common Equity and Related Stockholder Matters 5 14 Selected Financial Data 6 14 Management's Discussion and Analysis of Financial Condition and Results of Operations 7 14 Financial Statements and Supplementary Data 8 14 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 9 14 PART III -------- Directors and Executive Officers of the Registrant 10 15 Executive Compensation 11 15 Security Ownership of Certain Beneficial Owners and Management 12 15 Certain Relationships and Related Transactions 13 15 PART IV ------- Exhibits, Independent Auditors' Report on Supplemental Schedules, Financial Statement Schedules, and Reports on Form 8-K 14 16
95 FORM 10-K THE BERKSHIRE GAS COMPANY PART I ------ Item I. Business - ---------------- General The Berkshire Gas Company ("the Company") was incorporated in the Commonwealth of Massachusetts in 1853 and is a publicly-held utility engaged in the distribution and sale of natural gas for residential, commercial and industrial use. The Company also has an appliance rental division that sells and leases gas burning equipment. Through its Berkshire Propane division, the Company markets liquefied petroleum gas. Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995 This Annual Report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those contemplated by such statements. Such statements reflect management's current views, are based on many assumptions and are subject to risks and uncertainties. Certain important factors which could cause such results to differ include risks associated with the Company's maintaining contracts with specific customers, government regulation, the increasingly competitive nature of the markets in which the Company is engaged, and dependence on key personnel. These factors are not intended to represent a complete list of the general or specific risks that may affect the Company. Territory Served The Company's utility service territory includes 19 communities in the western portion of the Commonwealth of Massachusetts, including the cities of Pittsfield and North Adams, the towns of Adams, Amherst, Great Barrington, Greenfield and Williamstown, and twelve smaller municipalities. The population of the area served is estimated at 190,000 and is primarily residential in character, but the territory also includes industrial, agricultural, educational, cultural and resort facilities. The Company also markets propane throughout the western portion of Massachusetts, eastern New York and southern Vermont. The Company currently serves over 32,000 natural gas and 5,000 propane customers. Customers The largest group of natural gas customers is the residential class. During the fiscal years ended June 30, 1997, 1996 and 1995, residential consumers accounted for approximately 55%, 54% and 53%; commercial and industrial consumers accounted for 40%, 42% and 44%; and transportation consumers accounted for approximately 5%, 4% and 3% of operating revenues respectively. Although transportation consumers account for a small percentage of revenues, they account for approximately 37%, 19%, and 34% of pre-tax income for fiscal years 1997, 1996 and 1995, respectively. Net income could be 96 impacted by the loss of one or more significant transportation consumers, who are all under contracts. The number of natural gas customers increased 1.2% in 1997 over 1996, from 32,129 to 32,526, both in the residential heating class as well as commercial and industrial classes. Total Mcf sold and transported increased from 8,075,347 Mcf in 1996 to 8,079,811 in 1997, due to an increase in load from the commercial and industrial segment. Total natural gas customers by classification at June 30 in each of the previous five years were:
1997 1996 1995 1994 1993 ------ ------ ------ ------ ------ Residential 28,321 28,073 27,894 27,524 27,199 Commercial & Industrial 4,205 4,056 4,031 3,921 3,854
Competition Implementation of the Federal Energy Regulatory Commission's ("FERC") Order 636 has increased the potential for competition in gas procurement, supply and sale. FERC's actions have sought to encourage competition and natural gas market efficiency through deregulation and "unbundling of services" at the interstate pipeline level. This unbundling has changed the historical relationships, whereby producers sold to pipelines, pipelines sold to local distribution companies ("LDCs") such as Berkshire Gas and LDCs sold to end-users. Now LDCs or end-users may utilize pipeline services primarily for the transportation of gas purchased from third parties. While historically the Company has been subject to competition from electricity, oil, propane, coal and other fuels for heating, water heating, cooking, air conditioning and industrial applications, the regulatory changes have created the competition among existing and new suppliers or marketers of natural gas. As a result, the Company is subject to increasing competition from others to sell natural gas or provide brokerage service to end-users to whom the Company might otherwise have made sales or provided brokerage service. Large volume end-users are initially most likely to be the primary target for third parties seeking to make such sales. When third parties do, in fact, provide a substantial volume of sales or brokerage service to end-users located within the Company's service territory, the Company will provide the local transportation across its distribution system for such third party sales. At the current time, however, limited third party sales have occurred in the Company's service territory. Similar opportunities exist for the Company to market gas to new or existing customers, whether or not they are located within the Company's service territory. Rates and Regulations The Company is subject to the regulatory authority of the Massachusetts Department of Public Utilities ("MDPU") with respect to various matters, including rates, financing, certain gas supply contracts, demand-side management programs and planning and safety matters. The principal rate classifications are residential, commercial and 97 industrial. The Company also offers five Quasi-Firm transportation rates for large end-users as well as interruptible sales and transportation service. The Company's rate structure is based on the cost of providing service to each customer class. Current rates became effective January 1, 1994 through a recalculation of a prior rate increase granted by the MDPU in March 1993. On May 15, 1995, the Company filed with the MDPU a change in its Transportation Terms and Conditions to coordinate its balancing and penalty practices with pipeline standards. At the same time, the Company requested revisions to its Interruptible Transportation Rate and its five Quasi-Firm Transportation Rates to be consistent with these new Terms and Conditions. On June 28, 1996, the MDPU approved the Company's revised Interruptible Transportation Rate and on November 1, 1996, the proposed Terms and Conditions and Quasi-Firm Transportation Rates became effective. The Company's residential rates are designed separately for heating and non-heating purposes. Additionally, for the Company, like most other utility companies in Massachusetts, subsidized rates are available to residential customers who qualify for certain government entitlements. These customers receive a 20% discount from the standard residential rates. The commercial and industrial rates are based on load factor; that is, the cost is based on how much gas is consumed and when it is consumed. Those customers who use more than 30% of their annual usage in the summer are considered high load factor; those using less than 30% of their annual usage during the summer season are considered low load factor. There are seven classifications of load factor rates. The current firm rate structure is based on seasonal rates, whereby base rates are higher in the winter (November through April) and lower in the summer (May through October). In addition to the base rates, the Company has a seasonal Cost of Gas Adjustment Clause ("CGAC") rate schedule, pursuant to which the Company recovers (primarily variable) gas costs. Charges under the CGAC rate schedule are added to the base rates and are designed to recover higher gas costs in the winter and refund lower gas costs in the summer. The Company also provides several non-firm and special rates to meet the varying needs of large customers. These rates include Interruptible Sales Service whereby a customer is capable of either ceasing operations or switching to an alternate fuel. Five Quasi-Firm Transportation Rates are available for large end-users and provide firm transportation and optional standby service for less than twelve months. Additionally, a Load Management Rate is available for nonresidential customers who agree to reduce demand to a predetermined minimum level on peak days. Finally, the Company makes sales to primarily larger customers under special contracts that reflect charges, levels, and terms of service different from those under generally available tariffs. Often arrangements of this nature are made to meet competitive challenges. Such contracts must be approved by the MDPU on an individual case basis. The Company is also subject to standards prescribed by the Secretary of Transportation under the Natural Gas Pipeline Safety Act of 1968 with respect to the design, installation, testing, construction and maintenance of pipeline facilities. The enforcement of these standards has been delegated to the MDPU which has taken an active role in such enforcement, including the application of civil penalties and the requirement of remedial programs. The regulation of prices, terms and conditions of interstate pipeline transportation and sales of natural gas is subject to the jurisdiction of FERC. The Company is not under the direct jurisdiction of FERC, but monitors, and 98 periodically participates in, proceedings before FERC which involve the Company's pipeline gas suppliers/transporters, the Company's operations, and other matters pertinent to the Company's business. (See also "Competition".) Environmental Matters Federal, state and local laws and regulations establishing standards and requirements for protection of the environment have increased in number and scope in recent years. The Company cannot predict the future impact of such standards and requirements, which are subject to change and can have retroactive effect. During fiscal 1990, the MDPU issued a generic ruling on cost recovery for environmental cleanup costs with respect to former gas manufacturing sites. Under the ruling, the Company will recover, excluding carrying costs, the prudently incurred annual cleanup costs over a seven-year period through the CGAC. This ruling also provides for the sharing of any proceeds received from insurance carriers equally between the Company and its ratepayers, and establishes maximum amounts that can be recovered from customers during any one year. During the year ended June 30, 1997, the Company continued the analysis and field review of two parcels of real estate formerly used for gas manufacturing operations, which had been found to contain coal tar deposits and other substances associated with by-products of the gas manufacturing process. The review and assessment process began in 1985 with respect to the first site, which is owned by the Company, and in 1989 with respect to the second site which was formerly owned by the Company. With the review and approval by the Massachusetts Department of Environmental Protection ("MDEP"), at one site, the investigative activities are continuing, while at the second site, the investigative work is near completion and remedial alternatives are being examined. It is difficult to predict the potential financial impact of required remediation of a site until first, the nature and risk is fully characterized, and second, the remedial strategies and related technologies are determined. The general philosophy of the Company is one of source removal and/or reduction coupled with risk minimization. Assuming successful implementation, it is anticipated that, through 2012, the level of expenditure for the sites will range from $3,290,000 to $12,302,000. The Company has recorded the most likely amount of $3,290,000 in accordance with SFAS No. 5. Ultimate expenditures cannot be determined until a remedial action plan can be developed and approved by MDEP. The Company's unamortized costs at June 30, 1997, (which are not included in the above estimate of future costs), were $819,000 and should be recovered using the formula discussed above. Seasonality The Company's business has a distinct seasonal quality because a large percentage of its sendout serves residential and commercial heating loads. Gas operating revenues reflect the seasonal nature of the business. Such revenues are affected by temperature variations between the heating and non-heating seasons and by seasonal pricing differentials embodied in the Company's effective schedule of rates and charges for gas services. (See also "RATES AND REGULATIONS"). Employee Relations The Company has 153 employees, approximately 54% of whom are represented 99 by the United Steelworkers of America, AFL-CIO-CLC, under a contract which remains in effect until March 31, 2000. Relations with employees are generally satisfactory. Gas Supply In 1992, the FERC issued Order 636 which restructured interstate natural gas pipeline services. Order 636 required that interstate pipeline companies unbundle (i.e., separate) their sales, transportation and storage services and provide all transportation services on a basis that was equal in quality for gas supplies whether purchased from the pipeline or from any gas supplier. During fiscal 1994, the Company completed its conversion of firm supply contracts from its interstate pipeline supplier, Tennessee, to third party suppliers as mandated by Order 636. The Company's purchases of natural gas under contracts lasting more than one year are subject to the approval of the MDPU. The Company's portfolio of firm natural gas contracts consists of Aquila Energy Marketing (2,683 Mcf/day); Boundary Gas (1,050 Mcf/day); Natural Gas Clearinghouse ("NGC") "Cosmic" (2,682 Mcf/day) and NGC "636"(4,920 Mcf/day); and Tenngasco Corporation("TC")(7,599 Mcf/day). The remaining terms of the Company's gas supply contracts range from approximately four years to six years. Under the terms of a fuel purchase agreement executed with Altresco, Inc. on December 11, 1992, the Company is entitled to receive gas peaking service of up to 7,310 Mcf per day during the Winter Period of November 1 through March 31 of each year (not to exceed 307,018 Mcf for each Winter Period) and back-up gas supplies of up to 30,702 Mcf per day in the event of proration or curtailment of firm gas supplies (including propane). In addition, the Company executed two contracts with Distrigas of Massachusetts Corporation ("DOMAC") which entitled the Company to receive up to 5,409 Mcf per day of vaporized Liquified Natural Gas ("LNG"). These contracts are renewable from year to year. The Company estimates that its supply of natural gas and supplemental sources under contract are adequate to meet the anticipated needs of the Company's customers for the foreseeable future. The annual sources of supply are as follows: firm long-haul pipeline natural gas, including storage gas, 8,459,574 Mcf; natural gas peaking service (Altresco), 307,000 Mcf; ("DOMAC") 1,920,995 Mcf; and Liquefied Petroleum Gas, 13,800 Mcf (daily capability). Additional pipeline supplies designated as "best efforts" or "interruptible" are available from time to time, but are subject to daily curtailment at the suppliers'/transporters' discretion. The Company has five Liquefied Petroleum Gas ("LPG") plants and one temporary portable LNG vaporizing unit which are utilized on peak days to supplement the pipeline natural gas supply. By supplementing its natural gas supply with LPG, the Company is able to meet its customers' requirements during peak periods. The Company's pipeline deliveries combined with LPG facilities' storage capacity yield a maximum daily sendout of approximately 54,900 Mcf. Actual maximum daily sendout during the 1996-97 heating season was 44,734 Mcf, which occurred on January 18, 1997, with an average temperature of 1 degree Fahrenheit. During the fiscal year ended June 30, 1997, the Company purchased an aggregate of 5,637,542 Mcf of interstate pipeline natural gas at an average 100 cost of $4.3635 per Mcf. The average cost in each of the three preceding years ended June 30 was: 1996 - $3.7234; 1995 - $3.2820; and 1994 - $3.9725. The composition of gas supply for customer requirements during the fiscal year ended June 30, 1997, was: 99.9% natural gas and .1% LNG and LPG. On December 29, 1994, Tennessee filed with the FERC a general rate increase (Docket RP 95-112) seeking $181 million in additional jurisdictional revenues. After five months' suspension, Tennessee's rate filing was put into effect by the FERC subject to refund. From January through March 1996, the parties held intensive rate settlement negotiations in which various rate and operational tariff issues were discussed. On April 5, 1996, Tennessee filed a Stipulation and Agreement which resolved all outstanding issues in the proceeding. The Stipulation provided for:(a) a cost of service of $689 million;(b) settlement periods consisting of two phases, Phase I covering the period July 1, 1995-October 31, 1996, and Phase II beginning November 1, 1996;(c) the reclassification of $80 million of fixed costs to the commodity component beginning in Phase II; (d) reduced seasonalized fuel rates beginning in Phase II; (e) Market Area Storage billing determinants equal to first day deliverability and 9 MMDth of storage space inputted for system use, (f) a rate case effective date moratorium until November 1, 1998; and (g) credits to various customers on an annual basis for both Phase I and Phase II. On February 28, 1997, the FERC order approving the Stipulation and Agreement became final. On March 28, 1997, the Company received a rate refund from Tennessee of $1,814,455 which included principal amounts for the period July 1, 1995, through February 28, 1997, and interest through March 27, 1997. This refund to the Company was returned to its customers through the CGAC and effectively reduced the cost of gas to the customers. On February 28, 1997, after several years of arduous and difficult negotiations with its customers, Tennessee filed a settlement offer to resolve the recovery of all its restructuring costs. On April 16, 1997, the FERC approved the unopposed settlement offer which disposed of 34 FERC dockets and some 39 appeals of FERC orders pending in the D.C. circuit. The settlement established a cost sharing mechanism between Tennessee and its customers. As a result of the order, Tennessee implemented a reduced Gas Supply Realignment ("GSR") surcharge retroactively for the two-year period of January 1, 1997, through December 31, 1998. On June 30, 1997, the Company received a refund from Tennessee of $323,457 representing excess GSR surcharges from January through March 1997. The refund was returned to Berkshire's customers through the Company's CGAC. The GSR surcharges that remain to be charged to Berkshire by Tennessee through December 1998 will not significantly affect the Company's competitiveness. The GSR surcharges will be absorbed by all of Berkshire's customer classes. Item 2. Properties - ------------------ The Company has approximately 669 miles of distribution mains, the major portion of which are constructed of coated steel, plastic or cast iron. Berkshire owns and operates five auxiliary liquefied petroleum gas plants for supplementing its supply of natural gas. (See "Business - Gas Supply"). The Company has five terminal stations receiving gas from the interstate pipeline. All the principal properties of the Company are owned in fee, subject to the lien of the mortgage securing the Company's First Mortgage Bonds, and are also subject to covenants, restrictions, easements, leases, rights-of-way and other similar minor encumbrances or defects common to properties of comparable 101 size and character; none of which in the opinion of the Company's management materially interferes with the Company's use of its properties in order to conduct its business. The Company's gas mains are primarily located under public highways and streets. Where they are under private property, the Company has obtained easements or rights-of-way from the record holders of title. These easements and rights are deemed by the Company to be adequate for the purposes for which they are being used. Item 3. Legal Proceedings - ------------------------- With reference to the matters discussed in Item I "Environmental Matters", the Company notified its present and former insurance carriers that it has incurred and will incur further costs associated with the previously-referenced coal tar deposits, for which it will seek coverage under applicable insurance policies. No litigation has yet commenced and it is not possible to determine the extent to which recovery of costs will ultimately be obtained from such insurance carriers. The Company is also involved with other legal proceedings incidental to its business. At the present time the Company cannot predict the outcomes of these proceedings and also believes that the outcome will not have a material adverse impact on its overall financial position or results of operations. Item 4. Submission of Matters To A Vote Of Security Holders - ----------------------------------------------------------- None. Additional Items - ---------------- Executive Officers of the Registrant The table set forth below shows the names, titles and ages of all executive officers of the Registrant as of June 30, 1997. There is no family relationship among officers of the Registrant. There is no arrangement between any of the officers and any other person(s) pursuant to which such officer as or is to be elected as an officer.
Served in This Name Title Capacity Since Age - -------------- ----------------------------- -------------- --- S.S. Robinson President and Chief Executive 10-28-87 57 Officer M.J. Marrone Vice President, Treasurer 10-28-87 55 and Chief Financial Officer L.H. Hotman Vice President of Supply, 10-16-91 54 102 Rates and Planning D.P. Atwater Vice President of Customer 11-14-95 48 Services R.M. Allessio Vice President of Marketing 11-14-95 47 and Distribution
The executive officers are elected annually. Listed below is a brief account of the business of each of the above executive officers during the past five years.
Name Capacity in Which Served During Past Five Years - -------------- ----------------------------------------------------------- S.S. Robinson President and Chief Executive Officer M.J. Marrone Vice President, Treasurer and Chief Financial Officer L.H. Hotman Vice President of Supply, Rates & Planning; Vice President of Supply, Rates & Marketing D.P. Atwater Vice President of Customer Services; Director of Customer Services, Manager of Distribution - Engineering R.M. Allessio Vice President of Marketing and Distribution; Director of Marketing and Distribution; Director of Engineering and Distribution; Chief Engineer
PART II ------- Item 5. Market For Registrant's Common Equity and Related Stockholder Matters - ----------------------------------------------------------------------------- The number of registered common shareholders of record of the Registrant as of the close of business on July 31, 1997, was 1,902. The other information required is contained in The Berkshire Gas Company's Annual Report to Shareholders for the fiscal year ended June 30, 1997, ("Registrant's Annual Report") on page 31, under the heading "Quarterly Financial Information". This information is hereby incorporated by reference in this report. Item 6. Selected Financial Data - ------------------------------- The information required is contained in Registrant's Annual Report on pages 14 - 15, under the heading "10-Year Comparative Summary of Operations and Statistics". This information is hereby incorporated by reference in this 103 report. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - ------------------------------------------------------------------------------- The information required is contained in Registrant's Annual Report on pages 16 - 18, under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations". This information is hereby incorporated by reference in this report. Item 8. Financial Statements and Supplementary Data - --------------------------------------------------- The information required is contained in Registrant's Annual Report on pages 19 - 31, in the financial statements of The Berkshire Gas Company for the years ended June 30, 1997, 1996 and 1995, together with the related notes to financial statements, under the heading "Independent Auditors' Report", and under the heading "Quarterly Financial Information". This information is hereby incorporated by reference in this report. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure - ----------------------------------------------------------------------- None. PART III -------- Items 10, 11, 12 and 13 - ----------------------- The information required regarding the Executive Officers of the Registrant is included in Part I under "Additional Items". Certain other information called for by Items 10, 11, 12 and 13 has been omitted from this report pursuant to General Instruction G(3), and is incorporated herein by reference from the definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the close of the Company's last fiscal year. PART IV ------- Item 14. Exhibits, Independent Auditors' Report on Supplemental Schedules, Financial Statement Schedules and Reports on Form 8-K - -------------------------------------------------------------------------- (a) 1. Financial Statements ----------------------- 104 The following financial statements and related notes are contained in the Registrant's Annual Report for the fiscal year ended June 30, 1997, and are incorporated herein by reference. Report of Independent Auditors. Statements of Income for the years ended June 30, 1997, 1996 and 1995. Balance Sheets, June 30, 1997, 1996 and 1995. Statements of Shareholders' Equity, June 30, 1997, 1996 and 1995. Statements of Cash Flows for the years ended June 30, 1997, 1996 and 1995. Notes to Financial Statements. Selected Quarterly Financial Data (unaudited) for the years ended June 30, 1997, 1996 and 1995. 2. Independent Auditors' Report on Supplemental Schedules --------------------------------------------------------- FORM 10-K THE BERKSHIRE GAS COMPANY PART IV ------- INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTAL SCHEDULES To the Shareholders of The Berkshire Gas Company: We have audited the accompanying balance sheets of The Berkshire Gas Company as of June 30, 1997, 1996 and 1995, and for each of the three fiscal years in the period ended June 30, 1997 and have issued our report thereon dated August 15, 1997; such financial statements and report are included in The Berkshire Gas Company's 1997 Annual Report to Shareholders and are incorporated herein by reference. Our audits also included the financial statement schedules of The Berkshire Gas Company, listed in item 14. These financial statement schedules are the responsibility of The Berkshire Gas Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statements schedules, when considered in relation to the basic financial statements, taken as a whole, present fairly in all material respects the information set forth therein. /s/ DELOITTE & TOUCHE LLP Deloitte & Touche LLP August 15, 1997 105 3. Financial Statement Schedules ----------------------------- The information called for by this item appears under the caption "Financial Statement Schedules and Exhibits Filed with Annual Report on Form 10-K" (page 1 hereof). Such information is incorporated by reference herein. 4. Exhibits -------- The information called for by this item appears under the caption "Financial Statement Schedules and Exhibits Filed with Annual Report on Form 10-K" (page 1 hereof). Such information is incorporated by reference herein. (b) Reports on Form 8-K ------------------- None. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: August 26, 1997 By: /s/ SCOTT S. ROBINSON ---------------------------------- Scott S. Robinson, President & CEO Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons in the capacities on the dates indicated.
Signatures Capacity Date - ------------------------------- ---------------------- --------------- /s/ FRANKLIN M. HUNDLEY Director August 26, 1997 Franklin M. Hundley Chairman of the Board /s/ SCOTT S. ROBINSON Principal Executive August 26, 1997 Scott S. Robinson Officer; Director President and Chief Executive Officer /s/ MICHAEL J. MARRONE Principal Financial August 26, 1997 Michael J. Marrone & Accounting Officer Vice President, Treasurer and Chief Financial Officer 106 /s/ GEORGE R. BALDWIN Director August 26, 1997 George R. Baldwin /s/ JOHN W. BOND Director August 26, 1997 John W. Bond /s/ PAUL L. GIOIA Director August 26, 1997 Paul L. Gioia /s/ JAMES R. KEYS Director August 26, 1997 James R. Keys /s/ ROBERT B. TRASK Director August 26, 1997 Robert B. Trask
THE BERKSHIRE GAS COMPANY FINANCIAL STATEMENT SCHEDULES and EXHIBITS Filed With ANNUAL REPORT ON FORM 10-K FORM 10-K EXHIBIT INDEX Certain of the following exhibits are filed herewith or will be filed herewith by amendment. Certain other of the following exhibits have heretofore been filed with the Commission and pursuant to Rule 411 are incorporated herein by reference.
Exhibit Number Description - ------- ------------------------------------------------------------------- 4(a) First Mortgage Indenture and Deed of Trust, dated as of July 1, 1954, between Pittsfield Coal Gas Company (now The Berkshire Gas Company) and Chemical Corn Exchange Bank (now Chemical Bank), Trustee. Filed as Exhibit 4(c) to the Company's Registration Statement on Form S-1, Registration Statement No. 2-19808, and incorporated herein by reference. 4(b) First Supplemental Indenture, dated as of June 1, 1956, between the Company and Chemical Corn Exchange Bank (now Chemical Bank), Trustee. Filed as Exhibit 4(d) to the Company's Registration 107 Statement on Form S-1, Registration Statement No. 2-19808, and incorporated herein by reference. 4(c) Second Supplemental Indenture, dated as of October 1, 1957, between the Company and Chemical Corn Exchange Bank (now Chemical Bank), Trustee. Filed as Exhibit 4(e) to the Company's Registration Statement on Form S-2, Registration Statement No. 2-19808, and incorporated herein by reference. 4(d) Third Supplemental Indenture, dated as of October 1, 1958, between the Company and Chemical Corn Exchange Bank (now Chemical Bank), Trustee. Filed as Exhibit 4(f) to the Company's Registration Statement on Form S-1, Registration Statement No. 2-19808, and incorporated herein by reference. 4(e) Fourth Supplemental Indenture, dated as of August 1, 1960, between the Company and Chemical Bank New York Trust Company (now Chemical Bank), Trustee. Filed as Exhibit 4(e) to the Company's Registration Statement on Form S-2, File No. 33-1492, and incorporated herein by reference. 4(f) Fifth Supplemental Indenture, dated as of June 1, 1962, between the Company and Chemical Bank New York Trust Company (now Chemical Bank), Trustee. Filed as Exhibit 4(f) to the Company's Registration Statement on Form S-2, File No. 33-1492, and incorporated herein by reference. 4(g) Sixth Supplemental Indenture, dated as of February 1, 1965, between the Company and Chemical Bank New York Trust Company (now Chemical Bank), Trustee. Filed as Exhibit 4(g) to the Company's Registration Statement on Form S-2, File No. 33-1492, and incorporated herein by reference. 4(h) Seventh Supplemental Indenture, dated as of October 1, 1965, between the Company and Chemical Bank New York Trust Company (now Chemical Bank), Trustee. Filed as Exhibit 4(h) to the Company's Registration Statement on Form S-2, File No. 33-1492, and incorporated herein by reference. 4(i) Eighth Supplemental Indenture, dated as of September 1, 1967, between the Company and Chemical Bank New York Trust Company (now Chemical Bank), Trustee. Filed as Exhibit 4(i) to the Company's Registration Statement on Form S-2, File No. 33-1492, and incorporated herein by reference. 4(j) Ninth Supplemental Indenture, dated as of April 1, 1969, between the Company and Chemical Bank, Trustee. Filed as Exhibit 4(j) to the Company's Registration Statement on Form S-2, File No. 33-1492, and incorporated herein by reference. 4(k) Tenth Supplemental Indenture, dated as of March 1, 1972, between the Company and Chemical Bank, Trustee. Filed as Exhibit 4(k) to the Company's Registration Statement on Form S-2, File No. 33-1492, and incorporated herein by reference. 4(l) Eleventh Supplemental Indenture, dated as of April 15, 1975, between the Company and Chemical Bank, Trustee. Filed as Exhibit 108 4(l) the Company's Registration Statement on Form S-2, File No. 33-1492, and incorporated herein by reference. 4(m) Twelfth Supplemental Indenture, dated as of November 27, 1978, between the Company and Chemical Bank, Trustee. Filed as Exhibit 4(m) to the Company's Registration Statement on Form S-2, File No. 33-1492, and incorporated herein by reference. 4(n) Thirteenth Supplemental Indenture, dated as of October 15, 1981, between the Company and Chemical Bank, Trustee. Filed as Exhibit 4(n) to the Company's Registration Statement on Form S-2, File No. 33-1492, and incorporated herein by reference. 4(o) Fourteenth Supplemental Indenture, dated as of August 19, 1983, between the Company and Chemical Bank, Trustee. Filed as Exhibit 4(o) to the Company's Registration Statement on Form S-2, File No. 33-1492, and incorporated herein by reference. 4(p) Fifteenth Supplemental Indenture, dated as of August 19, 1985, between the Company and Chemical Bank, Trustee. Filed as Exhibit 4(p) to the Company's Registration Statement on Form S-2, Registration No. 33-1492, and incorporated herein by reference. 4(q) Sixteenth Supplemental Indenture, dated as of January 1, 1988, between the Company and Chemical Bank, Trustee. Filed as Exhibit 4(q) to the Company's Registration Statement on Form S-3, Registration No. 33-27785, and incorporated herein by reference. 4(r) Seventeenth Supplemental Indenture, dated as of February 1, 1989, between the Company and Chemical Bank, Trustee. Filed as Exhibit 4(r) to the Company's Registration Statement on Form S-3, Registration Statement No. 33-27785, and incorporated herein by reference. 4(s) Eighteenth Supplemental Indenture, dated as of September 1, 1991, between the Company and Chemical Bank, Trustee. Filed as Exhibit 4(x) to the Company's Registration Statement on Form S-3, Registration Statement No. 33-64302, and incorporated herein by reference. 4(t) Nineteenth Supplemental Indenture, dated as of September 1, 1992, between the Company and Chemical Bank, Trustee. Filed as Exhibit 4(z) to the Company's Registration Statement on Form S-3, Registration Statement No. 33-64302, and incorporated herein by reference. 4(u) Debenture Indenture, dated as of November 1, 1986, between the Company and Centerre Trust Company of St. Louis (now Boatmen's Trust Company), as Trustee. Filed as Exhibit 4(q) to the Company's Registration Statement on Form S-2, Registration Statement No. 33-9509, and incorporated herein by reference. 4(v) Senior Note Agreement, dated as of July 1, 1990, between the Company and Allstate Life Insurance Company. Filed as Exhibit 4(w) to the Company's Registration Statement on Form S-3, Registration Statement No. 33-64302, and incorporated herein by reference. 109 4(w) Charter of the Company. Filed as Exhibit 3(a) to the Company's Form 8, amending the Company's Form 10-Q for the fiscal quarter ended September 30, 1984, File No. 0-1857-3, and incorporated herein by reference. 4(x) Amendment to the Company's Charter, dated October 30, 1985. Filed as Exhibit 3(b) to the Company's Registration Statement on Form S-2, Registration Statement No. 33-1492, and incorporated herein by reference. 4(y) Amendment to the Company's Charter, dated July 14, 1986. Filed as Exhibit 3(a) to the Company's Form 10-K for the fiscal year ended June 30, 1986, File No. 0-1857-3, and incorporated herein by reference. 4(z) Amendment to the Company's Charter, dated October 28, 1986. Filed as Exhibit 4(v) to the Company's Registration Statement on Form S-3, Registration Statement No. 33-27785, and incorporated herein by reference. 4(aa) Amendment to the Company's Charter, dated June 15, 1992. Filed as Exhibit 4(y) to the Company's Registration Statement on Form S-3, Registration Statement No. 33-64302, and incorporated herein by reference. 4(bb) Amendment to the Company's Charter, dated July 29, 1994. Filed as Exhibit 4(bb) on the Company Registration Statement on Form S-2, Registration Statement No. 33-83828, and is incorporated herein by reference thereto. 4(cc) Amendment to the Company's Charter, dated September 10, 1996. Filed as part of Exhibit 3(i) to the Company's form 10-Q for the fiscal quarter ended December 13, 1996. File No. 0-1857-3, and incorporated herein by reference. 4(dd) Senior Note Agreement, dated November 1, 1996, between the Company and First Colony Life Insurance Company. Filed as Exhibit 4 to the Company's form 10-Q for the fiscal quarter ended December 31, 1996. File No. 0-1857-3, and incorporated herein by reference. 10(a) Employment Contract between the Company and Scott S. Robinson. Filed as Exhibit 10(f) to the Company's Form 10-K for the fiscal year ended June 30, 1985, File No. 01857-3, and incorporated herein by reference. 10(b) Contract for the operation and maintenance of a cogeneration pipeline between the Company and Altresco Financial, Inc., dated December 11, 1992. Filed as Exhibit 10(n) to the Company's Form 10-K for the fiscal year ended June 30, 1993, File No. 0-18573, and incorporated herein by reference. 10(c) Year-to-yea r contract for the purchase of propane gas between the Company and Enron Gas Liquids, dated June 1, 1993. Filed as Exhibit 10(c) on the Company Registration Statement on Form S-2, Registration Statement No. 33-83828, and is incorporated herein by reference thereto. 110 10(d) Contract for the transportation of natural gas under IT rate schedule between the Company and Tennessee Gas Pipeline Company, contract number 103250-8, dated September 1, 1993. Filed as Exhibit 10(d) on the Company Registration Statement on Form S-2, Registration Statement No. 33-83828, and is incorporated herein by reference thereto. 10(e) Contract for the transportation of natural gas under FT-A rate schedule between the Company and Tennessee Gas Pipeline Company, contract number 2030, dated September 1, 1993. Filed as Exhibit 10(e) on the Company Registration Statement on Form S-2, Registration Statement No. 33-83828, and is incorporated herein by reference thereto. 10(f) Contract for the transportation of natural gas under FT-A rate schedule between the Company and Tennessee Gas Pipeline Company, contract number 2064, dated September 1, 1993. Filed as Exhibit 10(f) on the Company Registration Statement on Form S-2, Registration Statement No. 33-83828, and is incorporated herein by reference thereto. 10(g) Contract for the transportation of natural gas under FT-A rate schedule between the Company and Tennessee Gas Pipeline Company, contract number 779, dated September 1, 1993. Filed as Exhibit 10(g) on the Company Registration Statement on Form S-2, Registration Statement No. 33-83828, and is incorporated herein by reference thereto. 10(h) Contract for the transportation of natural gas under CGT-NE rate schedule between the Company and Tennessee Gas Pipeline Company, contract number 2063, dated September 1, 1993. Filed as Exhibit 10(h) on the Company Registration Statement on Form S-2, Registration Statement No. 33-83828, and is incorporated herein by reference thereto. 10(i) Contract for the purchase of natural gas between the Company and Tenngasco Corporation, dated September 14, 1993. Filed as Exhibit 10(I) on the Company Registration Statement on Form S-2, Registration Statement No. 33-83828, and is incorporated herein by reference thereto. 10(j) Contract for the purchase of natural gas between the Company and Natural Gas Clearinghouse, dated as of November 1, 1993. Filed as Exhibit 10(j) on the Company Registration Statement on Form S-2, Registration Statement No. 33-83828, and is incorporated herein by reference thereto. 10(k) Gas Storage Agreement between the Company and Tennessee Gas Pipeline Company, dated as of September 1, 1993. Filed as Exhibit 10(k) on the Company Registration Statement on Form S-2, Registration Statement No. 33-83828, and is incorporated herein by reference thereto. 10(l) Company Corporate Incentive Compensation Plan ("ICP"). Filed as Exhibit 10(l) on the Company Registration Statement on Form S-2, Registration Statement No. 33-83828, and is incorporated herein by reference thereto. 111 10(m) Severance Agreement, dated September 28, 1993, by and between the Company and Donald Atwater. Filed as Exhibit 10(m) on the Company Registration Statement on Form S-2, Registration Statement No. 33- 83828, and is incorporated herein by reference thereto. 10(n) Severance Agreement, dated September 28, 1993, by and between the Company and Robert M. Allessio. Filed as Exhibit 10(n) on the Company Registration Statement on Form S-2, Registration Statement No. 33-83828, and is incorporated herein by reference thereto. 10(o) Severance Agreement, dated October 15, 1993, by and between the Company and Michael J. Marrone. Filed as Exhibit 10(o) on the Company Registration Statement on Form S-2, Registration Statement No. 33-83828, and is incorporated herein by reference thereto. 10(p) Severance Agreement, dated October 15, 1993, by and between the Company and Leslie H. Hotman. Filed as Exhibit 10(p) on the Company Registration Statement on Form S-2, Registration Statement No. 33-83828, and is incorporated herein by reference thereto. 10(q) Severance Agreement, dated October 15, 1993, by and between the Company and Cheryl M. Clark. Filed as Exhibit 10(q) on the Company Registration Statement on Form S-2, Registration Statement No. 33-83828, and is incorporated herein by reference thereto. 13(a) Annual Report to Shareholders Filed Herewith: A copy of the Company's Annual Report to Shareholders for fiscal year ended June 30, 1997. 27(a) Financial Data Schedule Filed Herewith: Financial Data Schedule for the fiscal year ended June 30, 1997.
EXHIBIT 13-ANNUAL REPORT OF BERKSHIRE GAS FOR FORM 10-K Berkshire Gas Company Energizing a Diverse Economy Not since the economic boom that swept the country in the mid to late 80s has there been so much excitement about the strength of the national economy. In New England, the regional economy has been reinvigorated. No longer relying on any single business or industry, the region's economic strength is now built on a broader base, encompassing new ventures, the expansion of successful enterprises and the ingenuity of entrepreneurs and investors. Diversification is largely responsible for fueling New England's economic resurgence and - more importantly - the economic revival in the Berkshire Gas service area. This year's annual report focuses on the diverse nature of the customers we serve and their many successes. 112 By knowing our customers, you will come to know us as a company committed to progress and growth, and dedicated to energizing a diverse economy for the benefit of our customers and our shareholders. FINANCIAL HIGHLIGHTS - ------------------------------------------------------------------------------- For the Fiscal Year Ended June 30,
1997/1996 1996/1995 OPERATIONS ($000) 1997 1996 % Change 1995 % Change - ----------------------------------------------------------------------------------------------------------------- Operating Revenues $ 48,463 $ 46,050 5.2% $ 47,934 -3.9% Operating Margin 25,253 25,835 -2.3 23,114 11.8 Operating and Other Income 11,527 12,042 -4.3 9,418 27.9 Net Income 3,556 4,213 -15.6 2,529 66.6 Earnings Available for Common Stock 3,316 3,521 -5.8 1,835 91.9 COMMON SHARE DATA - -------------------------------------------------------------------------------------------------------------- Earnings Per Share $ 1.52 $ 1.65 -7.9% $ 0.92 79.3% Dividends Per Share 1.125 1.105 1.8 1.10 0.5 Book Value Per Share 14.18 13.75 3.1 13.16 4.5 Market Price (Year-End) 16.00 15.38 4.0 15.00 2.5 Average Shares of Common Stock Outstanding (000's) 2,181.5 2,129.2 2.5 1,990.5 7.0 Number of Registered Common Shareholders 1,902 1,881 1.1 1,878 0.2 OTHER DATA - -------------------------------------------------------------------------------------------------------------- Gross Utility Plant ($000) $101,983 $ 96,571 5.6% $ 91,863 5.1% Net Utility Plant ($000) 73,640 71,215 3.4 69,326 2.7 Capital Expenditures ($000) 7,393 6,507 13.6 7,746 -16.0 Total Gas Sold and Transported (MCF-000's) 8,080 8,075 0.1 7,392 9.2 Total Natural Gas Customers 32,526 32,129 1.2 31,925 0.6 Propane Gallons Sold (000's) 4,443 4,251 4.5 3,738 13.7
To Our Shareholders The past year has been one of strong performance for the Company. We have seen real strength in the service area economy largely due to the diversification of existing enterprises and the growth of a wide variety of new undertakings and emerging technologies. The customers featured in this year's report provide prime examples of how our economy is growing and why prospects for future expansion are so encouraging. Diversity Driving Demand As existing customers expand their use of natural gas and demand for our product grows with the addition of new customers, it becomes clear that the 113 diversification of our economic base has played a major role in the overall health of our region's economy. With the move of heavy industry and manufacturing to the South and West, New Englanders have had to utilize their native resourcefulness to inject new life into their economy. Many have accomplished this by expanding existing businesses into new markets and products areas. Others have focused on investing time and energy in new service sector ventures. And still others have tapped their entrepreneurial drive to achieve commercial success by utilizing new and emerging technologies. This diversity has yielded both economic strength and opportunity. Many such opportunities for the Company have been driven by the recognition of natural gas as a highly adaptable premium fuel that is also a friend to the environment. Additionally, the Company's market position as a full service energy supplier dedicated to the success of its customers has made natural gas the first choice for many enterprising business owners as well as homeowners throughout western Massachusetts. With small business providing more that 85% of all jobs in this country, a diverse economy has never been more important. We serve a portion of Massachusetts known for its academic and research resources. We continue to be well positioned for new and innovative growth as well as adaptation of existing assets. The Company is committed to working in partnership with all segments of our market and of our economy toward mutual success. The profiles in this report more fully detail our initiatives and we look forward to continuing to energize the ever diversifying economy in our area. Performance Poised for continued success in diverse markets, we take great pride in our achievements to date. Per share earnings for the year ended June 30, 1997, were $1.52. Although earnings were lower than in the prior year, we were successful in achieving this level of performance despite weather during the heating season that was 9% warmer than the preceding year and 5% warmer than the 20-year average. Additionally, operating margins, which are the best measure of a natural gas utility's performance, were only 2.3% lower than in the previous year. Efforts to achieve greater earnings stability irrespective of the effects of unusual weather variances have met with success. We fully intend to continue to focus every facet of our organization toward further increases in efficiency, productivity and, in turn, profitability. During the year, the Company saw considerable growth in income from its service and propane operations. Dividend Increase The Company's Board of Directors is strongly committed to providing shareholders with a fair return on their investment. The Board reviews the dividend in light of the Company's financial performance and capital needs on an ongoing basis in keeping with its conservative, yet progressive dividend policy. Improved performance led the Board to take action in June this year, 114 increasing the quarterly dividend pain on Common Stock from 28 [CENTS] to 28-1/2 [CENTS] per share resulting in an annual dividend of $1.14. This is the third dividend increase since 1994. (Picture of President & Chief Executive Officer, Scott S. Robinson) Propane Expansion The Company's retail propane division, Berkshire Propane, continues to achieve new milestones of profitability in serving customers across its 5,000 square mile service area in western Massachusetts and eastern New York. This year, despite warmer than normal weather, the division's 1997 revenues increased by 17% over the prior year. Operating margins also increased by 14% over 1996. In addition, Berkshire Propane tapped two new markets during the year in an effort to expand upon its track of strong performance - wholesale operations and retail delivery service in the state of Vermont. Given the division's considerable storage capacity as well as its strategically located storage facilities, the decision to offer wholesale propane services to competitors without similar capacity made sound business sense. As a result, margins earned from the sale of additional wholesale volumes supplement those earned on direct retail sales to Berkshire Propane customers. Capitalizing on existing resources and assets made it possible for Berkshire Propane to pursue this opportunity without additional expense or overhead. Plans call for continued expansion and marketing of the division's wholesale business. On the retail side, Berkshire Propane expanded its reach in July of this year adding portions of southern Vermont to its existing service territory. Initially offering service in and around the towns of Bennington and Brattleboro, long range plans call for expanding service to surrounding communities as well. Efforts to date in this new market have met with considerable success and are expected to continue to present further expansion opportunities for Berkshire Propane. Deregulation This has been a year of change in the competitive landscape of our industry and it has also brought the dawning of new opportunities associated with deregulation. When it comes to deregulation, opportunity is the key word. Our role as the transporter of natural gas in western Massachusetts is historic. This is a service that we have provided for more than 145 years and one that we will continue to provide in a deregulated environment. The key difference, however, will be our ability to work strategically with marketers to expand service while also using the flexibility provided by deregulation to compete in other segments of the energy marketplace. In many ways, offering transportation services in a deregulated market is a natural extension of what we have been doing for a number of years. As far back as 1987, the Company began to work cooperatively with interested 115 commercial and industrial customers in offering customized service, which included transportation of third-party gas supplies. Today, we are successfully providing transportations services to more than 35% of the Company's commercial and industrial customers. As well, we will continue to expand our offering of unbundled rates to customers during the next calendar year. Viewing marketers as partners instead of as competitors will allow us to work side by side in expanding the use of natural gas throughout our service area. Building strategic alliances with marketers and suppliers will benefit everyone involved while also keeping rates stable and competitive for commercial end users and consumers. We are truly excited about the opportunities that deregulation is bringing and we are both enthusiastic and optimistic about future prospects. We have been working diligently toward optimizing our organization and operations for competition in open energy markets with the assistance of the Reed Consulting Group, a firm widely recognized for its expertise in this area. The Company anticipates segregating non-regulated market functions from regulated operations as part of these efforts. This will provide greater flexibility for pursuing competitive opportunities under deregulation including the establishment of a separate entity for the marketing of a full range of energy services. Finally, the Company is also working with the other investor-owned natural gas utilities in the Commonwealth of Massachusetts to develop comprehensive principles and procedures for the "unbundling" of services offered to customers. The development of these standards will assure a level playing field while also defining opportunities for open competition. Tomorrow and Beyond With the diversification of our service area, our economy grows stronger. Similarly, deregulation will make it possible for Berkshire Gas to diversify by providing the flexibility necessary to pursue new opportunities, enhance profitability and strengthen the Company. As our industry moves toward open markets and competition, future prospects are greater than ever before imagined. Deregulation is expected to change many of the traditional ways of doing business while also creating new areas of opportunity. Moving beyond the limits of regulation into new ventures and undertakings provides the Company with new avenues of profitability. At the same time, we will continue to commit ourselves to exceptional service and competitive prices in regulated markets. Building on 145 years of success, we welcome the new millennium, we seek opportunity and we are well positioned to break new ground. We thank you for your commitment to Berkshire Gas and we sincerely hope that this year's report conveys a sense of the excitement, enthusiasm and optimism that we share as together we work toward building a better company and continuing to reward you for your investment. /s/ SCOTT S. ROBINSON Scott S. Robinson President & Chief Executive Officer 116 Energizing a Diverse Economy As the oldest and most established region in the nation, New England has always been home to innovation and diversity. From the earliest settlers, the spirit and drive to create, expand and diversify has been as much a part of New England as the brightly colored leaves of autumn and the flowing maple syrup that signals the onset of spring. As a region, we have experienced the industrial revolution, the advent of technology and the development of infrastructure dedicated to manufacturing and economic growth. (An inset picture of MASS MoCA clock tower) We are now in the midst of another phase in the natural evolution of the New England economy. The days of heavy manufacturing are fading, being replaced by a visionary emphasis on the development of emerging technologies, entrepreneurial pursuits, cutting-edge ideas and a real focus on the future. These are truly exciting times in our region. (An insert picture of landscaper at Country Village Condominiums in Great Barrington, Massachusetts) Long home to some of the country's most prestigious academic institutions, our region trains some of the finest minds in the world and benefits from research that is constantly breaking new ground in the arts and sciences. This is particularly true in western Massachusetts, where we have seen innovations ranging from the invention of Lexan and other space-age materials at GE Plastics, to Crane & Company's development of new technologies designed to protect U.S. currency from counterfeiting. (An insert picture on left of roof line at Devonshire Estates in Lenox, Massachusetts, insert picture on right of steam turbine cogeneration system from Ewing Power Systems) Supplementing the human energy that drives a diverse economy, Berkshire Gas is proud to play a role in providing the raw materials to fuel growth and diversification. Working hand in hand with its customers, Berkshire Gas has been instrumental in providing energy for new entrepreneurial efforts - ranging from a facility in Amherst, Massachusetts, dedicated to breeding African fish for retail sale, to a top-flight coffee roaster providing some of the world's finest coffees to discriminating consumers around the globe. At the same time, we have been working with more traditional customers to support expanding markets in our area. (An insert picture on left of painters at Town of Adams Town Hall, an insert picture on right of special beans selected for Barrington Coffee Roasting Company in Great Barrington, Massachusetts) The following profiles, broken down by specific market segments, are intended to give you a snapshot of the diverse enterprises and undertakings the Company is proud to support. They'll help you to share some of the excitement of a region that's building a bright future, while preserving the treasures of its past. (An insert picture of a hydroponic plant being harvested at Bioshelters, Inc. located in Amherst, Massachusetts) Innovation, economic growth and expansion, public-private partnerships, entrepreneurial enterprises and a focus on the future-we are proud to be energizing a diverse economy with natural gas, America's premium fuel. MARKET SEGMENT CULTURAL MASS MoCA The Massachusetts Museum of Contemporary Art is symbolic of the economic 117 renaissance unfolding throughout the Berkshire Gas service area, as 20th century manufacturing interests are replaced by emerging 21st century technologies. The revolutionary MASS MoCA concept is being forged by passionate visionaries intent on revitalizing the small New England city of North Adams, Massachusetts, by transforming a vacant mill complex into a world-class center for the arts. Ten years in the making, MASS MoCA will be a living laboratory for artists and businesses working in virtually every artistic medium, including sculpture, theater, dance, film, computer graphics and music. As MASS MoCA Director Joseph Thompson put it, "MASS MoCA is a supercollider for new art and new technology." Built in 1872 to manufacture textiles and later owned by a world leader in high-quality electronic components, the complex employed 4,000 at its peak. Foreign competition and manufacturing changes resulted in cutbacks, however, leaving thousands out of work when the mill closed in 1985. The site's silver lining was soon discovered by Williams College officials seeking possible mill locations to meet the space requirements of contemporary art installations. By 1987, the idea to convert the 13-acre, 27-building mill into a mixed-use cultural and commercial complex had crystallized. When it officially opens in 1998, MASS MoCA will awe visitors with its sheer size. It will house expansive art galleries, performing arts facilities, rehearsal space, offices, fabrication areas, live studio space and pre- and post-production facilities for audio and video. A diverse consortium of cultural institutions, artists, and technology firms-including New York's prestigious Guggenheim Museum-have teamed with MASS MoCA to develop the sprawling complex. The first technology firm to become a tenant was the Kleiser-Walczak Construction Company, which has produced computer-generated special effects for the entertainment industry, including major motion pictures and theme parks. Excited by MASS MoCA's potential, the firm moved its headquarters from Hollywood to studios within the facility. The architects' decision to preserve the mill's historic character by retaining its vast, open spaces was popular with artists-and made natural gas the right choice for heating. It also eliminated the environmental concerns and liability associated with on-site oil storage and the nuisance of oil delivery. "Natural gas provided the most economic and efficient way to serve a complex campus that must house new functions in old buildings," Thompson said. "Berkshire Gas has been very loyal to this project, and has been a good friend as well as a good vendor." Berkshire Gas is proud to have been one of the first corporate supporters in this noble private-public venture that could one day establish North Adams as a global hub for contemporary arts. (A picture of MASS MoCA and people touring the complex) A truly unique center for the arts, MASS MoCA will feature a mix of traditional and non-traditional works. The flexibility and cleanliness of natural gas made Berkshire Gas the logical energy partner. (A picture of Kleiser-Walczak employee) 118 The creative synergies offered by MASS MoCA compelled the Kleiser-Walczak Construction Company to relocate its computer-generated special effects firm from Hollywood to studios within the complex. MARKET SEGMENT RETIREMENT LIVING Devonshire Estates Because the number of Americans age 65 and older is expected to double between now and the year 2050, the retirement living industry is one of the fastest-growing market segments in the Berkshire Gas service area. The Company has recognized and capitalized on opportunities in this sizable market, establishing natural gas as the fuel of choice for retirement homes in western Massachusetts. So it came as no surprise when Holiday Retirement Corp., and industry leader based in Salem, Oregon, with more than 200 retirement developments across the U.S., Canada and England, chose Berkshire Gas as its energy partner for Devonshire Estates, which is nearing completion in Lenox, Massachusetts. Unlike most others in the industry, Holiday Retirement's parent company owns both the construction and management interests in its residences. "When you're responsible for maintaining a facility, you put a little more care into building it," said Georgie Kennel who is teaming with her husband, Will, on their sixth construction management assignment for Holiday Retirement. "We're more quality-oriented than most. We have to do things right." Doing it right includes using natural gas for a wide range of energy needs, including heating, hot water, gas fireplaces and dryers in the six laundry areas. "We almost always specify natural gas," said Kennel. "It's more efficient and more economical, especially in an area like this where electric rates are so high." Devonshire Estates will provide "independent living" for its senior residents. One monthly fee covers virtually every resident's needs, including three meals a day in a full-service restaurant setting. Residents will feel secure in the knowledge that live-in managers can attend to their needs and, with dependable natural gas, they won't have to worry about the effect of winter storms. "It's like living in a fine hotel," Kennel said. Devonshire Estates has a total of 128 units designed to accommodate a wide range of needs. The main building features studio apartments, one-bedroom/one bath units, and two-bedroom/two bath units. There are also 20 deluxe units in separate buildings called garden suites and garden cottages, which include such amenities as an attached garage, a full kitchen and washer/dryer. Construction, which began in the spring of 1997 is scheduled for completion by year's end. Interest was so keen that fully one-third of the units had been reserved midway through construction. Because comfort is critical to the seniors, dependable natural gas is the right choice for their energy needs and, with its history of reliability, Berkshire Gas is the right supplier. 119 (A picture of Devonshire Estates units under construction) Efficient, dependable natural gas is part of "doing it right" at Devonshire Estates in Lenox, Massachusetts, a 128-unit retirement development scheduled for completion in December 1997. MARKET SEGMENT MUNICIPAL CONVERSIONS Town of Adams Strolling through downtown Adams, Massachusetts, is like walking into a Norman Rockwell painting. Its friendly people, quaint victorian architecture, and tidy streets and storefronts are a source of pride for those who have worked so hard to preserve its old New England charm. The town hall has long been a focal point of this pride, with a rich tradition that include Mark Twain's address to the townspeople in December 1884, just a year after it was completed. By the 1990s, however, the town hall and adjacent police station were outdated, overcrowded and badly in need of repair. Even more importantly, the liability and environmental issues associated with the aging underground oil tank forced the town into action. Adams took a unique approach to its space dilemma, renovating a historic downtown mansion perfectly suited to its needs. For its energy requirements, Adams turned to Berkshire Gas for professional services, technical expertise and environmentally friendly natural gas. According to Town Administrator Jim Leitch, a capital planning committee chose historic Plunkett mansion as the new home for the town hall after a lengthy search of prospects. Built in 1905, it offered an ideal downtown location and the opportunity to restore a historic building to its original beauty. Relocation of the town offices to Plunkett mansion enabled the police department to expand into the old town hall, but both buildings still faced major renovations. In addition, neither the old nor new town halls had the equipment necessary for conversion to natural gas. As it has with other municipalities in its service area, the Company demonstrated its commitment to public/private partnership, providing professional services and energy solutions throughout the conversion process to satisfy the town's needs. In that spirit, Berkshire Gas installed the necessary service lines while also providing valuable engineering services and technical guidance. "Berkshire Gas was a good partner in the construction of both of these facilities," Leitch said. "They provided much-needed equipment, installation assistance and technical support in addition to meeting difficult site and scheduling demands." Although both facilities were designed for oil, Leitch said natural gas was the clear choice for the future because of maintenance and environmental issues. It was particularly well-suited for the police station's rooftop heating and air conditioning unit, and as a fuel for its emergency backup generator. When construction is completed in December 1997, Adams will again take pride in its municipal buildings, and comfort in the knowledge that dependable, all-American natural gas will be fueling its growth into the next century and beyond. 120 (A picture of the new town hall in Adams, Massachusetts) Municipalities across the Company's service area are choosing to convert their buildings and facilities from oil to natural gas. By converting its new town hall, the Town of Adams, Massachusetts, has avoided the liability and environmental issues associated with underground oil tanks. (A picture of Adams Town Administrator Jim Leitch with Berkshire Gas Salesperson Marty Martin with Adams Town police station under construction in background) The new Town of Adams police station-under construction in background-will use natural gas for heating and air conditioning, as well as for its emergency backup generator. MARKET SEGMENT GOODS & SERVICES Bioshelters, Inc. Under a futuristic, dome-like structure in landlocked Amherst, Massachusetts, a revolutionary aquaculture experiment has been transformed into a thriving example of entrepreneurial achievement, expected to produce 1.2 million pounds of fresh water fish when it reaches full production in 1998. This farm of the future, whose resource conservation strategies may be an answer to feeding the world's exploding population, is being energized by the fuel of the future: clean-burning, efficient natural gas. Bioshelters uses an ingenious, energy-efficient process to raise tilapia, a warm water fish native to Africa, and gourmet herbs under the same roof. The tilapia are bred and raised in a series of tanks on the ground floor, including four that can each hold 160,000 gallons and an equal number of mature fish. Water from these tanks is pumped to a hydroponic garden located on the second floor, where herbs grow in water rather than soil and absorb sunlight through the structure's translucent roof. The closed-loop system recirculates water, carrying fish manure to fertilize the garden's herbs. The fish make food for the plants, the plants clean the water for the fish and 99.7 percent of the water and waste is recycled. "We call this an artificially created natural ecosystem," said John Reid, Bioshelters' President and CEO. "It solves a growing environmental problem and produces profitable products." The fish are shipped live for sale in Boston and the herbs are sold at supermarkets all over the Northeast. Because the fish are indigenous to warm African waters, heating the tanks is Bioshelters' most critical energy need. Berkshire Gas made a significant investment to serve Bioshelters' growth, extending its gas mains to provide the rural facility with a more controllable and dependable fuel source. Efficient gas-fired boilers provide energy for the eight miles of concrete-embedded, polyethylene tubing that make up the radiant heating system. Berkshire Gas also solved Reid's concerns about the dependability of electricity for the facility's water circulation pumps. "If we're down for three hours, we're in trouble," he said. "With the damage summer or winter storms can do to power lines, the power company just isn't reliable enough for our purposes." Bioshelters' recent installation of a cogeneration system-fueled by reliable natural gas-further reduces its dependence on the power company by generating electricity for pumps, lights and other needs. 121 Bioshelters' ambitious five-year plan calls for the construction of additional facilities to serve major markets across the U.S. and Canada. Reid has found that natural gas is a natural fit for continued growth in his farms of the future. (A picture of a Bioshelters employee) An employee examines the root development of plants in Bioshelters' second-floor hydroponic garden. Recirculated water carries fish manure to nourish the plants in the unique, closed-loop system heated by gas-fired cogeneration equipment. (An aerial picture of Bioshelters) Dependable, clean-burning natural gas fits both the efficiency and environmental standards of Bioshelters, a thriving aquaculture business in Amherst, Massachusetts, that produces tilapia fish and hydroponic herbs. The one-of-a-kind, dome-like structure makes efficient use of solar and thermal energy. MARKET SEGMENT RESIDENTIAL Country Village Condominiums Hardwood floors. Granite and marble fireplaces. Jacuzzi tubs. Set foot in one of the Country Village Condominiums in Great Barrington, Massachusetts, and you'll want to move in. "That's the immediate reaction of everyone who sees them, from the workmen to our prospective buyers," said Richard Stanley, the project's developer. "It's not something you see as much as something you feel." The "feel" is a result of Stanley's attention to detail and demand for quality, from the attractive landscaping and fine interior trim to his choice of clean-burning, efficient natural gas for heating. "Simplicity and cleanliness are key issues when it come to heating fine homes," he said. "I never would have considered oil." Stanley began developing the seven-acre site in the fall of 1996. When it's completed, there will be a total of 25 units in eight buildings. The three-bedroom condos each offer up to 2,100 square feet of living space and are replete with amenities, including oversized windows, tiled bathrooms, central air, central vacuum, appliances, 200-square foot decks and attached garages with automatic door openers. Country Village, a short walk from downtown, appears especially attractive to homeowners in their mid-50s or older who are not interested in shoveling, mowing and other maintenance chores. Dependable natural gas fits their care-free demands, providing no-worry heat, hot water, and easy operation for the fireplaces that grace each condo. "Today's more sophisticated buyer also typically insists on a gas stove for cooking," Stanley noted. Experienced developers like Stanley know that natural gas is the best energy value, outperforming other fuels for temperature control, BTU efficiency, equipment reliability and heating system recovery rates. 122 A New York native, Stanley inherited a hair salon franchise from his father and built it to more than 600 locations at home and abroad. But when he purchased a second home in the Berkshires in the early 1980s, he was captivated by the region's natural beauty and cultural attractions. He sold the franchise and moved here permanently to "semi-retire" a few years later. "Now I'm working harder than ever," he said with a laugh. Stanley's first ventures as a developer involved investments of more than $1 million to buy and develop commercial properties in downtown Great Barrington. Now his condos are generating inquiries from upscale second-home owners and retirees interested in residing near Great Barrington's thriving downtown. Prospective buyers will see in a moment that Country Village offers everything needed for a contemporary, upscale lifestyle:elegant construction, a quaint bustling town life, maintenance-free living and dependable natural gas, the fuel of choice for the educated home-owner. (A picture of developer Richard Stanley with a client) Developer Richard Stanley(left) said he "never would have considered oil" for his beautiful, new condominiums in Great Barrington, Massachusetts, preferring the dependability and performance of natural gas for the heat, hot water, fireplaces and cooking needs of his upscale clientele. (A picture of a Country Village Condominium) MARKET SEGMENT ECONOMIC DEVELOPMENT Airport Industrial Park Development interests throughout the Berkshire Gas service are finding that the availability of dependable, economical natural gas can play as vital a role as land availability in attracting prospective tenants to their industrial parks. Although industrial parks are not new to New England, their growth in the post-recession economy has created one of the Company's fastest-growing market segments. Berkshire Gas recently completed work in Montague, Massachusetts, where the town has invested more than $1 million to revitalize Airport Industrial Park-which originally opened in the early 1980s-by developing an additional 52 acres. "Industry carries a lot of the tax load," said Denis Superczynski, Community Development Planner for the Town of Montague. "The more new and expanding companies we can attract, the more job opportunities we'll provide and the lower everyone's taxes will be as a result." So the Town of Montague is rolling out the red carpet, providing tax increment financing, training funds and other incentives. Recognizing the importance of providing uninterrupted, cost-efficient natural gas as part of the park's infrastructure, the town asked Berkshire Gas to extend its gas mains by 1.5 miles. "Most of our prospects ask about the availability of natural gas," Superczynski said. "Companies really appreciate the benefits it provides." Superczynski said businesses have come to Airport Industrial Park for a 123 number of reasons, including its proximity to the Connecticut River and Interstate 91, competitive land pricing and a skilled work force. He said flexibility also is a plus, as the park can accommodate individual lots ranging from a single acre to more than 15 acres. The natural gas line, which was completed in July, enables the park to meet a wide range of tenant needs, from heating and air conditioning to manufacturing processes. One of the first tenants in the new development was Ewing Power Systems. The company, whose work force has more than doubled in the past year, supplies steam turbine cogeneration systems to large steam users both in the U.S. and abroad. These systems allow Ewing customers to produce low-cost electricity with the same steam they are now using for heating or process. Ewing President Lynn B. DiTullio said the company's fastest growing markets are international. "Electricity costs even more overseas," she said. "It can be four times as much as in the U.S." Although Ewing, which was founded in 1986, traditionally has customized its systems, the company recently introduced standard products to serve smaller customers at a fraction of the original cost. By including natural gas in the infrastructure of their industrial parks, developers in the Berkshire Gas service area are improving their site's marketability and their tenants' profitability. (An aerial picture of the Airport Industrial Park) Airport Industrial Park in Montague, Massachusetts, is one of many developments in the Company's service area that is providing natural gas for tenants' use in everything from heating and air conditioning to manufacturing processes. (A picture of Ewing Power Systems employee) Airport Park tenant Ewing Power Systems produces steam turbine cogeneration systems like this one, built for a municipal power plant near Paris, France. MARKET SEGMENT PROPANE Barrington Coffee Roasting Company Premium coffee with a premium fuel...A coffee lover's dream has become a reality at the Barrington Coffee Roasting Company in Great Barrington, Massachusetts, where two entrepreneurs have perfected the art of roasting exotic coffee beans from around the world using a precision process that is fueling rapid growth in their business. Owners Gregg Charbonneau and Barth Anderson, who met and began sharing their coffee obsession while in college, are dedicated to producing the highest-quality coffee in the world. From their Great Barrington facility, they search the globe for the finest coffee beans, screen them for quality and then roast them to perfection for whole-sale, mail-order and sale on the Internet. Business is great. Annual production has jumped from 20,000 pounds when they opened in 1993 to a projected 125,000 pounds in 1997. The key to their success? "We're fanatics about quality," Charbonneau said. He said they choose only coffees from the species of tree known as Coffea 124 arabica-the highest quality coffee-in the world's richest coffee-growing regions and then roast them in small batches, carefully controlling each step of the process. Fine coffee is like fine wine. Just as fine wines may begin with grapes from France, Italy or California, fine coffees may begin with beans grown in Costa Rica, Indonesia or Ethiopia. "Characteristics such as body, mouth, feel and acidity may vary from year to year, so we sample constantly," Charbonneau said. Anderson calls Barrington Coffee's contribution to the final product "a blend of art and science." During this process, propane-heated air roasts the beans, which are kept moving so as not to burn. Precise temperature controls and timing are critical to this process, which is why propane gas is the only fuel Barrington Coffee trusts to meet its exacting standards. "The quality of the fuel and constant supply are exceedingly important," Anderson said. "If there's any fluctuation in temperature, the coffee will pick it up. Propane gas gives us that consistency." When they're deemed perfect, the beans are "quenched" by rapidly flowing air and packaged immediately. Charbonneau and Anderson recently invested $60,000 in a new French-built roaster-the only one of its kind in this country. Anderson said Berkshire Propane provided valuable assistance with its installation. "Everyone at Berkshire Propane has been extremely helpful, from management to sales and service representatives," Anderson said. So if you're fortunate enough to sample one of the fine, exotic coffees produced by the master roasters of Barrington Coffee, remember that Berkshire Propane helped make it great. (A picture of Barrington Coffee owners, Barth Anderson and Gregg Charbonneau) Quality and consistency are critical in the propane-heated, roasting process at Barrington Coffee in Great Barrington, Massachusetts, where owners Barth Anderson and Gregg Charbonneau (above, l-r) select only the world's finest coffee beans and then roast them to flavor perfection (right). (A picture of Barrington Coffee owners, Barth Anderson and Gregg Charbonneau during a different phase of production) Service Area The Company's service area encompasses parts of three counties in western Massachusetts and a portion of eastern New York, providing natural gas services to 19 cities and towns with a total population of more than 190,000. Propane service is provided to more than 100 communities in western Massachusetts, eastern New York and southern Vermont. The unspoiled beauty of the Berkshire Gas service area is treasured by residents and visitors alike, serving as a magnet to lovers of brilliant fall foliage, charming ski resorts and scenic golf courses, as well as providing a picturesque backdrop for renowned cultural attractions. The Company is proud to fuel the growing and diverse energy needs of a region whose desire to achieve 125 economic prosperity is exceeded only by its determination to protect its environment for future generations. (Map of Berkshire Gas and Berkshire Propane service area) Financial Review Contents 10-Year Comparative Summary of Operations and Statistics............... 14 Management's Discussion and Analysis of Financial Condition and Results of Operations......................................................... 16 Financial Statements: Statements of Income................................................. 19 Balance Sheets....................................................... 20 Statements of Shareholders' Equity................................... 21 Statements of Cash Flows............................................. 22 Notes to Financial Statements........................................ 23 Independent Auditors' Report......................................... 29 Quarterly Financial Information........................................ 31 Officers and Directors................................................. 32 10-Year Comparative Summary of Operations and Statistics - ---------------------------------------------------------------------------
For the Years Ended June 30, OPERATIONS ($000) 1997 1996 1995 1994 1993 - ------------------------------------------------------------------------------------- Operating Revenues $ 48,463 $46,050 $47,934 $53,029 $47,132 Cost of Gas Sold 23,210 20,215 24,820 27,885 24,831 ------------------------------------------------ Operating Margin 25,253 25,835 23,114 25,144 22,301 ------------------------------------------------ Net Income 3,556 4,213 2,529 3,673 2,810 126 Earnings Available for Common Stock 3,316 3,521 1,835 2,953 2,066 COMMON SHARE DATA - ------------------------------------------------------------------------------------- Earnings Per Share $1.52 $1.65 $0.92 $1.69 $1.20 Annualized Dividends Per Share 1.14 1.12 1.10 1.10 1.08 Dividends Declared Per Share 1.125 1.105 1.10 1.085 1.08 Book Value Per Share 14.18 13.75 13.16 12.99 12.30 Market Price (Year-End) 16.00 15.38 15.00 16.25 18.00 Average Shares of Common Stock Outstanding (000s) 2,181.5 2,129.2 1,990.5 1,751.8 1,718.5 CAPITALIZATION ($000) - ------------------------------------------------------------------------------------- Common Equity $ 31,365 $29,595 $27,688 $22,946 $21,326 Preferred Stock 363 8,406 8,448 8,491 9,026 Long-Term Debt 40,000 31,999 30,983 31,083 25,413 ------------------------------------------------ Total Capitalization $ 71,728 $70,000 $67,119 $62,520 $55,765 ------------------------------------------------ % OF TOTAL - ------------------------------------------------------------------------------------- Common Equity 43.7% 42.3% 41.2% 36.7% 38.2% Preferred Stock 0.5 12.0 12.6 13.6 16.2 Long-Term Debt 55.8 45.7 46.2 49.7 45.6 RATIOS (%) - ------------------------------------------------------------------------------------- Payout Ratio 74% 67% 120% 65% 90% Market-to-Book Ratio 113 112 114 125 146 Return on Average Common Equity 10.9 12.3 7.2 13.3 9.8 PROPERTY ($000) - ------------------------------------------------------------------------------------- Capital Expenditures $ 7,393 $6,507 $7,746 $5,112 $5,458 Pipeline Construction 0 0 0 0 5,659 Gross Utility Plant 101,983 96,571 91,863 86,098 83,016 Net Utility Plant 73,640 71,215 69,326 66,191 65,846 Net Non-Utility Plant 6,096 5,949 5,962 5,715 5,004 Total Assets 101,688 93,660 87,741 90,991 91,891 GAS SALES (MCF-000s) - ------------------------------------------------------------------------------------- Residential 2,730 2,814 2,513 2,839 2,730 Commercial & Industrial 2,289 2,626 2,305 2,625 2,681 Interruptible 592 522 1,104 807 1,012 - ------------------------------------------------------------------------------------- Total Natural Gas Sales 5,611 5,962 5,922 6,271 6,423 GAS TRANSPORTED (MCF-000s) - ------------------------------------------------------------------------------------- Firm Transportation 1,409 1,073 1,130 874 289 Interruptible Transportation 1,060 1,040 340 217 0 - ------------------------------------------------------------------------------------- Total Gas Sold and Transported 8,080 8,075 7,392 7,362 6,712 - ------------------------------------------------------------------------------------- 127 Propane Gallons Sold 4,443 4,251 3,738 3,904 3,522 OTHER STATISTICS - ------------------------------------------------------------------------------------- Customer Meters 32,526 32,129 31,925 31,445 31,053 Maximum Daily MCF Sendout 44,734 44,161 45,760 43,934 39,446 Minimum Daily MCF Sendout 7,847 8,381 8,216 8,114 7,371 Degree Days 6,953 7,402 6,748 7,651 7,396 20-Year Average Degree Days 7,301 7,300 7,354 7,356 7,341 Number of Employees 153 153 160 173 181
10-Year Comparative Summary of Operations and Statistics - --------------------------------------------------------------------------------
For the Years Ended June 30, OPERATIONS ($000) 1992 1991 1990 1989 1988 - ------------------------------------------------------------------------------------ Operating Revenues $47,969 $41,408 $39,476 $37,274 $34,992 Cost of Gas Sold 26,741 22,341 20,280 20,953 19,619 ----------------------------------------------- Operating Margin 21,228 19,067 19,196 16,321 15,373 ----------------------------------------------- Net Income 1,952 1,462 2,047 1,769 1,757 Earnings Available for Common Stock 1,849 1,377 1,955 1,671 1,653 COMMON SHARE DATA - ------------------------------------------------------------------------------------ Earnings Per Share $1.10 $0.83 $1.21 $1.05 $1.14 Annualized Dividends Per Share 1.08 1.08 1.28 1.28 1.28 Dividends Declared Per Share 1.08 1.23 1.28 1.28 1.235 Book Value Per Share 12.13 12.07 12.40 12.40 12.57 Market Price (Year-End) 14.75 13.00 14.50 17.25 16.75 Average Shares of Common Stock Outstanding (000s) 1,687.7 1,655.6 1,622.6 1,595.1 1,444.7 CAPITALIZATION ($000) - ------------------------------------------------------------------------------------ Common Equity $20,626 $20,155 $20,299 $19,904 $19,848 Preferred Stock 9,111 1,196 1,290 1,378 1,465 Long-Term Debt 26,564 28,156 29,147 23,066 14,952 ----------------------------------------------- Total Capitalization $56,301 $49,507 $50,736 $44,348 $36,265 ----------------------------------------------- % OF TOTAL - ------------------------------------------------------------------------------------ Common Equity 36.6% 40.7% 40.1% 44.9% 54.7% Preferred Stock 16.2 2.4 2.5 3.1 4.1 Long-Term Debt 47.2 56.9 57.4 52.0 41.2 128 RATIOS (%) - ------------------------------------------------------------------------------------ Payout Ratio 98% 130% 106% 122% 112% Market-to-Book Ratio 122 108 117 139 133 Return on Average Common Equity 9.1 6.8 9.7 8.4 9.5 PROPERTY ($000) - ------------------------------------------------------------------------------------ Capital Expenditures $5,165 $4,245 $6,438 $12,308 $9,778 Pipeline Construction 1,539 4,526 6,475 0 0 Gross Utility Plant 79,942 76,404 71,805 65,657 55,310 Net Utility Plant 64,840 63,277 60,558 55,991 46,576 Net Non-Utility Plant 8,965 10,627 8,119 2,882 2,616 Total Assets 92,124 95,971 83,680 65,240 56,886 GAS SALES (MCF-000s) - ------------------------------------------------------------------------------------ Residential 2,639 2,347 2,545 2,547 2,428 Commercial & Industrial 2,703 2,480 2,778 2,702 2,564 Interruptible 1,468 1,092 1,163 1,026 893 - ------------------------------------------------------------------------------------ Total Natural Gas Sales 6,810 5,919 6,486 6,275 5,885 - ------------------------------------------------------------------------------------ GAS TRANSPORTED (MCF-000s) - ------------------------------------------------------------------------------------ Firm Transportation 0 0 0 0 0 Interruptible Transportation 0 0 169 118 31 - ------------------------------------------------------------------------------------ Total Gas Sold and Transported 6,810 5,919 6,655 6,393 5,916 - ------------------------------------------------------------------------------------ Propane Gallons Sold 3,158 2,927 2,789 2,588 2,293 OTHER STATISTICS - ------------------------------------------------------------------------------------ Customer Meters 30,507 30,641 30,395 29,733 28,684 Maximum Daily MCF Sendout 38,237 37,095 38,012 37,480 38,917 Minimum Daily MCF Sendout 8,060 6,855 7,294 7,228 6,603 Degree Days 7,210 6,261 7,045 7,581 7,471 20-Year Average Degree Days 7,348 7,432 7,474 7,474 7,479 Number of Employees 180 185 191 194 182
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - ------------------------------------------------------------------------------- (Dollars in Thousands Except Share and Per Share Amounts) An Overview of 1997 - ------------------------------------------------------------------------------- The Company reported Earnings Available for Common Stock of $3,316 or $1.52 per share as compared to $3,521, or $1.65 in 1996. Despite approximately 5% warmer than normal weather this year, the impact on earnings was reduced due to management's debt restructuring program and the growth of the unbundled gas 129 transportation segment of the business. The number of degree days in 1997 was 6,953, a 6% decrease from the prior year and 5% less that the 20-year average. Earnings in 1997 represent a return on average common equity of 10.9%, confirming the Company's commitment to provide a fair return to shareholders. The book value per share rose to $14.18 from $13.75 in 1996. The Company's Board of Directors voted to increase the quarterly dividend paid on Common Stock to $.285 per share or $1.14 on an annual basis, indicating confidence in the Company's current and future performance. The Company has completed a debt restructuring program which replaced higher cost debt and Preferred Stock resulting in lower interest costs and taxes. Net Utility Plant increased to approximately $73,640, a 3.4% increase from 1996, reflecting capital expenditures of $7,393. These expenditures represent automation of the meter reading system as well as continued expansion and enhancement of the distribution system. Results of Operations - ------------------------------------------------------------------------------- 1997 vs. 1996 Earnings available for Common Stock were $3,316 for 1997 as compared to $3,521 for 1996; Earnings Per Share of Common Stock based on the average number of shares outstanding for the same periods were $1.52 and $1.65, respectively. The $.13 or 7.9% decrease in per share earnings from 1996 is due primarily to 9% warmer weather during the heating season. This decrease was offset in part by lower costs through debt restructuring and increased transportation revenues. Berkshire Gas Company considers Operating Margin (Operating Margin or Gross Profit=Operating Revenues Net of Cost of Gas Sold) to be a more pertinent measure of operating results than Operating Revenues. This is due primarily to the fact that revenues include changes in the cost of natural gas which must be recovered or returned to customers through the Cost of Gas Adjustment Clause ("CGAC"). Consequently, changes in the cost of gas will affect revenue levels, but do not have a corresponding effect on income. Additionally, margins earned on interruptible gas sold and transported are flowed back to the firm customers and therefore are not included in income. Accordingly, the discussion below pertains to Operating Margin. Operating Margin decreased $582 or 2.3% as compared with 1996. Operating Margin is primarily affected by the change in the level of firm gas sold and transported. The decrease from 1996 is primarily due to lower volumes of firm residential and commercial gas sold resulting from warmer than normal weather, particularly during the winter heating season when temperatures averaged 9% warmer than 1996, partially offset by higher transportation revenues and an increase in the number of customers.
1997 1996 ------- ------- Firm MCF Sold and Transported 6,428 6,513 Operating Margin $25,253 $25,835 Average Operating Margin Per Firm MCF $ 3.93 $ 3.97
130 Other Operating Expenses consisted of the following:
1997 1996 ------- ------- Transmission and Distribution $ 3,420 $ 3,304 Customer Accounts 3,029 3,172 Administrative and General 4,382 3,814 Other 1,231 1,192 ------------------ Total $12,062 $11,482 ==================
Other Operating Expenses increased $580 or 5.1% from 1996 levels. The increase reflects higher Administrative and General Costs of $568 due to higher professional fees. These costs reflect the Company's development of a strategic plan as the gas industry deregulates, the implementation of an early retirement program and higher workers compensation insurance. Other Operating Expenses also reflects increased Transmission and Distribution expense of $116 offset by lower Customer Accounts expense of $143, a result of meter reading automation. Depreciation Expense increased by $174 in 1997 over 1996 due to an increase in depreciable assets. Other Income increased $821 or 53.5% from 1996. The increase was primarily due to higher interest of $379 on the undercollection of prior period gas costs through the CGAC, higher Propane revenue of $296 due to increased gross margin and customer growth, and an increase in jobbing revenues of $149 due to increased activity. Interest Expense increased $505 or 14.5% due to the increase in long-term debt used to retire the $8,000, 8.4% Preferred Stock series and the cost of short-term debt to finance undercollected gas costs. Income Taxes decreased $420 from 1996 due to lower taxable earnings. Dividends declared on Preferred Stock decreased $452 due to the retirement of the 8.4% Preferred Stock in the second quarter of fiscal 1997. Overall cost of capital, which includes long-term and short-term interest, CGAC interest and dividends on Preferred Stock, decreased due to the Company's debt restructuring. Common Stock dividends increased $104 due to additional shares outstanding through the Company's Dividend Reinvestment Program ("DRIP") over the twelve-month period and, to a lesser extent, an increase in quarterly dividends to $.285 per share, from $.28 per share, effective the fourth quarter of 1997. 1996 vs. 1995 Earnings available for Common Stock were $3,521 for 1996 as compared to $1,835 for 1995. Earnings Per Share of Common Stock based on the average number 131 of shares outstanding for the same periods were $1.65 and $.92, respectively. The $.73 or 79.3% increase in per share earnings from 1995 is due primarily to more normal weather during the heating season, lower interest costs through the initial stages of debt restructuring and increased operating efficiencies. Operating Margin increased $2,721 or 11.8% as compared with 1995. Operating Margin is primarily affected by the change in the level of firm gas sold and transported. Interruptible gas sold and transported has no effect on Operating Margin since those margins are flowed back to the firm customer. The Company's sales are affected by weather as the majority of its firm customers use natural gas for heating. The increase from 1995 is primarily due to higher volumes of firm gas sold due to 9.7% colder weather than 1995, particularly during the winter heating season when temperatures averaged 16.6% colder than the 1995 season.
1996 1995 ------- ------- Firm MCF Sold and Transported 6,513 5,948 Operating Margin $25,835 $23,114 Average Operating Margin Per Firm MCF $ 3.97 $ 3.89
Other Operating Expenses consisted of the following:
1996 1995 ------- ------- Transmission and Distribution $ 3,304 $ 3,400 Customer Accounts 3,172 2,740 Administrative and General 3,814 4,173 Other 1,192 1,276 ------------------- Total $11,482 $11,589 ===================
Other Operating Expenses decreased $107 or .9% from 1995 levels. The Company's efforts in cost containment measures improved efficiency and reduced the work force. Decreased Transmission and Distribution expense of $96 reflects reductions in maintenance costs, and lower Administrative and General expense of $359 is due to lower medical costs, legal fees, and other employee benefits. Also contributing to the decrease was lower Other costs, reflecting savings in gas supply expenses and personnel reductions. Partially offsetting these reductions was an increase in Customer Accounts expense, which is primarily reflective of $482 of additional provision for bad debts. Depreciation Expense increased by $223 in 1996 over 1995 due to an increase in the amount of depreciable assets. Other Income increased $19 from 1995. Propane revenues increased $196 132 from 1995 due to colder winter weather. Partially offsetting the increase was lower jobbing revenue, appliance rentals and reduced interest income resulting from changes in the balance of the overcollection of prior period gas costs through the CGAC. Interest Expense decreased $186 due to the retirement of long-term debt and favorable borrowing rates. The Company called the 9 1/8% Debentures and First Mortgage Bonds (Series K and M) and temporarily financed this through lower-cost, short-term bank loans. Income Taxes increased $1,117 from 1995 due to higher earnings in 1996. Dividends declared on Common Stock increased $141 due to additional shares outstanding, and to a lesser extent, an increase in quarterly dividends to $.28 per share, from $.275, effective the fourth quarter of 1996. Liquidity and Capital Resources - ------------------------------------------------------------------------------- Cash flows from operating activities have increased over the twelve months ended June 30, 1997, primarily due to refunds from gas suppliers. Capital requirements have been generally funded by both internal and external sources. The issuance of long-term financing is dependent on management's evaluation of need, financial market conditions and other factors. Short-term financing is used to meet seasonal cash requirements. The Company initially finances construction expenditures and other funding needs primarily with short-term bank borrowings, and to a lesser extent with the reinvestment of dividends. The Company continually evaluates its short-term borrowing position and based on prevailing interest rates, market conditions, etc., makes determinations regarding conversion of short-term borrowings to long-term debt or equity. As part of this process during the second quarter of fiscal 1997, the Company repurchased the 80,000 shares of the 8.4% Preferred Stock at $117 per share. To finance these redemptions, the Company sold a $16,000 Senior Note at 7.8% due 2021. At June 30, 1996, in accordance with SFAS No. 6, the Company had classified $7,999 of Notes Payable to Banks as Long-Term Debt in anticipation of the Senior Note transaction. During fiscal 1995, the Company sold 295,000 shares of Common Stock, netting proceeds of $4,213 to repay short-term bank borrowings. The Company's capital expenditures were $7,393 in 1997, $6,507 in 1996, and $7,746 in 1995. These construction expenditures primarily represent investments in new and replacement mains and services, and the conversion to automated meter reading. The Company expects fiscal 1998 capital expenditures to total approximately $8,000. Construction expenditures will be financed initially through short-term borrowings and refinanced by issuing long-term debt and/or equity, to the extent that internally generated funds are not available. Beginning June 15, 1993, the Company's Share Owner Dividend Reinvestment and Stock Purchase Plan allowed for the sale of Common Stock shares at a 3.0% discount to plan participants to increase cash flow to support current construction expenditures. As of June 30, 1997, the Company had lines of credit aggregating $22,500, of which $16,020 remained unused. 133 Like other companies in the natural gas industry, the Company is a party to governmental actions associated with former gas manufacturing sites. Management estimates that future expenditures to remediate and monitor known environmental sites will range from $3,290 to $12,302. In accordance with SFAS No. 5, the Company has recorded the most likely cost of $3,290. The Company's unamortized costs at June 30, 1997, (which are not included in the above estimate of future costs), were $819 and should be recovered over a seven year period through the CGAC. Capitalization at June 30, 1997, excluding current redemption requirements of long-term debt (of which there are currently none), consisted of 55.8% long-term debt, 43.7% common equity, and 0.5% preferred stock. It is management's view that the Company has adequate access to capital markets and will have sufficient capital resources, both internal and external, to meet anticipated capital requirements. Inflation - ------------------------------------------------------------------------------- The accompanying financial statements reflect the historical cost of events and transactions, regardless of the purchasing power of the dollar at the time. Due to the capital intensive nature of the Company's business, the most significant impact of inflation is on the Company's depreciation of utility plant. Rate regulation, to which the Company is subject, allows recovery through its rates of only the historical cost of utility plant as depreciation. The Company expects that any higher costs experienced upon replacement of existing facilities will be recovered through the normal regulatory process. New Accounting Pronouncement - ------------------------------------------------------------------------------- Statement of Financial Accounting Standards No. 128 ("SFAS 128") "Earnings Per Share," was issued in February 1997, and is effective for financial statements issued after December 15, 1997. The statement establishes new standards for computing and presenting earnings per share ("EPS") and will require restatement of prior year's information. This statement simplifies the standards for computing EPS previously found in APB Opinion 15. It replaces the presentation of primary and fully diluted EPS with a presentation of basic EPS and diluted EPS, requires a dual presentation on the face of the financial statements, and requires a reconciliation of basic EPS to diluted EPS. Had SFAS 128 been effective for the June 30, 1997, financial statements, computation and presentation of EPS would not change because the earnings per share as reported are consistent with "basic earnings per share" as defined in SFAS 128 and the Company has no dilutive securities. STATEMENTS OF INCOME - ------------------------------------------------------------------------------- (In Thousands)
Years Ended June 30, 1997 1996 1995 - ------------------------------------------------------------------------------ 134 Operating Revenues $48,463 46,050 $47,934 Cost of Gas Sold 23,210 20,215 24,820 - ------------------------------------------------------------------------------ Operating Margin 25,253 25,835 23,114 - ------------------------------------------------------------------------------ Other Operating Expenses 12,062 11,482 11,589 Depreciation 4,020 3,846 3,623 - ------------------------------------------------------------------------------ Total 16,082 15,328 15,212 - ------------------------------------------------------------------------------ Utility Operating Income 9,171 10,507 7,902 Other Income - Net 2,356 1,535 1,516 - ------------------------------------------------------------------------------ Operating and Other Income 11,527 12,042 9,418 Interest Expense 3,978 3,473 3,667 Other Taxes 1,771 1,714 1,697 - ------------------------------------------------------------------------------ Pre-tax Income 5,778 6,855 4,054 Income Taxes 2,222 2,642 1,525 - ------------------------------------------------------------------------------ NET INCOME $3,556 $4,213 $2,529 ============================================================================== Earnings Available for Common Stock $3,316 $3,521 $1,835 ============================================================================== Average Shares of Common Stock Outstanding 2,181.5 2,129.2 1,990.5 - ------------------------------------------------------------------------------ Earnings Per Share of Common Stock $1.52 $1.65 $0.92 ==============================================================================
Reference should be made to Notes to Financial Statements. BALANCE SHEETS - -------------------------------------------------------------------------------
(In Thousands) June 30, 1997 1996 1995 - ---------------------------------------------------------------------------------------- ASSETS Utility Plant: Utility Plant-at original cost $101,983 $96,571 $91,863 Less: Accumulated Depreciation 28,343 25,356 22,537 - ---------------------------------------------------------------------------------------- Utility Plant-Net 73,640 71,215 69,326 - ---------------------------------------------------------------------------------------- Other Property: Other Property-at original cost 11,983 11,229 10,766 Less: Accumulated Depreciation 5,887 5,280 4,804 - ---------------------------------------------------------------------------------------- 135 Other Property-Net 6,096 5,949 5,962 - ---------------------------------------------------------------------------------------- Current Assets: Cash and Cash Equivalents 356 196 492 Accounts Receivable 7,255 6,466 6,612 Other Receivables 332 347 234 Inventories 3,665 3,070 3,236 Prepayments and Other 689 307 178 Prepaid Taxes 96 249 (125) Recoverable(Refundable) Gas Costs 1,404 (831) (4,117) - ---------------------------------------------------------------------------------------- Total Current Assets 13,797 9,804 6,510 - ---------------------------------------------------------------------------------------- Deferred Debits: Unamortized Debt Expense - Net 2,302 729 578 Capital Stock Expense - Net 319 508 638 Environmental Cleanup Costs 819 973 1,046 Other 1,425 1,192 787 - ---------------------------------------------------------------------------------------- Total Deferred Debits 4,865 3,402 3,049 - ---------------------------------------------------------------------------------------- Recoverable Environmental Cleanup Costs 3,290 3,290 2,894 - ---------------------------------------------------------------------------------------- TOTAL ASSETS $101,688 $93,660 $87,741 ======================================================================================== CAPITALIZATION AND LIABILITIES Common Shareholders' Equity: Common Stock $ 5,529 $ 5,382 $ 5,259 Premium on Common Stock 17,097 16,330 15,711 Retained Earnings 8,739 7,883 6,718 - ---------------------------------------------------------------------------------------- Total Common Shareholders' Equity 31,365 29,595 27,688 - ---------------------------------------------------------------------------------------- Redeemable Cumulative Preferred Stock 363 8,406 8,448 - ---------------------------------------------------------------------------------------- Long-Term Debt (less current maturities) 40,000 31,999 30,983 - ---------------------------------------------------------------------------------------- Current Liabilities: Notes Payable to Banks 6,480 3,636 0 Current Maturities of Long-Term Debt 0 0 900 Accounts Payable 3,513 3,176 3,091 Other Current Liabilities 4,621 2,453 4,557 - ---------------------------------------------------------------------------------------- Total Current Liabilities 14,614 9,265 8,548 - ---------------------------------------------------------------------------------------- Other Liabilities 1,561 1,159 961 - ---------------------------------------------------------------------------------------- Unamortized Investment Tax Credit 1,209 1,280 1,355 - ---------------------------------------------------------------------------------------- Deferred Income Taxes 9,286 8,666 6,864 - ---------------------------------------------------------------------------------------- Reserve for Recoverable Environmental Cleanup Costs 3,290 3,290 2,894 - ---------------------------------------------------------------------------------------- TOTAL LIABILITIES AND OTHER CREDITS $101,688 $93,660 $87,741 ========================================================================================
136 Reference should be made to Notes to Financial Statements. STATEMENTS OF SHAREHOLDERS' EQUITY - ------------------------------------------------------------------------------- (In Thousands, Except Share Amounts)
Redeemable Common Stock Cumulative Preferred ----------------------------------------- -------------------- Par Retained Shares Value Premium Earnings Shares Cost - ------------------------------------------------------------------------------------------------- Balance at June 30, 1994 1,766,909 $4,417 $11,431 $7,098 84,906 $ 8,491 Public Offering 295,000 738 3,756 Issuance through Dividend Reinvestment Program 41,523 104 524 Net Income 2,529 Dividends on Preferred Stock (694) Dividends on Common Stock (2,215) Redemption of Preferred Stock (428) (43) - ------------------------------------------------------------------------------------------------- Balance at June 30, 1995 2,103,432 $5,259 $15,711 $6,718 84,478 $ 8,448 Issuance through Dividend Reinvestment Program 49,160 123 619 Net Income 4,213 Dividends on Preferred Stock (692) Dividends on Common Stock (2,356) Redemption of Preferred Stock (423) (42) - -------------------------------------------------------------------------------------------------- Balance at June 30, 1996 2,152,592 $5,382 $16,330 $ 7,883 84,055 $ 8,406 Issuance through Dividend Reinvestment Program 59,059 147 767 Net Income 3,556 Dividends on Preferred Stock (240) Dividends on Common Stock (2,460) Redemption of Preferred Stock (80,423) (8,043) - -------------------------------------------------------------------------------------------------- Balance at June 30, 1997 2,211,651 $5,529 $17,097 $ 8,739 3,632 $ 363 ==================================================================================================
Reference should be made to Notes to Financial Statements. STATEMENTS OF CASH FLOWS - -------------------------------------------------------------------------------
(In Thousands) Years Ended June 30, 1997 1996 1995 - --------------------------------------------------------------------------------------- 137 Cash Flows from Operating Activities: Net Income.......................................... $3,556 $4,213 $2,529 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization....................... 4,897 4,732 4,477 Provision for Losses on Accounts Receivable......... 973 1,225 741 (Recoverable) Refundable Gas Costs.................. (2,235) (3,286) 3,615 Deferred Income Taxes............................... 620 1,802 (1,419) Changes in Assets and Liabilities Which Provided (Used) Cash: Accounts and Other Receivables...................... (1,747) (1,192) 1,233 Inventories......................................... (595) 166 393 Unamortized Debt Expense............................ (169) (196) 0 Unamortized Capital Stock Expense................... 0 0 (155) Accounts Payable.................................... 337 85 315 Taxes Accrued....................................... 153 (374) 280 Consumer Rebates and Other.......................... 2,108 (2,368) 960 - --------------------------------------------------------------------------------------- Net Cash Provided by Operating Activities........... 7,898 4,807 12,969 - --------------------------------------------------------------------------------------- Cash Flows from Investing Activities: Capital Expenditures and Disposal Costs............. (7,393) (6,507) (7,746) - --------------------------------------------------------------------------------------- Net Cash Used in Investing Activities............... (7,393) (6,507) (7,746) - --------------------------------------------------------------------------------------- Cash Flows from Financing Activities: Dividends Paid..................................... (2,700) (3,048) (2,909) Current Maturities of Long-Term Debt............... 0 (900) 0 Proceeds from (Principal Payments on) Issuance of Long-Term Debt.................................... 16,000 (6,983) (100) Proceeds from (Principal Payments on) Notes Payable Borrowings-Net.................................... (5,155) 11,635 (6,580) Proceeds from Issuance of Common Stock-Net.......... 0 0 4,213 Redemption of Preferred Stock (Including Call Premium)........................................... (9,360) 0 0 Proceeds from Other Stock Transactions-Net.......... 870 700 580 - --------------------------------------------------------------------------------------- Net Cash (Used in) Provided by Financing Activities (345) 1,404 (4,796) - --------------------------------------------------------------------------------------- Net Increase (Decrease) in Cash and Cash Equivalents.. 160 (296) 427 Cash and Cash Equivalents at Beginning of Year........ 196 492 65 - --------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year.............. $356 $196 $492 ======================================================================================= Supplemental Disclosures of Cash Flow Information: Cash Paid During the Year for: Interest (net of amount capitalized)............... $3,974 $3,336 $3,452 Income Taxes (net of refund)....................... 1,527 1,281 3,027 ======================================================================================= Supplemental Disclosures of Financing Activities: In 1996, the Company reclassified $7,999 from Short-Term Notes Payable to Long-Term Debt. (See footnote on Long-Term Debt) =======================================================================================
138 Reference should be made to Notes to Financial Statements. NOTES TO FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- (Dollars in Thousands, Except Share and Per-Share Amounts) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - ------------------------------------------------------------------------------- The Berkshire Gas Company ("the Company") is a publicly owned utility engaged in the distribution and sale of natural gas for residential, commercial and industrial use, as well as the transportation of natural gas for larger industrial users. The Company also sells and leases gas burning equipment, and markets liquefied petroleum gas through its Berkshire Propane operations. The Company's utility service territory encompasses portions of three counties in western Massachusetts. It also markets propane throughout the western portion of Massachusetts, eastern New York and southern Vermont. The Company is subject to regulation by the Massachusetts Department of Public Utilities ("MDPU") as it relates to utility service. The Company's accounting policies conform to Generally Accepted Accounting Principles ("GAAP") as applied to public utilities giving effect to the accounting practices and policies of the MDPU. Income Taxes - ------------------------------------------------------------------------------- The Company uses the liability method in calculating deferred income taxes. The Company records deferred income tax liabilities for temporary differences between the basis of assets and liabilities for financial reporting and income tax purposes at tax rates expected to be in effect during the periods the temporary differences reverse. The Company has excess deferred taxes which has resulted in the recording of a regulatory liability. The regulatory liability reflects amounts due to the ratepayers which will be refunded through the regulatory process. Depreciation - ------------------------------------------------------------------------------- The Company depreciates its utility plant at straight line rates approved by the MDPU. The current composite depreciable rate is 4.04% and has been in effect since April 1, 1993. Depreciable non-utility property consists of rental equipment, propane tanks and related equipment used in the Company's liquefied petroleum gas operations, and is depreciated at annual rates ranging from 2.5% to 20.0%. Revenues - ------------------------------------------------------------------------------- Customer meters are read or estimated on a cycle basis throughout each month. After the reading or estimation is prepared, customers are billed for their gas usage and any applicable monthly rental fee. At the time of billing, revenues are recorded. Pursuant to the MDPU, the Company is required to recover increases in gas costs and to refund any decreases in gas costs by way of the Cost of Gas Adjustment Clause ("CGAC"). A gas adjustment charge or refund for estimated gas 139 costs as compared with actual gas costs and any profit on the sale of interruptible volumes are included in the monthly customer billings via the CGAC. Any difference between actual and estimated gas costs plus interest is accrued or deferred and is recorded in the month the related revenue is billed. Unamortized Debt Expense - ------------------------------------------------------------------------------- The issuance costs associated with long-term debt are deferred and amortized over the life of the issue. Investment Tax Credit - ------------------------------------------------------------------------------- The unamortized balance of the Investment Tax Credit ("ITC") relating to machinery and equipment acquisitions up through 1986 is deducted from federal income taxes and is deferred on the balance sheet, as prescribed by the MDPU, and is being amortized over the expected lives of the applicable assets. The unamortized balance of the ITC for the years ended June 30, 1997, 1996 and 1995, was $1,209, $1,280 and $1,355, respectively. The amortized portion for the years ended June 30, 1997, 1996 and 1995, was $71, $75 and $75. Utility Plant - ------------------------------------------------------------------------------- The cost of maintenance, repairs and the renewal of items determined to be less than full units of plant property are charged to maintenance expense accounts. The cost of betterments and the renewal of full units of plant property are charged to plant property accounts. Costs include materials, labor and indirect charges for engineering, general and administrative and supervisory services. The book value of plant property replaced, retired or sold is concurrently removed from such plant property accounts and charged to accumulated depreciation along with its associated removal costs, less any salvage value. A functional classification for the cost of utility plant at June 30 is as follows:
1997 1996 1995 ---------------------------------------------------------------------------- Transmission and Distribution Plant....... $ 87,206 $82,255 $77,128 General Plant............................. 9,387 9,498 9,549 Manufactured Gas Production Plant......... 4,518 4,485 4,455 Construction in Progress.................. 872 333 731 ---------------------------------------------------------------------------- Total..................................... $101,983 $96,571 $91,863 ============================================================================
Transmission and Distribution Plant consists of mains, services and meters, the cost for their installation, land and rights of way, and measuring and regulating station equipment which is used to deliver and monitor gas used 140 by the customer. General Plant consists of structures and their improvements, office furniture and equipment, including computers, and transportation equipment. The Manufactured Gas Production Plant consists of land, gas mixing equipment and liquefied petroleum gas equipment used to supplement natural gas volumes during the peak season in order to meet customer demand. Earnings per Share - ------------------------------------------------------------------------------- Earnings per Common Share have been computed by dividing earnings applicable to Common Stock by the weighted average number of shares of Common Stock outstanding during each year. Estimates - ------------------------------------------------------------------------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Long-Lived Assets - ------------------------------------------------------------------------------- In fiscal 1997, the Company adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The statement requires entities to review long-lived assets and intangible assets in certain circumstances, and if the value of the assets is impaired, an impairment loss shall be recognized. Due to the Company's previous accounting policies, this pronouncement had no material effect on the Company's financial position or results of operations. New Accounting Pronouncement - ------------------------------------------------------------------------------- Statement of Financial Accounting Standards No. 128 ("SFAS 128") "Earnings Per Share," was issued in February 1997, and is effective for financial statements issued after December 15, 1997. The statement establishes new standards for computing and presenting earnings per share ("EPS") and will require restatement of prior year's information. This statement simplifies the standards for computing EPS previously found in APB Opinion 15. It replaces the presentation of primary and fully diluted EPS with a presentation of basic EPS and diluted EPS, requires a dual presentation on the face of the financial statements, and requires a reconciliation of basic EPS to diluted EPS. Had SFAS 128 been effective for the June 30, 1997, financial statements, computation and presentation of EPS would not change because the earnings per share as reported are consistent with "basic earnings per share" as defined in SFAS 128 and the Company has no dilutive securities. ACCOUNTS RECEIVABLE - ------------------------------------------------------------------------------- 141 Details of accounts receivable, net of allowance for doubtful accounts, as of June 30 were as follows:
1997 1996 1995 ------------------------------------------------------------ Utility Service............... $6,386 $5,781 $6,103 Merchandise and Jobbing....... 103 117 118 Liquefied Petroleum........... 766 568 391 ------------------------------------------------------------ Total - Net................... $7,255 $6,466 $6,612 ============================================================
The allowance for doubtful accounts as of June 30, 1997, 1996 and 1995, respectively, was: Utility - $900, $720, and $832; Merchandise - $43, $33 and $44; Liquefied Petroleum - $78, $63 and $74. INVENTORIES - ------------------------------------------------------------------------------- Materials, supplies and liquefied petroleum used in the non-utility operations are valued at the lower of average cost or market value; liquefied petroleum used in the utility operations is valued at cost; and natural gas is recorded at cost. The details of these inventories as of June 30 were as follows:
1997 1996 1995 - ----------------------------------------------------------- Materials and Supplies........ $1,675 $1,492 $1,284 Natural Gas................... 1,844 1,330 1,702 Liquefied Petroleum........... 146 248 250 - ----------------------------------------------------------- TOTAL - Net................ $3,665 $3,070 $3,236 ===========================================================
RECLASSIFICATION - ------------------------------------------------------------------------------- The Company has reclassified certain amounts for prior years to conform with the 1997 presentation. COMMON STOCK - ------------------------------------------------------------------------------- The Company offers a plan for the purchase of Common Stock whereby all participants in the plan are eligible to purchase shares at a 3% discount of the average of the daily high and low prices for the five consecutive trading 142 days ending on and including the day of purchase. Participants can purchase shares by reinvesting dividends on Common Stock already held and/or through optional cash payments. During the current fiscal year, the Company received approval from the MDPU for an additional 200,000 shares to be issued through the DRIP. During fiscal 1995, the Company sold 295,000 shares of Common Stock in a public offering. The Charter provisions applicable to the 4.8% Cumulative Preferred Stock, the First Mortgage Indenture and the 7.8% Senior Note contain restrictions on the use of retained earnings for the payment of cash dividends on, or purchases of, Common Stock. At June 30, 1997, the Company's retained earnings were $8,739. At such date, under the most restrictive of these provisions, $4,966 of the retained earnings were unrestricted. REDEEMABLE CUMULATIVE PREFERRED STOCK - ------------------------------------------------------------------------------- (Actual Shares and Dollars) The Company has one series of 4.8% Cumulative Preferred Stock authorized. The redemption price per share (as well as the amount due on voluntary liquidation) is $100.00. The provisions of the 4.8% Cumulative Preferred Stock require the Company to offer to purchase up to 450 shares at par annually on September 15. Pursuant thereto, the Company purchased 423 shares during 1997, 423 shares during the 1996 fiscal year, and 428 shares during 1995. During the second quarter of fiscal 1997, the Company repurchased the 80,000 shares of the 8.4% Preferred Stock at $117 per share (see Long-Term Debt footnote). LONG-TERM DEBT - ------------------------------------------------------------------------------- Details regarding the Company's First Mortgage Bonds, Debentures, Senior and Medium-Term Notes Payable, and sinking funds (due after one year) as of June 30 were as follows:
Interest Final Description Rate Maturity 1997 1996 1995 - --------------------------------------------------------------------------- First Mortgage Bonds: Series K 7.875 1997 $ 0 $ 0 $ 520 M 9.375 1998 0 0 720 P 10.060 2019 10,000 10,000 10,000 Debenture: 9.125 2006 0 0 5,743 Senior Note: 9.600 2020 8,000 8,000 8,000 Medium-Term Note: 6.922 1999 6,000 6,000 6,000 Senior Note: 7.800 2021 16,000 7,999 0 - --------------------------------------------------------------------------- TOTAL.................................... $40,000 $31,999 $30,983 ===========================================================================
143 All interest rates are fixed except the Medium-Term Note, which is variable based upon the LIBOR six month rate and which is convertible at the option of the Company to a fixed rate based upon the lender's cost of funds rate. The aggregate amount of maturities due are: 1998 - $0; 1999 - $6,000; 2000 - $0; 2001 - $0, 2002 - 0; and $34,000 maturing thereafter per the dates in the table above. The First Mortgage Bonds are collateralized by substantially all of the utility plant. During 1997, in conjunction with the Company's cost containment incentives, the Company revised its capital structure to lower its borrowing costs. The Company issued a $16,000, 7.8% Senior Note and used the proceeds to redeem 80,000 shares of the 8.4% Preferred Stock and to refinance $7,999 of short-term bank debt. At June 30, 1996, for financial reporting purposes, the Company had classified the $7,999 of short-term bank debt as long-term in anticipation of the issuance of the 7.8% Senior Note. The Indentures of the Series P Mortgage Bonds and 7.8% Senior Note contain certain restrictive and financial covenants, principally calculation of a fixed charge ratio, return on equity, and limitation on funded debt. As of June 30, 1997, the Company was not in violation of any such covenants. SHORT-TERM LOANS AND COMPENSATING BALANCES - ------------------------------------------------------------------------------- The Company has lines of credit aggregating $22,500 with various banks, of which $16,020 remained unused as of June 30, 1997. The lines of credit are reviewed periodically with various banks and may be renewed or cancelled. In connection with these lines of credit, the Company borrows at less than the prime rate. In lieu of compensating balance requirements, the Company pays commitment fees on a portion of its credit lines equating to 3/8 of 1% on $4,000 with the various banks. Information as to short-term borrowings is as follows:
1997 1996 1995 - ---------------------------------------------------------------------------------- Balance Outstanding at June 30..................... $ 6,480 $ 3,636 $ 0 Maximum Amount of Borrowings at Any Month-End...... 19,190 10,410 10,470 Average Borrowings During the Year................. 12,434 6,561 5,604 Average Interest Rate at End of Year............... 6.72% 6.40% 7.31% Weighted Average Interest Rate During the Year..... 6.44% 6.46% 6.60%
OTHER CURRENT LIABILITIES - ------------------------------------------------------------------------------- Details of other current liabilities as of June 30 were as follows:
1997 1996 1995 - ------------------------------------------------------------ 144 Accrued Interest................ $ 927 $ 769 $ 839 Insured Retirement Plan......... 192 292 377 Dividends Declared.............. 635 776 752 Accrued Consumer Rebates........ 2,251 139 2,044 Other........................... 616 477 545 - ------------------------------------------------------------ TOTAL........................ $4,621 $2,453 $4,557 ============================================================
Accrued consumer rebates represent refunds received from a major supplier of natural gas to the Company. The refunds are associated with the suppliers' rate case before FERC, and are to be refunded to the ratepayer during the next fiscal year. LEASE COMMITMENTS - ------------------------------------------------------------------------------- The Company is committed under operating leases having an initial lease term of one year or more expiring on various dates. Rental expense under all long-term operating leases aggregated $695, $204 and $88 in fiscal 1997, 1996 and 1995, respectively. The minimum future obligations under long-term noncancelable leases in effect at June 30, 1997, were as follows: 1998 $ 813 1999 681 2000 362 2001 166 2002 95 ------ Total $2,117 ======
INCOME TAXES - ------------------------------------------------------------------------------- The difference in the effective tax rate compared with the statutory tax rate is shown in the following table:
1997 1996 1995 - ---------------------------------------------------------------------- Tax at Statutory Rate...................... 34% 34% 34% State Taxes (Net of Federal Benefit)....... 4.5 4.4 4.5 Investment Tax Credit...................... (1.2) (1.1) (1.9) Permanent Differences...................... 1.2 1.2 1.0 - ---------------------------------------------------------------------- Effective Tax Rate......................... 38.5% 38.5% 37.6% ======================================================================
145 A summary of the tax provision is as follows:
1997 1996 1995 - ---------------------------------------------------------------- Federal Income - Current........... $1,393 $ 790 $2,169 Federal Income - Deferred.......... 437 1,391 (923) State - Current.................... 285 190 512 State - Deferred................... 107 271 (233) - ---------------------------------------------------------------- TOTAL........................... $2,222 $2,642 $1,525 ================================================================
The components of the net deferred income tax liability at June 30 are as follows:
1997 1996 1995 - ---------------------------------------------------------------------------- Deferred Liabilities: Investment Tax Credit...................... $ 467 $ 512 $ 558 Excess Tax over Book Depreciation.......... 8,837 8,802 8,731 Recoverable (Refundable) Gas Costs......... 301 (545) (1,789) Environmental Response Costs............... 228 225 207 - ---------------------------------------------------------------------------- Total Deferred Liabilities............. 9,833 8,994 7,707 - ---------------------------------------------------------------------------- Deferred Assets: Other.................................... (547) (328) (843) - ---------------------------------------------------------------------------- Total Deferred Assets.................. (547) (328) (843) - ---------------------------------------------------------------------------- Total Net Deferred Income Taxes.............. $9,286 $8,666 $ 6,864 ============================================================================
CONTINGENCIES - ------------------------------------------------------------------------------- Federal, state and local laws and regulations establishing standards and requirements for the protection of the environment have increased in number and scope in recent years. The Company cannot predict the future impact of such standards and requirements, which are subject to change and can be retroactively applied. During fiscal 1990, the MDPU issued a generic ruling on cost recovery for environmental cleanup with respect to former gas manufacturing sites. Under the ruling, the Company will recover annual cleanup costs, excluding carrying costs, over a seven-year period through the CGAC. This ruling also provides for the sharing of any proceeds received from insurance carriers equally between the Company and its ratepayers, and establishes maximum amounts that can be recovered from customers in any one year. 146 During the year ended June 30, 1997, the Company continued the analysis and field review of two parcels of real estate formerly used for gas manufacturing operations, which had been found to contain coal tar deposits and other substances associated with by-products of the gas manufacturing process. The review and assessment process began in 1985 with respect to the first site, which is owned by the Company, and in 1989 with respect to the second site, which was formerly owned by the Company. With the review and approval of the Massachusetts Department of Environmental Protection ("MDEP"), at one site, the investigative activities are continuing, while at the second site, the investigative work is near completion and remedial alternatives are being examined. It is difficult to predict the potential financial impact of the sites until first, the nature and risk is fully characterized, and second, the remedial strategies and related technologies are determined. The general philosophy of the Company is one of source removal and/or reduction coupled with risk minimization. Assuming successful implementation, it is anticipated that through 2012 the level of future expenditures for the sites will range from $3,290 to $12,302. The Company has recorded the most likely cost of $3,290 in accordance with SFAS No. 5. Ultimate expenditures cannot be determined until a remedial action plan can be developed and approved by the MDEP. The Company's unamortized costs at June 30, 1997 (which are not included in the above estimate of future costs), were $819 and should be recovered using the formula discussed above. FERC Order 636 provides for 100% recovery by pipelines of any "Transition Costs" prudently incurred as a result of industry restructuring. As these costs have been and may be approved in the future, they have been and will be passed through to the Company as demand charges associated with the transportation of gas through the pipeline. Under current rate structures, these costs are recovered through the CGAC. Legal Matters - ------------------------------------------------------------------------------- The Company is involved with other legal proceedings incidental to its business. At the present time the Company cannot predict the outcome of these proceedings and also believes that the outcomes will not have a material adverse impact on its overall financial position or results of operations. OTHER INCOME - ------------------------------------------------------------------------------- A condensed summary of the Company's non-utility operations before income tax (included in the "Statements of Income under "Other Income - Net") as of June 30 is as follows:
1997 1996 1995 - ---------------------------------------------------------------- Merchandise and Jobbing: Sales............................ $1,064 $ 892 $1,068 Cost of Sales and Expenses....... 730 718 862 - ---------------------------------------------------------------- Net............................... 334 174 206 - ---------------------------------------------------------------- Appliance Rentals: 147 Revenues......................... 1,410 1,404 1,380 Expenses......................... 797 774 671 - ---------------------------------------------------------------- Net............................... 613 630 709 - ---------------------------------------------------------------- Liquefied Petroleum Gas: Sales............................ 5,469 4,634 4,022 Cost of Sales and Expenses....... 4,657 4,118 3,703 - ---------------------------------------------------------------- Net............................... 812 516 319 - ---------------------------------------------------------------- Miscellaneous Net................. 597 215 282 - ---------------------------------------------------------------- TOTAL.......................... $2,356 $1,535 $1,516 ================================================================ POST-RETIREMENT BENEFITS - ------------------------------------------------------------------------------- The Company has non-contributory funded retirement income plans covering substantially all employees. The cost of the plans is actuarially determined, and it is the Company's policy to fund accrued pension costs. The net pension cost in 1997, 1996 and 1995, is summarized as follows:
1997 1996 1995 - ---------------------------------------------------------------------- Service Cost............................. $ 556 $ 608 $ 634 Interest Cost............................ 1,242 1,222 1,135 Return on Plan Assets: Actual.................................. (2,019) (3,491) (1,009) Deferred................................ 447 1,955 (397) - ---------------------------------------------------------------------- Net Recognized Return on Plan Assets... (1,572) (1,536) (1,406) Other.................................... 283 218 259 - ---------------------------------------------------------------------- Net Pension Cost....................... $ 509 $ 512 $ 622 ======================================================================
The funded status and accrued pension cost for the defined benefit plans at June 30 are as follows:
1997 1996 1995 - -------------------------------------------------------------------------------- Fair Value of Plan Assets........................ $22,281 $20,593 $17,267 Projected Benefit Obligation..................... 17,146 16,946 16,647 - -------------------------------------------------------------------------------- 148 Excess of Fair Value of Plan Assets Over Projected Benefit Obligation.................... 5,135 3,647 620 Unrecognized Net Gain............................ (7,674) (6,213) (3,315) Unrecognized Prior Service Cost.................. 1,000 953 930 Unrecognized Net Obligation (at transition)...... 1,110 1,290 1,469 - -------------------------------------------------------------------------------- Accrued Pension Cost............................. $ (429) $ (323) $ (296) ================================================================================ Accumulated Benefit Obligation................... $14,597 $14,240 $13,314 ================================================================================ Vested Benefit Obligation........................ $14,577 $14,151 $13,293 ================================================================================ Assumed Discount Rate............................ 7.75% 7.5% 7.00% Assumed Rate of Compensation Increase............ 4.125% 4.125% 5.625% Expected Rate of Return on Plan Assets........... 8.75% 9.25% 9.25% - --------------------------------------------------------------------------------
Plan assets are invested in equity securities, debt securities and cash equivalents, and the balance is in other investments, principally real estate. The benefit formula is based either on the number of years of service or the employee's average base salary for the five years yielding the highest average. The Company maintains a 401(k) Post-Retirement Plan for all Company employees. The Company matches up to 3.5% of a participating employee's annual salary. The expense for the years ended June 30, 1997, 1996 and 1995, related to the 401(k) Plan was $219, $222 and $223, respectively. Fair Value of Financial Instruments - ------------------------------------------------------------------------------- Because of the short maturity of certain assets, which include Cash, Cash Equivalents and Accounts Receivable, and certain liabilities, which include Accounts Payable, these instruments are stated at amounts which approximate fair value. Long-Term Debt: Rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate fair values of existing debt. As of June 30, 1997, the estimated fair values of the Series P Mortgage Bonds, the 9.6% Senior Note, and the 7.8% Senior Note were $12,281, $9,052 and $15,704, respectively. The Medium-Term Note carries a variable interest rate and matures within two years. As such, the carrying value approximates fair value. Redeemable Preferred Stock: It was not practicable to estimate the fair value of the 4.8% Redeemable Preferred Stock, as any resultant difference between the fair value and its carrying value is immaterial. INDEPENDENT AUDITORS' REPORT Deloitte & Touche LLP - ------------- -------------------------------------------- 149 City Place Telephone:(860)280-3000 185 Asylum Street Facsimile:(860)280-3051 Hartford, Connecticut 06103-3402 To the Shareholders of The Berkshire Gas Company: We have audited the accompanying balance sheets of The Berkshire Gas Company for the years ended June 30, 1997, 1996 and 1995, and the related statements of income, shareholders' equity and of cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of the Company at June 30, 1997, 1996 and 1995, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ DELOITTE & TOUCHE LLP Deloitte & Touche LLP August 15, 1997 QUARTERLY FINANCIAL INFORMATION - ------------------------------- A comparison of unaudited quarterly financial information is presented on page 31. ANNUAL MEETING - -------------- The annual meeting of shareholders will be held in Pittsfield, Massachusetts, at the Crowne Plaza Pittsfield Hotel (formerly the Berkshire Hilton Inn), on Friday, November 7, 1997, at 10:00 A.M. SHARE OWNER DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN - --------------------------------------------------------- The Company has a program which allows for the reinvestment of dividends and optional cash payments to purchase additional shares of the Company's Common Stock at a 3% discount. The Plan is available to all shareholders of 10 150 or more shares and provides a convenient method to acquire additional shares without fees or other charges. Shareholders who wish to take advantage of the Plan or want additional information may do so by contacting: The Berkshire Gas Company Attn.: Secretary of the Share Owner Dividend Reinvestment and Stock Purchase Plan Committee 115 Cheshire Road Pittsfield, Massachusetts 01201-1879 (413) 442-1511 TRANSFER AGENT - -------------- State Street Bank and Trust Company P.O. Box 8200 Boston, Massachusetts 02266-8200 STOCK LISTING - ------------- The Common Stock of The Berkshire Gas Company is traded on the National Over-the-Counter Market and is quoted through the NASDAQ System under the symbol BGAS. FORM 10-K INFORMATION - --------------------- Upon written request to the Company at 115 Cheshire Road, Pittsfield, Massachusetts 01201-1879, a copy of the Company's current Form 10-K Annual Report, as filed with the Securities and Exchange Commission, will be provided to any shareholder without charge. This report has been prepared for the purposes of information and record only and not in connection with the sale or offer for sale of securities, or any solicitation of an offer to buy securities. QUARTERLY FINANCIAL INFORMATION - ------------------------------------------------------------------------------- For the Fiscal Year Ended June 30, (In Thousands, Except Per-Share Amounts) (Unaudited)
1997 First Second Third Fourth - ----------------------------------------------------------------------------- Operating Revenues $4,117 $12,109 $21,803 $10,434 Operating and Other Income (165) 3,298 6,834 1,560 Income (Loss) Before Income Taxes (1,143) 1,826 4,932 163 Net Income (Loss) (708) 1,124 3,042 98 Earnings (Loss) Per Share (0.41) 0.48 1.38 0.06 Dividends Declared Per Share 0.28 0.28 0.28 0.285 Prices of Common Shares: 151 High 16 3/4 18 17 1/2 16 Low 14 7/8 15 1/4 15 1/4 15 1996 - ----------------------------------------------------------------------------- Operating Revenues $4,153 $11,952 $21,059 $8,886 Operating and Other Income 133 3,163 7,198 1,547 Income (Loss) Before Income Taxes (925) 1,849 5,495 436 Net Income (Loss) (574) 1,138 3,387 262 Earnings (Loss) Per Share (0.35) 0.45 1.50 0.04 Dividends Declared Per Share 0.275 0.275 0.275 0.28 Prices of Common Shares: High 15 1/2 17 16 3/4 16 Low 14 15 15 14 3/4 1995 - ----------------------------------------------------------------------------- Operating Revenues $4,832 $12,086 $21,615 $9,401 Operating and Other Income (Loss) (124) 2,378 5,869 1,295 Income (Loss) Before Income Taxes (1,258) 1,036 4,180 96 Net Income (Loss) (766) 656 2,556 83 Earnings (Loss) Per Share (0.53) 0.23 1.14 (0.04) Dividends Declared Per Share 0.275 0.275 0.275 0.275 Prices of Common Shares: High 17 3/4 16 3/4 16 15 3/4 Low 16 14 1/4 14 3/4 14
The Common Stock of The Berkshire Gas Company is traded on the National Over-the-Counter Market and is quoted through the NASDAQ System (BGAS). Primarily because of the relatively small number of shareholders and the infrequency of trading, the average bid and asked prices noted above do not necessarily reflect actual transactions. Earnings per Common Share have been computed based on average Common Shares outstanding in each period after recognition of Preferred Stock dividends. It is currently the policy of the Board of Directors to declare cash dividends payable in July, October, January and April. The dividend rate is reassessed regularly in light of existing conditions, the needs of the Company and the interests of shareholders. The sum of the quarterly earnings (loss) per share amounts may not equal the annual income per share due to the issuance of Common Stock and rounding. Officers - -------- SCOTT S. ROBINSON President and Chief Executive Officer 152 MICHAEL J. MARRONE Vice President, Treasurer and Chief Financial Officer LES H. HOTMAN Vice President, Supply, Rates and Planning ROBERT M. ALLESSIO Vice President, Marketing and Distribution DONALD P. ATWATER Vice President, Customer Services CHERYL M. CLARK Clerk of the Corporation Directors - --------- GEORGE R. BALDWIN** Area Chairman, Arthur J. Gallagher & Co., a national insurance brokerage firm JOHN W. BOND* ** President, Kimbell Financial, Inc., a financial services company PAUL L. GIOIA** Of Counsel, LeBoeuf, Lamb, Greene & MacRae, a law firm FRANKLIN M. HUNDLEY* Chairman of the Board, The Berkshire Gas Company Member and a Managing Director, Rich, May, Bilodeau & Flaherty, P.C., a law firm JAMES R. KEYS President, J.R. Keys & Assoc. Inc., a marketing and government relations consulting firm SCOTT S. ROBINSON* President and Chief Executive Officer, The Berkshire Gas Company ROBERT B. TRASK** President, The Fitzpatrick Companies, formerly Country Curtains, Inc., a mail order/retail firm dealing in household window treatments and accessories - -------------------- * Executive Committee ** Audit Committee EXHIBIT 27 FINANCIAL DATA SCHEDULE TO FORM 10-K [PERIOD-TYPE] 12-MOS [FISCAL-YEAR-END] JUN-30-1997 [PERIOD-END] JUN-30-1997 153 [BOOK-VALUE] PER-BOOK [TOTAL-NET-UTILITY-PLANT] 73,640 [OTHER-PROPERTY-AND-INVEST] 6,096 [TOTAL-CURRENT-ASSETS] 13,797 [TOTAL-DEFERRED-CHARGES] 4,865 [OTHER-ASSETS] 3,290 [TOTAL-ASSETS] 101,688 [COMMON] 5,529 [CAPITAL-SURPLUS-PAID-IN] 17,097 [RETAINED-EARNINGS] 8,739 [TOTAL-COMMON-STOCKHOLDERS-EQ] 31,365 [PREFERRED-MANDATORY] 0 [PREFERRED] 363 [LONG-TERM-DEBT-NET] 40,000 [SHORT-TERM-NOTES] 6,480 [LONG-TERM-NOTES-PAYABLE] 0 [COMMERCIAL-PAPER-OBLIGATIONS] 0 [LONG-TERM-DEBT-CURRENT-PORT] 0 [PREFERRED-STOCK-CURRENT] 0 [CAPITAL-LEASE-OBLIGATIONS] 0 [LEASES-CURRENT] 0 [OTHER-ITEMS-CAPITAL-AND-LIAB] 23,480 [TOT-CAPITALIZATION-AND-LIAB] 101,688 [GROSS-OPERATING-REVENUE] 48,463 [INCOME-TAX-EXPENSE] 2,222 [OTHER-OPERATING-EXPENSES] 12,062 [TOTAL-OPERATING-EXPENSES] 16,082 [OPERATING-INCOME-LOSS] 9,171 [OTHER-INCOME-NET] 2,356 [INCOME-BEFORE-INTEREST-EXPEN] 11,527 [TOTAL-INTEREST-EXPENSE] 3,978 [NET-INCOME] 3,556 [PREFERRED-STOCK-DIVIDENDS] 240 [EARNINGS-AVAILABLE-FOR-COMM] 3,316 [COMMON-STOCK-DIVIDENDS] 2,460 [TOTAL-INTEREST-ON-BONDS] 0 [CASH-FLOW-OPERATIONS] 7,898 [EPS-PRIMARY] 1.52 [EPS-DILUTED] 0
EX-13 8 EXHIBIT 13.2 DEFINITIVE PROXY STATEMENT EXHIBIT 13.2 SCHEDULE 14A INFORMATION REQUIRED IN PROXY STATEMENT SCHEDULE 14A INFORMATION 154 Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No.) Filed by the Registrant [x] Filed by a party other than the Registrant [ ] Check the appropriate box: [ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) [x] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12 THE BERKSHIRE GAS COMPANY --------------------------------------------------------------------------- (Name of Registrant as Specified in Its Charter) --------------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of Filing Fee (Check the appropriate box): [x] 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 transaction applies: --------------------------------------------------------------- (2) Aggregate number of securities to which transaction applies: --------------------------------------------------------------- (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): --------------------------------------------------------------- (4) Proposed maximum aggregate value of transaction: --------------------------------------------------------------- (5) Total fee paid: --------------------------------------------------------------- [ ] Fee paid previously with preliminary materials. [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount previously paid: --------------------------------------------------------------- (2) Form, Schedule or Registration Statement No.: --------------------------------------------------------------- 155 (3) Filing party: --------------------------------------------------------------- (4) Date Filed: --------------------------------------------------------------- PROXY STATEMENT AND CARD OF DEFINITIVE PROXY The Berkshire Gas Company 115 Cheshire Road Pittsfield, MA 01201-1879 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS To Be Held November 7, 1997 Pittsfield, Massachusetts October 3, 1997 Notice is hereby given that the Annual Meeting of Shareholders of The Berkshire Gas Company, a Massachusetts corporation, will be held at the Crowne Plaza Pittsfield Hotel (formerly the Berkshire Hilton Inn), Pittsfield,Massachusetts on Friday, November 7, 1997 at 10:00 A.M. local time, for the following purposes, as more fully set forth in the Proxy Statement which accompanies this Notice: Proposal No. 1. To elect three (3) directors. Proposal No. 2. To consider and act upon a proposal to ratify the selection by the Board of Directors of Deloitte & Touche LLP as auditors for the Company for the fiscal year ending June 30, 1998. To transact such other business as may properly come before the meeting. The stock transfer books will not be closed, but only Common shareholders of record at the close of business on September 26, 1997 (the "Record Date") will be entitled to notice of and to vote at the meeting. By Order of the Board of Directors, CHERYL M. CLARK Clerk of the Corporation YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING. WHETHER OR NOT YOU PLAN TO ATTEND, PLEASE DATE, SIGN AND MAIL THE ENCLOSED PROXY IN THE ENCLOSED SELF-ADDRESSED ENVELOPE. A SHAREHOLDER WHO EXECUTES AND RETURNS A PROXY IN THE ACCOMPANYING FORM HAS THE POWER TO REVOKE SUCH PROXY AT ANY TIME PRIOR TO THE EXERCISE THEREOF. The Berkshire Gas Company 115 Cheshire Road Pittsfield, MA 01201-1879 156 October 3, 1997 PROXY STATEMENT This Proxy Statement sets forth certain information with respect to the accompanying proxy proposed to be used at the Annual Meeting of Shareholders of The Berkshire Gas Company (hereinafter called the "Company") to be held at the Crowne Plaza Pittsfield Hotel (formerly the Berkshire Hilton Inn), Pittsfield, Massachusetts on November 7, 1997 at 10:00 A.M. local time, or any adjournments or postponements thereof, for the purposes set forth in the accompanying Notice of Annual Meeting of Shareholders. THE BOARD OF DIRECTORS OF THE COMPANY SOLICITS THIS PROXY AND URGES YOU TO INDICATE YOUR CHOICE ON THE PROXY, TO SIGN AND DATE THE PROXY AND RETURN IT IMMEDIATELY. Your prompt cooperation is requested in order to ensure a quorum (a majority of issued and outstanding Common Stock) and to avoid additional expense and delay. Solicitation of proxies will be primarily by mail and the cost of solicitation will be borne by the Company. Proxies may also be solicited personally or by telephone by regular employees of the Company at nominal cost. The approximate date on which this Proxy Statement and the accompanying proxy will first be mailed to shareholders is October 3, 1997. The Company mails herewith to all shareholders entitled to vote a copy of its Annual Report for the year ended June 30, 1997, which contains detailed financial information concerning the Company. Upon the written request of any shareholder, the Company will mail, without charge, a copy of the Company's Annual Report on Form 10-K, as discussed further on page 14. REVOCABILITY OF PROXY The proxy is revocable on written instructions, signed in the same manner as the proxy, received by the Clerk of the Corporation, at any time at or before the balloting on the matter with respect to which such proxy is to be used. If you attend the meeting you may, if you wish, revoke your proxy and vote in person. PROPOSALS OF SHAREHOLDERS Shareholders' proposals intended to be presented at the 1998 Annual Meeting must be received by the Office of the Clerk, The Berkshire Gas Company, 115 Cheshire Road, Pittsfield, Massachusetts 01201-1879 by June 6, 1998. VOTING SECURITIES Holders of record of outstanding Common Stock, par value $2.50 per share, of the Company at the close of business on September 26, 1997 (the "Record Date") are the only persons entitled to notice of and to vote at the meeting. As of the Record Date, there were 2,237,560 shares outstanding and entitled to vote. Each outstanding share entitles the holder thereof to one vote. Abstentions and broker non-votes are each included in calculating the number of shares present and voting for purposes of determining quorum requirements. However, each is tabulated separately. Abstentions are counted in tabulating the votes cast on proposals presented to shareholders, whereas 157 broker non-votes are not counted for purposes of determining whether a proposal has been approved. ELECTION OF DIRECTORS (PROPOSAL NO. 1) The By-laws of the Company provide that the Board of Directors shall consist of not less than five nor more than nine members and that the number of directors to be elected each year shall be fixed by the Board of Directors prior to the Annual Meeting. The Board of Directors has set the number of directors for the ensuing year at seven. The Articles of Organization and the By-laws of the Company provide that the Board of Directors be divided into three classes, with staggered three-year terms, so that the term of office of one class expires each year. Currently, the Board of Directors is divided into three separate classes, consisting of three Class A directors, two Class B directors and two Class C directors, whose terms expire as set forth in the table below. Except as noted, directors now serving in each class have been elected in prior years by the shareholders to serve for a period of three years and until election and qualification of their respective successors in office. At each Annual Meeting of Shareholders, the shareholders of the Company have the right to elect an appropriate number of persons to serve as directors of the class whose three-year terms then expire. Any directorship which may become vacant by reason of death, resignation or otherwise than by expiration of term, may be filled solely by the Board of Directors, as provided in the By-laws. The terms for the Class A directors are scheduled to expire at the 1997 Annual Meeting and the Board has set at three the number of Class A directors to be elected at this meeting. The Board has nominated for election the incumbent Class A directors, Paul L. Gioia, Franklin M. Hundley and Scott S. Robinson. It is the intention of the persons named as proxies, in the absence of contrary specification, to vote FOR the election of each of such persons to serve as director for a term of three years and until the election and qualification of his successor. In the event of a vacancy in the list of such nominees prior to the 1997 Annual Meeting (which the Board of Directors does not anticipate), the persons named as the proxies will vote for a person acceptable to the Board, unless the Board should reduce the number of directors to be elected in order to eliminate the vacancy. The following information is furnished with respect to each nominee for election as a director, each director whose term of office will continue after the meeting, the Chief Executive Officer of the Company, each of the executive officers identified in the summary compensation table on page 7 below, and all directors and officers of the Company as a group. No person or group of persons owns of record or is known by the Company to own more than 5% of the Company's outstanding Common Stock. Each of the individuals in the following table has furnished the information appearing in the first column opposite his name. 158
Shares of Percentage of Common Stock Shares of Principal Occupation for Beneficially Common Stock Preceding Five Years Owned as of Outstanding as Name and Directorships June 30, 1997* of June 30, 1997+ - ---------------------------------------------------------------------------------------------------------------- Nominees for election as Class A directors whose terms expire at the 2000 Annual Meeting: Paul L. Gioia Of Counsel, LeBoeuf, Lamb, Greene 3,354(1) .15% Age: 55 & MacRae, a law firm; formerly, Director since: 1991 Senior Vice President, First Albany Board Committees: Audit Corporation, a securities brokerage and Compensation and investment banking firm; formerly, Chairman of New York State Public Service Commission. Director, New York State Electric & Gas Corporation. Franklin M. Hundley Chairman of the Board of Directors 2,519 .11 Age: 62 of the Company. Member and a Managing Director since: 1987 Director, Rich, May, Bilodeau & Flaherty, Board Committees: P.C., a law firm. Trustee, Commonwealth Executive and Finance Energy System. Scott S. Robinson President and Chief Executive Officer 6,145(2) .28 Age: 57 of the Company. Director since: 1983 Board Committees: Executive and Finance Class B directors whose terms expire at the 1998 Annual Meeting: George R. Baldwin Area Chairman, Arthur J. Gallagher & 2,171 .10% Age: 54 Co., a national insurance brokerage Director since: 1982 firm. Formerly, President and Chief Board Committees: Audit Executive Officer, Kaler Carney and Finance Liffler & Co., Inc., a general insurance agency. Director, Century Bank & Trust. John W. Bond President, Kimbell Financial, Inc., a 4,090(3) .18 Age: 67 financial services company. Director since: 1965 Board Committees: Executive and Audit Class C directors whose terms expire at the 1999 Annual Meeting: James R. Keys President, J.R. Keys & Assoc., a 1,084 .05 Age: 56 marketing & government relations Director since: 1996 consulting firm. Formerly Executive Board Committees: Director of State Government Compensation Relations, Tenneco, Inc. Robert B. Trask President, The Fitzpatrick Companies, 7,962(4) .36 159 Age: 51 Inc., formerly Country Curtains, Inc., a Director since: 1994 mail order/retail firm dealing in household Board Committees: Audit window treatments and accessories. Director, and Compensation Lee National Banc Corp. Other individuals identified in the summary compensation table on Page 7: Michael J. Marrone Vice President, Treasurer and 1,094 .05% Chief Financial Officer of the Company Les H. Hotman Vice President of the Company 209 .01 All directors and officers of 29,398(5) 1.33 the Company, 11 persons as a group - -------------------- As used in this Proxy Statement, "beneficial ownership" means direct or indirect, sole or shared power to vote, or to direct the voting of, and/or investment power to dispose of, or to direct the disposition of, shares of the Common Stock of the Company. Except as indicated in the footnotes below, the listed beneficial owners held direct and sole voting and investment power with respect to the stated shares. As of June 30, 1997, there were 2,211,651 shares of the Company's Common Stock outstanding. All of Mr. Gioia's shares are held jointly with his spouse, with shared voting and investment power over such shares. Comprised of 6,145 shares held in trust, for which Mr. Robinson and his spouse are joint Trustees, with shared voting and investment power. Includes 273 shares held by his spouse, who has sole voting and investment power over such shares. 5,062 of Mr. Trask's shares are held jointly with his spouse, with shared voting and investment power over such shares. 2,900 of Mr. Trask's shares are owned by a private, non-profit foundation of which Mr. Trask is a trustee. Aggregate record or imputed beneficial ownership, with sole or shared voting and investment power.
The Board of Directors of the Company has a standing Audit Committee, of which Messrs. Baldwin, Bond, Gioia and Trask are members, which recommends the selection of independent auditors, reviews the plan and results of the independent audit, consults with the auditors on any matter which the Audit Committee may deem relevant to the audit or which the auditors may desire to bring to the attention of the Audit Committee, and approves each professional service provided by the independent auditors. The Audit Committee held two meetings during the past year. The Board of Directors also has a standing Compensation Committee, of which Messrs. Gioia, Keys and Trask are members. The Compensation Committee periodically reviews the compensation and benefits of the directors and executives of the Company, as well as industry trends in this area, reports its findings to the Board of Directors and makes recommendations as to appropriate compensation for the directors and executives of the Company. 160 The Compensation Committee held two meetings during the past year. The Board of Directors does not have a standing nominating committee. During the 1997 fiscal year, there were six meetings of the Board of Directors. No member of the Board of Directors attended fewer than 75% of the aggregate number of meetings of the Board and the committees on which he served in fiscal year 1997. During the year ended June 30, 1997, fees of $254,310 were incurred for legal services rendered by the law firm of Rich, May, Bilodeau & Flaherty, P.C., which the Company has retained as counsel in the past and intends to retain in the current fiscal year. Mr. Hundley is a member and managing director of such firm. In addition, the Mansfield Consortium, a purchasing group of which the Company is a member, during the last fiscal year was represented by and made payments (and in the current fiscal year intends to continue to be represented by and to make payments) to LeBoeuf, Lamb, Greene & MacRae, a law firm of which Mr. Gioia is Of Counsel. EXECUTIVE COMPENSATION Compensation of Executive Officers. The following table contains the compensation paid or accrued by the Company during the years ended June 30, 1997, 1996 and 1995 to the Company's Chief Executive Officer and to each executive officer whose total annual salary and bonus exceeded $100,000. Although only principal positions are listed, the compensation figures include all compensation received in any capacity, including directorships, for services rendered during the fiscal years indicated. SUMMARY COMPENSATION TABLE Annual Compensation(1)
Name and Other Annual Principal Position Year Salary Bonus Compensation - ------------------------------------------------------------------------ Scott S. Robinson, 1997 $173,900 $ 0 $13,850(2) President and Chief 1996 165,000 28,050 12,858 Executive Officer 1995 154,750 0 9,100 Michael J. Marrone 1997 110,989 0 0 Vice President, Treasurer 1996 106,100 12,732 0 and Chief Financial Officer 1995 102,000 0 0 Les H. Hotman(3) 1997 105,575 0 0 Vice President 1996 99,200 11,904 0 - -------------------- The Company did not pay any long-term compensation to its Chief Executive Officer or to its executive officers during the fiscal years ended June 30, 1997, 1996 and 1995. The Other Annual Compensation listed for Mr. Robinson represents director fees. Prior to fiscal year 1996, Mr. Hotman's total annual salary and bonus 161 from the Company was less than $100,000.
Compensation Pursuant to Plans. The Company maintains two defined benefit pension plans, one for union employees and one for non-union employees, including executive officers. The following table shows the annual benefits payable under the pension plan for non-union employees (the "Pension Plan") upon retirement at age 65 to eligible employees in various base salary groups and with various periods of service. The annual retirement benefits formula is based on the number of years of service and the employee's average base salary for the five years yielding the highest such average. PENSION PLAN TABLE
Years of Credited Service -------------------------------------- 25 Years Remuneration 15 Years 20 Years and Thereafter - ------------------------------------------------------------ $ 50,000 $11,959 $15,945 $19,931 65,000 16,162 21,549 26,936 80,000 20,374 27,165 33,956 95,000 24,581 32,775 40,968 110,000 28,789 38,385 47,981 125,000 32,996 43,995 54,993 140,000 37,204 49,605 62,006 155,000 41,411 55,215 69,018 170,000 45,617 60,825 76,031
Messrs. Robinson, Marrone and Hotman, the individuals named in the preceding Summary Compensation Table, have 27, 14 and 10 years, respectively, of credited service under the Pension Plan. The compensation covered by the Pension Plan is that shown in the Summary Compensation Table, excepting any bonus amounts. The Company also maintains a supplemental pension plan (the "Supplemental Plan") for Mr. Robinson, Mr. Marrone, Mr. Hotman and certain executive officers. Under the Supplemental Plan, upon retirement at age 62, covered executives are assured that they will receive annually 75% of their final year's base salary in the form of retirement income. The 75% of final base salary benefit will be comprised of amounts received pursuant to the Pension Plan, Social Security, vested benefits from any previous employers, and payments under the Supplemental Plan as may be necessary to bring the covered officer's benefit to 75% of such officer's final year's base salary. The Supplemental Plan allows for earlier retirement at age 60, with a corresponding reduction in benefits. The Supplemental Plan also will pay disability benefits to covered officers in addition to those benefits paid by the Company's Long Term Disability Insurance Plan. In addition, the Supplemental Plan will provide a survivorship benefit to the selected 162 beneficiary of the covered officer in the event of such officer's death. Moneys received under Supplemental Plans are in addition to amounts shown in the Summary Compensation Table and the Pension Plan Table. As of June 30, 1997, it is not possible to compute the estimated annual benefits payable under Mr. Robinson's, Mr. Marrone's, or Mr. Hotman's Supplemental Plan upon their retirement at the normal retirement age. The Company also maintains a Non-Qualified Retirement Savings Plan (the "Savings Plan") for Mr. Robinson, Mr. Marrone, Mr. Hotman and certain other executive officers who are not named in the Summary Compensation Table above. Under the Savings Plan, the Executive is permitted to defer a portion per year of salary up to an equivalent of 15-1/2% of gross wages, less the maximum contribution allowable under the Company's Qualified 401(k) Plan. The Executive may select the assets in which the funds are to be invested. The Savings Plan allows for the benefits to be paid at retirement and if the Executive is at least 62 years of age. In addition, the Savings Plan provides a survivorship benefit to the selected beneficiary of the Executive, equal to the balance in the account, in the event of the Executive's death. The amounts deferred by Messrs. Robinson, Marrone and Hotman are included in the salary column in the Summary Compensation Table above. Employment Contracts, Termination of Employment and Change-in-Control Arrangements. The Company has entered into an employment agreement with its President and Chief Executive Officer, Scott S. Robinson. Under the terms of this employment agreement, Mr. Robinson is compensated for his duties as an officer and director with a salary in an amount determined from time to time by the Board of Directors. The term of Mr. Robinson's employment contract is five years, unless earlier terminated by either the Company or Mr. Robinson and, unless so terminated, is renewed automatically at the expiration of each year to provide for a continuous five-year term. In no event, however, may Mr. Robinson's employment under his employment agreement be extended beyond the year 2005. Mr. Robinson's employment contract also provides that in the event Mr. Robinson is unable to perform his duties as the result of any disability, the Company may terminate Mr. Robinson's employment, and shall pay him (or his beneficiary) for a period of 60 months at a rate equal to 60% of Mr. Robinson's "basic monthly earnings" as set forth in the Company's Long Term Disability Insurance Plan. The Company entered into severance agreements with certain of its executive officers and key personnel during the 1994 fiscal year (each, a "Severance Agreement"). Pursuant to the Severance Agreements, the Company has agreed to pay such covered executive officers and key personnel certain benefits in the event of a change in control of the Company leading to the termination of the covered employee's employment with the Company. For the purposes of the Severance Agreements, a "change in control" of the Company is defined as: (i) the acquisition by any person, group, corporation or other entity of 25% or more of the outstanding Common Stock of the Company, whether or not pursuant to a tender or exchange offer; (ii) the approval by the shareholders of the Company of (a) any consolidation or merger of the Company in which the Company will not be the continuing or surviving corporation or pursuant to which shares of the Company's Common Stock would be converted into cash, securities or other property, (b) any acquisition, combination or merger of the Company by or with another corporation in which less than a majority of the outstanding voting shares of the surviving corporation will be owned by the owners of the Common Stock of the Company outstanding immediately prior to such acquisition, combination or merger; 163 (iii) a complete liquidation or dissolution of the Company; or (iv) any sale, lease, exchange or other transfer of all or substantially all the assets of the Company. Under the Severance Agreements, during the 24 months following a change in control of the Company, should a covered employee be discharged without cause or resign in the face of any diminution of salary, substantial change in responsibilities, geographical relocation or the like, the covered employee is entitled to receive a severance benefit in the amount of his or her salary for a period of up to 24 months, subject to partial set-off from any compensation received from any new employment obtained by the covered employee during the period during which any severance benefits are received. At present, five executive officers or key employees of the Company, including two named executive officers (Mr. Marrone and Mr. Hotman) are covered by Severance Agreements. Compensation of Directors. The annual retainer for a director is $6,500, of which $1,000 is applied to the purchase of Company stock. In addition, directors are paid $600 for attendance at each regular meeting of the Board of Directors and $575 for attendance at committee meetings, except for attendance at Executive Committee meetings for which no fee is paid. Compensation for serving on the Executive Committee is $3,800 annually. Further, the chairmen of the Finance and Compensation Committees each receive an annual fee of $500 for such services; the Audit Committee Chairman receives an annual fee of $1,000. Mr. Hundley receives $24,000 annually as Chairman of the Board of Directors. The Company maintains a Non-Qualified Retirement Savings Plan (the "Plan") for the Board of Directors. Under the Plan, the Directors are permitted to defer up to 100% of their fees. The Director may select the assets in which the funds are to be invested. The Plan allows for the benefits to be paid at age 70-1/2. In addition, the Plan provides a survivorship benefit, equal to the balance in the account, to the selected beneficiary of the Director in the event of the Director's death. The Company also maintains a Retirement Plan for Directors, pursuant to which directors of the Company are entitled to certain limited benefits upon their retirement as directors of the Company. Eligibility for participation in the Retirement Plan is limited to directors having served as such for a period of at least five years. Under the plan, directors are entitled to receive an annual retirement benefit equal to one-half of the annual retainer fee for directors plus an additional amount based on 10% of the annual retainer fee for every year in excess of five, but not exceeding ten, years of service as director. Benefits under the Retirement Plan are payable for a ten-year period, and may, in certain circumstances, be paid to a participant's beneficiary. Compensation Committee Interlocks and Insider Participation. Directors Gioia, Keys and Trask served on the Company's Compensation Committee during the Company's last fiscal year. Mr. Gioia served as chairman of the Committee. Until November 13, 1996, Mr. Hundley also served on the Compensation Committee. The law firm of which Mr. Hundley is a member and a managing director received fees of $254,310 from the Company during the Company's most recent fiscal year; the Company intends to retain such firm in the current fiscal year. Report of the Compensation Committee. The Company's Compensation Committee has submitted the following report concerning executive 164 compensation. The compensation of executive officers of the Company, including that of the executive officers named in the Summary Compensation Table, is formally reviewed and established annually by the Compensation Committee of the Board of Directors, subject to approval by the Board. During the fiscal year ended June 30, 1997, the compensation of the executive officers of the Company, including that of the President and Chief Executive Officer, the Vice President, Treasurer and Chief Financial Officer and Vice President, Supply, Rates and Planning, consisted of base salary, and director's fees as to Mr. Robinson. In its annual review and in setting compensation for the President and Chief Executive Officer and other executives, the Compensation Committee considered and gave weight to financial and operating results, earnings levels and return on common equity, development and implementation of short term and long term planning objectives, achievement of cost containment in the Company's operations, the state of relations between the Company and its customers, regulatory authorities and the public generally and the degree of achievement of individual and management goals established from time to time. In this regard, the Compensation Committee gave greater weight to the degree of achievement of earnings and common equity return objectives than to other goals, with appropriate consideration of the impact of variable weather conditions and the condition of the local economy upon the Company's earnings and common equity return during the last fiscal year. The Compensation Committee, using information provided by independent sources, publicly available information concerning other public utilities similar in size to the Company and information from industry organizations, reviewed earnings levels and return on common equity realized by the Company on a comparative basis with other similar companies. The Compensation Committee also reviewed information concerning executive compensation paid by other gas distribution companies in Massachusetts and the New England area. The Company adopted some years ago, and the Compensation Committee reviews periodically, with the assistance of Company personnel and outside consultants as necessary, salary ranges for each executive officer, including the President and Chief Executive Officer, of the Company. In determining salary ranges, reference is made in part to information concerning salaries paid by other regional utility companies. The Compensation Committee established what it believed to be an appropriate compensation level for each executive within the salary range by reference to an assessment of each executive's responsibilities and job performance and the factors set forth above. The Company adopted, in 1994, a corporate Incentive Compensation Plan ("ICP") as part of an ongoing review of executive compensation, in order to provide a discretionary and variable component of overall compensation that will acknowledge exceptional service and achievement, and at the same time will encourage continuing improvement in the Company's performance, promote the interests of the Company's shareholders and ratepayers by incorporating criteria of financial performance and comparative measures of operating performance, and reinforce a sense of commitment to the achievement of longer term objectives by the achievement of short-term goals. It is intended that cash awards through the ICP will encourage executives to increase their equity ownership in the Company through the purchase of 165 Common Stock on a voluntary basis. The ICP, which is administered by the Committee, subject to Board review and approval, will be discretionary in any given year and may be suspended, amended or terminated at any time by the Company. For each year in which the ICP operates, designated executives and other key management personnel will be eligible to receive an award from a fund not to exceed in the aggregate 3.5% of the Company's income available for its shareholders. The amount of the fund shall be determined by reference to (a) a pre- designated level of return on common equity and (b) the level of growth of certain operating and maintenance expenses, as compared to a peer group. The ICP provides that awards shall be made only for a year in which the designated return on common equity is achieved or exceeded, irrespective of the degree to which other criteria may be satisfied. Although individual awards will be determined primarily by reference to the foregoing two measures, the ICP also provides for the establishment of individual annual performance goals. Awards, if any, are to be made as a percentage of base salary and could range from a low of 1% to a high of 25%, depending upon the degree to which the performance measures are met or exceeded. During the fiscal year ended June 30, 1997, the designated return on common equity was not achieved and, accordingly, no awards were made under the ICP. THE COMPENSATION COMMITTEE Paul L. Gioia, Chairman James R. Keys Robert B. Trask Performance Graph. The following graph illustrates the return that would have been realized (assuming reinvestment of dividends) by an investor who invested on June 30, 1992 in each of (i) the Company's Common Stock, (ii) the Nasdaq Stock Market - U.S. Index, and (iii) a peer group consisting of 13 companies within the Company's Standard Industrial Classification Code (SIC), the "Peer Group". COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN* THE BERKSHIRE GAS COMPANY, THE NASDAQ STOCK MARKET-US INDEX AND A PEER GROUP
6/92 6/93 6/94 6/95 6/96 6/97 --------------------------------------- Berkshire Gas Co. 100 132 136 131 144 160 Peer Group 100 130 123 130 145 172 Nasdaq Stock Market-US 100 126 127 169 218 265 - -------------------- $100 invested on 06/30/92 in stock or index--including reinvestment of dividends. Fiscal Year Ending June 30.
RATIFICATION OF THE SELECTION OF AUDITORS (PROPOSAL NO. 2) 166 There will be submitted to the Annual Meeting a proposal to ratify the action of the Board of Directors in selecting the firm of Deloitte & Touche LLP, Independent Certified Public Accountants, as auditors for the Company for the fiscal year ending June 30, 1998. In the event of non-ratification, the Board of Directors would reconsider its selection. Representatives of Deloitte & Touche LLP, which has served as principal accountant for the Company during the past fiscal year, are expected to be present at the Annual Meeting to respond to appropriate questions and to make a statement if they so desire. OTHER MATTERS As of the date hereof, the Board of Directors has not been informed of any matters to be presented for action at the Annual Meeting other than those listed in the Notice of Annual Meeting and referred to herein. If any other matters properly come before the Annual Meeting or any adjournment thereof, it is intended that the proxies will be voted in respect thereof in accordance with the judgment of the persons named therein. PLEASE DATE, SIGN AND RETURN THE ENCLOSED PROXY. A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED JUNE 30, 1997, WHICH HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, MAY BE OBTAINED WITHOUT CHARGE BY ANY SHAREHOLDER OF THE COMPANY UPON WRITTEN REQUEST ADDRESSED TO: OFFICE OF THE CLERK, THE BERKSHIRE GAS COMPANY, 115 CHESHIRE ROAD, PITTSFIELD, MASSACHUSETTS 01201-1879. By Order of the Board of Directors, CHERYL M. CLARK Clerk of the Corporation THE BERKSHIRE GAS COMPANY Common Stock Proxy The undersigned, revoking any previous instructions, hereby acknowledges receipt of the Notice and Proxy Statement dated October 3, 1997, in connection with the Annual meeting mentioned below and appoints Franklin M. Hundley, Scott S. Robinson and John W. Bonds as Proxies, each with the power to act alone and to appoint his substitute and authorizes them to represent and to vote, as indicated on the reverse side hereof, all of the shares of Common Stock of The Berkshire Gas Company held of record by the undersigned on September 26, 1997, at the Annual Meeting of Shareholders to be held on November 7, 1997, and any adjournments or postponements thereof. This Proxy is solicited on behalf of the Board of Directors. When this Proxy is properly executed, the shares represented hereby will be voted as specified by the Shareholder on the reverse side hereof. If no 167 specification is made, such shares will be voted "FOR" the nominees named herein and "FOR" each of the Proposals. PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. Please sign this Proxy exactly as your name(s) appear(s) hereon. Joint owners should each sign personally. Trustees and other fiduciaries should indicate the capacity in which they sign, and where more than one name appears, a majority must sign. If a corporation, this signature should be that of an authorized officer, who should state his or her title. HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS? - ---------------------------------- ---------------------------------- - ---------------------------------- ---------------------------------- - ---------------------------------- ---------------------------------- [X] PLEASE MARK VOTES AS IN THIS EXAMPLE THE BERKSHIRE GAS COMPANY Mark box at right if an address change or comment has [ ] been noted on the reverse side of this card. RECORD DATE SHARES: Proposal No. 1 To elect three (3) directors For all For all Nominees Withhold Except Paul L. Gioia [ ] [ ] [ ] Franklin M. Hundley Scott S. Robinson If you do not wish your shares voted "For" any particular nominee, mark the "For All Except" box and strike a line through that nominee's name. Your shares will be voted for the remaining nominee(s). FOR AGAINST ABSTAIN Proposal No. 2 To ratify the selection by the Board of [ ] [ ] [ ] Directors of Deloitte & Touche LLP as auditors for the Company for the fiscal year ending June 30, 1998. 168 To act upon such other matters as may properly come before the meeting. ----------------------- Please be sure to sign and date this Proxy. | Date | ------------------------------------------------------------------------ | | | | | | ----------Shareholder sign here---------------Co-owner sign here-------- DETACH CARD DETACH CARD THE BERKSHIRE GAS COMPANY Common Stock Proxy Dear Shareholder, Please take note of the important information enclosed with this Proxy Card. The Proposals require your immediate attention and approval and are discussed in detail in the enclosed proxy materials. Your vote counts, and you are strongly encouraged to exercise your right to vote your shares. Please mark the boxes on this proxy card to indicate how your shares will be voted. Then sign the card, detach it and return your proxy vote in the enclosed postage paid envelope. Your vote must be received prior to the Annual Meeting of Shareholders, November 7, 1997. Thank you in advance for your prompt consideration of these matters. Sincerely, The Berkshire Gas Company EX-13 9 EXHIBIT 13.3 QUARTERLY REPORT FOR 1ST QUARTER EXHIBIT 13.3 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q 169 Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarter Ended September 30, 1997 Commission File No. 0-1857-3 THE BERKSHIRE GAS COMPANY Massachusetts 04-1731220 115 Cheshire Road, Pittsfield, Massachusetts 01201-1879 Registrant's telephone number, including Area Code 413:442-1511 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] At September 30, 1997, the Registrant had issued and outstanding 2,237,560 shares of Common Stock, par value $2.50. 1 THE BERKSHIRE GAS COMPANY STATEMENTS OF OPERATIONS AND RETAINED EARNINGS - Unaudited (In Thousands)
Three Months Ended -------------------- 9/30/97 9/30/96 ------- ------- Operating Revenues $ 4,480 $ 4,117 Cost of Gas Sold 1,949 1,632 -------------------- Operating Margin 2,531 2,485 -------------------- Other Operating Expenses 2,659 2,730 Depreciation 365 336 -------------------- Total 3,024 3,066 -------------------- 170 Utility Operating Loss (493) (581) Other Income - Net 424 416 -------------------- Operating Income (Loss) and Other Income (69) (165) Interest Expense 1,101 790 Other Taxes 204 188 -------------------- Pre-Tax Loss (1,374) (1,143) Income Tax Benefit (538) (435) -------------------- NET LOSS (836) (708) Retained Earnings at Beginning of Period 8,739 7,883 -------------------- Total 7,903 7,175 -------------------- Dividends Declared: Preferred Stock 4 173 Common Stock 638 606 -------------------- Total Dividends 642 779 -------------------- Retained Earnings at End of Period $ 7,261 $ 6,396 ==================== Loss Attributable to Common Stock ($ 840) ($ 881) -------------------- Average Shares of Common Stock Outstanding 2,231.6 2,162.7 -------------------- Loss Per Share of Common Stock ($ 0.38) ($ 0.41) ====================
See Independent Accountants' Review Report and Notes to Financial Statements. THE BERKSHIRE GAS COMPANY STATEMENTS OF OPERATIONS AND RETAINED EARNINGS - Unaudited (In Thousands)
Twelve Months Ended --------------------- 9/30/97 9/30/96 -------- -------- Operating Revenues $ 48,826 $ 46,013 171 Cost of Gas Sold 23,526 20,128 --------------------- Operating Margin 25,300 25,885 --------------------- Other Operating Expenses 11,992 11,929 Depreciation 4,049 3,847 --------------------- Total 16,041 15,776 --------------------- Utility Operating Income 9,259 10,109 Other Income - Net 2,364 1,635 --------------------- Operating and Other Income 11,623 11,744 Interest Expense 4,289 3,395 Other Taxes 1,787 1,711 --------------------- Pre-Tax Income 5,547 6,638 Income Taxes 2,119 2,558 --------------------- NET INCOME 3,428 4,080 Retained Earnings at Beginning of Period 6,396 5,389 --------------------- Total 9,824 9,469 --------------------- Dividends Declared: Preferred Stock 72 692 Common Stock 2,491 2,381 --------------------- Total Dividends 2,563 3,073 --------------------- Retained Earnings at End of Period $ 7,261 $ 6,396 ===================== Earnings Available for Common Stock $ 3,356 $ 3,388 --------------------- Average Shares of Common Stock Outstanding 2,198.4 2,141.4 --------------------- Earnings Per Share of Common Stock $ 1.53 $ 1.58 =====================
See Independent Accountants' Review Report and Notes to Financial Statements. THE BERKSHIRE GAS COMPANY BALANCE SHEETS (In Thousands) 172
September 30, June 30, 1997 1997 (Unaudited) (Audited) ------------- --------- ASSETS: Utility Plant: Utility Plant - at original cost $ 103,509 $ 101,983 Less: Accumulated Depreciation 28,416 28,343 ------------------------ Utility Plant - Net 75,093 73,640 ------------------------ Other Property: Other Property - at original cost 12,199 11,983 Less: Accumulated Depreciation 6,044 5,887 ------------------------ Other Property - Net 6,155 6,096 ------------------------ Current Assets: Cash 160 356 Accounts Receivable Utility Service (less allowance: Sept. 1997-$935; June 1997-$900) 3,941 6,386 Merchandise & Other (less allowance: Sept. 1997-$121; June 1997-$121) 364 869 Other Receivables 223 332 Inventories (at the lower of average cost or market): Natural Gas 3,312 1,844 Liquefied Petroleum 169 146 Materials and Supplies 1,588 1,675 Prepayments and Other 785 689 Prepaid Taxes 1,522 96 Recoverable Gas Costs 2,946 1,404 ------------------------ Total Current Assets 15,010 13,797 ------------------------ Deferred Debits: Unamortized Debt Expense 2,277 2,302 Capital Stock Expense 308 319 Environmental Cleanup Costs 836 819 Other 1,454 1,425 ------------------------ Total Deferred Debits 4,875 4,865 ------------------------ Recoverable Environmental Cleanup Costs 3,290 3,290 ------------------------ TOTAL ASSETS $ 104,423 $ 101,688 ========================
See Independent Accountants' Review Report and Notes to Financial Statements. 173 THE BERKSHIRE GAS COMPANY BALANCE SHEETS (In Thousands)
September 30, June 30, 1997 1997 (Unaudited) (Audited) ------------- --------- CAPITALIZATION AND LIABILITIES Common Shareholders' Equity: Common Stock $ 5,594 $ 5,529 Premium on Common Stock 17,436 17,097 Retained Earnings 7,261 8,739 ------------------------- Total Common Shareholders' Equity 30,291 31,365 ------------------------- Redeemable Cumulative Preferred Stock 321 363 ------------------------- Long-Term Debt (less current maturities) 40,000 40,000 ------------------------- Current Liabilities: Notes Payable to Banks 10,720 6,480 Accounts Payable 3,034 3,513 Other Current Liabilities 4,106 4,621 ------------------------- Total Current Liabilities 17,860 14,614 ------------------------- Other Liabilities 1,558 1,561 ------------------------- Unamortized Investment Tax Credit 1,191 1,209 ------------------------- Deferred Income Taxes 9,912 9,286 ------------------------- Reserve for Recoverable Environmental Cleanup Costs 3,290 3,290 ------------------------- TOTAL CAPITALIZATION AND LIABILITIES $ 104,423 $ 101,688 =========================
See Independent Accountants' Review Report and Notes to Financial Statements 174 THE BERKSHIRE GAS COMPANY STATEMENT OF CASH FLOWS - Unaudited (In Thousands)
Three Months Ended ---------------------- 9/30/97 9/30/96 --------- --------- Cash Flows from Operating Activities: Net Loss ($ 836) ($ 708) --------------------- Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities: Depreciation and Amortization 606 569 Provision for Losses on Accounts Receivable 102 69 Recoverable Gas Costs (1,542) (2,278) Deferred Income Taxes 626 732 Changes in Assets and Liabilities Which Provided (Used) Cash: Accounts Receivable 2,848 2,073 Other Receivables 109 89 Inventories (1,404) (1,872) Accounts Payable (479) 214 Prepaid Taxes (1,426) (1,098) Other (660) (897) --------------------- Total Adjustments (1,220) (2,399) --------------------- Net Cash Used in Operating Activities (2,056) (3,107) --------------------- Cash Flows used in Investing Activities - Construction Expenditures (2,100) (1,605) --------------------- Cash Flows from Financing Activities: Dividends Paid (642) (779) Proceeds from Note Payable Borrowings 4,240 5,315 Proceeds from Other Stock Transactions 362 178 --------------------- Net Cash Provided by Financing Activities 3,960 4,714 --------------------- Net (Decrease) Increase in Cash (196) 2 Cash at Beginning of Period 356 196 --------------------- Cash at End of Period $ 160 $ 198 ===================== 175 Supplemental Disclosures of Cash Flow Information: Cash Paid During the Year for: Interest (net of amount capitalized) $ 1,518 $ 1,202 ===================== Income Taxes $ 204 $ 300 =====================
See Independent Accountants' Review Report and Notes to Financial Statements. The Berkshire Gas Company Notes to Financial Statements September 30,1997 - ------------------------------------------------------------------------------- (Dollars in Thousands Except Share Amounts) NOTES: OTHER FINANCIAL INFORMATION: The accompanying unaudited financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. All adjustments, which in the opinion of management are necessary for a fair presentation of the operations for the interim periods presented, have been made. These adjustments are of a normal recurring nature. The results of operations for such interim periods are not necessarily indicative of results of operations for a full year. These financial statements should be read in conjunction with the summary of accounting policies and notes to financial statements included in the Company's Annual Report on Form 10-K for the year ended June 30, 1997. LONG-TERM DEBT: During fiscal 1997, in conjunction with the Company's cost containment incentives, the Company revised its capital structure to lower its borrowing costs. The Company issued a $16,000, 7.8% Senior Note and used a portion of the proceeds to redeem 80,000, $100 par value shares of the 8.4% Preferred Stock. NEW ACCOUNTING PRONOUNCEMENT: Statement of Financial Accounting Standards ("SFAS") No. 128 was issued in February, 1997 and is effective for financial statements issued after December 15, 1997. The statement establishes new standards for computing and presenting earnings per share ("EPS") and will require restatement of prior year's information. This statement simplifies the standards for computing EPS previously found in APB Opinion 15. It replaces the presentation of basic EPS and diluted EPS, requires a dual presentation on the face of financial statements, and requires a reconciliation of basic EPS to diluted EPS. Had SFAS No. 128 been effective for the September 30, 1997 financial statements, computation and presentation of EPS would result in no change due to the current capital structure of the Company. 176 CONTINGENCIES: ENVIRONMENTAL: Like other companies in the natural gas industry, the Company is a party to governmental actions associated with former gas manufacturing sites. Management estimates that expenditures to remediate and monitor known environmental sites will range from $3,290 to $12,302. Accordingly, the Company has recorded the most likely cost of $3,290 in accordance with SFAS No. 5. The Company's unamortized costs at September 30, 1997 were $836 and should be recovered over a seven-year period through the Cost of Gas Adjustment Clause ("CGAC"). Management's Discussion and Analysis of Financial Condition and Results of Operations - ------------------------------------------------------------------------------- Results of Operations - First Quarter Ended September 30, 1997 versus First Quarter Ended September 30, 1996 - ------------------------------------------------------------------------------- Since income is not significantly affected by changes in revenue due to changes in gas costs, the discussion below pertains to Operating Margin(Operating Margin or Gross Profit = Operating Revenues Net of Cost of Gas Sold). The Berkshire Gas Company considers Operating Margin to be a more pertinent measure of operating results than Operating Revenues. Operating Margin increased $46,000 or 1.9% from the three months ended September 30, 1996. Operating Margin is primarily affected by the change in the level of firm gas sold and transported. Interruptible gas sold and transported has no effect on Operating Margin since those margins are flowed back to the firm customer. The increase from 1996 is primarily due to 9.6% higher revenues on firm transportation to industrial customers, resulting from 14.9% higher volumes.
1997 1996 ----------- ----------- 3 Month Firm MCF Sold & Transported 713,000 695,000 3 Month Operating Margin $ 2,531,000 $ 2,485,000 3 Month Average Operating Margin Per Firm MCF $ 3.55 $ 3.58
Other Operating Expenses decreased $71,000 or 2.6% from the three months ended September 30, 1996. The decrease is primarily due to lower Administrative and General costs of $265,000 reflective of the costs of implementing an early retirement program in 1996, and decreased Marketing expenses of $13,000, primarily due to lower customer incentive programs. Offsetting the decreases were higher Production expenses of $17,000, higher Transmission and Distribution expenses of $71,000, and increased Customer Accounts expenses of $120,000 due to information systems upgrading. 177 Other Income increased $8,000 or 1.9% from 1996. The increase was primarily due to higher interest income of $59,000 from the undercollection of gas costs through the Cost of Gas Adjustment Clause ("CGAC"), partially offset by lower non-utility income of $50,000 reflecting increased fleet and equipment maintenance costs. Income Tax Benefit increased $103,000 from 1996 due to an increase in the Pre-Tax Loss. Dividends Declared on Common Stock increased $32,000 due to additional shares outstanding from the Dividend Reinvestment Program ("DRIP"), and to a lesser extent, a quarterly increase in dividends to $.285 per share from $.28 in 1996. - ------------------------------------------------------------------------------- Results of Operations - Twelve Months Ended September 30, 1997 versus Twelve Months Ended September 30, 1996 - ------------------------------------------------------------------------------- Earnings available for Common Stock were $3,356,000 for the twelve months ended September 30, 1997 as compared to $3,388,000 for 1996. The decrease is due primarily to warmer temperatures for the twelve months ended September 30, 1997. Operating Margin decreased $585,000 or 2.3% from the twelve months ended September 30, 1996. Operating Margin is primarily affected by the change in the level of firm gas sold and transported. The Company's sales are affected by weather as the majority of its firm customers use natural gas for heating. The 0.9% decrease in firm gas sold is due to 4.9% warmer weather in 1997.
1997 1996 ------------ ------------ 12 Month Firm MCF Sold & Transported 6,448,000 6,508,000 12 Month Operating Margin $ 25,300,000 $ 25,885,000 12 Month Average Operating Margin Per Firm MCF $ 3.92 $ 3.98
Other Operating Expenses increased $63,000 or 0.5% over the twelve months ended September 30, 1996. The increase is due to higher Administrative and General costs of $161,000 for professional fees as the Company continues its strategic planning for the gas industry deregulation. Offsetting this increase is lower Customer Accounts expense due to the automation of meter reading. Depreciation Expense increased $202,000 over the twelve months ended September 30, 1996, due to an increase in the level of depreciable assets. Other Income increased $729,000 from 1996. The increase was primarily due to higher interest on the undercollection of prior period gas costs through the CGAC, and to a lesser extent, higher Propane revenues due to greater margins and increased jobbing revenues. 178 Interest Expense increased $894,000 due to the increase of long-term debt used to retire the 8.4% Preferred Stock series and the expenses associated with the debt restructuring. This is offset by lower related income taxes and Preferred Stock dividend. Income Taxes decreased $439,000 due to lower earnings in 1997. Dividends Declared on Common Stock increased $110,000 due to additional shares outstanding through the Company's DRIP and to a lesser extent, an increase in quarterly dividends to $.285 per share from $.28, effective the fourth quarter of 1997. Liquidity and Capital Resources - September 30, 1997 The Company added approximately $2,100,000 to Utility Plant assets during the three months ended September 30, 1997. These construction expenditures primarily represent investments in new and replacement mains and services, and the conversion to automated meter reading. The capital structure of the Company at September 30, 1997 was 42.9% Common Equity, 0.5% Preferred Stock and 56.6% Long-Term Debt. The Company initially finances construction expenditures and other funding needs primarily with short-term bank borrowings, and to a lesser extent with the reinvestment of dividends. The Company continually evaluates its short-term borrowing position and based on prevailing interest rates, market conditions, etc., makes determinations regarding conversion of short-term borrowings to long-term debt or equity. As part of this process and in keeping with its cost containment program, the Company revised its capital structure to lower borrowing costs. During the second quarter of fiscal 1997, the Company repurchased the 80,000 shares of the 8.4% Preferred Stock at $117 per share. To finance these redemptions the Company sold a $16,000,000 Senior Note at 7.8% due 2021. It is management's view that the Company has adequate access to capital markets and will have sufficient capital resources, both internal and external, to meet anticipated capital requirements. Funds for environmental clean-up costs are initially financed through short-term borrowings and all such costs will be recovered over a seven-year period under a ruling issued by the Massachusetts Department of Public Utilities("MDPU"). NEW ACCOUNTING PRONOUNCEMENT: Statement of Financial Accounting Standards ("SFAS") No. 128 was issued in February, 1997 and is effective for financial statements issued after December 15, 1997. The statement establishes new standards for computing and presenting earnings per share ("EPS") and will require restatement of prior year's information. This statement simplifies the standards for computing EPS previously found in APB Opinion 15. It replaces the presentation of primary and fully diluted EPS with a presentation of basic EPS and diluted EPS, requires a dual presentation on the face of the financial statements, and requires a reconciliation of basic EPS to diluted EPS. Had SFAS No. 128 been effective for the September 30, 1997 financial statements, computation and presentation of EPS would result in no change due to the current capital structure of the Company. 179 Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995 This Quarterly Report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those contemplated by such statements. Such statements reflect management's current views, are based on many assumptions and are subject to risks and uncertainties. Certain important factors which could cause such results to differ include risks associated with the Company's maintaining contracts with specific customers, government regulation, the increasingly competitive nature of the markets in which the Company is engaged, and dependence on key personnel. These factors are not intended to represent a complete list of the general or specific risks that may affect the Company. PART II - OTHER INFORMATION Item 1. Legal Proceedings - ------- ----------------- No developments during the quarter. Item 2. Changes in Securities - ------- --------------------- None. Item 3. Defaults Upon Senior Securities - ------- ------------------------------- Not Applicable. Item 4. Submission of Matters to a Vote of Security Holders. - ------- ---------------------------------------------------- Not Applicable. Item 5. Other Information - ------- ----------------- Not Applicable. Item 6. Exhibits and Reports on Form 8 - K - ------- ---------------------------------- (a) List of Exhibits 27 - Financial Data Schedule The balance sheet as of September 30, 1997, the related statements of operations and retained earnings for the three month and twelve month periods 180 ended September 30, 1997 and 1996, and the statements of cash flows for the three month periods ended September 30, 1997 and 1996 have been reviewed, prior to filing, by the Registrant's independent public accountants, Deloitte & Touche LLP, whose report covering their review of the financial statements is presented below. Deloitte & Touche LLP - ------------ ----------------------------------------------------------- City Place Telephone:(860)280-3000 185 Asylum Street Facsimile:(860)280-3051 Hartford, Connecticut 06103-3402 INDEPENDENT ACCOUNTANTS' REPORT The Berkshire Gas Company: We have reviewed the accompanying balance sheet of The Berkshire Gas Company as of September 30, 1997, the related statements of operations and retained earnings for the three month and twelve month periods ended September 30, 1997 and 1996, and the statements of cash flows for the three month periods ended September 30, 1997 and 1996. These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to such financial statements for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the balance sheet of The Berkshire Gas Company as of June 30, 1997, and the related statements of income and retained earnings and of cash flows for the year then ended (not presented herein); and in our report dated August 15, 1997, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying balance sheet as of June 30, 1997 is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived. /s/ DELOITTE & TOUCHE LLP - ---------------------------------- Deloitte & Touche LLP November 10, 1997 SIGNATURES 181 Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE BERKSHIRE GAS COMPANY ------------------------------------- Registrant /s/ MICHAEL J. MARRONE ------------------------------------- Michael J. Marrone Vice President, Treasurer & Chief Financial Officer Dated: November 12, 1997 EXHIBIT 27-FDS FOR 1ST QUARTER OF 10-Q [PERIOD-TYPE] 3-MOS [FISCAL-YEAR-END] JUN-30-1998 [PERIOD-END] SEP-30-1997 [BOOK-VALUE] PER-BOOK [TOTAL-NET-UTILITY-PLANT] 75,093 [OTHER-PROPERTY-AND-INVEST] 6,155 [TOTAL-CURRENT-ASSETS] 15,010 [TOTAL-DEFERRED-CHARGES] 4,875 [OTHER-ASSETS] 3,290 [TOTAL-ASSETS] 104,423 [COMMON] 5,594 [CAPITAL-SURPLUS-PAID-IN] 17,436 [RETAINED-EARNINGS] 7,261 [TOTAL-COMMON-STOCKHOLDERS-EQ] 30,291 [PREFERRED-MANDATORY] 0 [PREFERRED] 321 [LONG-TERM-DEBT-NET] 40,000 [SHORT-TERM-NOTES] 10,720 [LONG-TERM-NOTES-PAYABLE] 0 [COMMERCIAL-PAPER-OBLIGATIONS] 0 [LONG-TERM-DEBT-CURRENT-PORT] 0 [PREFERRED-STOCK-CURRENT] 0 [CAPITAL-LEASE-OBLIGATIONS] 0 [LEASES-CURRENT] 0 [OTHER-ITEMS-CAPITAL-AND-LIAB] 23,091 [TOT-CAPITALIZATION-AND-LIAB] 104,423 [GROSS-OPERATING-REVENUE] 4,480 [INCOME-TAX-EXPENSE] (538) [OTHER-OPERATING-EXPENSES] 2,659 [TOTAL-OPERATING-EXPENSES] 3,024 [OPERATING-INCOME-LOSS] (493) [OTHER-INCOME-NET] 424 [INCOME-BEFORE-INTEREST-EXPEN] (69) 182 [TOTAL-INTEREST-EXPENSE] 1,101 [NET-INCOME] (836) [PREFERRED-STOCK-DIVIDENDS] 4 [EARNINGS-AVAILABLE-FOR-COMM] (840) [COMMON-STOCK-DIVIDENDS] 638 [TOTAL-INTEREST-ON-BONDS] 0 [CASH-FLOW-OPERATIONS] (2,056) [EPS-PRIMARY] (.38) [EPS-DILUTED] 0
EX-13 10 EXHIBIT 13.4 QUARTERLY REPORT FOR 2ND QUARTER EXHIBIT 13.4 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarter Ended December 31, 1997 Commission File No. 0-1857-3 THE BERKSHIRE GAS COMPANY Massachusetts 04-1731220 115 Cheshire Road, Pittsfield, Massachusetts 01201-1879 Registrant's telephone number, including Area Code 413:442-1511 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] At December 31, 1997, the Registrant had issued and outstanding 2,263,133 shares of Common Stock, par value $2.50. 183 THE BERKSHIRE GAS COMPANY STATEMENTS OF INCOME AND RETAINED EARNINGS - Unaudited (In Thousands)
Three Months Ended --------------------- 12/31/97 12/31/96 -------- -------- Operating Revenues $ 14,177 $ 12,109 Cost of Gas Sold 7,077 5,650 --------------------- Operating Margin 7,100 6,459 --------------------- Other Operating Expenses 3,362 2,905 Depreciation 1,067 1,003 --------------------- Total 4,429 3,908 --------------------- Utility Operating Income 2,671 2,551 Other Income - Net 675 747 --------------------- Operating and Other Income 3,346 3,298 Interest Expense 1,157 1,034 Other Taxes 465 438 --------------------- Pre-Tax Income 1,724 1,826 Income Taxes 648 702 --------------------- NET INCOME 1,076 1,124 Retained Earnings at Beginning of Period 7,261 6,396 --------------------- Total 8,337 7,520 --------------------- Dividends Declared: Preferred Stock 4 88 Common Stock 645 609 --------------------- Total Dividends 649 697 --------------------- Retained Earnings at End of Period $ 7,688 $ 6,823 ===================== 184 Earnings Available for Common Stock $ 1,072 $ 1,036 --------------------- Average Shares of Common Stock Outstanding 2,263.1 2,177.4 --------------------- Basic and Diluted Earnings Per Share of Common Stock $ 0.47 $ 0.48 =====================
See Independent Accountants' Review Report and Notes to Financial Statements. THE BERKSHIRE GAS COMPANY STATEMENTS OF INCOME AND RETAINED EARNINGS - Unaudited (In Thousands)
Six Months Ended --------------------- 12/31/97 12/31/96 -------- -------- Operating Revenues $ 18,657 $ 16,226 Cost of Gas Sold 9,026 7,282 --------------------- Operating Margin 9,631 8,944 --------------------- Other Operating Expenses 6,021 5,635 Depreciation 1,432 1,339 --------------------- Total 7,453 6,974 --------------------- Utility Operating Income 2,178 1,970 Other Income - Net 1,099 1,163 --------------------- Operating and Other Income 3,277 3,133 Interest Expense 2,258 1,824 Other Taxes 669 626 --------------------- Pre-Tax Income 350 683 Income Taxes 110 267 --------------------- NET INCOME 240 416 Retained Earnings at Beginning of Period 8,739 7,883 --------------------- Total 8,979 8,299 --------------------- Dividends Declared: 185 Preferred Stock 8 261 Common Stock 1,283 1,215 --------------------- Total Dividends 1,291 1,476 --------------------- Retained Earnings at End of Period $ 7,688 $ 6,823 ===================== Earnings Available for Common Stock $ 232 $ 155 --------------------- Average Shares of Common Stock Outstanding 2,243.1 2,169.0 --------------------- Basic and Diluted Earnings Per Share of Common Stock $ 0.10 $ 0.07 =====================
See Independent Accountants' Review Report and Notes to Financial Statements. THE BERKSHIRE GAS COMPANY STATEMENTS OF INCOME AND RETAINED EARNINGS - Unaudited (In Thousands)
Twelve Months Ended --------------------- 12/31/97 12/31/96 -------- -------- Operating Revenues $ 50,893 $ 46,170 Cost of Gas Sold 24,954 20,480 --------------------- Operating Margin 25,939 25,690 --------------------- Other Operating Expenses 12,448 11,860 Depreciation 4,113 3,868 --------------------- Total 16,561 15,728 --------------------- Utility Operating Income 9,378 9,962 Other Income - Net 2,292 1,916 --------------------- Operating and Other Income 11,670 11,878 Interest Expense 4,413 3,516 Other Taxes 1,813 1,748 --------------------- 186 Pre-Tax Income 5,444 6,614 Income Taxes 2,065 2,548 --------------------- NET INCOME 3,379 4,066 Retained Earnings at Beginning of Period 6,823 5,770 --------------------- Total 10,202 9,836 --------------------- Dividends Declared: Preferred Stock 16 607 Common Stock 2,498 2,406 --------------------- Total Dividends 2,514 3,013 --------------------- Retained Earnings at End of Period $ 7,688 $ 6,823 ===================== Earnings Available for Common Stock $ 3,363 $ 3,459 --------------------- Average Shares of Common Stock Outstanding 2,217.6 2,153.9 --------------------- Basic and Diluted Earnings Per Share of Common Stock $ 1.52 $ 1.61 =====================
See Independent Accountants' Review Report and Notes to Financial Statements. THE BERKSHIRE GAS COMPANY BALANCE SHEETS (In Thousands)
December 31, June 30, 1997 1997 ------------ --------- (Unaudited) (Audited) ASSETS: Utility Plant: Utility Plant - at original cost $ 105,133 $ 101,983 Less: Accumulated Depreciation 29,158 28,343 ------------------------ Utility Plant - Net 75,975 73,640 ------------------------ Other Property: Other Property - at original cost 12,349 11,983 Less: Accumulated Depreciation 6,184 5,887 ------------------------ 187 Other Property - Net 6,165 6,096 ------------------------ Current Assets: Cash 329 356 Accounts Receivable Utility Service (less allowance: Dec. 1997-$1,002; June 1997-$900) 7,425 6,386 Merchandise & Other (less allowance: Dec. 1997-$131; June 1997-$121) 905 869 Other Receivables 60 332 Inventories (at the lower of average cost or market): Natural Gas 2,914 1,844 Liquefied Petroleum 190 146 Materials and Supplies 1,546 1,675 Prepayments and Other 870 689 Prepaid Taxes 1,488 96 Recoverable Gas Costs 3,799 1,404 ------------------------ Total Current Assets 19,526 13,797 ------------------------ Deferred Debits: Unamortized Debt Expense 2,251 2,302 Capital Stock Expense 297 319 Environmental Cleanup Costs 875 819 Other 1,243 1,425 ------------------------ Total Deferred Debits 4,666 4,865 ------------------------ Recoverable Environmental Cleanup Costs 3,290 3,290 ------------------------ TOTAL ASSETS $ 109,622 $ 101,688 ========================
See Independent Accountants' Review Report and Notes to Financial Statements. THE BERKSHIRE GAS COMPANY BALANCE SHEETS (In Thousands)
December 31, June 30, 1997 1997 ------------ --------- (Unaudited) (Audited) 188 CAPITALIZATION AND LIABILITIES Common Shareholders' Equity: Common Stock $ 5,658 $ 5,529 Premium on Common Stock 17,796 17,097 Retained Earnings 7,688 8,739 ------------------------ Total Common Shareholders' Equity 31,142 31,365 ------------------------ Redeemable Cumulative Preferred Stock 321 363 ------------------------ Long-Term Debt 40,000 40,000 ------------------------ Current Liabilities: Notes Payable to Banks 14,300 6,480 Accounts Payable 3,382 3,513 Other Current Liabilities 4,080 4,621 ------------------------ Total Current Liabilities 21,762 14,614 ------------------------ Other Liabilities 1,686 1,561 ------------------------ Unamortized Investment Tax Credit 1,174 1,209 ------------------------ Deferred Income Taxes 10,247 9,286 ------------------------ Reserve for Recoverable Environmental Cleanup Costs 3,290 3,290 ------------------------ TOTAL CAPITALIZATION AND LIABILITIES $ 109,622 $ 101,688 ========================
See Independent Accountants' Review Report and Notes to Financial Statements. THE BERKSHIRE GAS COMPANY STATEMENTS OF CASH FLOWS - Unaudited (In Thousands)
Six Months Ended --------------------- 12/31/97 12/31/96 -------- -------- 189 Cash Flows from Operating Activities: Net Income $ 240 $ 416 Adjustments to Reconcile Net Income to Net Cash Used in Operating Activities: Depreciation and Amortization 1,916 1,817 Provision for Losses on Accounts Receivable 369 351 Recoverable Gas Costs (2,395) (4,615) Deferred Income Taxes 961 1,797 Changes in Assets and Liabilities Which Provided (Used) Cash: Accounts Receivable (1,444) (2,074) Other Receivables 272 174 Inventories (985) (1,671) Accounts Payable (131) 1,551 Prepaid Taxes (1,392) (1,685) Other (471) (983) --------------------- Total Adjustments (3,300) (5,338) --------------------- Net Cash Used in Operating Activities (3,060) (4,922) --------------------- Cash Flows from Investing Activities: Construction Expenditures (4,282) (3,705) --------------------- Cash Flows from Financing Activities: Dividends Paid (1,291) (1,477) Proceeds from Issuance of Long-Term Debt 0 16,000 Proceeds from Note Payable Borrowings 7,820 3,330 Redemption of Preferred Stock (42) (9,360) Proceeds from Other Stock Transactions Stock Transactions 828 340 --------------------- Net Cash Provided by Financing Activities 7,315 8,833 --------------------- Net (Decrease) Increase in Cash (27) 206 Cash at Beginning of Period 356 196 --------------------- Cash at End of Period $ 329 $ 402 ===================== Supplemental Disclosures of Cash Flow Information: Cash Paid During the Year for: Interest (net of amount capitalized) $ 2,191 $ 1,569 ===================== Income Taxes (Refunds) $ 333 $ (26) =====================
See Independent Accountants' Review Report and Notes to Financial Statements. 190 The Berkshire Gas Company Notes to Financial Statements December 31,1997 - ------------------------------------------------------------------------------- (Dollars in Thousands Except Share Amounts) NOTES: OTHER FINANCIAL INFORMATION: The accompanying unaudited financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. All adjustments, which in the opinion of management are necessary for a fair presentation of the operations for the interim periods presented, have been made. These adjustments are of a normal recurring nature. The results of operations for such interim periods are not necessarily indicative of results of operations for a full year. These financial statements should be read in conjunction with the summary of accounting policies and notes to financial statements included in the Company's Annual Report on Form 10-K for the year ended June 30, 1997. NEW ACCOUNTING PRONOUNCEMENT: Effective December 31, 1997, the Company, as required, retroactively adopted Statement of Financial Accounting Standards No. 128 "Earnings Per Share" ("SFAS"). The statement established new standards for computing and presenting earnings per share ("EPS") and requires restatement of prior years information. As such, EPS for all prior periods presented has been restated to conform with SFAS 128. Due to the capital structure of the Company, basic and diluted EPS are equal. Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information" was issued in June, 1997. SFAS 131 establishes the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to stockholders. It also establishes standards for related disclosures about products and services, geographic areas and major customers. This statement is effective for financial statements for periods beginning after December 15, 1997. The Company does not expect that the implementation of SFAS 131 will have a material effect on the Company. CONTINGENCIES: ENVIRONMENTAL: Like other companies in the natural gas industry, the Company is a party to governmental actions associated with former gas manufacturing sites. Management estimates that expenditures to remediate and monitor known environmental sites will range from $3,290 to $12,302. In accordance with SFAS No. 5, the Company has recorded the most likely cost of $3,290. The Company's unamortized costs at December 31, 1997 were $875 and should be recovered over a seven-year period through the Cost of Gas Adjustment Clause ("CGAC"). 191 Management's Discussion and Analysis of Financial Condition and Results of Operations - ------------------------------------------------------------------------------- Results of Operations - Second Quarter Ended December 31, 1997 versus Second Quarter Ended December 31, 1996 - ------------------------------------------------------------------------------- Berkshire Gas considers Operating Margin (Operating Margin or Gross Profit = Operating Revenues Net of Cost of Gas Sold) to be a more pertinent measure of operating results than Operating Revenues. This is due primarily to the fact that revenues include changes in the cost of natural gas which must be recovered or returned to customers through the Cost of Gas Adjustment Clause. Consequently, changes in the cost of gas will affect revenue levels, but does not have a corresponding affect on income. Additionally, margins earned on interruptible gas sold and transported are flowed back to firm customers and therefore do not affect Operating Margin. Accordingly, the discussion below pertains to Operating Margin. Operating Margin increased $641,000 or 9.9% from the three months ended December 31, 1996, primarily due to 5.7% colder weather and growth of commercial volumes and customers.
1997 1996 ---------- ---------- 3 Month Firm MCF Sold & Transported 1,710,000 1,651,000 3 Month Operating Margin $7,100,000 $6,459,000 3 Month Average Operating Margin Per Firm MCF $ 4.15 $ 3.91
Other Operating Expenses increased $457,000 or 15.7% from the three months ended December 31, 1996. The increase is primarily due to higher Administrative and General costs as a result of restructuring the Company in response to the deregulation of the gas industry, as well as increased medical benefit costs. Transmission and Distribution costs are the result of higher mains and services and customer installation expenses. Partially offsetting these increases is a decrease in Customer Accounts Expense primarily due to lower meter reading expenses, a result of automating the meter reading function. Depreciation Expense increased $64,000 due to an increase in the amount of depreciable assets. Other Income decreased $72,000 or 9.6% from 1996. The decrease was primarily due to lower Propane revenues reflecting lower margins due to market conditions, and lower Interest Income from the over/under collection of gas costs from customers through the CGAC. Due to the increase of long-term debt used to retire the 8.4% Preferred Stock series as well as additional short-term borrowings to finance gas costs, 192 Interest Expense increased $123,000 while dividends on Preferred Stock decreased $84,000. Dividends on Common Stock increased $36,000 due to an increase in the number of shares reflecting shareholder active participation in the Dividend Reinvestment Program ("DRIP"). The Allowance for Doubtful Accounts on Utility Service Accounts Receivable increased by $102,000 since June 30, 1997 reflecting the current status of uncollectible accounts. Management's Discussion and Analysis of Financial Condition and Results of Operations - ------------------------------------------------------------------------------- Results of Operations - Six Months Ended December 31, 1997 versus Six Months Ended December 31, 1996 - ------------------------------------------------------------------------------- Operating Margin increased $687,000 or 7.7% as compared with the six months ended December 31, 1996 for the same reasons as discussed in the Second Quarter Results.
1997 1996 ---------- ---------- 6 Month Firm MCF Sold & Transported 2,424,000 2,347,000 6 Month Operating Margin $9,631,000 $8,944,000 6 Month Average Operating Margin Per Firm MCF $ 3.97 $ 3.81
Other Operating Expenses increased $386,000 or 6.9% from the six months ended December 31, 1996. The increase is due to higher Production Expenses due to the amortization of environmental cleanup costs, higher Transmission and Distribution Expenses due to re-allocation of the work force and fleet leasing, higher Customer Accounts Expenses as a result of increased collection costs, as well as higher Administrative and General costs as a result of restructuring the Company in response to the deregulation of the gas industry. Depreciation expense increased $93,000 due to an increase in the amount of depreciable assets. Other Income decreased $64,000 or 5.5%, Interest Expense increased $434,000 or 23.8%, Dividends on Preferred Stock decreased $253,000, and Dividends on Common Stock increased $68,000 from the six months ended December 31, 1996 for the same reasons previously discussed in the Results of Operations - - Second Quarter. Income Taxes decreased $157,000 or 58.8% due to a decrease in Pre-Tax Income. 193 Management's Discussion and Analysis of Financial Condition and Results of Operations - ------------------------------------------------------------------------------- Results of Operations - Twelve Months Ended December 31, 1997 versus Twelve Months Ended December 31, 1996 - ------------------------------------------------------------------------------- Earnings available for Common Stock were $3,363,000 for the twelve months ended December 31, 1997 as compared to $3,459,000 for 1996. The decrease is due primarily to increased operating expenses. Operating Margin increased $249,000 or 1.0% from the twelve months ended December 31, 1996. Operating Margin is primarily affected by the change in the level of firm gas sold and transported. The Company's sales are affected by weather as the majority of its firm customers use natural gas for heating. An increase in the number of firm heating customers was offset by 2.2% warmer than normal temperatures.
1997 1996 ----------- ----------- 12 Month Firm MCF Sold & Transported 6,506,000 6,498,000 12 Month Operating Margin $25,939,000 $25,690,000 12 Month Average Operating Margin Per Firm MCF $ 3.99 $ 3.95
Other Operating Expenses increased $588,000 or 4.9% over the twelve months ended December 31, 1996. The increase is primarily due to Administrative and General Expenses reflecting the costs associated with restructuring and deregulation, insurance costs and Transmission and Distribution Expenses due to a re-allocation of the work force. Depreciation increased $245,000 over the twelve months ended December 31, 1996, due to an increase in the level of depreciable assets. Other Income increased $376,000 or 19.6% from 1996. The increase was primarily due to higher interest on the undercollection of prior period gas costs through the CGAC, higher Propane revenues due to higher margins during the heating season, and increased jobbing revenues. Interest Expense increased $897,000 due to the increase in long-term debt used to retire the $8,000,000, 8.4% Preferred Stock series and the expenses associated with the restructuring. Offsetting this, dividends on Preferred Stock decreased $591,000 resulting in a tax savings of $228,000. Dividends declared on Common Stock increased $92,000 due to additional shares outstanding through the Company's DRIP and to a lesser extent, an increase in quarterly dividends to $.285 per share from $.28, effective the second quarter of 1997. 194 Liquidity and Capital Resources - December 31, 1997 The Company added approximately $3,766,000 to Plant assets during the six months ended December 31, 1997. These construction expenditures primarily represent investments in new and replacement mains and services. The capital structure of the Company at December 31, 1997 was 43.6% Common Equity, 0.4% Preferred Stock and 56.0% Long-Term Debt. The Company initially finances construction expenditures and other funding needs primarily with short-term bank borrowings, and to a lesser extent with the reinvestment of dividends. The Company continually evaluates its short-term borrowing position and based on prevailing interest rates, market conditions, etc., makes determinations regarding conversion of short-term borrowings to long-term debt or equity. Funds for environmental clean-up costs are initially financed through short-term borrowings and all such costs will be recovered over a seven year period under a ruling issued by the Massachusetts Department of Telecommunications and Energy ("DTE"), formerly referred to as the Massachusetts Department of Public Utilities ("MDPU"). NEW ACCOUNTING PRONOUNCEMENT: Effective December 31, 1997, the Company, as required, retroactively adopted Statement of Financial Accounting Standards No. 128 "Earnings Per Share " ("SFAS"). The statement established new standards for computing and presenting earnings per share ("EPS") and require restatement of prior years information. As such, EPS for all prior periods presented has been restated to conform with SFAS 128. Due to the capital structure of the Company, basic and diluted EPS are equal. Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information" was issued in June, 1997. SFAS 131 establishes the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to stockholders. It also establishes standards for related disclosures about products and services, geographic areas and major customers. This statement is effective for financial statements for periods beginning after December 15, 1997. The Company does not expect that the implementation of SFAS 131 will have a material effect on the Company. Cautionary Statement for Purposes of the"Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995 This Quarterly Report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those contemplated by such statements. Such statements reflect management's current views, are based on many assumptions and are subject to risks and uncertainties. Certain important factors which could cause such results to differ include risks associated with the Company's maintaining contracts with specific customers, government regulation, the increasingly competitive nature of the 195 markets in which the Company is engaged, and dependence on key personnel. These factors are not intended to represent a complete list of the general or specific risks that may affect the Company. PART II - OTHER INFORMATION Item 1. Legal Proceedings - --------------------------- No developments during the quarter. Item 2. Changes in Securities - ------------------------------- None Item 3. Defaults Upon Senior Securities - ----------------------------------------- Not Applicable Item 4. Submission of Matters to a Vote of Security Holders - ------------------------------------------------------------- On November 7, 1997, the Annual Meeting of the shareholders of the Berkshire Gas Company was held at the Crowne Plaza Hotel, Pittsfield, Massachusetts at 10:00 a.m. Proxies for said annual meeting were solicited pursuant to Regulation 14A. There was no solicitation in opposition to Management's nominees, as listed in the Proxy statement, for the election of Directors. All nominees were duly elected. Item 5. Other Information - --------------------------- The Company received approval on January 30, 1998 from the DTE to proceed with the process of forming a holding company. The Company's management and Board of Directors consider it to be in the best interest of Berkshire Gas and its shareholders to adopt a holding company structure. Berkshire Gas would become a separate wholly-owned subsidiary of a new parent company. The shareholders of Berkshire Gas would become shareholders of the parent company. This reorganization will require shareholder approval. A special meeting of shareholders will be scheduled during the first half of 1998 for the purpose of voting on this reorganization. The Company has signed an agreement to enter into a joint venture with a major energy marketer. The affiliation will extend opportunities to sell a variety of energy services in areas where the Company now operates. Item 6. Exhibits and Reports on Form 8 - K - -------------------------------------------- 196 (a) List of Exhibits 27 - Financial Data Schedule The balance sheet as of December 31, 1997, the related statements of operations and retained earnings for three month, six month and twelve month periods ended December 31, 1997 and 1996, and the statements of cash flows for the six month periods ended December 31, 1997 and 1996 have been reviewed, prior to filing, by the Registrant's independent public accountants, Deloitte & Touche LLP, whose report covering their review of the financial statements is presented below. Deloitte & Touche LLP - ------------- ------------------------------------------------------------ City Place Telephone:(860) 280-3000 185 Asylum Street Facsimile:(860) 280-3051 Hartford, Connecticut 06103-3402 INDEPENDENT ACCOUNTANTS' REPORT The Berkshire Gas Company: We have reviewed the accompanying balance sheet of The Berkshire Gas Company as of December 31, 1997, the related statements of operations and retained earnings for the three month, six month and twelve month periods ended December 31, 1997 and 1996, and the statements of cash flows for the six month periods ended December 31, 1997 and 1996. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to such financial statements for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the balance sheet of The Berkshire Gas Company as of June 30, 1997, and the related statements of income and retained earnings and of cash flows for the year then ended (not presented herein); and in our report dated August 15, 1997, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying balance sheet as of June 30, 1997 is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived. 197 /s/ DELOITTE & TOUCHE LLP - ----------------------------------- Deloitte & Touche LLP February 9, 1998 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE BERKSHIRE GAS COMPANY ------------------------------------------ Registrant /s/ MICHAEL J. MARRONE ------------------------------------------ Michael J. Marrone Vice President, Treasurer & Chief Financial Officer Dated: February 12, 1998 EXHIBIT 27-FDS FOR 2ND QUARTER 10-Q [PERIOD-TYPE] 6-MOS [FISCAL-YEAR-END] JUN-30-1998 [PERIOD-END] DEC-31-1997 [BOOK-VALUE] PER-BOOK [TOTAL-NET-UTILITY-PLANT] 75,975 [OTHER-PROPERTY-AND-INVEST] 6,165 [TOTAL-CURRENT-ASSETS] 19,526 [TOTAL-DEFERRED-CHARGES] 4,666 [OTHER-ASSETS] 3,290 [TOTAL-ASSETS] 109,622 [COMMON] 5,658 [CAPITAL-SURPLUS-PAID-IN] 17,796 [RETAINED-EARNINGS] 7,688 [TOTAL-COMMON-STOCKHOLDERS-EQ] 31,142 [PREFERRED-MANDATORY] 0 [PREFERRED] 321 [LONG-TERM-DEBT-NET] 40,000 [SHORT-TERM-NOTES] 14,300 [LONG-TERM-NOTES-PAYABLE] 0 [COMMERCIAL-PAPER-OBLIGATIONS] 0 [LONG-TERM-DEBT-CURRENT-PORT] 0 198 [PREFERRED-STOCK-CURRENT] 0 [CAPITAL-LEASE-OBLIGATIONS] 0 [LEASES-CURRENT] 0 [OTHER-ITEMS-CAPITAL-AND-LIAB] 23,859 [TOT-CAPITALIZATION-AND-LIAB] 109,622 [GROSS-OPERATING-REVENUE] 18,657 [INCOME-TAX-EXPENSE] 110 [OTHER-OPERATING-EXPENSES] 6,021 [TOTAL-OPERATING-EXPENSES] 7,453 [OPERATING-INCOME-LOSS] 2,178 [OTHER-INCOME-NET] 1,099 [INCOME-BEFORE-INTEREST-EXPEN] 3,277 [TOTAL-INTEREST-EXPENSE] 2,258 [NET-INCOME] 240 [PREFERRED-STOCK-DIVIDENDS] 8 [EARNINGS-AVAILABLE-FOR-COMM] 232 [COMMON-STOCK-DIVIDENDS] 1,283 [TOTAL-INTEREST-ON-BONDS] 0 [CASH-FLOW-OPERATIONS] (3,060) [EPS-PRIMARY] .10 [EPS-DILUTED] 0
EX-23 11 EXHIBIT 23.2 CONSENT OF DELOITTE & TOUCHE LLP EXHIBIT 23.2 CONSENT OF DELOITTE & TOUCHE LLP INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in this Registration Statement of Berkshire Energy Resources on Form S-4 of our reports dated August 15, 1997, appearing in the Annual Report on Form 10-K of The Berkshire Gas Company for the year ended June 30, 1997 and The Berkshire Gas Company's Annual Report to shareholders for the year ended June 30, 1997 and to the reference to us under the heading "Experts" in this Registration Statement. /s/ DELOITTE & TOUCHE LLP _______________________________ DELOITTE & TOUCHE LLP Hartford, Connecticut February 24, 1998 199 EX-99 12 EXHIBIT 99.1 FORM OF PROXY EXHIBIT 99.1 FORM OF PROXY THIS IS YOUR PROXY. YOUR VOTE IS IMPORTANT The Special Meeting of Shareholders will be held: DATE: _________ __, 1998 LOCATION: OFFICES OF THE BERKSHIRE GAS COMPANY TIME: 10:00 A.M. To ensure that your shares are voted on your behalf, please return your proxy promptly in the enclosed envelope. /X/ Please mark votes as in this example The Board of Directors recommends a vote FOR Proposal Regarding Plan of Restructuring. FOR AGAINST ABSTAIN Proposal to Approve Plan of / / / / / / Restructuring to adopt a Holding Company structure. MARK HERE / / TO DISCONTINUE MULTIPLE MAILINGS MARK HERE / / IF YOU PLAN TO ATTEND THE MEETINGS MARK HERE / / FOR ADDRESS CHANGE AND NOTE AT LEFT 200 Please sign name exactly as it appears hereon. When signing as attorney, agent, guardian, executor, administrator, trustee or the like, please give your full title as such. Signature __________________________ Date________________________________ THE BERKSHIRE GAS COMPANY Proxy for Special Meeting on ____ __, 1998 This Proxy is Solicited on Behalf of the Board of Directors The undersigned hereby appoints Franklin M. Hundley, Scott S. Robinson and Paul L. Gioia and each of them proxies, with power of substitution, to act and vote in the name of the undersigned, with all the powers that the undersigned would possess if personally present, on all matters which may come before the Special Meeting of Shareholders of The Berkshire Gas Company to be held on _________ __, 1998 and any adjournment thereof. The proxies are hereby authorized and instructed upon the matters specified in the Notice of Special Meeting as set forth on the reverse side hereof. IF NO CHOICE IS INDICATED AS TO THE PROPOSAL, THE PROXIES SHALL VOTE FOR SUCH PROPOSAL. THE PROXIES MAY VOTE IN THEIR DISCRETION ON ANY OTHER MATTER WHICH MAY PROPERLY COME BEFORE THE MEETING. The undersigned hereby acknowledges receipt of the Notice of Special Meeting dated _________ __, 1998 and the related Proxy Statement CONTINUED AND TO BE SIGNED ON REVERSE SIDE 201 -----END PRIVACY-ENHANCED MESSAGE-----