-----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, GhZW7tyBWbrXqhKoOFnQDo1EKXLzO2pY+snmN8rCGyj5boNsjS/HO2BE/sylNSFK hgWk25g1H/dvEZuEK72RQQ== 0000950135-97-004335.txt : 19971107 0000950135-97-004335.hdr.sgml : 19971107 ACCESSION NUMBER: 0000950135-97-004335 CONFORMED SUBMISSION TYPE: U-1 PUBLIC DOCUMENT COUNT: 25 FILED AS OF DATE: 19971106 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEW ENGLAND ELECTRIC SYSTEM CENTRAL INDEX KEY: 0000071297 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 041663060 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: U-1 SEC ACT: SEC FILE NUMBER: 070-09143 FILM NUMBER: 97709173 BUSINESS ADDRESS: STREET 1: 25 RESEARCH DR CITY: WESTBOROUGH STATE: MA ZIP: 01581 BUSINESS PHONE: 5083669011 U-1 1 NEW ENGLAND ELECTRIC SYSTEM 1 File No. 70- SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM U-1 APPLICATION/DECLARATION UNDER THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 (the Act) NEW ENGLAND ELECTRIC SYSTEM (NEES) MASSACHUSETTS ELECTRIC COMPANY (Mass. Electric) THE NARRAGANSETT ELECTRIC COMPANY (Narragansett) NEW ENGLAND POWER COMPANY (Power Company) (Names of companies filing this statement) 25 Research Drive, Westborough, Massachusetts 01582 (Address of principal executive offices) NEW ENGLAND ELECTRIC SYSTEM (Name of top registered holding company parent of the participating companies herein) Michael E. Jesanis Kirk L. Ramsauer Vice President and Treasurer Associate General Counsel 25 Research Drive 25 Research Drive Westborough, MA 01582 Westborough, MA 01582 (Names and addresses of agents for service) 2 ITEM 1. DESCRIPTION OF PROPOSED TRANSACTIONS THE COMPANIES New England Electric System (NEES) is a registered holding company under the Public Utility Holding Company Act of 1935 (1935 Act). New England Power Company (the Power Company), Massachusetts Electric Company (Mass. Electric), and The Narragansett Electric Company (Narragansett) are wholly owned subsidiaries of NEES and are hereinafter referred to as the Subsidiaries. NEES and the Subsidiaries seek authorization for the solicitation of proxies for Special Subsidiary Stockholder Meetings, the amendment of the corporate documents providing for the rights of certain Subsidiary preferred stocks and tender offers for Subsidiary preferred stock. The Power Company, a Massachusetts corporation, is qualified to do business as a foreign corporation in the states of New Hampshire, Vermont, Maine, Connecticut, and Rhode Island, inter alia. The Power Company's business is principally generating, purchasing, transmitting, and selling electric energy in wholesale quantities. In 1996, 95% of the Power Company's all-requirement revenue from the sale of electricity was derived from sales for resale to affiliated companies and 5% from sales for resale to municipal and other utilities. The Power Company's equity consists of 6,449,896 shares of common stock, $100 par value, 75,020 shares of 6% Cumulative Preferred Stock, $100 par value, and 321,640 shares of Dividend Series Preferred Stock, $100 par value. The Dividend Series Preferred Stock is issued in four series as follows:
Series Shares Authorized ------ ----------------- 4.56% 100,000 4.60% 80,140 4.64% 41,500 6.08% 100,000
There is also authorized a class of Preferred Stock - Cumulative, $25 par value, of which there are no series currently outstanding. All of the common stock is owned by NEES; all of the preferred stock is owned by the public and traded in over-the-counter markets. The common stock and 6% preferred share general voting rights. The other preferred have limited voting rights. Mass. Electric is a retail electric utility incorporated and doing business solely in Massachusetts. Electric service is provided to approximately 960,000 customers in 146 cities and towns having a population of approximately 2,160,000. Mass. Electric's equity consists of 2,398,111 shares of common stock, $25 par value, 600,000 shares of Preferred Stock - Cumulative, $25 par value, and 350,000 shares of Dividend Series Preferred Stock, $100 par value. The preferred stock is issued in four series as follows:
Series Shares Authorized ------ ----------------- Preferred Stock - Cumulative 6.84% 600,000 Dividend Series 4.44% 75,000 4.76% 75,000 6.99% 200,000
3 All of the common stock is owned by NEES. All of the preferred stock is owned by the public and is traded in over-the-counter markets. The preferred have only limited voting rights. Narragansett is an electric utility incorporated and doing business solely in Rhode Island. Its business is the distribution and sale of electricity at retail. Electric service is provided to approximately 330,000 customers in 27 cities and towns having a population of approximately 725,000. Narragansett's equity consists of 1,132,487 shares of common stock, $50 par value, and 730,000 shares of Cumulative Preferred Stock, $50 par value. The preferred stock is issued in three series as follows:
Series Shares Authorized ------ ----------------- 4.50% 180,000 4.64% 150,000 6.95% 400,000
All of the common stock is owned by NEES. All of the preferred stock is owned by the public and is traded in over-the-counter markets. The preferred have only limited voting rights. THE SOLICITATIONS The Power Company The Power Company proposes to solicit proxies from the holders of its Dividend Series Preferred Stock and common stock and to amend the Power Company Provisions (as defined below) in order to eliminate the provision restricting the ability of the Power Company to incur certain unsecured indebtedness. In October 1996, the NEES Companies announced their intention to divest their generation business. (The separate sale of the oil and gas properties by the Power Company's affiliate, New England Energy Incorporated (NEEI), is necessary in connection therewith.) This decision was due to a combination of factors relating to the restructuring of the electric utility industry. On August 6, 1997, the NEES Companies reached an agreement to sell the non-nuclear generation business to USGen New England, Inc. for approximately $1.65 billion, subject to various adjustments. In order to facilitate this transition to a competitive electric industry, the Power Company may need -- prior to the completion of the sale of its generating plants -- to buy out existing contracts with independent power producers, or to pay the difference between monies owed by NEEI and the proceeds from the sale of NEEI's remaining oil and gas properties. The exact dollar amount of these obligations is not yet determinable, but they may be significant. Given the changing nature of the company, putting in place long-term financial instruments to provide the necessary moneys may not be a cost-effective procedure. Therefore, the Power Company believes it must increase its flexibility in meeting its cash needs. The Power Company will substantially reduce its capitalization and retire its outstanding General and Refunding Mortgage bonds through call or defeasance. The Power Company anticipates issuing its new long-term debt in the form of debentures, which are unsecured. Absent the Proposed Amendment, these debentures would not be permitted by the Provisions, without prior approval by the preferred shareholders. If the Proposed Amendment is adopted, the Power Company will have increased flexibility (i) to choose among different types of debt financing and (ii) to finance projects using the most cost effective means. The availability and 4 flexibility of unsecured debt is necessary, in the estimation of NEES and the Power Company, to take full advantage of changing conditions in the securities markets. Mass. Electric Mass. Electric proposes to solicit proxies from the holders of its preferred stock and common stock and to amend the Mass. Electric Provisions (as defined below) in order to eliminate the provision restricting the ability of Mass. Electric to incur certain unsecured indebtedness. Although Mass. Electric will not be divesting itself of significant assets as is the Power Company, it believes that the prudent use of unsecured debt is important to the effective financial management of its business. Unsecured debt provides flexibility in meeting temporary fluctuations in cash requirements, can be used when unfavorable conditions prevail in the market for long-term capital, acts as a bridge between issues of permanent capital, and may present more flexibility in terms and conditions than secured debt. If the Proposed Amendment is adopted, Mass. Electric will have increased flexibility (i) to choose among different types of debt financing and (ii) to finance projects using the most cost effective means. The availability and flexibility of unsecured debt is necessary to take full advantage of changing conditions in the securities and financial markets. In addition, although Mass. Electric's earnings currently are sufficient to meet the earnings coverage tests that must be satisfied before issuing additional first mortgage bonds and preferred stock, other utilities have been unable to issue mortgage bonds during certain periods because of restrictive covenants in their mortgages. Any inability by Mass. Electric to issue first mortgage bonds or preferred stock in the future, combined with the inability to issue additional unsecured debt, would limit its financing options to more costly securities, including additional common equity. Narragansett Narragansett proposes to solicit proxies from the holders of its preferred stock and common stock and to amend the Narragansett Provisions (as defined below) in order to eliminate the provision restricting the ability of Narragansett to incur certain unsecured indebtedness. Although Narragansett's participation in the divestiture of System generation will not have an impact on it of the magnitude of the Power Company's, Narragansett believes that the prudent use of unsecured debt is important to the effective financial management of its business. Unsecured debt provides flexibility in meeting temporary fluctuations in cash requirements, can be used when unfavorable conditions prevail in the market for long-term capital, acts as a bridge between issues of permanent capital, and may present more flexibility in terms and conditions than secured debt. If the Proposed Amendment is adopted, Narragansett will have increased flexibility (i) to choose among different types of debt financing and (ii) to finance projects using the most cost effective means. The availability and flexibility of unsecured debt is necessary to take full advantage of changing conditions in the securities and financial markets. In addition, although Narragansett's earnings currently are sufficient to meet the earnings coverage tests that must be satisfied before issuing additional first mortgage bonds and preferred stock, other utilities have been unable to issue mortgage bonds during certain periods because of restrictive covenants in their mortgages. Any inability by Narragansett to issue first mortgage bonds or preferred stock in the future, combined with the inability to issue additional unsecured debt, would limit its financing options to more costly securities, including additional common equity. 5 Details of Power Company Proxy Solicitation The Power Company proposes to solicit proxies from the holders of its outstanding shares of Dividend Series Preferred Stock and common stock (the Proxy Solicitation) for use at a special meeting of its stockholders (the Special Meeting) to consider a proposed amendment to the Power Company's By-Laws and Articles of Organization (the Power Company Provisions) to eliminate Article I, Section 4E(4), which restricts the amount of unsecured debt issuable by the Power Company (the Proposed Amendment). If the Proposed Amendment is adopted, the Power Company intends to make a special cash payment to each Dividend Series Preferred Stockholder who voted his or her shares in favor of the Proposed Amendment, provided that such shares have not been tendered pursuant to the concurrent cash tender offer described below. No proxies will be solicited from the holders of the 6% cumulative Preferred. The Power Company has outstanding 6,449,896 shares of common stock, $100 par value, all of which are held by NEES. The Power Company common stock shares general voting rights with the 6% Cumulative Preferred, $100 par value, of which there are 75,020 shares outstanding. The Power Company's other outstanding preferred stock consists of 321,640 shares of Dividend Series Preferred Stock, par value $100 per share, issued in four series, all of which are traded over-the-counter. The Dividend Series Preferred Stock does not have general voting rights but has limited rights. There is also authorized a class of Preferred Stock - Cumulative, $25 par value, of which there are no series currently outstanding. The Proposed Amendment will require the approval of 2/3 of the Power Company Dividend Series Preferred Stock voting as a class and the approval of 2/3 of the Power Company common and 6% Cumulative Preferred Stock voting as a class. The common stock and the preferred stock are entitled to one vote per share on the matters described herein and constitute the Power Company's only outstanding securities entitled to vote on the Proposed Amendment. Article 1, Section 4E(4) of the Power Company Provisions provides that, without a vote of a majority of the outstanding Dividend Series Preferred Stock and Preferred Stock - Cumulative (voting as a single class), the company will not: issue any unsecured notes, debentures or other securities representing unsecured indebtedness, or assume any such unsecured securities, for purposes other than the redemption or other retirement of outstanding shares of all series of the Dividend Series Preferred Stock and the Preferred Stock - Cumulative, if immediately after such issue or assumption the total principal amount of all unsecured notes, debentures or other securities representing unsecured indebtedness issued or assumed by the corporation and then outstanding (including unsecured securities then to be issued or assumed but excluding unsecured securities theretofore so voted for by holders of Dividend Series Preferred Stock and Preferred Stock - Cumulative) (the "Unsecured Indebtedness") would exceed twenty per cent (20%) of the aggregate of (i) the total principal amount of all bonds and other securities representing secured indebtedness issued or assumed by the corporation and then outstanding and (ii) the capital, premium and retained earnings of the corporation as then stated on the books of account of the corporation; provided, however, that after July 1, 1976, short-term unsecured indebtedness shall not exceed ten per cent (10%) of such aggregate of (i) and (ii) above; and provided, further, that after July 1, 1976, in the event unsecured securities representing short-term unsecured indebtedness (excluding unsecured securities theretofore so voted for by the holders of dividend 6 Series Preferred Stock and Preferred Stock - Cumulative) exceed ten per cent (10%) of such aggregate of (i) and (ii) above, no unsecured securities representing unsecured indebtedness shall be issued or assumed (except for the purpose of redemption or other retirement of outstanding shares of all series of the Dividend Series Preferred Stock and the Preferred Stock - Cumulative) unless such ratio of short-term unsecured indebtedness immediately after such issue or assumption is to be not over ten per cent (10%) of such aggregate of (i) and (ii) above. "Short-term unsecured indebtedness" as used herein means unsecured indebtedness of an original maturity of less than ten years and "long-term unsecured indebtedness" means unsecured indebtedness of an original maturity of ten years or more. For the purposes hereof, when any long-term unsecured indebtedness becomes due within ten years, or when any long-term unsecured indebtedness is to be retired within ten years through a sinking fund or otherwise, such long-term unsecured indebtedness, in each case, shall be considered short-term unsecured indebtedness; provided, however, that any long-term unsecured indebtedness of a single maturity (except as provided above in respect of a sinking fund therefor), or the last maturity of any long-term unsecured indebtedness of serial maturities, shall not be considered short-term unsecured indebtedness until due within five years. The Power Company proposes to delete the above section in its entirety; conforming changes to cross references elsewhere in the Provisions will also be made. If the Proposed Amendment is adopted, the Power Company intends to make a special cash payment of $1.00 per share (each, a Cash Payment) to each Power Company Dividend Series Preferred Stockholder of any Series whose shares of the Dividend Series Preferred Stock are properly voted at the Special Meeting (in person by ballot or by proxy) in favor of the Proposed Amendment, provided that such Shares are not tendered pursuant to the Offer (described below). The Power Company will disburse the Cash Payments out of its general funds, promptly after adoption of the Power Company Proposed Amendment. Details of Mass. Electric Proxy Solicitation Mass. Electric proposes to solicit proxies from the holders of its outstanding shares of Dividend Series Preferred Stock and common stock (the Proxy Solicitation) for use at a special meeting of its stockholders (the Special Meeting) to consider a proposed amendment to Mass. Electric's By-Laws and Articles of Organization (the Mass. Electric Provisions) to eliminate Article I, Section 4E(4), which restricts the amount of unsecured debt issuable by Mass. Electric (the Proposed Amendment). If the Proposed Amendment is adopted, Mass. Electric intends to make a special cash payment to each Dividend Series Preferred Stockholder who voted his or her shares in favor of the Proposed Amendment, provided that such shares have not been tendered pursuant to the concurrent cash tender offer described below. Mass. Electric has outstanding 2,398,111 shares of common stock, $25 par value, all of which are held by NEES. Mass. Electric's outstanding preferred stock consists of 350,000 shares of Dividend Series Preferred Stock, par value $100 per share, issued in three series and 600,000 shares of Preferred Stock Cumulative, $25 par value, of which there is one series outstanding, all of which are traded over-the-counter. The preferred stock does not have general voting rights but has limited rights. The Proposed Amendment will require the approval of 2/3 of the Mass. Electric preferred stock voting as a class and the approval of 2/3 of the Mass. Electric common voting as a class. The common stock and the Dividend Series Preferred Stock are entitled to one vote per share and the Preferred Stock - Cumulative is entitled to a quarter vote per share on the matters described herein and constitute Mass. Electric's only outstanding securities entitled to vote on the proposed amendment. 7 Article XVIII, Section 4E(4) of the Mass. Electric Provisions provides that, without a vote of a majority of the outstanding Dividend Series Preferred Stock and Preferred Stock - Cumulative (voting as a single class), the company will not: issue or assume any unsecured notes, debentures or other securities representing unsecured indebtedness for purposes other than (x) the refunding of outstanding unsecured indebtedness theretofore issued or assumed by the corporation resulting in maturities later than the maturity of the indebtedness being refunded or (y) the reacquisition, redemption or other retirement of any indebtedness which reacquisition, redemption or other retirement has been authorized under the provisions of the Public Utility Holding company Act of 1935, if, immediately after such issue or assumption, the total principal amount of all unsecured notes, debentures or other securities representing both long and short-term unsecured indebtedness issued or assumed by the corporation and then to be outstanding (but excluding unsecured indebtedness theretofore so voted for by holders of Preferred Stock and Preferred Stock Cumulative) would exceed twenty per cent (20%) of total capitalization, or if, immediately after such issue or assumption, such short-term unsecured indebtedness issued or assumed by the corporation after September 30, 1998 and then to be outstanding (but excluding short-term unsecured indebtedness theretofore so voted for by holders of Preferred Stock and Preferred Stock - Cumulative) would exceed ten per cent (10%) of total capitalization; provided, however, that in the event such short-term unsecured indebtedness (but excluding short-term unsecured indebtedness theretofore so voted for by holders of Preferred Stock and Preferred Stock Cumulative) exceeds such latter limit, no unsecured securities representing unsecured indebtedness shall be issued or assumed (except for the purposes specified in clauses (x) and (y) above) unless such ratio of short-term unsecured indebtedness immediately after such issue or assumption is not in excess of such limit. "Short-term unsecured indebtedness" as used in this subsection E(4) means unsecured indebtedness of an original maturity of less than ten years and "long-term unsecured indebtedness" means unsecured indebtedness of an original maturity of ten years or more. For the purposes hereof, when any long-term unsecured indebtedness becomes due within five years, or when any long-term unsecured indebtedness is to be retired within five years through a sinking fund or otherwise, such long-term unsecured indebtedness, in each case, shall be considered short-term unsecured indebtedness. "Total capitalization" as used in this subsection E(4) means the aggregate of (i) the total principal amount of all bonds and other securities representing secured indebtedness issued or assumed by the corporation and then outstanding and (ii) the capital, premium and surplus of the corporation as then stated on the books of account of the corporation. Mass. Electric proposes to delete the above section in its entirety; conforming changes to cross references elsewhere in the Provisions will also be made. If the Proposed Amendment is adopted, Mass. Electric intends to make a special cash payment of $1.00 per share to each Mass. Electric Dividend Series Preferred Stockholder of any Series and 25 cents per share to the Preferred Stock - Cumulative holders whose shares are properly voted at the Special Meeting (in person by ballot or by proxy) in favor of the Proposed Amendment, provided that such Shares are not tendered pursuant to the Offer (described below). The payments are each referred to as a Cash Payment. Mass. Electric will disburse the Cash Payments out of its general funds, promptly after adoption of the Mass. Electric Proposed Amendment. 8 Details of Narragansett Proxy Solicitation Narragasett proposes to solicit proxies from the holders of its outstanding shares of Preferred Stock and common stock (the Proxy Solicitation) for use at a special meeting of its stockholders (the Special Meeting) to consider a proposed amendment to Narragansett's Preferred Stock Provisions (the Narragansett Provisions) to delete subparagraph 10(d) which restricts the amount of unsecured debt issuable by Narragansett (the Proposed Amendment). If the Proposed Amendment is adopted, Narragansett intends to make a special cash payment to each Preferred Stockholder who voted his or her shares in favor of the Proposed Amendment, provided that such shares have not been tendered pursuant to the concurrent cash tender offer described below. Narragansett has outstanding 1,132,487 shares of common stock, $50 par value, all of which are held by NEES. Narragansett's outstanding preferred stock consists of 730,000 shares of Cumulative Preferred Stock, $50 par value, issued in three series, all of which are traded over-the-counter. The preferred stock does not have general voting rights but has limited rights. The Proposed Amendment will require the approval of 2/3 of the preferred stock voting as a class, the approval of 75% of the preferred shares present or represented at the meeting, and the approval of a majority of the Narragansett common voting as a class. The common stock and the preferred stock are entitled to one vote per share on the matters described herein and constitute Narragansett's only outstanding securities entitled to vote on the Proposed Amendment. Section 10(d) of the Preferred Stock Provisions adopted at a special meeting of the common stockholders and directors on March 4, 1971, and March 15, 1971, respectively, (the Narragansett Provisions) provides that, without a vote of a majority of the outstanding preferred stock (voting as a single class), the company will not: issue any unsecured notes, debentures or other securities representing unsecured indebtedness, or assume any such unsecured securities, for purposes other than the refunding of outstanding unsecured securities theretofore issued or assumed by the Company resulting in equal or longer maturities or the redemption or other retirement of all outstanding shares of the Preferred Stock, if, immediately after such issue or assumption, the total principal amount of all unsecured notes, debentures or other securities representing unsecured indebtedness issued or assumed by the Company and then outstanding (including the unsecured securities then to be issued or assumed) but excluding unsecured securities theretofore so consented to by holders of Preferred Stock, would exceed ten per cent (10%) of the aggregate of (i) the total principal amount of all bonds and other securities representing secured indebtedness issued or assumed by the Company and then outstanding and (ii) the capital and surplus of the Company as then stated on the books of account of the Company. Narragansett proposes to delete the above section in its entirety. If the Proposed Amendment is adopted, Narragansett intends to make a special cash payment of 50 cents per share (each, a Cash Payment) to each Narragansett Preferred Stockholder of any Series whose shares are properly voted at the Special Meeting (in person by ballot or by proxy) in favor of the Proposed Amendment, provided that such Shares are not tendered pursuant to the Offer (described below). Narragansett will disburse the Cash Payments out of its general funds, promptly after adoption of the Narragansett Proposed Amendment. ELECTION PROCEDURES 9 The Power Company As noted, adoption of the Proposed Amendment requires the affirmative votes of the holders of not less than two-thirds of the outstanding shares of each of (1) the Dividend Series Preferred Stock of all Series, voting together as one class, and (2) the Common Stock and 6% Cumulative Preferred voting as a class. NEES will vote its shares of the Power Company common stock, which represents over 98% of the shares with general voting rights, in favor of the Proposed Amendment; therefore, no proxies will be solicited from the holders of the 6% Cumulative Preferred. Abstentions and broker non-votes in respect of the Proposed Amendment will have the effect of votes against the Proposed Amendment. The Power Company has engaged Georgeson & Company Inc. (Georgeson) to act as information agent in connection with the Proxy Solicitations for a fee and reimbursement of reasonable out-of-pocket expenses expected not to exceed approximately $10,000. Mass. Electric As noted, adoption of the Proposed Amendment requires the affirmative votes of not less than two-thirds of the outstanding shares of each of (1) the Preferred Stock - Cumulative and Dividend Series Preferred Stock of all Series, voting together as one class, and (2) the common stock voting as a class. NEES will vote its shares of the Mass. Electric Common Stock in favor of the Proposed Amendment. Abstentions and broker non-votes in respect of the Proposed Amendment will have the effect of votes against the Proposed Amendment. Mass. Electric has engaged Georgeson to act as information agent in connection with the Proxy Solicitations for a fee and reimbursement of reasonable out-of-pocket expenses expected not to exceed approximately $10,000. Narragansett As noted, adoption of the Proposed Amendment requires the affirmative votes of the holders of (1) not less than 2/3 of the outstanding shares of each of the preferred stock of all Series, voting together as one class, (2) 75% of the preferred shares present or represented at the meeting, and (3) a majority of the common stock. NEES will vote its shares of the Narragansett Common Stock in favor of the Proposed Amendment. Abstentions and broker non-votes in respect of the Proposed Amendment will have the effect of votes against the Proposed Amendment. Narragansett has engaged Georgeson to act as information agent in connection with the Proxy Solicitations for a fee and reimbursement of reasonable out-of-pocket expenses expected not to exceed approximately $10,000. THE TENDER OFFERS Concurrently with or shortly before the Proxy Solicitation for a Subsidiary, NEES may make an offer (the Offer) to the holders of that Subsidiary's outstanding preferred stock of each series to acquire for cash any and all shares thereof, at cash purchase prices which NEES anticipates will include a market premium for each series. NEES anticipates that each such Offer for each series of preferred stock will be scheduled to expire at 5:00 P.M. (Eastern Standard time) on the date of the applicable Special Meeting (the Expiration Date), unless such Offer is extended. A condition to an Offer will be that preferred stockholders who tender their shares pursuant to the Offer vote in favor of or consent to the applicable Proposed Amendment. In that event, any shares not voted in favor of the Proposed Amendment will be deemed withdrawn and 10 not validly tendered. (As noted below, proxies need not be solicited from the 6% Cumulative Preferred of the Power Company.) Consummation of the Offer may be contingent upon the Proposed Amendment being approved and adopted at the applicable Special Meeting currently scheduled for December 12, 1997. Benefits of the Offer NEES and the Subsidiaries believe that the purchase of the Shares at this time represents an attractive economic opportunity that will benefit NEES, its shareholders, and its Subsidiaries. In addition, the Offer gives Preferred Shareholders the opportunity to sell their Shares at a price which NEES believes to be a premium to the market price on the date of the announcement of the Offer and without the usual transaction costs associated with a sale. NEES and the Subsidiaries further believe that the terms of purchase for the outstanding shares of the Preferred Stock pursuant to the Offer will benefit NEES's investors and the System's utility customers by (1) contributing to the elimination of the provisions concerning unsecured indebtedness (with the attendant benefits described above, and (2) acquiring and retiring of outstanding shares of the preferred stock and their potential replacement with comparatively less expensive financing alternatives. More specifically, assuming only a 50% overall success rate for the Offers, the estimated net present value after-tax savings over a ten-year period to the Power Company, Mass. Electric, and Narragansett total approximately $900 thousand, $2 million, and $1 million, respectively (based on purchased shares being refinanced with tax-deductible securities at prevailing rates on the date hereof), including expenses incurred in connection with the Offers and the Proxy Solicitations (i.e., Cash Payments, the applicable Purchase Prices paid for validly tendered and accepted Shares, and the other fees and expenses listed in Item 2). A success rate for the Offers higher than the 50% rate assumed above has the potential to generate even further cash savings. Given the significant savings in financing cost and the elimination of the restriction on unsecured indebtedness, Applicants are committed to using their best efforts to consummate the transaction. However, there can be no assurance of success. In that regard, as stated above, in the event the Proposed Amendment is not adopted at the Special Meetings, NEES may elect, subject to applicable law, to waive the Offer condition that such Proposed Amendment(s) be adopted at the Special Meeting. In that case, as promptly as practicable after NEES's waiver thereof and purchase of shares validly tendered pursuant to the Offer, each Subsidiary anticipates that it would call another special meeting of its common and preferred stockholders and solicit proxies for the same purpose to secure the requisite vote of both classes of stockholders to amend the Subsidiary's Provisions as proposed. At that meeting, NEES would vote any Shares previously acquired by it pursuant to an Offer or otherwise (together with shares held by it of common stock) in favor of such proposed amendment to the Provisions, thereby maximizing its prospects for adoption in that event. In contrast, if the Subsidiary, rather than NEES, had acquired its shares pursuant to the Offer, upon acquisition thereof any such shares would be deemed treasury shares under applicable state law and, as such, the Subsidiary would be precluded from voting those shares under any circumstance. TERMS OF THE OFFER The Power Company Concurrently with the commencement of the proxy solicitations, subject to the terms and conditions stated in the Offer to Purchase and Proxy Statement, the 11 proxies and the accompanying Letters of Transmittal (collectively, the Offer Documents), NEES proposes to make the Offer, pursuant to which it will offer to acquire from the holders of the Dividend Series Preferred Stock of each Series any and all Shares of that Series at the following cash purchase prices:
Series Purchase Price ------ -------------- 4.56% $ 4.60% $ 4.64% $ 6.08% $
Although the vote of the 6% Cumulative Preferred is not required for the Proposed Amendment, NEES proposes to extend the Offer to Purchase to those shareholders at the following cash purchase price: $____________ (Each of the above prices is a Purchase Price). The offer for any one Series is independent of the offer for any other Series or for shares of any other Subsidiary. Mass. Electric Concurrently with the commencement of the Proxy Solicitation, subject to the terms and conditions stated in the Offer to Purchase and Proxy Statement, the proxies and the accompanying Letters of Transmittal (collectively, the Offer Documents), NEES proposes to make the Offer, pursuant to which it will offer to acquire from the holders of the Preferred Stock - Cumulative and the Dividend Series Preferred Stock of each Series any and all Shares of that Series at the following cash purchase prices:
Series Purchase Price ------ -------------- Preferred Stock Cumulative 6.84% $ Dividend Series Preferred 4.44% $ 4.76% $ 6.99% $
(each of the above, a Purchase Price). The offer for any one Series is independent of the offer for any other Series or for shares of any other Subsidiary. Narragansett Concurrently with the commencement of the Proxy Solicitation, subject to the terms and conditions stated in the Offer to Purchase and Proxy Statement, the proxies and the accompanying Letters of Transmittal (collectively, the Offer Documents), NEES proposes to make the Offer, pursuant to which it will offer to acquire from the holders of the preferred stock of each Series any and all Shares of that Series at the following cash purchase prices:
Series Purchase Price ------ -------------- 4.50% $ 4.64% $
12 6.95% $
(each of the above, a Purchase Price). The offer for any one Series is independent of the offer for any other Series or for shares of any other Subsidiary. PROCEDURES FOR TENDERS NEES anticipates that the Offer for each Series of Preferred Stock will be scheduled to expire at 5:00 P.M. (Eastern Standard time) on the date of the applicable Special Meetings. As noted below, the Expiration Date may be extended under certain circumstances. The applicable Purchase Price and the other terms and conditions of the Offer apply equally to all preferred stockholders of the respective Series. The Offer is not conditioned upon any minimum number of Shares of the applicable Series being tendered, but is conditioned, among other things, on the Proposed Amendment being adopted at the Special Meeting. To tender shares in accordance with the terms of the Offer Documents, the tendering preferred stockholder must either (1) send to IBJ Schroder Bank & Trust Company, in its capacity as depositary for the Offer (the Depositary), a properly completed and duly executed Letter of Transmittal and Proxy or facsimile thereof for that Series, together with any required signature guarantees and any other documents required by the Letter of Transmittal and Proxy (and either (a) tender certificates for the Shares to the Depositary at one of its addresses specified in the Offer Documents, or (b) deliver such Shares pursuant to the procedures for book-entry transfer described in the Offer Documents (confirmation of such delivery must be received by the Depositary), in each case by the Expiration Date); or (2) comply with a guaranteed delivery procedure specified in the Offer Documents. Tenders of Shares made pursuant to the Offer may be withdrawn at any time prior to the Expiration Date. Thereafter, such tenders are irrevocable, subject to certain exceptions identified in the Offer Documents. Preferred stockholders will not be under any obligation to tender Shares pursuant to the Offers; the Offers will not constitute a notice of redemption of any Series pursuant to the Provisions. Nor will the Offers operate to waive any option each Subsidiary has to redeem Shares. For the applicable redemption provisions, see Exhibits A-1, A-3, A-4, and A-7. NEES's obligation to proceed with the Offers and to accept for payment and to pay for any Shares tendered is subject to various conditions enumerated in the Offer Documents, and may include, among other conditions, that the Proposed Amendments be adopted and that the Commission issue an order under the 1935 Act authorizing the proposed transactions. At any time or from time to time, NEES may extend the Expiration Date applicable to any Series by giving notice of such extension to the Depositary, without extending the Expiration Date for any other Series. During any such extension, all Shares of the applicable Series previously tendered will remain subject to the Offer, and may be withdrawn at any time prior to the extended Expiration Date. Conversely, NEES may elect in its sole discretion to terminate one or more Offers prior to the scheduled Expiration Date and not accept for payment and pay for any Shares tendered, subject to applicable provisions of Rule 13e-4 under the Exchange Act requiring NEES either to pay the consideration offered or to return the Shares tendered promptly after the termination or withdrawal of the Offer(s), upon the occurrence of any of the conditions to closing enumerated in the Offering Documents, by giving notice of such termination to the Depositary and making a public announcement thereof. Subject to compliance with applicable law, NEES further reserves the right in the Offer Documents, in its sole discretion, to amend the Offers in any 13 respect by making a public announcement thereof. If NEES materially changes the terms of the Offers or the information concerning the Offers, or if NEES waives a material condition of an Offer (such as the condition that the Proposed Amendment be adopted at the Special Meeting), NEES will extend the Expiration Date to the extent required by the applicable provisions of Rule 13e-4 under the Exchange Act. Those provisions require that the minimum period during which an issuer tender offer must remain open following material changes in the terms of the offer or information concerning the offer (other than a change in price, a change in percentage of securities sought, or a change in the dealer's soliciting fee) will depend on the facts and circumstances, including the relative materiality of such terms or information. If an Offer is scheduled to expire at any time earlier than the expiration of a period ending on the tenth business day from, and including, the date that NEES notifies the preferred stockholders that it will (a) decrease the number of Shares of any Series of preferred being sought, (b) increase or decrease the consideration being offered in said Offer to holders of any Series of Preferred, or (c) increase or decrease the soliciting dealers' fees, the Expiration Date will be extended until the expiration of such period of ten business days. Shares validly tendered to the Depositary pursuant to an Offer and not withdrawn in accordance with the procedures set forth in the Offer Documents will be held by NEES until the Expiration Date (or returned in the event the Offer is terminated). Subject to the terms and conditions of the Offers, as promptly as practicable after the Expiration Date, NEES will accept for payment (and thereby purchase) and pay for Shares validly tendered and not withdrawn. NEES will pay for Shares that it has purchased pursuant to the Offers by depositing the applicable Purchase Price with the Depositary, which will act as agent for the tendering Stockholders for the purpose of receiving payment from NEES and transmitting payment to tendering Stockholders. NEES will pay all stock transfer taxes, if any, payable on account of its acquisition of Shares pursuant to an Offer, except in certain circumstances where special payment or delivery procedures are utilized in conformance with the applicable Letters of Transmittal and Proxy. With respect to Shares validly tendered and accepted for payment by NEES, each tendering preferred stockholder will be entitled to receive as consideration from NEES only the applicable Purchase Price (which NEES anticipates will reflect a premium over the current market price at the commencement of the relevant Offer). Any such holder will not be entitled to receive, with respect to such tendered Shares, additional consideration in the form of a Cash Payment described above. Preferred Stockholders who wish to tender their Shares pursuant to an Offer are required to vote in favor of the Proposed Amendment; moreover, the Offers may be conditioned upon the Proposed Amendment being adopted at the Special Meetings. As noted immediately above, subject to the terms and conditions of an Offer, Shares validly tendered and not withdrawn will be accepted for payment and paid for by NEES as promptly as practicable after the Expiration Date. If the Proposed Amendment is not adopted at the Special Meeting of a Subsidiary, NEES may elect, but is not obligated, to waive such condition, subject to applicable law. In that case, as promptly as practicable after NEES's waiver thereof and purchase of any Shares validly tendered pursuant to the Offer, the Subsidiaries anticipate that said Subsidiary would call another special meeting and solicit proxies therefrom for the same purpose as in the instant proceeding, i.e., to secure the requisite affirmative vote of stockholders to amend the Provisions to eliminate the restriction on unsecured indebtedness. At that meeting, NEES would vote any Shares acquired by it pursuant to an Offer or otherwise (as well as all of its shares of Common Stock) to eliminate the restriction on unsecured indebtedness. If the Proposed Amendment is adopted at that meeting, and in any event within one year from the Expiration Date (including any potential extension thereto pursuant to the Offer), NEES will promptly after such meeting or at the 14 expiration of such one-year period, as applicable, either (a) sell the Shares to the issuing Subsidiary at the Purchase Price plus expenses paid therefor pursuant to the Offer or (b) donate the Shares to the issuing Subsidiary as a capital contribution, and the issuing Subsidiary will thereupon retire and cancel such Shares. Following the Expiration Date and the consummation of the purchase of Shares pursuant to an Offer, NEES may determine to purchase additional Shares on the open market, in privately negotiated transactions, through one or more tender offers, or otherwise. NEES will not undertake any such transactions without receipt of any required Commission authorizations under the 1935 Act. Likewise, in the event such a further special meeting is necessary, a Subsidiary would not undertake any associated proxy solicitation and amendment of its Provisions prior to receipt of any required Commission authorizations under the 1935 Act in a separate proceeding. Merrill Lynch, Pierce, Fenner & Smith Incorporated will act as dealer manager for NEES in connection with the Offer. NEES has agreed to pay the dealer manager a fee of .5% of par per share for each share of the Preferred tendered, accepted for payment, and paid for pursuant to an Offer. The Subsidiaries have agreed to pay the dealer manager a fee of .5% of par for each share that is not tendered but which votes in favor of the Proposed Amendment. NEES has agreed to reimburse the dealer manager for its reasonable out-of-pocket expenses, including attorneys' fees. In addition, NEES has agreed to pay soliciting brokers and dealers a fee of 1.5% of par per share for each share of Preferred tendered, accepted for payment, and paid for pursuant to the Offer and for each Share not tendered but voted in favor of the Proposed Amendments; except that for transactions with beneficial owners equal to or exceeding 2,500 shares, the solicitation fees will be 1% of par. Any fee payable for transactions equal to or exceeding 2,500 shares shall be payable 80% to the dealer manager and 20% to any soliciting dealer (which may be the dealer manager). No such fee shall be payable to a soliciting dealer in respect of shares (a) beneficially owned by such soliciting dealer or (b) registered in the name of such soliciting dealer as nominee when such Shares are being tendered for the benefit of one or more beneficial owners identified in the applicable Letter of Transmittal or in the applicable Notice of Solicited Tenders (including in the materials provided to brokers and dealers). SOURCE AND AMOUNT OF FUNDS Assuming that NEES purchases all outstanding Preferred Stock of the Subsidiaries pursuant to the Offers, the total amount required by NEES to purchase such shares will be approximately $135 million, exclusive of the payment of accrued dividends, but including fees and other expenses. NEES intends to fund the Offers through the use of its general funds (which, in the ordinary course, include funds from the Power Company, Mass. Electric, and Narragansett) and funds borrowed pursuant to NEES' committed lines of credit, including any bank revolving credit agreements. The interest rates depend upon the timing, amount of borrowings, and market rates at that time. NEES currently has regulatory authority to borrow $100 million and is seeking to increase that amount. NEES has not had occasion to borrow monies for a number of years. PURCHASE BY, OR CONTRIBUTION TO, THE SUBSIDIARIES OF THE SHARES As noted above, subject to the terms and conditions of an Offer, shares validly tendered and not withdrawn will be accepted for payment and paid for by NEES as promptly as practicable after the Expiration Date. If the Proposed Amendment is adopted at the Special Meeting, promptly after consummation of the 15 Offer, either the issuing Subsidiary will purchase the shares sold to NEES pursuant to the Offer at the relevant Purchase Price plus expenses incurred in the Offer or NEES will donate the Shares to that Subsidiary as a capital contribution. The Subsidiary will thereupon retire and cancel such Shares. EWG OR FUCO OWNERSHIP Neither NEES nor any of its subsidiaries has an ownership interest in an exempt wholesale generator (EWG) or a foreign utility company (FUCO) as defined in Sections 32 and 33 of the 1935 Act. Additionally, neither NEES nor any subsidiary thereof is a party to, or has any rights under, a service, sales, or construction agreement with an EWG or FUCO. NEES and the subsidiaries thereof shall comply with the requirements of Rule 53 of the Act in connection with EWG and FUCO acquisitions and financings. Further, any capital contribution to a Subsidiary of preferred stock will not be used for the acquisition of an interest in an EWG or a FUCO. ITEM 2. FEES, COMMISSIONS AND EXPENSES Other than the Cash Payments and the applicable Purchase Prices, the fees, commissions, and expenses to be incurred, directly or indirectly, by the Applicants or any associate company thereof in connection with the proposed transactions, assuming the tender and acceptance of 100% of the Shares, are estimated as follows: SEC filing fees $ 27,000 New England Power Service Company 30,000 Outside counsel fees, including counsel for the Dealer Manager 100,000 Information agent fees 30,000 Dealer manager fees 700,000 Depositary fees 40,000 Broker/dealer fees 1,300,000 Printing, mailing, stock transfer taxes and miscellaneous fees 100,000 ---------- TOTAL $2,327,000
ITEM 3. APPLICABLE STATUTORY PROVISIONS Section 12(e) of the 1935 Act and Rules 62 and 65 thereunder are applicable to the Proxy Solicitations. Section 12(e) of the 1935 Act and Rule 65 thereunder are and Section 6(a)(2) may be deemed applicable to Cash Payments. Section 6(a)(2) of the 1935 Act is applicable to the Proposed Amendments. Sections 9(a) and 10 of the 1935 Act and Rule 51 thereunder are applicable to the acquisition by NEES of Shares pursuant to the Offers; NEES hereby represents that the conditions of Rule 51 will be satisfied in respect of the acquisition by NEES of Shares pursuant to the Offers. Sections 9(a), 10, 12(c), and 12(d) of the 1935 Act and Rules 43 and 44 thereunder are applicable to the sale to the Subsidiaries of the Shares acquired 16 by NEES pursuant to the Offers. NEES considers that the proposed capital contributions are subject to the provisions of Section 12 of the 1935 Act and Rule 45 thereunder. To the extent that the Commission's "Statement of Policy Regarding Preferred Stock Subject to the Public Utility Holding Company Act of 1935" may be applicable to the Proposed Amendments, the Applicants hereby request that an exception for such Statement of Policy be granted. ITEM 4. REGULATORY APPROVAL Other than the jurisdiction of the Commission under the 1935 Act and the Exchange Act, no other state or federal regulatory agency has jurisdiction over the proposed transactions. Except for exemptions from the requirements of Rule 13e-3 and Regulation 14A available to the Applicants, Applicants will comply fully with all requirements of the Exchange Act and the rules and regulations thereunder applicable to the Proxy Solicitations and the Offer, and acknowledge that any Commission authorization granted under the 1935 Act is conditioned upon such compliance. ITEM 5. PROCEDURE The Applicants request that the Commission issue the order authorizing the Proxy Solicitation and issue and publish no later than November 6, 1997, the requisite notice under Rule 23 with respect to the filing of this Application-Declaration, such notice to specify a date not later than December 4, 1997, as the date after which a second order granting and permitting this Application-Declaration to become effective may be entered by the Commission and the Commission enter not later than December 8, 1997, an appropriate second order granting and permitting this Application-Declaration to become effective. The Applicants request the appropriate and timely action be taken by the Commission in this matter in order to permit consummation of the proposed transactions in accordance with the schedule outlined above. The Applicants (i) do not request a recommended decision by a hearing officer, (ii) do not request a recommended decision by any other responsible officer of the Commission, (iii) hereby specify that the Division of Investment Management may assist in the preparation of the Commission's decision, and (iv) hereby request that there be no 30-day waiting period between the date of issuance of the Commission's Order and the date on which it is to become effective. ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS (a) Exhibits: A-1 Articles of Organization of the Power Company as amended through June 27, 1987 (Exhibit 3(a) to 1988 Form 10-K, File No. 0-1229). A-2 By-Laws of the Power Company as amended May 10, 1995 (Exhibit 3(b) to 1995 Form 10-K, File No. 0-1229). A-3 Articles of Organization of Mass. Electric as amended through November 15, 1993 (Exhibit 3(a) to 1993 Form 10-K, File No. 0-5464). A-4 By-Laws of Mass. Electric as amended through September 15, 1993 (Exhibit 3(b) to 1993 Form 10-K, File No. 0-5464). 17 A-5 Articles of Incorporation of Narragansett as amended June 9, 1988 (Exhibit 3(a) to 1988 Form 10-K, File No. 0-898). A-6 By-Laws of Narragansett (Exhibit 3 to 1980 Form 10-K, File No. 0- 898). A-7 Preference Provisions of Narragansett, as amended, dated March 23, 1993 (Exhibit 4(c) to 1993 NEES Form 10-K, File No. 1-3446). B-1 Draft Offer to Purchase and Proxy Statement and Information Statement for the Power Company. B-2 Draft Notice of Special Meeting of the Power Company (attached as part of Exhibit B-1). B-3a Draft Form of Letter of Transmittal for Dividend Series Preferred of the Power Company. B-3b Draft Form of Letter of Transmittal for 6% Cumulative Preferred of the Power Company. B-4 Draft Offer to Purchase and Proxy Statement for Mass. Electric. B-5 Draft Notice of Special Meeting of Mass. Electric (attached as part of Exhibit B-4). B-6a Draft Form of Letter of Transmittal for Dividend Series Preferred of Mass. Electric. B-6b Draft Form of Letter of Transmittal for Preferred Stock - Cumulative of Mass. Electric. B-7 Draft Offer to Purchase and Proxy Statement for Narragansett. B-8 Draft Notice of Special Meeting of Narragansett (attached as part of Exhibit B-7). B-9 Draft Form of Letter of Transmittal of Narragansett. * F Opinion of counsel. 27.1 Financial Data Schedule for NEES. 27.2 Consolidated Financial Data Schedule for NEES. 27.3 Financial Data Schedule for The Power Company. 27.4 Financial Data Schedule for Mass. Electric. 27.5 Financial Data Schedule for Narragansett. H Form of notice and order permitting proxy solicitation. (b) Financial Statements 1-A Balance Sheet of NEES at June 30, 1997, Actual (Parent Company Only) 1-B Statement of Income and Retained Earnings for NEES for twelve months ended June 30, 1997, Actual (Parent Company Only) 2-A Consolidated Balance Sheet of NEES at June 30, 1997, Actual and Pro Forma 18 2-B Statement of Consolidated Income for NEES for twelve months ended June 30, 1997, Actual and Pro Forma 3-A Balance Sheet of the Power Company at June 30, 1997, Actual and Pro Forma 3-B Statement of Income and Retained Earnings for the Power Company for twelve months ended June 30, 1997, Actual and Pro Forma 4-A Balance Sheet of Mass. Electric at June 30, 1997, Actual and Pro Forma 4-B Statement of Income and Retained Earnings for Mass. Electric for twelve months ended June 30, 1997, Actual and Pro Forma 5-A Balance Sheet of Narragansett at June 30, 1997, Actual and Pro Forma 5-B Statement of Income and Retained Earnings for Narragansett for twelve months ended June 30, 1997, Actual and Pro Forma * To be filed by amendment ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS The proposed transactions do not involve a major Federal action significantly affecting the quality of the human environment. 19 SIGNATURES Pursuant to the requirements of the Public Utility Holding Company Act of 1935, the undersigned companies have duly caused this statement to be signed on its behalf by the undersigned thereunto duly authorized. New England Electric System By /s/ Michael E. Jesanis --------------------------------- Treasurer New England Power Company By /s/ John G. Cochrane --------------------------------- Assistant Treasurer Massachusetts Electric Company By /s/ Michael E. Jesanis --------------------------------- Treasurer The Narragansett Electric Company By /s/ John G. Cochrane --------------------------------- Assistant Treasurer Date: November 6, 1997 The name "New England Electric System" means the trustee or trustees for the time being (as trustee or trustees but not personally) under an agreement and declaration of trust dated January 2, 1926, as amended, which is hereby referred to, and a copy of which as amended has been filed with the Secretary of The Commonwealth of Massachusetts. Any agreement, obligation or liability made, entered into or incurred by or on behalf of New England Electric System binds only its trust estate, and no shareholder, director, trustee, officer or agent thereof assumes or shall be held to any liability therefor. 20 EXHIBIT INDEX (a) Exhibits: A-1 Articles of Organization of the Power Company as amended through June 27, 1987 (Exhibit 3(a) to 1988 Form 10-K, File No. 0-1229). A-2 By-Laws of the Power Company as amended May 10, 1995 (Exhibit 3(b) to 1995 Form 10-K, File No. 0-1229). A-3 Articles of Organization of Mass. Electric as amended through November 15, 1993 (Exhibit 3(a) to 1993 Form 10-K, File No. 0-5464). A-4 By-Laws of Mass. Electric as amended through September 15, 1993 (Exhibit 3(b) to 1993 Form 10-K, File No. 0-5464). A-5 Articles of Incorporation of Narragansett as amended June 9, 1988 (Exhibit 3(a) to 1988 Form 10-K, File No. 0-898). A-6 By-Laws of Narragansett (Exhibit 3 to 1980 Form 10-K, File No. 0- 898). A-7 Preference Provisions of Narragansett, as amended, dated March 23, 1993 (Exhibit 4(c) to 1993 NEES Form 10-K, File No. 1-3446). B-1 Draft Offer to Purchase and Proxy Statement and Information Statement for the Power Company. B-2 Draft Notice of Special Meeting of the Power Company (attached as part of Exhibit B-1). B-3a Draft Form of Letter of Transmittal for Dividend Series Preferred of the Power Company. B-3b Draft Form of Letter of Transmittal for 6% Cumulative Preferred of the Power Company. B-4 Draft Offer to Purchase and Proxy Statement for Mass. Electric. B-5 Draft Notice of Special Meeting of Mass. Electric (attached as part of Exhibit B-4). B-6a Draft Form of Letter of Transmittal for Dividend Series Preferred of Mass. Electric. B-6b Draft Form of Letter of Transmittal for Preferred Stock - Cumulative of Mass. Electric. B-7 Draft Offer to Purchase and Proxy Statement for Narragansett. B-8 Draft Notice of Special Meeting of Narragansett (attached as part of Exhibit B-7). B-9 Draft Form of Letter of Transmittal of Narragansett. * F Opinion of counsel. 21 27.1 Financial Data Schedule for NEES. 27.2 Consolidated Financial Data Schedule for NEES. 27.3 Financial Data Schedule for The Power Company. 27.4 Financial Data Schedule for Mass. Electric. 27.5 Financial Data Schedule for Narragansett. H Form of notice and order permitting proxy solicitation. (b) Financial Statements 1-A Balance Sheet of NEES at June 30, 1997, Actual (Parent Company Only) 1-B Statement of Income and Retained Earnings for NEES for twelve months ended June 30, 1997, Actual (Parent Company Only) 2-A Consolidated Balance Sheet of NEES at June 30, 1997, Actual and Pro Forma 2-B Statement of Consolidated Income for NEES for twelve months ended June 30, 1997, Actual and Pro Forma 3-A Balance Sheet of the Power Company at June 30, 1997, Actual and Pro Forma 3-B Statement of Income and Retained Earnings for the Power Company for twelve months ended June 30, 1997, Actual and Pro Forma 4-A Balance Sheet of Mass. Electric at June 30, 1997, Actual and Pro Forma 4-B Statement of Income and Retained Earnings for Mass. Electric for twelve months ended June 30, 1997, Actual and Pro Forma 5-A Balance Sheet of Narragansett at June 30, 1997, Actual and Pro Forma 5-B Statement of Income and Retained Earnings for Narragansett for twelve months ended June 30, 1997, Actual and Pro Forma * To be filed by amendment EX-99.(A)B-1 2 NE POWER DRAFT PURCHASE & PROXY STATEMENT 1 OFFER TO PURCHASE AND PROXY STATEMENT AND INFORMATION STATEMENT LOGO NEW ENGLAND ELECTRIC SYSTEM OFFER TO PURCHASE FOR CASH ANY AND ALL OUTSTANDING SHARES OF THE FOLLOWING SERIES OF PREFERRED STOCK OF NEW ENGLAND POWER COMPANY 100,000 SHARES, DIVIDEND SERIES PREFERRED STOCK, 4.56% SERIES AT A PURCHASE PRICE OF $ . PER SHARE CUSIP NUMBER 644188 10 4 80,140 SHARES, DIVIDEND SERIES PREFERRED STOCK, 4.60% SERIES AT A PURCHASE PRICE OF $ . PER SHARE CUSIP NUMBER 644188 20 3 41,500 SHARES, DIVIDEND SERIES PREFERRED STOCK, 4.64% SERIES AT A PURCHASE PRICE OF $ . PER SHARE CUSIP NUMBER 644188 70 8 100,000 SHARES, DIVIDEND SERIES PREFERRED STOCK, 6.08% SERIES AT A PURCHASE PRICE OF $ . PER SHARE CUSIP NUMBER 644188 40 1 75,020 SHARES, 6% CUMULATIVE PREFERRED STOCK AT A PURCHASE PRICE OF $ . PER SHARE CUSIP NUMBER 644188 30 2 ------------------------ NEW ENGLAND POWER COMPANY PROXY STATEMENT AND INFORMATION STATEMENT 25 RESEARCH DRIVE, WESTBOROUGH, MASSACHUSETTS 01582 SPECIAL MEETING OF STOCKHOLDERS DECEMBER 12, 1997 THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., EASTERN STANDARD TIME, ON FRIDAY, DECEMBER 12, 1997, UNLESS THE OFFER IS EXTENDED. New England Electric System, a Massachusetts voluntary association (NEES), invites the holders of shares of each series of Dividend Series Preferred Stock (Dividend Series Preferred) listed above and the 6% Cumulative Preferred Stock (the 6% Cumulative Preferred) (each such series or class a Series of Preferred or a Series, and each holder thereof a Preferred Shareholder) of New England Power Company, a Massachusetts corporation and direct utility subsidiary of NEES (the Power Company or the Company), to tender any and all of their shares of a Series of Preferred (the Shares) for purchase at the purchase price per Share listed above, plus dividends, net to the seller in cash, upon the terms and subject to the conditions set forth in this Offer to Purchase and Proxy Statement and Information Statement (the Booklet) and in the accompanying Letter of Transmittal for the 6% Cumulative Preferred and Letter of Transmittal and Proxy for the Dividend Series Preferred (collectively, the Letter of Transmittal and Proxy) (which together constitute the Offer). NEES will purchase all Shares validly tendered and not withdrawn, upon the terms and subject to the conditions of the Offer. See Terms of the Offer -- Certain Conditions of the Offer and Terms of the Offer -- Extension of Tender Period; Termination; Amendments. THE OFFER FOR EACH SERIES OF DIVIDEND SERIES PREFERRED AND THE OFFER FOR THE 6% CUMULATIVE PREFERRED ARE NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES OF ANY SERIES BEING TENDERED AND EACH IS INDEPENDENT OF THE OFFER FOR ANY OTHER SERIES OF DIVIDEND SERIES PREFERRED OR THE 6% CUMULATIVE PREFERRED. THE OFFER, HOWEVER, IS CONDITIONED UPON, AMONG OTHER THINGS, THE APPROVAL AND ADOPTION OF THE PROPOSED AMENDMENT, AS DESCRIBED BELOW, AT THE SPECIAL MEETING OF SHAREHOLDERS. SEE TERMS OF THE OFFER -- CERTAIN CONDITIONS OF THE OFFER. Concurrently with the Offer, the Board of Directors of the Power Company is soliciting proxies from the Dividend Series Preferred Stockholders for use at the Special Meeting of Shareholders of the Power Company to be held at the Power Company's principal office, 25 Research Drive, Westborough, Massachusetts, on December 12, 1997 at 4:30 p.m., Eastern Standard Time, or any adjournment or postponement of such meeting (the Special Meeting). THE BOARD OF DIRECTORS IS NOT ASKING HOLDERS OF THE 6% CUMULATIVE PREFERRED FOR A PROXY, AND THEY ARE REQUESTED NOT TO SEND A PROXY. THEY MAY, HOWEVER, PARTICIPATE IN THE OFFER. The Special Meeting is being held to consider an amendment (the Proposed Amendment) to the Power Company's By-Laws and Articles of Organization (together, the Provisions) which would remove from the Provisions a limitation on the Power Company's ability to issue unsecured debt without the prior approval of the Preferred. DIVIDEND SERIES PREFERRED SHAREHOLDERS WHO WISH TO TENDER THEIR SHARES MUST VOTE IN FAVOR OF THE PROPOSED AMENDMENT. THE OFFER IS FURTHER CONDITIONED UPON THE APPROVAL AND ADOPTION OF THE PROPOSED AMENDMENT AT THE SPECIAL MEETING. IF THE PROPOSED AMENDMENT IS APPROVED AND ADOPTED BY THE POWER COMPANY'S SHAREHOLDERS, THE POWER COMPANY WILL MAKE A SPECIAL CASH PAYMENT (AS DEFINED HEREIN) IN THE AMOUNT OF $1.00 PER SHARE TO EACH DIVIDEND SERIES PREFERRED SHAREHOLDER WHO VOTED IN FAVOR OF THE PROPOSED AMENDMENT BUT DID NOT TENDER SUCH SHARES PURSUANT TO THE OFFER. THOSE DIVIDEND SERIES PREFERRED SHAREHOLDERS WHO VALIDLY TENDER THEIR SHARES WILL BE ENTITLED ONLY TO THE PURCHASE PRICE PER SHARE LISTED ABOVE BUT NOT THE SPECIAL CASH PAYMENT. ------------------------ THE POWER COMPANY'S BOARD OF DIRECTORS RECOMMENDS VOTING FOR THE PROPOSED AMENDMENT. ------------------------ This Booklet is first being mailed to Preferred Shareholders on or about November 7, 1997. ------------------------ The Company will pay to a Soliciting Dealer (as defined herein) a solicitation fee for any Shares tendered, accepted for payment and paid for pursuant to the Offer, subject to certain conditions. See Fees and Expenses Paid to Dealers. ------------------------ NEITHER NEES, THE POWER COMPANY, THEIR RESPECTIVE BOARDS OF DIRECTORS, ANY OF THEIR RESPECTIVE OFFICERS, NOR ANY OTHER PERSONS AUTHORIZED BY THEM MAKES ANY RECOMMENDATION TO ANY PREFERRED SHAREHOLDER AS TO WHETHER TO TENDER ANY OR ALL SHARES. EACH PREFERRED SHAREHOLDER MUST MAKE HIS OR HER OWN DECISION AS TO WHETHER TO TENDER SHARES AND, IF SO, HOW MANY SHARES TO TENDER. ------------------------ Each Series of Preferred is traded in the over-the-counter market (the OTC) and is not listed on any national securities exchange. Through October 31, 1997, the last reported sale prices for the 4.56% Series, the 4.60% Series, the 4.64% Series, the 6.08% Series, and the 6.00% Series, were $70.15, $70.25, $70.25, $92.12, and $89.00, respectively, as reported by the Nasdaq Stock Market, Inc. Preferred Shareholders are urged to obtain a current market quotation, if available, for their Shares. ------------------------ Questions or requests for assistance may be directed to Georgeson & Company Inc. (Georgeson or the Information Agent) or to Merrill Lynch & Co. (Merrill Lynch or the Dealer Manager) at their respective telephone numbers and addresses set forth on the back cover of this Booklet. Requests for additional copies of this Booklet, the Letter of Transmittal and Proxy, or other tender offer or proxy materials may be directed to the Information Agent, and such copies will be furnished promptly at the Power Company's expense. Preferred Shareholders may also contact their local broker, dealer, commercial bank, or trust company for assistance concerning the Offer. ------------------------ The Dealer Manager for the Offer is: MERRILL LYNCH & CO. November 6, 1997 2 IMPORTANT Any Preferred Shareholder desiring to accept the Offer and tender any or all Shares should, on or prior to the Expiration Date (as defined below), either (i) request such Preferred Shareholders broker, dealer, commercial bank, trust company, or other nominee to effect the transaction for such Preferred Shareholders pursuant to the procedure for book-entry transfer set forth below under Terms of the Offer -- Procedure for Tendering Shares, or (ii) complete and sign the Letter of Transmittal and Proxy in accordance with the instructions in the Letter of Transmittal and Proxy, and mail or deliver it, the certificates for such Shares, and any other required documents to IBJ Schroder Bank & Trust Company (the Depositary). A Preferred Shareholder whose Shares are registered in the name of a broker, dealer, commercial bank, trust company, or other nominee must contact such broker, dealer, commercial bank, trust company, or other nominee if such Preferred Shareholder desires to tender such Shares. Any Preferred Shareholder who desires to tender Shares and whose certificates for such Shares are not immediately available, or who cannot comply in a timely manner with the procedure for book-entry transfer, should tender such Shares by following the procedures for guaranteed delivery set forth below under Terms of the Offer -- Procedure for Tendering Shares -- Guaranteed Proxy Procedure. EACH SERIES OF PREFERRED HAS ITS OWN LETTER OF TRANSMITTAL AND PROXY, AND ONLY THE APPLICABLE LETTER OF TRANSMITTAL AND PROXY FOR SUCH SERIES OF PREFERRED OR A NOTICE OF GUARANTEED DELIVERY MAY BE USED TO TENDER SHARES OF SUCH SERIES OF PREFERRED. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER OTHER THAN THOSE CONTAINED HEREIN OR IN THE RELATED LETTER OF TRANSMITTAL AND PROXY. IF GIVEN OR MADE, SUCH RECOMMENDATION AND SUCH INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY NEES OR THE POWER COMPANY. 2 3 TABLE OF CONTENTS
PAGE ---- SUMMARY............................................................................... 4 PURPOSE OF THE OFFER, PROPOSED AMENDMENT, AND PROXY SOLICITATION...................... 7 Industry Restructuring.............................................................. 7 Purpose of the Offer................................................................ 7 Proposed Amendment.................................................................. 7 Other Information................................................................... 8 TERMS OF THE OFFER.................................................................... 8 Number of Shares; Purchase Prices; Expiration Date; Dividends....................... 8 Procedure for Tendering Shares...................................................... 9 Withdrawal Rights................................................................... 11 Acceptance of Shares for Payment and Payment of Purchase Price and Dividends........ 12 Certain Conditions of the Offer..................................................... 12 Extension of Tender Period; Termination; Amendments................................. 14 Certain Effects of the Offer........................................................ 15 Other Information................................................................... 16 PROPOSED AMENDMENT AND PROXY SOLICITATION............................................. 18 Notice of Special Meeting of Stockholders........................................... 18 Special Meeting..................................................................... 19 Proxies............................................................................. 19 Relationship to the Offer; Special Cash Payments.................................... 19 Voting Securities, Rights and Procedures............................................ 20 Security Ownership of Certain Beneficial Owners and Management...................... 20 DESCRIPTION OF THE PROPOSED AMENDMENT................................................. 21 Explanation of the Proposed Amendment............................................... 21 Reasons for the Proposed Amendment.................................................. 22 Recommendation of Board of Directors................................................ 23 Certain Effects of the Proposed Amendment........................................... 23 Other Matters....................................................................... 23 PRICE RANGE OF SHARES; DIVIDENDS...................................................... 24 CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS........................................ 25 Tax Considerations for Tendering Preferred Shareholders............................. 25 Tax Considerations for Non-Tendering Preferred Shareholders......................... 26 Tax Considerations of Accrued and Unpaid Dividends Payment.......................... 26 Tax Considerations of Special Cash Payment.......................................... 26 Backup Withholding.................................................................. 27 SOURCE AND AMOUNT OF FUNDS............................................................ 27 TRANSACTIONS AND AGREEMENTS CONCERNING THE SHARES..................................... 27 FEES AND EXPENSES PAID TO DEALERS..................................................... 28 Dealer Manager Fees................................................................. 28 Solicited Tender Fees............................................................... 28 Stock Transfer Taxes................................................................ 29 SUMMARY OF FINANCIAL INFORMATION...................................................... 29 CERTAIN INFORMATION REGARDING NEES AND THE POWER COMPANY; INCORPORATION BY REFERENCE........................................................................... 30 MISCELLANEOUS......................................................................... 31
3 4 SUMMARY The following summary is provided solely for the convenience of the Preferred Shareholders. This summary is not intended to be complete and is qualified in its entirety by reference to the full text and more specific details contained in this Booklet and the Letter of Transmittal and Proxy and any amendments hereto or thereto. Preferred Shareholders are urged to read these documents in their entirety. Each of the capitalized terms used in this summary and not defined herein has the meaning set forth elsewhere in this Booklet. The Companies.............. NEES, 25 Research Drive, Westborough, Massachusetts 01582, is a registered holding company under the Public Utility Holding Company Act of 1935, as amended (the Holding Company Act), which owns, directly or indirectly, all of the outstanding common stock of its electric utility subsidiaries, including the Power Company. The service area of NEES' electric utility subsidiaries covers portions of Massachusetts, New Hampshire, and Rhode Island. The name "New England Electric System" means the trustee or trustees for the time being (as trustee or trustees but not personally) under an agreement and declaration of trust dated January 2, 1926, as amended, which is hereby referred to, and a copy of which as amended has been filed with the Secretary of the Commonwealth of Massachusetts. Any agreement, obligation or liability made, entered into or incurred by or on behalf of New England Electric System binds only its trust estate, and no shareholder, director, trustee, officer or agent thereof assumes or shall be held to any liability therefor. The Power Company, 25 Research Drive, Westborough, Massachusetts 01582, is a utility primarily engaged in the generation, purchase, transmission, and sale of electric energy in wholesale quantities. In 1996, 95% of the Power Company's all-requirement revenue from the sale of electricity was derived from sales for resale to affiliated companies and 5% from sales for resale to municipal and other utilities. See Purpose of the Offer, Proposed Amendment, and Proxy Solicitation -- Industry Restructuring. The Shares................. 4.56% Dividend Series Preferred Stock, $100 par value, CUSIP Number 644188 10 4 4.60% Dividend Series Preferred Stock, $100 par value, CUSIP Number 644188 20 3 4.64% Dividend Series Preferred Stock, $100 par value, CUSIP Number 644188 70 8 6.08% Dividend Series Preferred Stock, $100 par value, CUSIP Number 644188 40 1 6.00% Cumulative Preferred Stock, $100 par value, CUSIP Number 644188 30 2 The Offer and Purchase Price...................... Offer to purchase any or all shares of each Series of Preferred listed below at the price set forth below. $ . for 4.56% Series $ . for 4.60% Series $ . for 4.64% Series $ . for 6.08% Series $ . for 6.00% Series Dividends.................. If declared by the Board, tendering Preferred Shareholders will be entitled to the regular quarterly dividend for the entire quarterly period through December 31, 1997. 4 5 Independent Offer.......... The Offer for each Series of Dividend Series Preferred and the Offer for the 6% Cumulative Preferred are not conditioned upon any minimum number of Shares of any Series being tendered and each is independent of the Offer for any other Series of Dividend Series Preferred or the 6% Cumulative Preferred. The Offer, however, is conditioned upon, among other things, the approval and adoption of the Proposed Amendment, as described below, at the Special Meeting. See Terms of the Offer -- Certain Conditions of the Offer. It is a condition to the Offer that Dividend Series Preferred Shareholders who tender their shares must vote in favor of the Proposed Amendment. NEES will not be required to accept or pay for tendered Shares if the Proposed Amendment is not approved and unless certain other conditions are met. Expiration Date of the Offer...................... The Offer expires at 5:00 p.m., Eastern Standard Time, on December 12, 1997, unless extended (the Expiration Date). How to Tender Shares....... See Terms of the Offer -- Procedure for Tendering Shares. For further information, call the Information Agent or the Dealer Manager or consult your broker for assistance. Withdrawal Rights.......... Tendered Shares of any Series of Preferred may be withdrawn at any time until the Expiration Date with respect to such Series of Preferred and, unless previously accepted for payment, may also be withdrawn after January 12, 1998. See Terms of the Offer -- Withdrawal Rights. A withdrawal of a tender does not in and of itself revoke a proxy. Purpose of the Offer....... NEES is making the Offer because NEES believes that the purchase of Shares is economically attractive to the Power Company, and indirectly to NEES and its shareholders, in light of recent developments in its industry and alternatives currently available to it. In addition, the Offer gives Preferred Shareholders the opportunity to sell their Shares at a price which NEES believes to be a premium over the market price and without the usual transaction costs associated with a market sale. See Purpose of the Offer, Proposed Amendment, and Proxy Solicitation -- Purpose of the Offer and -- Industry Restructuring; Terms of the Offer -- Certain Effects of the Offer. Certain Effects of the Offer...................... Preferred Shareholders should consider carefully the possible effects of consummation of the Offer on the liquidity of any Shares which are not tendered and on voting power and redemption rights. See Purpose of the Offer, Proposed Amendment, and Proxy Solicitation -- Other Information and Terms of the Offer -- Voting Power. Brokerage Commissions...... Not payable by Preferred Shareholders. Solicitation Fee........... NEES will pay to each designated Soliciting Dealer a solicitation fee of $1.50 per Share for any Shares tendered, accepted for payment, and paid for pursuant to the Offer and for each Dividend Series Preferred Share not tendered but voted in favor of the Proposed Amendment (except that for transactions for beneficial owners equal to or exceeding 2,500 Shares of all Series of Preferred combined, NEES will pay a solicitation fee of $1.00 per Share, of which at least eighty percent (80%) shall be paid to the Dealer Manager). A Soliciting Dealer will not be entitled to a solicitation fee for Shares beneficially owned by such Soliciting Dealer. See Fees and Expenses Paid to Dealers -- Solicited Tender Fees. 5 6 Proposed Amendment......... Concurrently with the Offer, the Board of Directors of the Power Company is soliciting proxies from Dividend Series Preferred Stockholders for use at the Special Meeting. Proxies are not being solicited from holders of 6% Cumulative Preferred Stock. The Special Meeting is being held to consider the Proposed Amendment to the Provisions which would remove a provision that limits the Power Company's ability to issue unsecured debt without the approval of the holders of a majority of the outstanding Dividend Series Preferred and Preferred Stock -- Cumulative. If the Proposed Amendment is approved by the Dividend Series Preferred Shareholders, the Power Company's ability to issue or assume unsecured indebtedness will no longer be subject to the approval of any Shares that remain outstanding after the consummation of the Offer. See Purpose of the Offer, Proposed Amendment, Proxy Solicitation -- Purpose of the Offer and -- Other Information; Terms of the Offer -- Certain Effects of the Offer -- Voting Power; and Proposed Amendment and Proxy Solicitation -- Certain Effects of the Proposed Amendment. Record Date................ November 12, 1997 Special Cash Payment....... Preferred Shareholders of record who do not tender their Shares have the right to vote for or against the Proposed Amendment. If the Proposed Amendment is approved and adopted by the Power Company's Preferred Shareholders, the Power Company will make a special cash payment of $1.00 per Share to each Dividend Series Preferred Shareholder who voted in favor of the Proposed Amendment but who did not tender his or her Shares (the Special Cash Payment). Special Cash Payments will not be made to holders of the 6% Cumulative Preferred. Preferred Shareholders who validly tender their Shares will be entitled only to the purchase price per Share listed on the front cover of this Booklet plus an amount in cash equivalent to any dividends declared prior to the Payment Date (as defined herein). Stock Transfer Tax......... Except as described herein, NEES will pay or cause to be paid any stock transfer taxes with respect to the sale and transfer of any Shares to it or its order pursuant to the Offer. See Instruction 6 of the applicable Letter of Transmittal and Proxy. See Terms of the Offer -- Acceptance of Shares for Payment and Payment of Purchase Price and Dividends. Payment Date............... Promptly after the Expiration Date or any extension thereof. Further Information........ Additional copies of this Booklet and the applicable Letter of Transmittal and Proxy may be obtained by contacting Georgeson, Wall Street Plaza, New York, New York 10005, telephone (800) 223-2064 (toll-free) and (212) 440-9800 (banks and brokers). Questions about the Offer should be directed to Merrill Lynch at (888) ML4-TNDR (toll- free) ((888) 654-8637 (toll-free)). 6 7 PURPOSE OF THE OFFER, PROPOSED AMENDMENT, AND PROXY SOLICITATION The Offer and the Proposed Amendment constitute an integrated strategic response by NEES and the Power Company to an anticipated restructuring of the capitalization of the Power Company arising from the expected sale of the Power Company's generation business. INDUSTRY RESTRUCTURING On October 1, 1996, the NEES companies announced their intention to divest their generation business. The decision to divest the generation business was due to a combination of factors relating to the restructuring of the electric utility industry. On August 5, 1997, the NEES Companies reached an agreement to sell the non-nuclear generation business to USGen New England, Inc., an exempt wholesale generator, for approximately $1.65 billion, subject to various adjustments. The sale is subject to approval by various state and federal regulatory agencies, which may take six to twelve months. One of the conditions to the sale is that all regulatory approvals must be obtained within eighteen months. As a part of the divestiture plan, the Power Company will endeavor, at a later date, to sell, or otherwise transfer, its minority interest in four nuclear power plants. The assets being disposed of constitute more than half of the assets of the Power Company. Thereafter, the transmission business of the Power Company will be the Company's primary business. The NEES companies have announced that reductions in the number of employees would occur as a result of the sales. As a result of the divestiture, the Power Company's asset base and capitalization will be reduced substantially. The Power Company has approximately $700 million of mortgage bonds outstanding. The bond indenture restricts the sale of the trust property in its entirety or substantially in its entirety. The proposed sale of the Power Company's generation business will require that the Power Company (a) amend the bond indenture or (b) either defease or call the bonds in connection with the proposed sale. Any defeasance of bonds would be effected by the deposit of cash representing principal and interest to the maturity date or interest, principal, and general redemption premium to an earlier redemption date. The Power Company requires flexibility in restructuring its capital structure following this reduction in assets and reduced need for capital. The Offer and the Proposed Amendment are designed to provide such flexibility. For a more complete description of these transactions, see the documents filed by NEES and the Power Company with the SEC pursuant to the Exchange Act, as described below. PURPOSE OF THE OFFER NEES believes that the purchase of the Shares at this time in conjunction with the Proposed Amendment represents an attractive economic opportunity that will benefit NEES, its shareholders, the Power Company, and the NEES companies' utility customers by (1) contributing to the elimination of the provisions concerning unsecured indebtedness, and (2) retiring outstanding shares of the Power Company's Preferred Stock in contemplation of their potential replacement with comparatively less expensive financing alternatives. In addition, the Offer gives Preferred Shareholders the opportunity to sell their Shares at a price which NEES believes to be a premium to the market price on the date of the announcement of the Offer and without the usual transaction costs associated with a sale. PROPOSED AMENDMENT In response to these changes in the industry, and as discussed further below under Proposed Amendment and Proxy Solicitation -- Reasons for the Proposed Amendment, the Power Company seeks to amend the Provisions to eliminate a limitation on the Power Company's ability to issue unsecured debt without the approval of the holders of a majority of the outstanding Dividend Series Preferred Stock and Preferred Stock -- Cumulative. Among other things, if the Proposed Amendment is passed, the Power Company may substantially increase its short-term, unsecured indebtedness to meet cash needs related to the divestiture of its generation 7 8 business. The Power Company currently anticipates that its long-term debt following the reduction of its current capitalization and the adoption of the Proposed Amendment will take the form of debentures (or unsecured bonds). In order to facilitate the transition to a competitive environment, the Power Company may establish one or more subsidiaries and transfer to them certain "stranded" assets and related revenue streams. OTHER INFORMATION The Provisions provide that without a vote of at least a majority of the votes entitled to be cast by the holders of the Dividend Series Preferred Stock and the Preferred Stock - Cumulative of all Series then outstanding, voting as a single class, the Power Company shall not merge or consolidate with or into any other corporation or corporations or sell, lease, or dispose of all or substantially all its assets, unless such merger, consolidation or sale, lease, or disposition, or the issuance and assumption of all securities to be issued or assumed in connection therewith, shall have been ordered, approved, or permitted by the SEC under the provisions of the Holding Company Act or by any successor commission or regulatory authority of the United States of America having jurisdiction in the premises under said Act or by any court of the United States having such jurisdiction. In the absence of any relevant decisional authority or legislative history, it is unclear whether the SEC has jurisdiction to grant such approval in the case of a sale by a regulated wholesale electric company, such as the Power Company, to an exempt wholesale generating company, such as USGen New England. The Power Company may either (i) submit a no-action letter to the SEC seeking confirmation that the staff of the SEC would not take action against the Power Company if no approval under the Holding Company Act were sought, or (ii) file for approval under the Holding Company Act. If the SEC determines that it does have jurisdiction, and gives its approval, the only stockholder approval to be sought will be the approval of the common and 6% Cumulative Preferred, voting together as a single class, as required by Massachusetts law. NEES holds a sufficient number of shares of common stock to ensure that such approval will be obtained. If the SEC determines that it does not have jurisdiction, the Power Company will need to obtain the approval of the holders of the Dividend Series Preferred Stock (and any Preferred Stock - Cumulative) then outstanding as described above. NEES would vote any Shares tendered pursuant to the Offer, or otherwise acquired by NEES, in favor of the sale. If such approval were not to be obtained NEES and the Power Company would consider all alternatives then available to them, including further tenders, purchases of shares in the open market, or redemptions of shares. TERMS OF THE OFFER NUMBER OF SHARES; PURCHASE PRICES; EXPIRATION DATE; DIVIDENDS Upon the terms and subject to the conditions described herein and in the applicable Letter of Transmittal and Proxy, NEES will purchase any and all Shares that are validly tendered on or prior to the Expiration Date (and not properly withdrawn in accordance with the procedures set forth under Withdrawal Rights) at the purchase price per Share listed on the front cover of this Booklet for the Shares tendered, plus an amount in cash equivalent to any dividends declared prior to the Expiration Date, net to the seller in cash. See Certain Conditions of the Offer and Extension of Tender Period; Termination; Amendments. THE OFFER FOR EACH SERIES OF PREFERRED IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES OF SUCH SERIES BEING TENDERED AND IS INDEPENDENT OF THE OFFER FOR ANY OTHER SERIES. THE OFFER, HOWEVER, IS CONDITIONED UPON, AMONG OTHER THINGS, APPROVAL AND ADOPTION OF THE PROPOSED AMENDMENT, AS DESCRIBED HEREIN, AT THE SPECIAL MEETING. SEE CERTAIN CONDITIONS OF THE OFFER. The Offer is being sent to all persons in whose names Shares are registered on the books of the Power Company as of the close of business on November 3, 1997, as well as to all persons in whose names Shares are 8 9 registered on November 12, 1997, the Record Date. Only a record holder of Shares on the Record Date may vote in person or by proxy at the Special Meeting. No record date is fixed for determining which persons are permitted to tender Shares. Any person who is the beneficial owner but not the record holder of Shares on the Record Date must arrange for the record transfer of such Shares prior to tendering. The Shares will trade "with proxy" during the period which begins two days prior to the Record Date and which will end at the close of business on the Expiration Date, as further discussed under Proposed Amendment and Proxy Solicitation -- Voting Securities, Rights, and Procedures. With respect to each Series of Preferred, the Expiration Date is the later of 5:00 p.m. Eastern Standard Time, on Friday, December 12, 1997 or the latest time and date to which the Offer with respect to such Series of Preferred is extended. NEES expressly reserves the right, in its sole discretion, and at any time and/or from time to time, to extend the period of time during which the Offer for any Series is open, by giving oral or written notice of such extension to the Depositary and making a public announcement thereof, without extending the period of time during which the Offer for any other Series is open. There is no assurance whatsoever that NEES will exercise its right to extend the Offer for any Series of Preferred. If NEES decides, in its sole discretion, to (i) decrease the number of Shares of any Series being sought, (ii) increase or decrease the consideration offered in the Offer to holders of any Series, or (iii) increase or decrease the Soliciting Dealers' fees and, at the time that notice of such increase or decrease is first published, sent, or given to holders of such Series in the manner specified herein, the Offer for such Series is scheduled to expire at any time earlier than the tenth business day from the date that such notice is first so published, sent, or given, such Offer will be extended until the expiration of such ten-business-day period. For purposes of the Offer, a business day means any day other than a Saturday, Sunday, or Federal holiday and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern Standard Time. NO ALTERNATIVE, CONDITIONAL, OR CONTINGENT TENDERS WILL BE ACCEPTED. Tendering Preferred Shareholders will be entitled to any dividends declared prior to the Expiration Date. PROCEDURE FOR TENDERING SHARES To tender Shares of any Series of Preferred pursuant to the Offer, the tendering owner of Shares must either: (a) send to the Depositary (at one of its addresses set forth on the back cover of this Booklet) a properly completed and duly executed Letter of Transmittal and Proxy, together with any required signature guarantees and any other documents required by the Letter of Transmittal and Proxy (and either (i) tender certificates for the Shares to the Depositary at one of its addresses or (ii) deliver such Shares pursuant to the procedures for book-entry transfer described herein (and a confirmation of such delivery must be received by the Depositary (a Book-Entry Confirmation)), in each case on or prior to the Expiration Date); or (b) comply with the guaranteed delivery procedure described under Guaranteed Delivery Procedure below. A tender of Shares made pursuant to any method of delivery set forth herein or in the Letter of Transmittal and Proxy will constitute a binding agreement between the tendering holder and NEES upon the terms and subject to the conditions of the Offer. The Depositary will establish an account with respect to the Shares of each Series of Preferred at The Depository Trust Company and the Philadelphia Depository Trust Company (each a Book-Entry Transfer Facility) for purposes of the Offer within two business days after the date of this Booklet, and any financial institution that is a participant in the system of the Book-Entry Transfer Facility may make delivery of Shares by causing the Book-Entry Transfer Facility to transfer such Shares into the Depositary's account in accordance with the procedures of the Book-Entry Transfer Facility. Although delivery of Shares may be effected through book-entry transfer, such delivery must be accompanied by either (i) a properly completed and duly executed Letter of Transmittal and Proxy, together with any required signature guarantees and any other required documents or (ii) an Agent's Message (as hereinafter defined) and, in any case, must be 9 10 received by the Depositary at one of its addresses set forth on the back cover of this Booklet on or prior to the Expiration Date. DELIVERY OF SUCH LETTER OF TRANSMITTAL AND PROXY AND ANY OTHER REQUIRED DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY OR TO NEES DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY. The term "Agent's Message" means a message, transmitted by the Book-Entry Transfer Facility, received by the Depositary, and forms a part of the Book-Entry Confirmation when the tender is initiated, which states that the Book-Entry Transfer Facility has received an express acknowledgment from a participant in such Book-Entry Transfer Facility tendering Shares that the participant has received and agrees to be bound by the terms of the Letter of Transmittal and Proxy and that NEES may enforce such agreement against the participant. Except as otherwise provided below, all signatures on a Letter of Transmittal and Proxy must be guaranteed by a firm that is a member of a registered national securities exchange or the National Association of Securities Dealers, Inc. (the NASD), or by a commercial bank or trust company having an office or correspondent in the United States that is a participant in an approved Signature Guarantee Medallion Program (each of the foregoing being referred to as an Eligible Institution). Signatures on a Letter of Transmittal and Proxy need not be guaranteed if (a) the Letter of Transmittal and Proxy is signed by the registered owner of the Shares tendered therewith and such owner has not completed the box entitled "Special Payment Instructions" or the box entitled "Special Delivery Instructions" on the Letter of Transmittal and Proxy or (b) such Shares are tendered for the account of an Eligible Institution. See Instructions 1 and 5 of the Letter of Transmittal and Proxy. If Shares are registered in the name of a person other than the signatory on the Letter of Transmittal and Proxy, or if unpurchased Shares are to be issued to a person other than the registered holder(s), the certificates must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name or names of the registered holder(s) appear on the Shares with the signature(s) on the Shares or stock powers guaranteed as stated above. See Instructions 4 and 7 to the Letter of Transmittal and Proxy. Guaranteed Delivery Procedure. If a Preferred Shareholder desires to tender Shares pursuant to the Offer and such Shareholder's certificates are not immediately available or the procedures for book-entry transfer cannot be completed on a timely basis or time will not permit all required documents to reach the Depositary on or prior to the Expiration Date, such Shares may nevertheless be tendered if all of the following guaranteed delivery procedures are complied with: (i) such tender is made by or through an Eligible Institution; (ii) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form provided by NEES and the Power Company herewith, is received (with any required signatures or signature guarantees) by the Depositary as provided below on or prior to the Expiration Date; and (iii) the certificates for all tendered Shares in proper form for transfer or a Book-Entry Confirmation with respect to all tendered Shares, together with a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal and Proxy, are received by the Depositary no later than three New York Stock Exchange, Inc. (NYSE) trading days after the date of execution of such Notice of Guaranteed Delivery. A NYSE trading day is any day on which the NYSE is open for business. The Notice of Guaranteed Delivery may be either delivered by hand or mailed to the Depositary and must include an endorsement by an Eligible Institution in the form set forth in such Notice of Guaranteed Delivery. In all cases, Shares shall not be deemed validly tendered unless a properly completed and duly executed Letter of Transmittal or, if applicable, an Agent's Message, is received by the Depositary. Notwithstanding any other provision hereof, payment for Shares accepted for payment pursuant to the Offer in all cases will be made only after timely receipt by the Depositary of certificates for (or an Agent's Message with respect to) such Shares, a Letter of Transmittal and Proxy, properly completed and duly 10 11 executed, with any required signature guarantees, and all other documents required by the Letter of Transmittal and Proxy. THE METHOD OF DELIVERY OF SHARES AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING SHAREHOLDER. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. BECAUSE IT IS THE TIME OF RECEIPT, NOT THE TIME OF MAILING, WHICH DETERMINES WHETHER A TENDER HAS BEEN MADE PRIOR TO THE EXPIRATION DATE, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. TO AVOID FEDERAL INCOME TAX BACKUP WITHHOLDING EQUAL TO 31% OF THE GROSS PAYMENTS MADE PURSUANT TO THE OFFER, EACH TENDERING PREFERRED SHAREHOLDER WHO IS A UNITED STATES PERSON MUST NOTIFY THE DEPOSITARY OF THE CORRECT TAXPAYER IDENTIFICATION NUMBER AND PROVIDE CERTAIN OTHER INFORMATION BY PROPERLY COMPLETING AND EXECUTING THE SUBSTITUTE FORM W-9 INCLUDED IN THE LETTER OF TRANSMITTAL AND PROXY (OR, IN THE CASE OF A FOREIGN SHAREHOLDER, FORM W-8 OBTAINABLE FROM THE DEPOSITARY). SEE CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS. EACH PREFERRED SHAREHOLDER IS URGED TO CONSULT WITH SUCH PREFERRED SHAREHOLDER'S OWN TAX ADVISOR REGARDING THE TAX CONSEQUENCES OF THE OFFER. All questions as to the form of documents and the validity, eligibility (including the time of receipt), and acceptance for payment of any tender of Shares will be determined by NEES, in its sole discretion, and its determination will be final and binding. NEES reserves the absolute right to reject any or all tenders of Shares that (i) it determines are not in proper form or (ii) the acceptance for payment of or payment for which may, in the opinion of NEES's counsel, be unlawful. NEES also reserves the absolute right to waive any defect or irregularity in any tender of Shares. None of NEES, the Power Company, the Dealer Manager, the Depositary, the Information Agent, or any other person will be under any duty to give notice of any defect or irregularity in tenders, nor shall any of them incur any liability for failure to give any such notice. Any condition to the Offer may be waived by NEES, in whole or in part, at any time and from time to time in its sole discretion. WITHDRAWAL RIGHTS Tenders of Shares made pursuant to the Offer may be withdrawn at any time on or prior to the Expiration Date. Thereafter, such tenders are irrevocable, except that they may be withdrawn after January 12, 1998, unless previously accepted for payment as provided in this Booklet. To be effective, a written notice of withdrawal must be timely received by the Depositary, at one of its addresses set forth on the back cover of this Booklet, and must specify the name of the person who tendered the Shares of such Series of Preferred to be withdrawn and the number of Shares to be withdrawn. If the Shares to be withdrawn have been delivered to the Depositary, a signed notice of withdrawal with signatures guaranteed by an Eligible Institution (except in the case of Shares tendered by an Eligible Institution) must be submitted prior to the release of such Shares. In addition, such notice must specify, in the case of Shares tendered by delivery of certificates, the name of the registered owner (if different from that of the tendering Shareholder) and the serial numbers shown on the particular certificates evidencing the Shares to be withdrawn or, in the case of Shares tendered by book-entry transfer, the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Shares and the name of the registered holder (if different from the name of such account). Withdrawals may not be rescinded, and Shares withdrawn will thereafter be deemed not validly tendered for purposes of the Offer. However, withdrawn Shares may be re-tendered by again following one of the procedures described in Terms of the Offer -- Procedure for Tendering Shares at any time on or prior to the Expiration Date. 11 12 All questions as to the form and validity (including time of receipt) of any notice of withdrawal will be determined by NEES, in its sole discretion, and its determination will be final and binding. None of NEES, the Power Company, the Dealer Manager, the Depositary, the Information Agent, or any other person will be under any duty to give notification of any defect or irregularity in any notice of withdrawal or will incur any liability for failure to give any such notification. ACCEPTANCE OF SHARES FOR PAYMENT AND PAYMENT OF PURCHASE PRICE AND DIVIDENDS Upon the terms and subject to the conditions of the Offer, and as promptly as practicable after the Expiration Date, NEES will accept for payment (and thereby purchase) and pay for Shares validly tendered and not withdrawn as permitted in Terms of the Offer -- Withdrawal Rights. Thereafter, payment for all Shares validly tendered on or prior to the Expiration Date and accepted pursuant to the Offer will be made by the Depositary by check as promptly as practicable after the Expiration Date. In all cases, payment for Shares accepted for payment pursuant to the Offer will be made promptly but only after timely receipt by the Depositary of certificates for such Shares (or an Agent's Message), a properly completed and duly executed Letter of Transmittal and Proxy, and any other required documents. For purposes of the Offer, NEES will be deemed to have accepted for payment (and thereby purchased) Shares that are validly tendered and not withdrawn as, if, and when it gives oral or written notice to the Depositary of its acceptance for payment of such Shares. NEES will pay for Shares that it has purchased pursuant to the Offer by depositing the purchase price (plus an amount in cash equivalent to any dividends declared thereon prior to the Payment Date) with the Depositary, which will act as agent for tendering Preferred Shareholders for the purpose of receiving payment from NEES and transmitting payment to the tendering Shareholders. Under no circumstances will interest be paid on amounts to be paid to tendering Preferred Shareholders, regardless of any delay in making such payment. Certificates for all Shares not validly tendered will be returned or, in the case of Shares tendered by book-entry transfer, such Shares will be credited to an account maintained with the Book-Entry Transfer Facility, as promptly as practicable, without expense to the tendering Preferred Shareholder. If certain events occur, NEES may not be obligated to purchase Shares pursuant to the Offer. See Terms of the Offer -- Certain Conditions of the Offer. NEES will pay or cause to be paid any stock transfer taxes with respect to the sale and transfer of any Shares to it or its order pursuant to the Offer. If, however, payment of the purchase price is to be made to, or Shares not tendered or not purchased are to be registered in the name of, any person other than the registered owner, or if tendered Shares are registered in the name of any person other than the person signing the Letter of Transmittal and Proxy, the amount of any stock transfer taxes (whether imposed on the registered owner, such other person, or otherwise) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the payment of such taxes, or exemption therefrom, is submitted. See Instruction 6 of the accompanying Letter of Transmittal and Proxy. CERTAIN CONDITIONS OF THE OFFER NEES WILL NOT BE REQUIRED TO ACCEPT FOR PAYMENT OR PAY FOR ANY SHARES OF ANY SERIES TENDERED IF THE PROPOSED AMENDMENT IS NOT APPROVED AND ADOPTED AT THE SPECIAL MEETING OR IF THE TENDERING DIVIDEND SERIES PREFERRED STOCKHOLDER DID NOT VOTE IN FAVOR OF THE PROPOSED AMENDMENT. In addition, notwithstanding any other provision of the Offer, NEES will not be required to accept for payment or pay for any Shares tendered, and may terminate or amend the Offer (by oral or written notice to the Depositary and timely public announcement) or may postpone (subject to the requirements of the Securities Exchange Act of 1934, as amended (the Exchange Act) for prompt payment for or return of Shares) the acceptance for payment of, or payment for, Shares tendered, if at any time after November 5, 12 13 1997, and at or before the Expiration Date, any of the following shall have occurred (which shall not have been waived by NEES): (a) there shall have been threatened, instituted, or pending any action or proceeding by any government or governmental, regulatory, or administrative agency, authority, or tribunal or any other person, domestic or foreign, or before any court, authority, agency, or tribunal that (i) challenges the acquisition of Shares pursuant to the Offer or otherwise in any manner relates to or affects the Offer or (ii) in the reasonable judgment of NEES, would or might materially and adversely affect the business, condition (financial or otherwise), income, operations, or prospects of NEES and its subsidiaries taken as a whole, or otherwise materially impair in any way the contemplated future conduct of the business of NEES or any of its subsidiaries or materially impair the Offer's contemplated benefits to NEES; (b) there shall have been any action threatened, pending, or taken, or approval withheld, or any statute, rule, regulation, judgment, order, or injunction threatened, proposed, sought, promulgated, enacted, entered, amended, enforced, or deemed to be applicable to the Offer or NEES or any of its subsidiaries, by any legislative body, court, authority, agency, or tribunal that, in NEES's reasonable judgment, would or might directly or indirectly (i) make the acceptance for payment of, or payment for, some or all of the Shares illegal or otherwise restrict or prohibit consummation of the Offer; (ii) delay or restrict the ability of NEES, or render NEES unable, to accept for payment or pay for some or all of the Shares; (iii) materially impair the contemplated benefits of the Offer to NEES or the Power Company (including materially increasing the effective interest cost of certain types of unsecured debt); or (iv) materially affect the business, condition (financial or otherwise), income, operations, or prospects of NEES and its subsidiaries taken as a whole, or otherwise materially impair in any way the contemplated future conduct of the business of NEES or any of its subsidiaries; (c) there shall have occurred (i) any significant decrease in the market price of the Shares; (ii) any change in the general political, market, economic, or financial conditions in the United States or abroad that, in the reasonable judgment of NEES, would or might have a material adverse effect on NEES's business, operations, prospects, or ability to obtain financing generally or the trading in the Shares or equity securities of NEES; (iii) the declaration of a banking moratorium or any suspension of payments in respect of banks in the United States or any limitation on, or any event that, in NEES's reasonable judgment, would or might affect the extension of credit by lending institutions in the United States; (iv) the commencement or escalation of war, armed hostilities, or other international or national calamity directly or indirectly involving the United States; (v) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or in the over-the-counter market; (vi) in the case of any of the foregoing existing at the time of the commencement of the Offer, in NEES's reasonable judgment, a material acceleration or worsening thereof; (vii) any decline in either the Dow Jones Industrial Average or the Standard and Poor's Composite 500 Stock Index by an amount in excess of 10% measured from the close of business on November 5, 1997; or (viii) a decline in the ratings accorded any of NEES's or the Power Company's securities by Standard & Poor's, a division of The McGraw Hill Companies (S&P), Moody's Investors Service, Inc. (Moody's), or Duff & Phelps, Inc. (D&P), or an announcement by S&P, Moody's, or D&P that it has placed any such rating under surveillance or review with negative implications; (d) any tender or exchange offer with respect to some or all of the Shares (other than the Offer) or any equity securities of NEES, or a merger, acquisition, or other business combination proposal for NEES, shall have been proposed, announced, or made by any person or entity; (e) there shall have occurred any event or events that have resulted, or, in NEES's reasonable judgment, may result, in an actual or threatened change in the business, condition (financial or otherwise), income, operations, stock ownership, or prospects of NEES and its subsidiaries; or (f) the SEC shall have withheld approval, under the Holding Company Act, of the acquisition of the Shares by NEES pursuant to the Offer or the approval and adoption of the Proposed Amendment at the Special Meeting; 13 14 and, in the sole judgment of NEES, such event or events make it undesirable or inadvisable to proceed with the Offer or with such acceptance for payment or payment. With respect to the approval of the SEC referenced in clause (f) above, the SEC must find that the acquisition of the Shares by NEES is not detrimental to the public interest or the interests of the investors or consumers, and that the consideration paid in connection with the acquisition and the adoption of the Proposed Amendment, including fees, commissions, and other remuneration, is reasonable. The foregoing conditions (including the condition that the Proposed Amendment be approved and adopted at the Special Meeting) are for the sole benefit of NEES and may be asserted by NEES regardless of the circumstances (including any action or inaction by NEES) giving rise to any such condition, and any such condition may be waived by NEES, in whole or in part, at any time and from time to time in its sole discretion. A decision by NEES to terminate or otherwise amend the Offer, following the occurrence of any of the foregoing, with respect to one Series will not create an obligation on behalf of NEES to terminate or otherwise amend in a similar manner the Offer with respect to any other Series. The failure by NEES at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right and each such right shall be deemed an ongoing right which may be asserted at any time and from time to time. Any determination by NEES concerning the events described above will be final and binding on all parties. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENTS NEES expressly reserves the right, in its sole discretion, and at any time and from time to time on or prior to the Expiration Date, to extend the period of time during which the Offer for any Series is open by giving oral or written notice of such extension to the Depositary, without extending the period of time during which the Offer for any other Series is open. There can be no assurance, however, that NEES will exercise its right to extend the Offer for any Series. During any such extension, all Shares of the subject Series previously tendered will remain subject to the Offer, except to the extent that such Shares may be withdrawn as set forth in Withdrawal Rights. NEES also expressly reserves the right, in its sole discretion, to, among other things, terminate the Offer and not accept for payment or pay for any Shares tendered, subject to Rule 13e-4(f)(5) under the Exchange Act, which requires NEES either to pay the consideration offered or to return the Shares tendered promptly after the termination or withdrawal of the Offer upon the occurrence of any of the conditions specified in Certain Conditions of the Offer by giving oral or written notice of such termination to the Depositary, and making a public announcement thereof. Subject to compliance with applicable law, NEES further reserves the right, in its sole discretion, to amend the Offer in any respect. Amendments to the Offer may be made at any time and from time to time effected by public announcement thereof, such announcement, in the case of an extension, to be issued no later than 9:00 a.m., Eastern Standard Time, on the next business day after the previously scheduled Expiration Date. Any public announcement made pursuant to the Offer will be disseminated promptly to Preferred Shareholders affected thereby in a manner reasonably designed to inform such Preferred Shareholders of such change. Without limiting the manner in which NEES may choose to make a public announcement, except as required by applicable law, NEES shall have no obligation to publish, advertise, or otherwise communicate any such public announcement other than by making a release to the Dow Jones News Service. If NEES materially changes the terms of the Offer or the information concerning the Offer, or if it waives a material condition of the Offer, NEES will extend the Offer to the extent required by Rules 13e-4(d)(2) and 13e-4(e)(2) under the Exchange Act. Those rules require that the minimum period during which the Offer must remain open following material changes in the terms of the Offer or information concerning the Offer (other than a change in price, a change in percentage of securities sought, or a change in the dealer's solicitation fee) will depend on the facts and circumstances, including the relative materiality of such terms or information. The SEC has stated that, in its view, an offer should remain open for a minimum of five business days from the date that a notice of such a material change is first published, sent, or given. If the Offer is scheduled to expire at any time earlier than the expiration of a period ending on the tenth business day from, and including, the date that NEES publishes, sends, or gives to Preferred Shareholders a notice that it will 14 15 (i) increase or decrease the price it will pay for Shares, (ii) decrease the percentage of Shares it seeks, or (iii) increase or decrease the soliciting dealers' fees, the Offer will be extended until the expiration of such period of ten business days. THE OFFER FOR EACH SERIES OF PREFERRED IS INDEPENDENT OF THE OFFER FOR ANY OTHER SERIES OF PREFERRED. IF NEES EXTENDS OR AMENDS ANY OFFER WITH RESPECT TO ONE SERIES OF PREFERRED FOR ANY REASON, NEES WILL HAVE NO OBLIGATION TO EXTEND THE OFFER FOR ANY OTHER SERIES OF PREFERRED. CERTAIN EFFECTS OF THE OFFER Shares validly tendered to the Depositary pursuant to the Offer and not withdrawn in accordance with the procedures set forth herein shall be held until the Expiration Date (or returned to the extent the Offer is terminated in accordance herewith). To the extent that the Proposed Amendment is approved and the Shares tendered are accepted for payment and paid for in accordance with the terms hereof, NEES intends either to sell its Shares to the Power Company or to donate the Shares to the Power Company as a capital contribution. At that time, it is expected that the Power Company will retire and cancel the Shares. However, in the event the Proposed Amendment is not adopted at the Special Meeting, NEES may elect, but is not obligated, to waive, subject to applicable law, such condition. The Power Company anticipates that, subsequent to that waiver and purchase of the Shares, it would call another special meeting of its shareholders and solicit proxies therefrom for an amendment substantially similar to the Proposed Amendment. At that meeting, NEES would vote any Shares acquired by it pursuant to the Offer or otherwise (together with its shares of common stock) in favor of such amendment, thereby maximizing the prospects for the adoption of such amendment. Voting Power. If any approval of the proposed divestiture of the Power Company's generation business is required on the part of the Dividend Series Preferred Shareholders, the tender of Shares pursuant to the Offer or any subsequent purchases of Shares by NEES will tend to diminish the aggregate voting power of the remaining Dividend Series Preferred Shareholders. As discussed under Purpose of the Offer, Proposed Amendment, and Proxy Solication -- Other Information, the Power Company may require the approval of a majority of the Dividend Shares Preferred Stock and Preferred Stock -- Cumulative of all series then outstanding, voting as a single class, in connection with the sale of its non-nuclear business. NEES may elect to retain any Shares acquired by it pursuant to the Offer and vote such Shares at a later, separate, special meeting in favor of the sale, thereby maximizing the prospects of securing the necessary vote. Trading and Liquidity. Any purchase of Shares by NEES will reduce the number of Shares of each of the Series of Preferred that might otherwise trade publicly or become available for purchase and/or sale and will likely reduce the number of owners of Shares of each of the Series of Preferred, which could adversely affect the liquidity and sale value of the Shares not purchased in the Offer. To the extent that Shares of any Series of Preferred are tendered and accepted for payment in the Offer, the trading market for Shares of such Series that remain outstanding may be significantly more limited, which might adversely affect the liquidity, market value, and price volatility of such Shares. Equity securities with a smaller outstanding market value available for trading (the float) may command a lower price than would comparable equity securities with a greater float. Therefore, the market price for Shares that are not tendered in the Offer may be affected adversely to the extent that the amount of Shares purchased pursuant to the Offer reduces the float. The reduced float may also make the trading price of the Shares that are not tendered and accepted for payment more volatile. Holders of the remaining Shares may attempt to obtain quotations for the Shares from their brokers, through the Electronic Bulletin Board, or otherwise; however, there can be no assurance that any trading market will exist for such Shares following consummation of the Offer. To the extent a market continues to exist for the Shares after the Offer, the Shares may trade at a discount compared to present trading, depending on the market for Shares with similar features, the performance of the Power Company, and other factors. There is no assurance that an active market in the Shares will exist and no assurance as to the prices at which the Shares may trade. The Dividend Series Preferred Stock is currently registered under Section 12(g) of the Exchange Act. If the Dividend Series Preferred Stock is no longer held by more than 300 owners of record, the Power Company 15 16 may apply to the SEC for termination of such registration. Such termination would substantially reduce the information required to be furnished by the Power Company to holders of Dividend Series Preferred Stock and could make certain provisions of the Exchange Act no longer applicable to the Power Company. The registration of the 6% Cumulative Preferred Stock was terminated in June 1994. As of September 29, 1997, there were 38 registered holders of the 4.56% Series, 91 registered holders of the 4.60% Series, 1 registered holder of the 4.64% Series, 60 registered holders of the 6.08% Series, and 194 registered holders of the 6% Cumulative Preferred. Future Purchases or Redemption of Shares. Preferred Shareholders are not under any obligation to tender Shares pursuant to the Offer. The Offer does not constitute a notice of redemption of any Series of Dividend Series Preferred pursuant to the Power Company's Provisions, neither does NEES or the Power Company intend to effect any such redemption by making the Offer. Further, the Offer does not constitute a waiver by the Power Company of any option it has to redeem Shares. Shares which are not tendered will continue to be subject to their current redemption and liquidation provisions. The various series of the Dividend Series Preferred Stock are redeemable in whole or in part upon not less than thirty days' notice at the applicable redemption prices plus accrued dividends through the date fixed for redemption. The redemption prices for the 4.56% Series, the 4.60% Series, the 4.64% Series, and the 6.08% Series are $104.08, $101.00, $102,56, and $102.34, respectively. There are no sinking funds for any of the Dividend Series Preferred Stock. The Provisions do not provide for redemption of the 6% Cumulative Preferred. The Preferred Stockholders have no preemptive or conversion rights. Upon liquidation, dissolution, or winding up of the affairs of the Power Company or any distribution of capital of the Power Company, owners of the Dividend Series Preferred Shares would be entitled to receive an amount equal to the full distributive amounts fixed therefor together with accrued dividends through the date fixed for the payment of such distributive amounts. In case any liquidation, dissolution, or winding up of the Power Company is voluntary, Dividend Series Preferred Shareholders shall be entitled to receive said redemption prices plus accrued dividends; if involuntary, to $100 per Share plus accrued dividends through the date fixed for the payment of such distributive amounts. In the case of any liquidation, dissolution, or winding up of the Power Company, voluntary or involuntary, 6% Cumulative Preferred owners shall be entitled to receive $100 per Share plus accrued dividends through the date fixed for the payment of such distributive amounts. The contemplated disposition of the Power Company's generation assets will not be deemed to be a liquidation of the Power Company. After the consummation of the Offer, NEES or the Power Company may purchase additional Shares on the open market, in privately negotiated transactions, through one or more tender offers, or otherwise. Any such purchases may be on the same terms as, or on terms which are more or less favorable to holders of Shares than, the terms of the Offer. However, Rule 13e-4(f)(6) under the Exchange Act prohibits NEES and its affiliates (including the Power Company) from purchasing any Shares of a Series of Preferred, other than pursuant to the Offer, until at least ten business days after the Expiration Date with respect to that Series of Preferred. Any future purchases of Shares by NEES or the Power Company would depend on many factors, including the market price of the Shares, NEES's business and financial position, and legal restrictions on NEES's ability to purchase Shares, as well as general economic and market conditions. OTHER INFORMATION As discussed under "Purpose of the Offer, Proposed Amendment, and Proxy Solicitation -- Industry Restructuring" and in the documents incorporated by reference, the Power Company is divesting itself of or attempting to divest itself of its generation business. This process will result in reductions in employees and reallocation of executive responsibilities. As further discussed under "Purpose of the Offer, Proposed Amendment, and Proxy Solicitation -- Industry Restructuring" and in the documents incorporated by reference, in light of the changes to the utility industry, NEES and the Power Company have considered various strategies to enhance their competitive position, including business combinations with other companies. Except as disclosed herein and in the documents incorporated by reference, neither NEES nor the Power Company has plans or proposals that would relate to or result in (a) the acquisition by any person or entity of 16 17 additional securities of the Power Company or the disposition of securities of the Power Company, other than in the ordinary course of business; (b) an extraordinary corporate transaction, such as a merger, reorganization, or liquidation, involving the Power Company or any of its subsidiaries; (c) a sale or transfer of a material amount of assets of the Power Company or any of its subsidiaries; (d) any change in the present Board or management of the Power Company; (e) any material change in the present dividend rate or policy, or indebtedness or capitalization of the Power Company; (f) any other material change in the Power Company's corporate structure or business; (g) any change in the Power Company's Provisions or any actions that may impede the acquisition of control of the Power Company by any person; (h) a class of equity securities of the Power Company being delisted from a national securities exchange or no longer authorized to be quoted on the OTC; (i) a class of equity securities of the Power Company becoming eligible for termination of registration pursuant to Section 12(g)(4) of the Exchange Act; or (j) the suspension of the Power Company's obligation to file reports pursuant to Section 15(d) of the Exchange Act. 17 18 PROPOSED AMENDMENT AND PROXY SOLICITATION LOGO NEW ENGLAND POWER COMPANY NOTICE OF SPECIAL MEETING OF STOCKHOLDERS 25 RESEARCH DRIVE WESTBOROUGH, MASSACHUSETTS 01582 NOVEMBER 6, 1997 To the Holders of Common Stock, 6% Cumulative Preferred Stock, and Dividend Series Preferred Stock of NEW ENGLAND POWER COMPANY You are hereby notified that the Special Meeting of Stockholders of New England Power Company will be held in the Directors Room, 25 Research Drive, Westborough, Massachusetts, on December 12, 1997, at 4:30 p.m., Eastern Standard Time, for the following purposes: 1. Amendment of the Articles of Organization and By-laws to delete in its entirety Article I, Section 4E(4), limiting the Power Company's ability to issue unsecured indebtedness; and 2. Transaction of such other business as may be appropriate and incidental to the foregoing purposes or which may properly come before the meeting or any adjourned session thereof. Stockholders entitled to vote will be determined on the basis of the records of the Company at the close of business November 12, 1997. The accompanying material contains further information about the matters to be considered at the meeting. By order of the Board of Directors. ROBERT KING WULFF Clerk 18 19 SPECIAL MEETING This Booklet is first being mailed on or about November 7, 1997 to the Preferred Shareholders of the Power Company in connection with the solicitation of proxies by the Board of Directors of the Power Company (the Board) for use at the Special Meeting. At the Special Meeting, the shareholders of record of the Power Company will vote upon the Proposed Amendment to the Provisions. The Board of Directors is not asking holders of the 6% Cumulative Preferred for a proxy, and they are requested not to send a proxy. They are entitled, however, to attend and vote at the Special Meeting and to give proxies to others in accordance with applicable law. PROXIES THE PROXY INCLUDED IN THE LETTER OF TRANSMITTAL AND PROXY IS SOLICITED FROM THE HOLDERS OF DIVIDEND SERIES PREFERRED STOCK BY THE POWER COMPANY'S BOARD, WHICH RECOMMENDS VOTING FOR THE PROPOSED AMENDMENT. All shares of the Power Company's common stock will be voted in favor of the Proposed Amendment. THE BOARD IS NOT ASKING HOLDERS OF THE 6% CUMULATIVE PREFERRED STOCK FOR A PROXY AND THEY ARE REQUESTED NOT TO SEND A PROXY. Shares of the Power Company's Dividend Series Preferred Stock represented by properly executed proxies received at or prior to the Special Meeting will be voted in accordance with the instructions thereon. If no instructions are indicated, duly executed proxies will be voted in accordance with the recommendation of the Board. It is not anticipated that any other matters will be brought before the Special Meeting. However, the enclosed proxy gives discretionary authority to the proxy holders named therein should any other matters be presented at the Special Meeting, and it is the intention of the proxy holders to act on any other matters in accordance with their best judgment. Execution of a proxy will not prevent a Preferred Shareholder from attending the Special Meeting and voting in person. Any Preferred Shareholder giving a proxy may revoke it at any time before it is voted by delivering to the Clerk of the Power Company written notice of revocation bearing a later date than the proxy, by delivering a duly executed proxy bearing a later date, or by voting in person by ballot at the Special Meeting. A proxy may not be revoked for shares tendered pursuant to the Offer, unless the tender is withdrawn. Withdrawal of Shares tendered pursuant to the Offer will not revoke a properly executed proxy. RELATIONSHIP TO THE OFFER; SPECIAL CASH PAYMENT As noted above, the Offer and Proposed Amendment constitute an integrated strategy of NEES and the Power Company in anticipation of the restructuring of the capitalization of the Power Company arising from the expected sale of its generation business. See Purpose of the Offer, Proposed Amendment, and Proxy Solicitation. Dividend Series Preferred Shareholders who wish to tender their Shares pursuant to the Offer are required to vote in favor of the Proposed Amendment. Further, the Offer is conditioned upon the approval and adoption of the Proposed Amendment at the Special Meeting. Subject to the terms and conditions set forth in this Booklet, if (but only if) the Proposed Amendment is approved and adopted by the Power Company's shareholders, the Power Company will make a Special Cash Payment in the amount of $1.00 per Share to each Dividend Series Preferred Shareholder of record who voted in favor of the Proposed Amendment, provided that such Shares have not been tendered pursuant to the Offer. The Power Company intends to make the Special Cash Payment although there is no binding legal precedent as to the permissibility of such payments and there can be no assurance as to how a court would rule on the question. If a Dividend Series Preferred Shareholder votes against the Proposed Amendment or abstains, such Preferred Shareholder shall not be entitled to the Special Cash Payment (regardless of whether the Proposed Amendment is approved and adopted). The Special Cash Payment will be paid out of the Power Company's general funds promptly after the Proposed Amendment shall have become effective. However, no accrued interest will be paid on the Special Cash Payment regardless of any delay in making such payments. 19 20 VOTING SECURITIES, RIGHTS, AND PROCEDURES Only holders of record of the Power Company's outstanding voting securities at the close of business on November 12, 1997, the Record Date (or their legal representatives or attorneys-in-fact), will be entitled to vote in person or by proxy at the Special Meeting and to receive the Special Cash Payment from the Power Company. Any beneficial holder of Shares who is not the registered holder of such Shares as of the Record Date (as would be the case for any beneficial holder whose Shares are registered in the name of such holder's broker, dealer, commercial bank, trust company, or other nominee) must arrange with the holder of record on the Record Date to execute and deliver a proxy form on such beneficial owner's behalf. If a beneficial holder of Shares intends to attend the Special Meeting and vote in person, such beneficial holder must obtain a legal proxy form from his or her broker, dealer, commercial bank, trust company, or other nominee. The Dividend Series Preferred Stock will trade, during the period which begins two days prior to the Record Date and which will end at the close of business on the Expiration Date, in the over-the-counter market under the symbols "NEEAT" for the 4.56% Series, "NEEDT" for the 4.60% Series, "NEEFT" for the 4.64% Series, and "NEEGT" for the 6.08% Series, indicating that such Shares are trading "with proxy." A Dividend Series Preferred Shareholder who acquires such Shares during this period must obtain, or have his or her authorized representative obtain, an assignment of proxy (which is included in the applicable Letter of Transmittal and Proxy) at settlement from the seller. The NASD and The Depository Trust Company have issued notices informing their members and participants that such Shares will trade "with proxy" and that settlement of all trades during the period described above should include an assignment of proxy from the seller. The Power Company's authorized voting securities consist of common stock, 6% Cumulative Preferred, and Dividend Series Preferred Stock. There are four series of the Dividend Series Preferred Stock currently outstanding. There is also authorized a class of Preferred Stock -- Cumulative of which there are no shares currently outstanding. The common stock and 6% Cumulative Preferred share general voting rights and vote together as a single class. The four series of Dividend Series Preferred Stock vote together as a single class. Each share of stock has one vote per share. The Shares outstanding as of the Record Date are as follows:
CLASS SHARES OUTSTANDING ------------------------------------------------------------ ------------------ Common...................................................... 6,449,896 6% Cumulative Preferred..................................... 75,020 --------- Total voting as a single class.............................. 6,524,916 Dividend Series Preferred 4.56%..................................................... 100,000 4.60%..................................................... 80,140 4.64%..................................................... 41,500 6.08%..................................................... 100,000 --------- Total voting as a single class.............................. 321,640
The affirmative vote of the holders of more than two-thirds of the outstanding shares of each of the Power Company's (i) common stock and 6% Cumulative Preferred, voting together as a single class, and (ii) Dividend Series Preferred Stock, all Series voting together as a single class, is required to approve the Proposed Amendment to be presented at the Special Meeting. Abstentions and broker non-votes will have the same effect as votes cast against the Proposed Amendment. NEES has advised the Power Company that it intends to vote all of the outstanding shares of common stock of the Power Company in favor of the Proposed Amendment. There are no rights of appraisal in connection with the Proposed Amendment. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT As noted above, NEES owns all the outstanding common stock of the Power Company. 20 21 Pursuant to Section 13(d) of the Exchange Act, a beneficial owner of a security is any person who directly or indirectly has or shares voting or investment power over such security. No person or group is known by management of the Power Company to be the beneficial owner of more than 5% of the outstanding shares of the Power Company's 6% Cumulative Preferred Stock, or of any Series of its Dividend Series Preferred Stock, as of the Record Date. NEES and the Power Company's directors and executive officers do not beneficially own any Shares as of the Record Date. The beneficial ownership of NEES's common shares held by each Power Company director, as well as Power Company directors and executive officers as a group, as of October 1, 1997 is set forth in the following table.
NAME SHARES --------------------------------------------------------------------------- ------- Lawrence E. Bailey......................................................... 4,963 Joan T. Bok................................................................ 17,504 Alfred D. Houston.......................................................... 13,688 Cheryl A. LaFleur.......................................................... 3,162 John F. Malley............................................................. 3,737 John W. Rowe............................................................... 23,105 Arnold H. Turner........................................................... 4,225 Directors and officers as a group (representing less than 1% of the outstanding Shares)...................................................... 117,811
- --------------- Listed below is the only person or group known to NEES as of October 1, 1997, to beneficially own 5% or more of NEES's common shares. However, T. Rowe Price Trust Company disclaims beneficial ownership of all such shares. The amount of common shares listed below is as of September 8, 1997.
NAME AND ADDRESS AMOUNT AND NATURE PERCENT OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP COMMON SHARES - --------------------------------------------- --------------------------------- ------------- T. Rowe Price Trust Company.................. 5,358,604 shares as trustee for 8.3% 100 East Pratt Street Company employee benefits plans Baltimore, MD 21202
DESCRIPTION OF THE PROPOSED AMENDMENT THE FOLLOWING STATEMENTS, UNLESS THE CONTEXT OTHERWISE REQUIRES, ARE SUMMARIES OF THE SUBSTANCE OR GENERAL EFFECT OF A SECTION OF THE PROVISIONS, AND ARE QUALIFIED IN THEIR ENTIRETY BY THE PROVISIONS (AS DESCRIBED BELOW). EXPLANATION OF THE PROPOSED AMENDMENT The purpose of the Proxy Solicitation is the elimination of a section of the Provisions which restricts the ability of the Power Company to incur certain unsecured indebtedness. ARTICLE 1, Section 4E(4) of the Provisions provides that, without a vote of a majority of the outstanding Dividend Series Preferred Stock and Preferred Stock -- Cumulative (voting together as a single class), the Company will not: issue any unsecured notes, debentures or other securities representing unsecured indebtedness, or assume any such unsecured securities, for purposes other than the redemption or other retirement of outstanding shares of all series of the Dividend Series Preferred Stock and the Preferred Stock -- Cumulative, if immediately after such issue or assumption the total principal amount of all unsecured notes, debentures or other securities representing unsecured indebtedness issued or assumed by the corporation and then outstanding (including unsecured securities then to be issued or assumed but excluding unsecured securities theretofore so voted for by holders of Dividend Series Preferred Stock and Preferred Stock -- Cumulative) (the "Unsecured Indebtedness") would 21 22 exceed twenty per cent (20%) of the aggregate of (i) the total principal amount of all bonds and other securities representing secured indebtedness issued or assumed by the corporation and then outstanding and (ii) the capital, premium and retained earnings of the corporation as then stated on the books of account of the corporation; provided, however, that after July 1, 1976, short-term unsecured indebtedness shall not exceed ten per cent (10%) of such aggregate of (i) and (ii) above; and provided, further, that after July 1, 1976, in the event unsecured securities representing short-term unsecured indebtedness (excluding unsecured securities theretofore so voted for by the holders of dividend Series Preferred Stock and Preferred Stock -- Cumulative) exceed ten per cent (10%) of such aggregate of (i) and (ii) above, no unsecured securities representing unsecured indebtedness shall be issued or assumed (except for the purpose of redemption or other retirement of outstanding shares of all series of the Dividend Series Preferred Stock and the Preferred Stock -- Cumulative) unless such ratio of short-term unsecured indebtedness immediately after such issue or assumption is to be not over ten per cent (10%) of such aggregate of (i) and (ii) above. "Short-term unsecured indebtedness" as used herein means unsecured indebtedness of an original maturity of less than ten years and "long-term unsecured indebtedness" means unsecured indebtedness of an original maturity of ten years or more. For the purposes hereof, when any long-term unsecured indebtedness becomes due within ten years, or when any long-term unsecured indebtedness is to be retired within ten years through a sinking fund or otherwise, such long-term unsecured indebtedness, in each case, shall be considered short-term unsecured indebtedness; provided, however, that any long-term unsecured indebtedness of a single maturity (except as provided above in respect of a sinking fund therefor), or the last maturity of any long-term unsecured indebtedness of serial maturities, shall not be considered short-term unsecured indebtedness until due within five years. The Power Company proposes to delete the above section in its entirety; conforming changes to cross references elsewhere in the Provisions will also be made. REASONS FOR THE PROPOSED AMENDMENT In October 1996 the NEES Companies announced their intention to divest their generating business. (The separate sale of the oil and gas properties by the Power Company's affiliate, New England Energy Incorporated (NEEI), is necessary in connection therewith.) This decision was due to a combination of factors relating to the restructuring of the electric utility industry. On August 6, 1997, the NEES Companies reached an agreement to sell the non-nuclear generating business to USGen New England, Inc. See Purpose of the Offer, Proposed Amendment, and Proxy Solicitation -- Industry Restructuring. In order to facilitate this transition to a competitive electric industry, the Power Company may need -- prior to the completion of the sale of its generating plants -- to buy out existing contracts with independent power producers or to pay the difference between monies owed by NEEI and the proceeds from the sale of NEEI's remaining oil and gas properties. The exact dollar amount of these obligations is not yet determinable, but they may be significant. Given the changing nature of the company, putting in place long-term financial instruments to provide the necessary moneys may not be a cost-effective procedure. Therefore, the Power Company believes it must increase its flexibility in meeting its cash needs. As discussed under Purpose of the Offer, Proposed Amendment, and Proxy Solicitation -- Industry Restructuring, the Power Company will probably substantially reduce its capitalization and retire its outstanding General and Refunding Mortgage bonds through call or defeasance. The Power Company anticipates issuing its new long-term debt in the form of debentures, which are unsecured. Absent the Proposed Amendment, these debentures would not be permitted by the Provisions, without prior approval by the Preferred Shareholders. If the Proposed Amendment is adopted, the Power Company will have increased flexibility (i) to choose among different types of debt financing and (ii) to finance projects using the most cost effective means. The availability and flexibility of unsecured debt is necessary, in the estimation of NEES and the Power Company, to take full advantage of changing conditions in the securities markets. 22 23 RECOMMENDATION OF BOARD OF DIRECTORS IT IS FOR ALL THE ABOVE REASONS THAT THE POWER COMPANY'S BOARD BELIEVES THE BEST LONG-TERM INTERESTS OF THE PREFERRED SHAREHOLDERS ARE SERVED BY, AND ENCOURAGES DIVIDEND SERIES PREFERRED SHAREHOLDERS TO VOTE FOR, THE ADOPTION OF THE PROPOSED AMENDMENT. The Proposed Amendment to the Provisions and the Offer are subject to approval by the SEC under the Holding Company Act. NEES and the Power Company have filed a declaration with the SEC with respect to the Proposed Amendment and the acquisition of the Shares by NEES pursuant to the Offer. CERTAIN EFFECTS OF THE PROPOSED AMENDMENT If the Proposed Amendment becomes effective, Dividend Series Preferred Shareholders of Shares that are not tendered and purchased pursuant to the Offer will no longer be entitled to the benefits of the debt limitation provision. As discussed above, the unsecured debt limitation provision places restrictions on the Power Company's ability to issue or assume unsecured indebtedness. Although future Power Company debt instruments may contain certain restrictions on the Power Company's ability to issue or assume debt, any such restrictions may be waived and the increased flexibility afforded the Power Company by the deletion of the debt limitation provision may permit the Power Company to take certain actions that may increase the credit risks with respect to the Power Company, adversely affecting the market price and credit rating of the remaining Shares or that may otherwise be materially adverse to the interests of the remaining Dividend Series Preferred Shareholders. OTHER MATTERS The foregoing is the only business which management intends to present or is advised that others will present for action at the Special Meeting or any adjournment thereof. If any other matters should properly come before the Special Meeting, the proxies for NEES and for any other stockholders who have sent in their proxies will be voted by the persons named therein, or their substitutes, in accordance with their judgment. The expense of preparing and mailing this Booklet and the incidental expenses of soliciting the Dividend Series Preferred Stockholders will be paid by the Power Company. The Power Company has engaged Georgeson & Company, Inc. to act as Information Agent in connection with the solicitation of proxies for a fee of approximately $6,000 plus reimbursement of reasonable out-of-pocket expenses. The Power Company has requested that brokers, dealers, and other custodians, nominees, and fiduciaries forward solicitation materials to the beneficial owners of shares of the Power Company's Dividend Series Preferred Stock held of record by such persons and will reimburse such brokers and other fiduciaries for their reasonable out-of-pocket expenses incurred in connection therewith. In addition to the use of the mails, proxies from holders of Dividend Series Preferred Stock may be solicited by officers and regular employees connected with the Power Company or its affiliates, personally or by telephone or telegraph, without any additional compensation. The Information Agent has not been retained to make, and will not make, solicitations or recommendations in connection with the Proposed Amendment. While the Power Company has no audit committee, its parent NEES has an audit committee which recommends an independent auditor to audit the accounts of the parent and its subsidiaries. Coopers and Lybrand have been auditors of the Power Company for many years and their selection as auditors for the current year was approved at the Annual Meeting on April 16, 1997. It is not expected that representatives of Coopers and Lybrand will be present at the Special Meeting on December 12, 1997, but they will be available on short notice to attend, to answer questions regarding the Proposed Amendment, if any holder of Shares so requests in writing prior to December 10, 1997. 23 24 PRICE RANGE OF SHARES; DIVIDENDS On August 15, 1996, the Power Company repurchased 58,500 shares of the 4.64% Series of Preferred at a price of $69.62 per Share. The Power Company has made no other purchases of any of the Series of Preferred which are the subject of this tender offer since January 1, 1995. Each Series of Preferred is traded in the OTC and is not listed on any national securities exchange. Trading in the Shares has generally been sporadic. PREFERRED SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS, IF AVAILABLE, FOR THE SHARES. The following table sets forth the high and low sales prices of each Series of Preferred, as reported by the Nasdaq Stock Market, Inc., and the cash dividends paid thereon for the fiscal quarters indicated. DIVIDENDS AND PRICE RANGES OF PREFERRED STOCK BY QUARTERS (1997, 1996, AND 1995)
1997 - QUARTERS 1996 - QUARTERS 1995 - QUARTERS ------------------------------- ------------------------------- ------------------------------- 1ST 2ND 3RD 4TH* 1ST 2ND 3RD 4TH 1ST 2ND 3RD 4TH ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- 6% CUMULATIVE PREFERRED STOCK ($100 Par Value) Dividends Paid Per Share........ $1.50 $1.50 $1.50 $1.50 $1.50 $1.50 $1.50 $1.50 $1.50 $1.50 $1.50 $1.50 Market Price Per Share (OTC) -- High....................... 84.05 85.50 88.50 92.00 87.75 80.30 83.55 84.875 75.00 80.80 83.60 86.625 -- Low........................ 79.75 81.50 82.125 84.50 78.75 77.00 77.125 77.25 64.75 70.50 73.50 77.00 DIVIDEND SERIES PREFERRED STOCK: 4.56% SERIES Dividends Paid Per Share........ $1.14 $1.14 $1.14 $1.14 $1.14 $1.14 $1.14 $1.14 $1.14 $1.14 $1.14 $1.14 Market Price Per Share (OTC) -- High....................... 66.625 68.85 70.15 65.875 69.20 63.975 63.975 68.55 54.75 62.90 62.625 69.80 -- Low........................ 61.125 62.75 63.125 65.875 62.00 59.00 59.00 59.25 52.00 53.00 58.75 56.50 4.60% SERIES Dividends Paid Per Share........ $1.15 $1.15 $1.15 $1.15 $1.15 $1.15 $1.15 $1.15 $1.15 $1.15 $1.15 $1.15 Market Price Per Share (OTC) -- High....................... 67.125 66.25 70.25 -- 70.40 64.50 66.825 69.15 58.25 65.40 64.10 69.25 -- Low........................ 61.125 63.75 65.125 -- 58.25 59.12 59.50 59.75 55.50 55.00 56.75 56.625 4.64% SERIES Dividends Paid Per Share........ $1.16 $1.16 $1.16 $1.16 $1.16 $1.16 $1.16 $1.16 $1.16 $1.16 $1.16 $1.16 Market Price Per Share (OTC) -- High....................... 69.69 71.20 70.85 -- 63.35 60.00 60.00 67.25 -- 62.70 63.30 -- -- Low........................ 69.69 68.65 64.375 -- 62.70 31.25 60.00 59.50 -- 60.91 63.30 -- 6.08% SERIES Dividends Paid Per Share........ $1.52 $1.52 $1.52 $1.52 $1.52 $1.52 $1.52 $1.52 $1.52 $1.52 $1.52 $1.52 Market Price Per Share (OTC) -- High....................... 90.97 88.50 91.25 92.12 93.07 84.725 88.35 91.47 78.70 85.90 87.70 90.90 -- Low........................ 85.00 86.00 86.50 87.625 78.00 81.625 78.75 79.125 71.25 72.00 79.25 82.75
- --------------- * Prices through October 31 Note -- The above bid and asked quotations represent prices between dealers and do not represent actual transactions. A dash indicates that a quotation was not available. Dividends for a Series of Preferred are payable when, as and if declared by the Power Company's Board of Directors at the rate per annum included in such title of the Series of Preferred. Tendering Preferred Shareholders will be entitled to the regular quarterly dividend for the entire quarterly period through December 31, 1997, if declared by the Board. 24 25 CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS EACH HOLDER OF SHARES IS URGED TO CONSULT AND RELY UPON SUCH HOLDER'S OWN TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES TO THE HOLDER OF TENDERING SHARES PURSUANT TO THE OFFER. In the opinion of Hale and Dorr LLP, tax counsel to NEES and the Power Company, the following summary describes the principal United States Federal income tax consequences of sales of Shares pursuant to the Offer and the receipt of Special Cash Payments in connection with the approval and adoption of the Proposed Amendment. This summary is based on the Internal Revenue Code of 1986, as amended to the date hereof (the "Code"), administrative pronouncements, judicial decisions and existing and proposed Treasury Regulations, changes to any of which subsequent to the date of this Booklet may adversely affect the tax consequences described herein, possibly on a retroactive basis. This summary is addressed to Preferred Shareholders who hold Shares as capital assets within the meaning of Section 1221 of the Code. This summary does not discuss all of the tax consequences that may be relevant to a Preferred Shareholder in light of such Preferred Shareholder's particular circumstances or to Preferred Shareholders subject to special rules (including certain financial institutions, tax-exempt organizations, insurance companies, dealers in securities or currencies, foreign persons or entities selling Shares pursuant to the Offer who own or have owned, actually or constructively, more than five percent of the outstanding amount of such Shares, Preferred Shareholders who acquired their Shares pursuant to the exercise of stock options or other compensation arrangements with the Power Company or Preferred Shareholders holding the Shares as part of a conversion transaction, as part of a hedge or hedging transaction, or as a position in a straddle for tax purposes). Preferred Shareholders should consult their tax advisors with regard to the application of the United States Federal income tax laws to their particular situations as well as any tax consequences arising under the laws of any state, local or foreign taxing jurisdiction. As used herein, the term "United States Holder" means an owner of a Share that is (i) for United States Federal income tax purposes a citizen or resident of the United States; (ii) a corporation, partnership or other entity created or organized in or under the laws of the United States or of any political subdivision thereof; (iii) an estate, or, for taxable years beginning on or before December 31, 1996, in general, any trust, the income of which is subject to United States Federal income taxation regardless of its source; or (iv) for taxable years beginning after December 31, 1996, any trust if a court within the United States is able to exercise primary supervision over the administration of such trust and one or more United States fiduciaries have the authority to control all substantial decisions of such trust. A "Non-United States Holder" is a Preferred Shareholder that is not a United States Holder. TAX CONSIDERATIONS FOR TENDERING PREFERRED SHAREHOLDERS Characterization of the Sale. A sale of Shares by a Preferred Shareholder pursuant to the Offer will be a taxable transaction for Federal income tax purposes. For U.S. Federal income tax purposes, a portion of the purchase price per Share paid to Tendering Preferred Shareholders equal in amount to the Special Cash Payment (payable to Preferred Shareholders who vote in favor of the Proposed Amendment, but who do not tender their Shares) will be taxed in the same manner as the Special Cash Payment received by Non-Tendering Preferred Shareholders (see Tax Considerations of Special Cash Payment). The balance of the Purchase Price per Share paid to Preferred Shareholders will be taxed as an amount received in exchange for Shares resulting in gain or loss as described in the following two paragraphs. United States Holders. A United States Holder will recognize gain or loss equal to the difference between the tax basis of such Holder's Shares and the amount of cash received from NEES in exchange therefor. A United States Holder's gain or loss will be long-term capital gain or loss if the holding period for the Shares is more than one year as to the date of the sale of such Shares. The excess of net long-term capital gains over net short-term capital losses is taxed at a lower rate than ordinary income for certain non-corporate taxpayers. Capital gain on Shares held by noncorporate taxpayers for more than eighteen months prior to the date of the sale of such Shares will be subject to a reduced tax rate. The distinction between long-term capital 25 26 gain or loss and short-term gain or loss is also relevant for purposes of, among other things, limitations on the deductibility of capital losses. Non-United States Holders. Any gain realized upon the sale of Shares by a Non-United States Holder pursuant to the Offer generally will not be subject to United States Federal income tax unless (i) such gain is effectively connected with a trade or business in the United States of the Non-United States Holder, or (ii) in the case of a Non-United States Holder who is an individual, such individual is present in the United States for 183 days or more in the taxable year of such sale and certain other conditions are met. A Non-United States Holder with gain described in clause (i) above will be taxed on the net gain derived from the sale at regular graduated United States Federal income tax rates. If a Non-United States Holder that is a foreign corporation has gain described under clause (i) above, it may also be subject to an additional "branch profits tax" at a 30% rate (or such lower rate as may be specified by an applicable income tax treaty). Unless an applicable tax treaty provides otherwise, an individual Non-United States Holder described in clause (ii) above will be subject to a flat 30% tax on the gain derived from the sale, which may be offset by United States capital losses (notwithstanding the fact that the individual is not considered a resident of the United States). TAX CONSIDERATIONS FOR NON-TENDERING PREFERRED SHAREHOLDERS Non-Tendering Preferred Shareholders, whether or not they receive Special Cash Payments, will not recognize any taxable gain or loss with respect to the Shares as a result of the modification of the Provisions by the Proposed Amendment. TAX CONSIDERATIONS OF ACCRUED AND UNPAID DIVIDENDS PAYMENT Payment of accrued and unpaid dividends received by the tendering Preferred Shareholder with respect to rights to dividends declared prior to the Offer will be treated as dividends to the extent of the Preferred Shareholder's allocable portion of the Power Company's current and accumulated earnings and profits as determined under United States Federal income tax principles and not as proceeds from the sale of such Shares. Such dividend payments will be taxed to the Preferred Shareholder in the same manner as prior dividend payments have customarily been taxed. TAX CONSIDERATIONS OF SPECIAL CASH PAYMENT United States Holders. There is no direct authority concerning the Federal income tax consequences of the receipt of Special Cash Payments. The Power Company will, for information reporting purposes, treat Special Cash Payments as ordinary non-dividend income to recipient United States Holders. Non-United States Holders. The Power Company will treat Special Cash Payments paid to a Non-United States Holder of Shares as subject to withholding of United States Federal income tax at a 30% rate. However, Special Cash Payments that are effectively connected with the conduct of a trade or business by the Non-United States Holder within the United States are not subject to the withholding tax (provided such Non-United States Holder provides two originals of Internal Revenue Service ("IRS") Form 4224 stating that such Special Cash Payments are so effectively connected), but instead are subject to United States Federal income tax on a net income basis at applicable graduated individual or corporate rates. Any such effectively connected Special Cash Payments received by a foreign corporation may, under certain circumstances, be subject to an additional "branch profits tax" at a 30% rate (or such lower rate as may be specified by an applicable income tax treaty). A Non-United States Holder of Shares eligible for a reduced rate of United States withholding tax pursuant to an income tax treaty may obtain a refund of any excess amounts withheld by filing an appropriate claim for refund with the IRS. 26 27 BACKUP WITHHOLDING ANY TENDERING PREFERRED SHAREHOLDER WHO FAILS TO COMPLETE AND SIGN THE SUBSTITUTE FORM W-9 THAT IS INCLUDED IN THE APPLICABLE LETTER OF TRANSMITTAL (OR, IN THE CASE OF A FOREIGN PREFERRED SHAREHOLDER, FORM W-8 OBTAINABLE FROM THE DEPOSITARY) MAY BE SUBJECT TO A REQUIRED FEDERAL INCOME TAX BACKUP WITHHOLDING OF 31% OF THE GROSS PROCEEDS PAYABLE TO SUCH PREFERRED SHAREHOLDER PURSUANT TO THE OFFER. To prevent backup United States Federal income tax withholding with respect to the purchase price of Shares purchased pursuant to the Offer, a United States Holder must provide the Depositary with the Preferred Shareholder's correct taxpayer identification number and certify that the Preferred Shareholder is not subject to backup withholding of Federal income tax by completing the Substitute Form W-9 included in the applicable Letter of Transmittal. Certain Preferred Shareholders (including, among others, all corporations and certain foreign shareholders) are exempt from backup withholding. For a corporate United States Holder to qualify for such exemption, such Preferred Shareholder must provide the Depositary with a properly completed and executed Substitute Form W-9 attesting to its exempt status. In order for a foreign Preferred Shareholder to qualify as an exempt recipient, the foreign holder must submit a Form W-8, Certificate of Foreign Status, signed under penalties of perjury, attesting to that Preferred Shareholder's exempt status. A copy of Form W-8 may be obtained from the Depositary. Unless a Preferred Shareholder provides the appropriate certification, under the applicable law and regulations concerning "backup withholding" of United States Federal income tax, the Depositary will be required to withhold and will withhold, 31% of the gross proceeds otherwise payable to such Preferred Shareholder or other payee. The amount of any backup withholding from a payment to a Preferred Shareholder will be allowed as a credit against such Preferred Shareholder's United States Federal income tax liability and may entitle such Preferred Shareholder to a refund, provided that the required information is furnished to the IRS. SOURCE AND AMOUNT OF FUNDS Assuming that NEES purchases all outstanding Shares of each Series of Preferred pursuant to the Offer, the total amount required by NEES to purchase such Shares will be approximately $40 million exclusive of the payment of accrued but unpaid dividends, but including fees and other expenses. NEES intends to fund the Offer through the use of its general funds (which, in the ordinary course, include funds from the Power Company) and possibly funds borrowed pursuant to NEES's committed lines of credit, including any bank revolving credit agreements. The interest rates on any such borrowing will depend upon the timing and amount of borrowings and market rates at that time. NEES currently has regulatory authority to borrow $100 million and is seeking to increase that amount. NEES has not had occasion to borrow money for a number of years. The Power Company sells commercial paper directly to commercial paper dealers who reoffer the commercial paper to investors. TRANSACTIONS AND AGREEMENTS CONCERNING THE SHARES Each of NEES and the Power Company has been advised by its directors and executive officers that no directors or executive officers of the respective companies own any Shares. Based upon the companies' records and upon information provided to each company by its directors and executive officers, neither company nor, to the knowledge of either, any of their subsidiaries, affiliates, directors, or executive officers, or any associates of the foregoing, has engaged in any transactions involving Shares during the 40 business days preceding the date hereof. Neither company nor, to the knowledge of either, any of their directors or executive officers or any associate of the foregoing is a party to any contract, arrangement, understanding, or relationship relating directly or indirectly to the Offer with any other person or entity with respect to any securities of the Power Company. 27 28 FEES AND EXPENSES PAID TO DEALERS DEALER MANAGER FEES Merrill Lynch will act as the Dealer Manager for NEES in connection with the Offer. NEES has agreed to pay the Dealer Manager a fee of $.50 per Share for any Shares tendered, accepted for payment, and paid for pursuant to the Offer and a fee of $.50 per Share for any Shares that are not tendered pursuant to the Offer but which vote in favor of the Proposed Amendment. The Dealer Manager will also be reimbursed by NEES for its reasonable out-of-pocket expenses, including attorneys' fees, and will be indemnified against certain liabilities, including certain liabilities under the federal securities laws, in connection with the Offer. The Dealer Manager has rendered, is currently rendering, and is expected to continue to render various investment banking and other advisory services to NEES and the Power Company. The Dealer Manager has received, and will continue to receive, customary compensation from NEES and the Power Company for such services. NEES has retained IBJ Schroder Bank & Trust Company as Depositary and Georgeson & Company, Inc. as Information Agent in connection with the Offer. The Depositary and the Information Agent will receive reasonable and customary compensation for their services and will also be reimbursed for reasonable out-of-pocket expenses, including attorney fees. Neither the Depositary nor the Information Agent has been retained to make solicitations or recommendations in connection with the Offer. SOLICITED TENDER FEES Upon the terms and subject to the conditions of the Offer and pursuant to Instruction 10 of the accompanying Letter of Transmittal and Proxy, NEES will pay to designated brokers and dealers a solicitation fee of $1.50 per Share for any Shares tendered, accepted for payment, and paid for pursuant to the Offer and for each share of Dividend Series Preferred Stock not tendered but voted in favor of the Proposed Amendment (except that for transactions for beneficial owners equal to or exceeding 2,500 Shares, NEES will pay a solicitation fee of $1.00 per Share, of which eighty percent (80%) shall be paid to the Dealer Manager and twenty percent (20%) to the Soliciting Dealer (which may be the Dealer Manager)). With respect to fees payable pursuant to this paragraph involving transactions for beneficial owners whose ownership is less than 2,500 Shares, any fees payable hereunder shall be paid in full to the Dealer Manager unless a Soliciting Dealer is designated (as described below), in which case such fee shall be payable in full to such designated Soliciting Dealer (which designated Soliciting Dealer may be the Dealer Manager). The Letters of Transmittal and Proxy must include the name of an entity which obtained the tender or proxy and which is either (a) a broker or dealer in securities, including the Dealer Manager in its capacity as a broker or dealers, which is a member of any national securities exchange or of the National Association of Securities Dealers, Inc. (NASD), (b) a foreign broker or dealer not eligible for membership in the NASD which agrees to conform to the NASD's Rules of Fair Practice in soliciting tenders outside the United States to the same extent as though it were an NASD member, or (c) a bank or trust company (each of which is referred to herein as a Soliciting Dealer). No solicitation fee shall be payable to a Soliciting Dealer with respect to the tender of Shares or delivery of a proxy unless the Letter of Transmittal and Proxy accompanying such tender or delivery of a proxy designates such Soliciting Dealer. No solicitation fee shall be payable to a Soliciting Dealer in respect of Shares registered in the name of such Soliciting Dealer unless such Shares are held by such Soliciting Dealer as nominee and such Shares are being tendered or delivered for the benefit of one or more beneficial owners identified on the Letter of Transmittal and Proxy or on the Notice of Solicited Tenders. No solicitation fee shall be payable to a Soliciting Dealer if such Soliciting Dealer is required for any reason to transfer the amount of such fee to a depositing holder (other than itself). No solicitation fee shall be paid to a Soliciting Dealer with respect to Shares tendered or delivered for such Soliciting Dealer's own account. Soliciting Dealers will not be entitled to a solicitation fee for Shares beneficially owned by such Soliciting Dealer. No broker, dealer, bank, trust company, or fiduciary shall be deemed to be the agent of NEES, the Power Company, the Depositary, the Information Agent, or the Dealer Manager for purposes of the Offer. Soliciting Dealers will include any of the organizations described in clauses (a), (b), and (c) above even when the activities of such organizations in connection with the Offer consist solely of forwarding to clients materials relating to the Offer, including the Letter of Transmittal and Proxy, and tendering Shares or delivering as 28 29 directed by beneficial owners thereof. No Soliciting Dealer is required to make any recommendation to holders of Shares as to whether to tender or refrain from tendering in the Offer. No assumption is made, in making payment to any Soliciting Dealer, that its activities in connection with the Offer included any activities other than those described above, and for all purposes noted in all materials relating to the Offer, the term "solicit" shall be deemed to mean no more than processing shares tendered or forwarding to customers materials regarding the Offer. STOCK TRANSFER TAXES NEES will pay all stock transfer taxes, if any, payable on account of the acquisition of Shares by NEES pursuant to the Offer, except in certain circumstances where special payment or delivery procedures are utilized pursuant to Instruction 6 of the accompanying Letter of Transmittal and Proxy. SUMMARY OF FINANCIAL INFORMATION Set forth below is certain historical financial information of the Power Company and its subsidiaries. The historical financial information (other than the ratios of earnings to fixed charges) was derived from the audited financial statements included in the Power Company's Annual Report on Form 10-K for the year ended December 31, 1996 and the unaudited consolidated financial statements included in the Power Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997. CONDENSED INCOME STATEMENT DATA:
(UNAUDITED) SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ------------------------- --------------------- 1996 1995 1997 1996 ---------- ---------- -------- -------- (THOUSANDS, EXCEPT RATIOS) Operating Revenues........................... $1,600,309 $1,570,539 $834,097 $775,461 Operating Income............................. 203,761 185,413 80,680 94,905 Allowance for Borrowed and Equity Funds Used During Construction (credit).......... (591) (19,225) (651) (267) Net Income................................... 152,483 151,427 57,460 67,741 Preferred Stock Dividend Requirements........ 2,574 3,433 1,037 1,536 Earnings Applicable to Common Stock.......... 149,909 147,994 56,423 66,205 Ratio of Earnings to Fixed Charges........... 5.19 4.99 5.23(a) 5.17(a)
- --------------- (a) Ratio for the twelve months ended June 30. CONDENSED BALANCE SHEET DATA (AT END OF PERIOD):
(UNAUDITED) DECEMBER 31, JUNE 30, ------------------------- ------------------------- 1996 1995 1997 1996 ---------- ---------- ---------- ---------- (THOUSANDS) ASSETS: Net Utility Plant in Service.............. $1,873,457 $1,908,697 $1,876,155 $1,883,431 Construction Work in Progress............. 36,836 41,566 25,142 59,028 Cash and Cash Equivalents................. 3,046 2,607 738 251 Other Current Assets...................... 329,996 348,516 351,684 353,192 Other Assets.............................. 404,380 346,957 374,703 325,189 ---------- ---------- ---------- ---------- $2,647,715 $2,648,343 $2,628,422 $2,621,091 ========== ========== ========== ========== LIABILITIES: Common Equity............................. $ 906,205 $ 889,136 $ 898,129 $ 890,060 Cumulative Preferred Stock................ 39,666 60,516 39,666 45,516 Long-term Debt (less amounts due within one year)............................... 733,006 735,440 647,613 735,900 Current Liabilities....................... 285,641 355,953 369,822 351,653 Other Liabilities......................... 683,197 607,298 673,192 597,962 ---------- ---------- ---------- ---------- $2,647,715 $2,648,343 $2,628,422 $2,621,091 ========== ========== ========== ==========
29 30 CERTAIN INFORMATION REGARDING NEES AND THE POWER COMPANY; INCORPORATION BY REFERENCE The Power Company, a Massachusetts corporation qualified to do business as a foreign corporation in the states of New Hampshire, Vermont, Maine, Connecticut, and Rhode Island, is a wholly owned subsidiary of NEES. The Power Company's business is principally generating, purchasing, transmitting, and selling electric energy in wholesale quantities. In 1996, 95% of the Power Company's all-requirement revenue from the sale of electricity was derived from sales for resale to affiliated companies and 5% from sales for resale to municipal and other utilities. See Purpose of the Offer, Proposed Amendment, and Proxy Solicitation -- Industry Restructuring. NEES and the Power Company are subject to the informational requirements of the Exchange Act and in accordance therewith file reports and other information with the SEC. Such reports and other information may be inspected and copied at the public reference facilities maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549; 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511; and Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of such material can be obtained from the Public Reference Section of the SEC, 450 Fifth Street, N.W., Washington D.C. 20549 at prescribed rates. The SEC maintains a Web site at http://www.sec.gov containing reports, proxy and information statements, and other information regarding registrants that file electronically with the SEC, including NEES and the Power Company. Reports, proxy materials, and other information about NEES are also available at the offices of the New York Stock Exchange, 20 Broad Street, New York, New York 10005. In connection with the Offer NEES has filed an Issuer Tender Offer Statement on Schedule 13E-4 with the SEC that includes certain additional information relating to the Offer. NEES's Schedule 13E-4 will not be available at the SEC's regional offices. The following documents, which have heretofore been filed by NEES and the Power Company with the SEC pursuant to the Exchange Act, are incorporated by reference herein and shall be deemed a part hereof: (1) Annual Report on Form 10-K for the year ended December 31, 1996, which contains or incorporates by reference financial statements and financial statement schedules of NEES and the Power Company as of December 31, 1996, and for each of the three years in the period ended December 31, 1996, and incorporates by reference or includes the related reports of Coopers & Lybrand, independent certified public accountants; (2) Quarterly reports on Form 10-Q for NEES for the quarters ended March 31, 1997 and June 30, 1997; (3) Quarterly reports on Form 10-Q for the Power Company for the quarters ended March 31, 1997 and June 30, 1997; (4) Reports on Form 8-K for NEES for the periods ended April 14, 1997, May 20, 1997, and August 6, 1997; and (5) Reports on Form 8-K for the Power Company for the periods ended April 14, 1997, May 20, 1997, and August 6, 1997. All reports filed by NEES and the Power Company with the SEC pursuant to these sections subsequent to the date of this Booklet and prior to the Expiration Date (or any extension thereof) shall be incorporated herein by reference and shall be deemed a part hereof on the date of filing of such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Booklet to the extent that a statement contained herein or in any other subsequently filed documents which 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 Booklet. NEES and the Power Company hereby undertake to provide without charge to each person to whom a copy of this Booklet has been delivered, upon the written or oral request of such person, a copy of any or all of 30 31 the documents referred to above which have been or may be incorporated by reference in this Booklet, other than exhibits to such documents. Written or oral requests for such copies should be directed to the Treasurer, New England Power Company, 25 Research Drive, Westborough, Massachusetts 01582, telephone (508) 389-2000. The information relating to NEES and the Power Company contained in this Booklet does not purport to be comprehensive and should be read together with the information contained in the documents incorporated by reference. MISCELLANEOUS The Offer is not being made to, nor will NEES accept tenders from, owners of Shares in any jurisdiction in which the Offer or its acceptance would not be in compliance with the laws of such jurisdiction. NEES is not aware of any jurisdiction where the making of the Offer or the tender of Shares would not be in compliance with applicable law. If NEES becomes aware of any jurisdiction where the making of the Offer or the tender of Shares is not in compliance with any applicable law, NEES will make a good faith effort to comply with such law. If, after such good faith effort, NEES cannot comply with such law, the Offer will not be made to (nor will tenders be accepted from or on behalf of) the owners of Shares residing in such jurisdiction. In any jurisdiction in which the securities, blue sky, or other laws require the Offer to be made by a licensed broker or dealer, the Offer will be deemed to be made on NEES's behalf by one or more registered brokers or dealers licensed under the laws of such jurisdiction. NEW ENGLAND ELECTRIC SYSTEM NEW ENGLAND POWER COMPANY The name "New England Electric System" means the trustee or trustees for the time being (as trustee or trustees but not personally) under an agreement and declaration of trust dated January 2, 1926, as amended, which is hereby referred to, and a copy of which as amended has been filed with the Secretary of the Commonwealth of Massachusetts. Any agreement, obligation or liability made, entered into or incurred by or on behalf of New England Electric System binds only its trust estate, and no shareholder, director, trustee, officer or agent thereof assumes or shall be held to any liability therefore. 31 32 The Letter of Transmittal and Proxy and, if applicable, certificates for Shares should be sent or delivered by each tendering or voting Preferred Shareholder of the Power Company or such Preferred Shareholders broker, dealer, bank, or trust company to the Depositary at one of its addresses set forth below. The Depositary is: IBJ SCHRODER BANK & TRUST COMPANY By Mail: P.O. Box 84 Bowling Green Station New York, New York 10274-0084 Attn: Reorganization Department By Facsimile: (212) 858-2611 By Hand or Overnight Delivery One State Street New York, New York 10004 Attn: Reorganization Department Securities Processing Window SC-1 To Confirm: (212) 858-2103 Any questions or requests for assistance may be directed to the Information Agent or the Dealer Manager at their respective telephone numbers and addresses listed below. Requests for additional copies of this Booklet, the Letter of Transmittal and Proxy, or other tender offer or proxy materials may be directed to the Information Agent and such copies will be furnished promptly at the companies' expense. Preferred Shareholders may also contact their local broker, dealer, commercial bank, trust company, or other nominee for assistance concerning the Offer. THE INFORMATION AGENT: (LOGO) Wall Street Plaza New York, New York 10005 (800) 223-2064 (toll-free) Banks and Brokers call collect: (212) 440-9800 THE DEALER MANAGER: MERRILL LYNCH & CO. World Financial Center 250 Vesey Street New York, New York 10281 (888) ML4-TNDR (toll-free) (888) 654-8637 (toll-free) ATTENTION Preferred Shareholders who have lost certificates, please call Boston EquiServe, L.P., the Transfer Agent, at (617) 575-2000 for assistance. EX-99.(A)B-3A 3 NE POWER FORM OF L/T DIVIDEND SERIES 1 LETTER OF TRANSMITTAL AND PROXY RELATING TO SHARES OF 4.56% SERIES OF DIVIDEND SERIES PREFERRED STOCK OF NEW ENGLAND POWER COMPANY TENDERED PURSUANT TO THE OFFER TO PURCHASE FOR CASH BY NEW ENGLAND ELECTRIC SYSTEM, DATED NOVEMBER 6, 1997, FOR PURCHASE AT A PURCHASE PRICE OF $ PER SHARE AND/OR VOTED PURSUANT TO THE PROXY AND INFORMATION STATEMENT, DATED NOVEMBER 6, 1997, OF [NEW ENGLAND POWER COMPANY LOGO] NEW ENGLAND POWER COMPANY THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., EASTERN STANDARD TIME, ON FRIDAY, DECEMBER 12, 1997, UNLESS THE OFFER IS EXTENDED (THE EXPIRATION DATE). THE PROXY CONTAINED IN THIS DOCUMENT IS IN RESPECT OF THE SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON FRIDAY, DECEMBER 12, 1997, OR ON SUCH DATE TO WHICH THE MEETING IS ADJOURNED OR POSTPONED. To: IBJ Schroder Bank & Trust Company (the Depositary) By First-Class Mail: IBJ Schroder Bank & Trust Company P.O. Box 8-1 Bowling Green Station New York, New York 10274 Attn: Reorganization Department By Facsimile: (212) 858-2611 By Hand or Overnight Delivery: IBJ Schroder Bank & Trust Company One State Street New York, New York 10004 Attn: Reorganization Department Securities Processing Window SC-1 To Confirm: (212) 858-2103 ATTENTION THIS LETTER OF TRANSMITTAL AND PROXY IS TO BE USED BY BOTH (1) PREFERRED SHAREHOLDERS WHO ARE TENDERING AND VOTING SHARES PURSUANT TO THE OFFER AND (2) PREFERRED SHAREHOLDERS WHO ARE ONLY VOTING ON THE PROPOSED AMENDMENT AND NOT TENDERING SHARES. ANY PREFERRED SHAREHOLDER WHO HAS ANY QUESTIONS AS TO HOW TO COMPLETE THIS LETTER OF TRANSMITTAL AND PROXY SHOULD CONTACT THE INFORMATION AGENT AT (800) 223-2064 (TOLL-FREE) AND FOR BANKS AND BROKERS (212) 440-9918 (CALL COLLECT). 2 All capitalized terms used herein and not defined herein have the meanings ascribed to them in the Offer to Purchase and Proxy Statement and Information Statement. DIVIDEND SERIES PREFERRED SHAREHOLDERS (INCLUDING DIVIDEND SERIES PREFERRED SHAREHOLDERS WHO ACQUIRE SHARES SUBSEQUENT TO THE RECORD DATE) WILL NOT BE ABLE TO VALIDLY TENDER THEIR SHARES UNLESS THEY HAVE SUBMITTED A DULY COMPLETED, VALID AND UNREVOKED PROXY INDICATING THEIR VOTE FOR THE PROPOSED AMENDMENT OR INDICATE IN THE ACCOMPANYING PROXY THEIR INTENTION TO VOTE FOR THE PROPOSED AMENDMENT AT THE SPECIAL MEETING. NEW ENGLAND ELECTRIC SYSTEM, A MASSACHUSETTS VOLUNTARY ASSOCIATION (NEES), WILL NOT BE REQUIRED TO ACCEPT FOR PAYMENT OR PAY FOR ANY SHARES TENDERED IF THE PROPOSED AMENDMENT IS NOT APPROVED AND ADOPTED AT THE SPECIAL MEETING. PREFERRED SHAREHOLDERS HAVE THE RIGHT TO VOTE ON THE PROPOSED AMENDMENT REGARDLESS OF WHETHER THEY TENDER THEIR SHARES BY CASTING THEIR VOTE AND SIGNING THE PROXY CONTAINED WITHIN THIS LETTER OF TRANSMITTAL AND PROXY OR BY VOTING IN PERSON AT THE SPECIAL MEETING. IF THE PROPOSED AMENDMENT IS APPROVED AND ADOPTED, NEW ENGLAND POWER COMPANY, A MASSACHUSETTS CORPORATION AND DIRECT SUBSIDIARY OF NEES (THE POWER COMPANY), WILL MAKE A SPECIAL CASH PAYMENT TO EACH DIVIDEND SERIES PREFERRED SHAREHOLDER WHO VOTED IN FAVOR OF THE PROPOSED AMENDMENT, PROVIDED THAT THEIR SHARES ARE NOT TENDERED PURSUANT TO THE OFFER. DIVIDEND SERIES PREFERRED SHAREHOLDERS WHO PURCHASE OR WHOSE PURCHASE SETTLES OR IS REGISTERED AFTER THE CLOSE OF BUSINESS ON NOVEMBER 12, 1997 (THE RECORD DATE) AND WHO WISH TO TENDER IN THE OFFER MUST ARRANGE WITH THEIR SELLER TO RECEIVE A DULY COMPLETED, VALID AND UNREVOKED PROXY (WHICH MAY BE IN THE FORM OF AN IRREVOCABLE ASSIGNMENT OF PROXY AS SET FORTH IN THIS LETTER OF TRANSMITTAL AND PROXY) FROM THE HOLDER ON THE RECORD DATE OF SUCH SHARES. IN ORDER TO FACILITATE RECEIPT OF PROXIES, SHARES SHALL, DURING THE PERIOD WHICH COMMENCES NOVEMBER 10, 1997 (TWO BUSINESS DAYS PRIOR TO THE RECORD DATE) AND WHICH WILL END AT THE CLOSE OF BUSINESS ON THE EXPIRATION DATE, TRADE IN THE OVER-THE-COUNTER MARKET WITH A PROXY PROVIDING THE TRANSFEREE WITH THE RIGHT TO VOTE SUCH ACQUIRED SHARES IN THE PROXY SOLICITATION. NOTE: SIGNATURES MUST BE PROVIDED BELOW. PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY. NOTE: IF SHARES ARE BEING TENDERED, THE REMAINDER OF THIS LETTER OF TRANSMITTAL AND PROXY MUST BE COMPLETED, INCLUDING THE SUBSTITUTE FORM W-9 BELOW. IF SHARES ARE NOT BEING TENDERED, YOU NEED ONLY COMPLETE THE BOXES BELOW TITLED "PROXY" (OR, IF APPLICABLE, "IRREVOCABLE PROXY") AND "SIGNATURES(S) OF REGISTERED HOLDER(S)" AND THE SUBSTITUTE FORM W-9. The name "New England Electric System" means the trustee or trustees for the time being (as trustee or trustees but not personally) under an agreement and declaration of trust dated January 2, 1926, as amended, which is hereby referred to, and a copy of which as amended has been filed with the Secretary of the Commonwealth of Massachusetts. Any agreement, obligation or liability made, entered into or incurred by or on behalf of New England Electric System binds only its trust estate, and no shareholder, director, trustee, officer or agent thereof assumes or shall be held to any liability therefor. 2 3 PLEASE COMPLETE: - ------------------------------------------------------------------------------- PROXY The undersigned hereby appoints John G. Cochrane, Michael E. Jeganis, and Robert King Wulff, or any of them, as proxies, each with the power to appoint his substitute, and hereby authorizes them to represent and to vote as designated hereunder and in their discretion with respect to any other business properly brought before the Special Meeting, all the shares (Shares) of 4.56% Series of Dividend Series Preferred Stock of New England Power Company (the Power Company) which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on Friday, December 12, 1997, or any adjournment(s) or postponement(s) thereof. NOTE: IF YOU ARE VOTING BUT NOT TENDERING SHARES, DO NOT SEND ANY SHARE CERTIFICATES WITH THIS LETTER OF TRANSMITTAL AND PROXY. THIS LETTER OF TRANSMITTAL AND PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE POWER COMPANY. The proxy contained herein, when properly executed, will be voted in the manner directed herein by the undersigned shareholder(s). If no direction is made, the proxy will be voted FOR Item 1. INDICATE YOUR VOTE BY AN (X). THE BOARD OF DIRECTORS OF THE POWER COMPANY RECOMMENDS VOTING FOR ITEM 1. HOLDERS OF SHARES WHO WISH TO TENDER THEIR SHARES MUST VOTE "FOR" THE PROPOSED AMENDMENT EITHER BY SUBMITTING THIS PROXY OR BY VOTING AT THE SPECIAL MEETING. ITEM 1. To amend the Articles of Organization and By-laws to delete in its entirety ARTICLE 1, Section 4E(4), limiting the Power Company's ability to issue unsecured indebtedness. [ ] FOR [ ] AGAINST [ ] ABSTAIN NOTE: IF SHARES ARE BEING VOTED "FOR" THE PROPOSED AMENDMENT, THE SUBSTITUTE FORM W-9 BELOW SHOULD BE COMPLETED TO AVOID BACK-UP WITHHOLDING ON THE SPECIAL CASH PAYMENT. SHARES REPRESENTED BY ALL PROPERLY EXECUTED PROXIES WILL BE VOTED IN ACCORDANCE WITH INSTRUCTIONS APPEARING ON THIS PROXY. IN THE ABSENCE OF SPECIFIC INSTRUCTIONS, PROXIES WILL BE VOTED "FOR" THE PROPOSED AMENDMENT AND OTHERWISE IN ACCORDANCE WITH THE RECOMMENDATIONS OF THE BOARD OF DIRECTORS OF THE POWER COMPANY, AND IN THE DISCRETION OF THE PROXY HOLDERS AS TO ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE SPECIAL MEETING. Any holder of Shares held of record on the Record Date in the name of another holder must establish to the satisfaction of the Power Company such holder's entitlement to exercise or transfer this Proxy. This will ordinarily require an assignment by such record holder in blank, or if not in blank, to and from each successive transferee, including the holder, with each signature guaranteed by an Eligible Institution. A form of irrevocable assignment of proxy has been provided herein. Please check box if you plan to attend the Special Meeting. [ ] - ------------------------------------------------------------------------------- 3 4 PLEASE COMPLETE IF APPLICABLE: - -------------------------------------------------------------------------------- DESCRIPTION OF SHARES TENDERED(1)
- ------------------------------------------------------------------------------------------------------------------ NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) (PLEASE USE PREADDRESSED LABEL OR FILL IN, IF BLANK, EXACTLY AS NAME(S) APPEAR(S) ON SHARE SHARE CERTIFICATE(S) AND SHARE(S) TENDERED/VOTED CERTIFICATE(S) AND SHARE(S) TENDERED) (ATTACH ADDITIONAL SIGNED LIST IF NECESSARY)(1) - ------------------------------------------------------------------------------------------------------------------ NUMBER OF TOTAL NUMBER SHARES NOT OF SHARES TENDERED BUT REPRESENTED NUMBER AS TO WHICH SHARE CERTIFICATE BY SHARE OF SHARES PROXIES NUMBER(S)(2) CERTIFICATE(S)(2) TENDERED(3) GIVEN ONLY --------------------------------------------------------------------- --------------------------------------------------------------------- --------------------------------------------------------------------- --------------------------------------------------------------------- Total Shares: - ------------------------------------------------------------------------------------------------------------------
(1) If tendering or voting Share(s), please fill in table exactly as information appears on the Certificate(s). (2) Need not be completed by Preferred Shareholders tendering by book-entry transfer. (3) Unless otherwise indicated, it will be assumed that all Shares represented by any Certificate(s) delivered to the Depositary are being tendered and a proxy is being delivered. See Instruction 4. You must vote "FOR" the Proposed Amendment with respect to any Shares tendered. - -------------------------------------------------------------------------------- NOTE: IF YOU ARE DELIVERING A PROXY BUT NOT TENDERING SHARES, DO NOT SEND ANY SHARE CERTIFICATES. 4 5 PLEASE COMPLETE IF APPLICABLE: - -------------------------------------------------------------------------------- SIGNATURE(S) OF REGISTERED HOLDER(S)* -------------------------------------------------------------------------- (SIGNATURE) -------------------------------------------------------------------------- (SIGNATURE) Dated: ------------------------------------------------------------------ , 1997 Name(s): ----------------------------------------------------------------------- ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ (PLEASE PRINT) Capacity (full title): -------------------------------------------------------- Address: ---------------------------------------------------------------------- ------------------------------------------------------------------------------ (INCLUDE ZIP CODE) Daytime Area Code and Telephone No.: ------------------------------------------ * Must be signed by the registered holder(s) exactly as name(s) appear(s) on the stock certificate(s) or on a security position listing or by person(s) authorized to become registered holder(s) by certificates and documents transmitted herewith. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, please set forth full title and see Instruction 5. GUARANTEE OF SIGNATURE(S) (SEE INSTRUCTIONS 1 AND 5) Authorized Signature: --------------------------------------------------------- Name: ------------------------------------------------------------------------- Name of Firm: ----------------------------------------------------------------- (PLEASE PRINT) Address of Firm: -------------------------------------------------------------- ------------------------------------------------------------------------------ (INCLUDE ZIP CODE) Area Code and Telephone No.: -------------------------------------------------- Dated: ----------------------------------------------------------------- , 1997 - -------------------------------------------------------------------------------- 5 6 IF SELLING SHARES ON OR AFTER NOVEMBER 10, 1997, A RECORD HOLDER MUST COMPLETE THE FOLLOWING IRREVOCABLE PROXY. PLEASE SIGN THIS TO IRREVOCABLY TRANSFER A PREFERRED STOCK PROXY TO A SUBSEQUENT HOLDER OF PREFERRED STOCK WHO WAS NOT A HOLDER OF RECORD ON NOVEMBER 12, 1997. - -------------------------------------------------------------------------------- IRREVOCABLE PROXY * WITH RESPECT TO SHARES OF THE 4.56% SERIES OF DIVIDEND SERIES PREFERRED STOCK (THE SHARES) OF NEW ENGLAND POWER COMPANY (THE POWER COMPANY) The undersigned hereby irrevocably appoints: ------------------------------------ TYPE OR PRINT NAME OF TRANSFEREE as attorney and proxy, with full power of substitution, to vote and otherwise act for and in the name(s) of the undersigned with respect to the Shares indicated below which were held of record by the undersigned on November 12, 1997, in the manner in which the undersigned would be entitled to vote and otherwise act in respect of such Shares on any and all matters. This proxy shall be effective whether or not the Shares indicated below are tendered in the Offer. This instrument supersedes and revokes any and all previous appointments of proxies heretofore made by the undersigned with respect to the Shares indicated below as to any and all matters. THIS PROXY IS IRREVOCABLE AND IS COUPLED WITH AN INTEREST. All authority conferred or agreed to be conferred herein shall survive the death or incapacity of the undersigned, and any obligation of the undersigned hereunder shall be binding upon the heirs, executors, administrators, legal and personal representatives, successors in interest and assigned of the undersigned. The undersigned understands that tenders of Shares pursuant to any of the procedures described in the Offer to Purchase and Proxy and Information Statement and in this Letter of Transmittal and Proxy will constitute a binding agreement between the undersigned and the Power Company upon the terms and subject to the conditions of the Offer. DESCRIPTION OF PREFERRED STOCK
CERTIFICATE NUMBER(S) AGGREGATE NUMBER (ATTACH LIST IF NECESSARY) OF SHARES -------------------------- ------------------------- 1. ---------------------------- --------------------------- 2. ---------------------------- --------------------------- 3. ---------------------------- --------------------------- Total ---------------------------
- --------------- * This irrevocable proxy must be signed on the next page to be effective. - -------------------------------------------------------------------------------- 6 7 - -------------------------------------------------------------------------------- IRREVOCABLE PROXY SIGNATURE(S) OF RECORD OR AUTHORIZED SIGNATORY* ________________________________________________________________________________ (SIGNATURE) ________________________________________________________________________________ (PLEASE PRINT) Dated: __________________________________________________________________ , 1997 Tax Identification or Social Security No(s) ____________________________________ ________________________________________________________________________________ (SIGNATURE) ________________________________________________________________________________ (PLEASE PRINT) Dated: __________________________________________________________________ , 1997 Tax Identification or Social Security No(s) ____________________________________ ________________________________________________________________________________ * Must be signed by the registered holder(s) exactly as name(s) appear(s) on the Record Date on the stock certificate(s) or on a security position listing or by person(s) authorized to become registered holder(s) by certificates and documents transmitted herewith. If signature is by a trustee, executor, administrator, guardian, attorney_in_fact, officer of a corporation, agent or other person acting in a fiduciary or representative capacity, please provide the following information and see Instruction 5. GUARANTEE OF SIGNATURE(S) (SEE INSTRUCTIONS 1 AND 5) Authorized Signature:___________________________________________________________ Name: __________________________________________________________________________ (PLEASE PRINT) Capacity (Full Title): _________________________________________________________ Name of Firm:___________________________________________________________________ (PLEASE PRINT) Address of Firm: _______________________________________________________________ (INCLUDE ZIP CODE) Area Code and Telephone No.: ___________________________________________________ Dated: ___________________________________________________________________, 1997 - -------------------------------------------------------------------------------- 7 8 NOTE: IF SHARES ARE BEING TENDERED, THE REMAINDER OF THIS LETTER OF TRANSMITTAL AND PROXY MUST BE COMPLETED, INCLUDING THE SUBSTITUTE FORM W-9 BELOW OR A FORM W-8, AS APPLICABLE. DELIVERY OF THIS LETTER OF TRANSMITTAL AND PROXY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS TO A FACSIMILE NUMBER OTHER THAN THE ONE LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. YOU MUST SIGN THIS LETTER OF TRANSMITTAL AND PROXY IN THE APPROPRIATE SPACE THEREFOR PROVIDED ABOVE AND, IF YOU ARE TENDERING ANY SHARES OR VOTING "FOR" THE PROPOSED AMENDMENT, COMPLETE THE SUBSTITUTE FORM W-9 SET FORTH BELOW OR A FORM W-8, AS APPLICABLE. SEE INSTRUCTION 8 AND "IMPORTANT TAX INFORMATION" BELOW. DO NOT SEND ANY CERTIFICATES TO NEES, THE POWER COMPANY, MERRILL LYNCH & CO., OR GEORGESON & COMPANY, INC. THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL AND PROXY SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL AND PROXY IS COMPLETED. This Letter of Transmittal and Proxy is to be used if (a) Certificates are to be forwarded herewith, (b) delivery of Shares is to be made by book-entry transfer pursuant to the procedures set forth under the heading Terms of the Offer -- Procedure for Tendering Shares in the Offer to Purchase and Proxy and Information Statement (as defined below) or (c) Shares are being voted in connection with the Offer. Preferred Shareholders who wish to tender Shares but cannot deliver their Shares and all other documents required hereby to the Depositary on or prior to the Expiration Date must tender their Shares pursuant to the guaranteed delivery procedure set forth under the heading Terms of the Offer -- Procedure for Tendering Shares -- Guaranteed Delivery Procedure in the Offer to Purchase and Proxy and Information Statement. See Instruction 2. DELIVERY OF DOCUMENTS TO NEES, THE POWER COMPANY OR A BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE A VALID DELIVERY. PLEASE COMPLETE: - -------------------------------------------------------------------------------- [ ] CHECK HERE IF TENDERED SHARES ARE ENCLOSED HEREWITH. A HOLDER TENDERING SHARES PURSUANT TO THIS LETTER OF TRANSMITTAL AND PROXY MUST CHECK ONE OF THE FOLLOWING BOXES: [ ] A duly completed, valid and unrevoked proxy indicating a vote "FOR" the Proposed Amendment is included herein. [ ] A vote "FOR" the Proposed Amendment will be cast at the Special Meeting.
- -------------------------------------------------------------------------------- 8 9 (BOXES BELOW FOR USE BY ELIGIBLE INSTITUTIONS ONLY) - -------------------------------------------------------------------------------- [ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER TO THE DEPOSITARY'S ACCOUNT AT ONE OF THE BOOK-ENTRY TRANSFER FACILITIES AND COMPLETE THE FOLLOWING: Name of tendering institution: -------------------------------------------------------- (PLEASE PRINT) Check applicable box: [ ] DTC [ ] PDTC Account No. ----------------------------------------------------------------------- Transaction Code No. ----------------------------------------------------------------- - ------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------ [ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY AND PROXY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING: Name(s) of tendering Preferred Shareholder(s): ---------------------------------------- -------------------------------------------------------------------------------------- (PLEASE PRINT) Date of execution of Notice of Guaranteed Delivery and Proxy: ------------------------- Name of institution that guaranteed delivery: ----------------------------------------- If delivery is by book-entry transfer: Name of tendering institution: ------------------------------------------------------- Account No. ----------------------------------------------- at [ ] DTC or [ ] PDTC (CHECK ONE) Transaction Code No. ----------------------------------------------------------------- - ------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------ A HOLDER TENDERING SHARES PURSUANT TO THIS LETTER OF TRANSMITTAL AND PROXY MUST CHECK ONE OF THE FOLLOWING BOXES: [ ] A duly completed, valid and unrevoked proxy indicating a vote "FOR" the Proposed Amendment was included with the Notice of Guaranteed Delivery and Proxy previously sent to the Depositary. [ ] A duly completed, valid and unrevoked proxy indicating a vote "FOR" the Proposed Amendment is being delivered pursuant to a Notice of Guaranteed Delivery and Proxy previously sent to the Depositary. [ ] A vote "FOR" the Proposed Amendment will be cast at the Special Meeting. - --------------------------------------------------------------------------------
9 10 NOTE: SIGNATURES MUST BE PROVIDED ABOVE PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY Ladies and Gentlemen: The above signed hereby tenders to NEES the shares in the amount set forth in the box above labeled "Description of Shares Tendered" pursuant to NEES' offer to purchase any and all of the outstanding shares of the 4.56% Series of Dividend Series Preferred Stock (the Shares) of the Power Company, shown above as to which this Letter of Transmittal and Proxy is applicable at the purchase price per Share shown above (the Purchase Price), net to the seller in cash, upon the terms and subject to the conditions set forth in the Offer to Purchase and Proxy and Information Statement, dated November 6, 1997 (the Booklet), receipt of which is hereby acknowledged, and in this Letter of Transmittal and Proxy (which together constitutes the Offer). PREFERRED SHAREHOLDERS WHO WISH TO TENDER THEIR SHARES PURSUANT TO THE OFFER MUST VOTE IN FAVOR OF THE PROPOSED AMENDMENT TO THE POWER COMPANY'S BY-LAWS AND ARTICLES OF ORGANIZATION (THE PROVISIONS), AS SET FORTH IN THE BOOKLET (THE PROPOSED AMENDMENT). THE OFFER IS CONDITIONED UPON THE PROPOSED AMENDMENT BEING APPROVED AND ADOPTED AT THE SPECIAL MEETING (AS DEFINED IN THE BOOKLET). See Proposed Amendment and Proxy Solicitation, Terms of the Offer -- Extension of Tender Period; Termination; Amendments and Terms of the Offer -- Certain Conditions of the Offer in the Booklet. Subject to, and effective upon, acceptance for payment of and payment for the Shares tendered herewith in accordance with the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of any such extension or amendment), the above signed hereby sells, assigns and transfers to, or upon the order of, NEES all right, title and interest in and to all the Shares that are being tendered hereby and hereby constitutes and appoints IBJ Schroder Bank & Trust Company (the Depositary) the true and lawful agent and attorney-in-fact of the above signed with respect to such Shares, with full power of substitution (such power of attorney being an irrevocable power coupled with an interest), to (a) deliver certificates for such Shares, or transfer ownership of such Shares on the account books maintained by any of the Book-Entry Transfer Facilities, together, in any such case, with all accompanying evidences of transfer and authenticity, to or upon the order of NEES, (b) present such Shares for registration and transfer on the books of the Power Company and (c) receive all benefits and otherwise exercise all rights of beneficial ownership of such Shares, all in accordance with the terms of the Offer. The above signed hereby represents and warrants that the above signed has full power and authority to tender, sell, assign and transfer the Shares tendered hereby and that, when and to the extent the same are accepted for payment by NEES, NEES will acquire good, marketable and unencumbered title thereto, free and clear of all liens, restrictions, charges, encumbrances, conditional sales agreements or other obligations relating to the sale or transfer thereof, and the same will not be subject to any adverse claims. The above signed will, upon request, execute and deliver any additional documents deemed by the Depositary or NEES to be necessary or desirable to complete the sale, assignment and transfer of the Shares tendered hereby. All authority herein conferred or agreed to be conferred shall not be affected by, and shall survive, the death or incapacity of the above signed, and any obligations of the above signed hereunder shall be binding upon the heirs, personal representatives, successors and assigns of the above signed. Except as stated in the Offer, this tender is irrevocable. The above signed understands that tenders of Shares pursuant to any one of the procedures described under the heading Terms of the Offer -- Procedure for Tendering Shares in the Booklet and in the instructions hereto will constitute the above signed's acceptance of the terms and conditions of the Offer, including the above signed's representation and warranty that (a) the above signed has a net long position in the Shares being tendered within the meaning of Rule 14e-4 promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act), and (b) the tender of such Shares complies with Rule 14e-4. NEES' acceptance for payment of Shares tendered pursuant to the Offer will constitute a binding agreement between the above signed and NEES upon the terms and subject to the conditions of the Offer. 10 11 The above signed recognizes that, under certain circumstances set forth in the Booklet, NEES may terminate or amend the Offer or may not be required to purchase any of the Shares tendered hereby. In either event, the above signed understands that certificate(s) for any Shares not tendered or not purchased will be returned to the above signed. Unless otherwise indicated in the box below under the heading "Special Payment Instructions," please issue the check for the Purchase Price of any Shares purchased, and/or return any Shares not tendered or not purchased, in the name(s) of the above signed (and, in the case of Shares tendered by book-entry transfer, by credit to the account at the Book-Entry Transfer Facility designated above). Unless otherwise indicated in the box below under the heading "Special Delivery Instructions," please mail the check for the Purchase Price of any Shares purchased and/or any certificates for Shares not tendered or not purchased (and accompanying documents, as appropriate) to the above signed at the address shown below. In the event that both "Special Payment Instructions" and "Special Delivery Instructions" are completed, please issue the check for the Purchase Price of any Shares purchased and/or return any Shares not tendered or not purchased in the name(s) of, and mail said check and/or any certificates to, the person(s) so indicated. The above signed recognizes that NEES has no obligation, pursuant to the "Special Payment Instructions," to transfer any Shares from the name of the registered holder(s) thereof if NEES does not accept for payment any of the Shares so tendered. 11 12 -------------------------------------------------------- SPECIAL PAYMENT INSTRUCTIONS SEE INSTRUCTIONS 4, 6, AND 7 To be completed ONLY if the check for the Purchase Price of Shares purchased and/or certificates for Shares not tendered or not purchased are to be issued in the name of someone other than the above signed. Issue: [ ] Check [ ] Certificate(s) to: Name ______________________________________________ (PLEASE PRINT) Address ___________________________________________ ___________________________________________________ (INCLUDE ZIP CODE) ___________________________________________________ (TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER)* * SEE SUBSTITUTE FORM W_9 BELOW. Credit Shares delivered by book_entry transfer and not purchased to the Book_Entry Transfer Facility Account set forth below: [ ] DTC [ ] PDTC Account No.: ______________________________________________________ ______________________________________________________ ______________________________________________________ SPECIAL DELIVERY INSTRUCTIONS SEE INSTRUCTIONS 4, 6, AND 7 To be completed ONLY if the check for the Purchase Price of Shares purchased and/or certificates for Shares not tendered or not purchased are to be mailed to someone other than the above signed or to the above signed at an address other than that shown below the above signed's signature(s). Mail: [ ] Check [ ] Certificate(s) to: Name _____________________________________________ (PLEASE PRINT) Address ___________________________________________ ___________________________________________________ (INCLUDE ZIP CODE) ___________________________________________________ ___________________________________________________ [ ] CHECK HERE IF ANY OF THE CERTIFICATES REPRESENTING SHARES THAT YOU OWN AND WISH TO TENDER HAVE BEEN LOST, DESTROYED OR STOLEN. (SEE INSTRUCTION 12.) Number of Shares represented by lost, destroyed or stolen certificates: ________ ___________________ 12 13 SOLICITED TENDERS (SEE INSTRUCTION 10) As provided in the Offer to Purchase and Proxy Statement and Information Statement and Instruction 10 to the Letter of Transmittal and Proxy, NEES will pay to any Soliciting Dealer, as defined in Instruction 10, a solicitation fee of $1.50 per Share for any Shares tendered, accepted for payment and paid pursuant to the Offer and for any Shares not tendered but voted in favor of the Proposed Amendment (except that for transactions for beneficial owners equal to or exceeding 2,500 Shares, NEES will pay a solicitation fee of $1.00 per Share). Solicitation fees payable in transactions for beneficial owners of 2,500 or more Shares shall be paid 80% to the Dealer Manager and 20% to the Soliciting Dealers (which may be the Dealer Manager). However, Soliciting Dealers will not be entitled to a solicitation fee for Shares beneficially owned by such Soliciting Dealer. The undersigned represents that the Soliciting Dealer which solicited and obtained this tender is: Name of Firm: ------------------------------------------------------------------- (PLEASE PRINT) Name of Individual Broker or Financial Consultant: ------------------------------ Telephone Number of Broker or Financial Consultant: ----------------------------- Identification Number (if known): ----------------------------------------------- Address: ------------------------------------------------------------------------ - -------------------------------------------------------------------------------- (INCLUDE ZIP CODE) The following to be completed ONLY if customer's Shares held in nominee name are tendered. (ATTACH ADDITIONAL LIST IF NECESSARY.) - ------------------------------------------------------------------------------------------------------------------ NAME OF BENEFICIAL OWNER NUMBER OF SHARES TENDERED - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------
The acceptance of compensation by such Soliciting Dealer will constitute a representation by it that (a) it has complied with the applicable requirements of the Exchange Act and the applicable rules and regulations thereunder, in connection with such solicitation; (b) it is entitled to such compensation for such solicitation under the terms and conditions of the Offer (unless such solicitation fee is directed to another Soliciting Dealer); (c) in soliciting tenders of Shares, it has used no soliciting materials other than those furnished by NEES; and (d) if it is a foreign broker or dealer not eligible for membership in the National Association of Securities Dealers, Inc. (the NASD), it has agreed to conform to the NASD's Rules of Fair Practice in making the solicitations. The payment of compensation to any Soliciting Dealer is dependent on such Soliciting Dealer returning a Notice of Solicited Tenders to the Depositary. (IF SHARES ARE BEING TENDERED AND/OR VOTED, PLEASE ALSO COMPLETE SUBSTITUTE FORM W-9 BELOW OR A FORM W-8, AS APPLICABLE) SIGN HERE: ---------------------------------------------------------------------- - -------------------------------------------------------------------------------- (SIGNATURE(S) OF REGISTERED HOLDER(S)) 13 14 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER 1. GUARANTEE OF SIGNATURES. Except as otherwise provided below, all signatures on this Letter of Transmittal and Proxy must be guaranteed by a firm that is a member of a registered national securities exchange or the NASD, or by a commercial bank or trust company having an office or correspondent in the United States which is a participant in an approved Signature Guarantee Medallion Program (an Eligible Institution). Signatures on this Letter of Transmittal and Proxy need not be guaranteed (a) if this Letter of Transmittal and Proxy is signed by the registered holder(s) of the Shares (which term, for purposes of this document, shall include any participant in one of the Book-Entry Transfer Facilities whose name appears on a security position listing as the owner of Shares) tendered herewith and such holder(s) has not completed the box above under the heading "Special Payment Instructions" or the box above under the heading "Special Delivery Instructions" on this Letter of Transmittal and Proxy, (b) if such Shares are tendered for the account of an Eligible Institution or (c) if this Letter of Transmittal and Proxy is being used solely for the purpose of voting Shares which are not being tendered pursuant to the Offer. See Instruction 5. 2. DELIVERY OF LETTER OF TRANSMITTAL AND PROXY AND SHARES. This Letter of Transmittal and Proxy is to be used if (a) certificates are to be forwarded herewith, (b) delivery of Shares is to be made by book-entry transfer pursuant to the procedures set forth under the heading Terms of the Offer -- Procedure for Tendering Shares in the Booklet or (c) Shares are being voted in connection with the Offer. Certificates for all physically delivered Shares, or a confirmation of a book-entry transfer into the Depositary's account at the Book-Entry Transfer Facilities of Shares delivered electronically, as well as a properly completed and duly executed Letter of Transmittal and Proxy (or facsimile thereof) and any other documents required by this Letter of Transmittal and Proxy, must be received by the Depositary at one of its addresses set forth on the front page of this Letter of Transmittal and Proxy on or prior to the Expiration Date with respect to all Shares. Preferred Shareholders who wish to tender their Shares yet who cannot deliver their Shares and all other required documents to the Depositary on or prior to the Expiration Date must tender their Shares pursuant to the guaranteed delivery procedure set forth under the heading Terms of the Offer -- Procedure for Tendering Shares in the Booklet. Pursuant to such procedure: (i) such tender must be made by or through an Eligible Institution, (ii) a properly completed and duly executed Notice of Guaranteed Delivery and Proxy in the form provided by NEES (with any required signature guarantees) must be received by the Depositary on or prior to the applicable Expiration Date and (iii) the certificates for all physically delivered Shares, or a confirmation of a book-entry transfer into the Depositary's account at one of the Book-Entry Transfer Facilities of Shares delivered electronically, as well as a properly completed and duly executed Letter of Transmittal and Proxy (or facsimile thereof) and any other documents required by this Letter of Transmittal and Proxy must be received by the Depositary within three New York Stock Exchange (NYSE) trading days after the date of execution of such Notice of Guaranteed Delivery and Proxy, all as provided under the heading Terms of the Offer -- Procedure for Tendering Shares in the Booklet. A NYSE trading day is any day on which the NYSE is open for business. THE METHOD OF DELIVERY OF SHARES AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING PREFERRED SHAREHOLDER. IF CERTIFICATES FOR SHARES ARE SENT BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. No alternative, conditional or contingent tenders will be accepted. See Terms of the Offer -- Number of Shares; Purchase Price; Expiration Date; Dividends in the Booklet. By executing this Letter of Transmittal and Proxy (or facsimile thereof), the tendering Preferred Shareholder waives any right to receive any notice of the acceptance for payment of the Shares. 3. VOTING. PREFERRED SHAREHOLDERS (INCLUDING PREFERRED SHAREHOLDERS WHO ACQUIRE SHARES SUBSEQUENT TO THE RECORD DATE) WHO WISH TO TENDER THEIR SHARES PURSUANT TO THE OFFER MUST VOTE IN FAVOR OF THE PROPOSED AMENDMENT TO THE POWER COMPANY'S PROVISIONS, AS SET FORTH IN THE BOOKLET. THE OFFER IS CONDITIONED UPON THE PROPOSED AMENDMENT BEING APPROVED AND 14 15 ADOPTED AT THE SPECIAL MEETING. In addition, Preferred Shareholders have the right to vote on the Proposed Amendment regardless of whether they tender their Shares by casting their vote and duly executing the Proxy included in this Letter of Transmittal and Proxy or by voting in person at the Special Meeting. By executing a Notice of Guaranteed Delivery and Proxy, a Preferred Shareholder is deemed to have tendered the Shares described in such Notice of Guaranteed Delivery and Proxy and to have voted such Shares in accordance with the proxy contained therein. If no vote is indicated on an otherwise properly executed proxy contained within this Letter of Transmittal and Proxy (or within a Notice of Guaranteed Delivery and Proxy), then all Shares in respect of such proxy will be voted in favor of the Proposed Amendment. See Proposed Amendment and Proxy Solicitation in the Booklet. The Offer is being sent to all persons in whose names Shares are registered on the books of the Power Company on November 6, 1997 as well as to all persons in whose name Shares are registered on November 12, 1997, which is the Record Date. Preferred Shareholders who purchase or whose purchase is registered after the Record Date and who wish to tender in the Offer must arrange with their seller to receive a proxy from the holder of record on the Record Date of such Shares. Any holder of Shares held of record on the Record Date in the name of another holder must establish to the satisfaction of the Power Company such holder's entitlement to exercise or transfer such Proxy. This will ordinarily require an assignment by such record holder in blank, or if not in blank, to and from each successive transferee, including the holder, with each signature guaranteed by an Eligible Institution. See Instruction 5. In order to facilitate receipt of proxies, Shares shall, during the period which commences November 10, 1997 and which will end at the close of business on the Expiration Date, trade in the over-the-counter market with a proxy providing the transferee with the right to vote such acquired shares in the Proxy Solicitation. No record date is fixed for determining which persons are permitted to tender Shares. However, only the holders of record, or holders who acquire an assignment of proxy from such holders, are permitted to vote for the Proposed Amendment and thereby validly tender Shares pursuant to the Offer. Any person who is the beneficial owner but not the record holder of Shares must arrange for the record transfer of such Shares prior to tendering or direct the record holder to tender on behalf of the beneficial holder. 4. PARTIAL TENDERS. NOT APPLICABLE TO SHAREHOLDERS WHO TENDER BY BOOK- ENTRY TRANSFER. If fewer than all the Shares represented by any certificate delivered to the Depositary are to be tendered, fill in the number of Shares that are to be tendered in the box above under the heading "Description of Shares Tendered." In such case, a new certificate for the remainder of the Shares represented by the old certificate will be sent to the person(s) signing this Letter of Transmittal and Proxy, unless otherwise provided in the box above under the heading "Special Payment Instructions" or "Special Delivery Instructions," as promptly as practicable following the expiration or termination of the Offer. All Shares represented by certificates delivered to the Depositary will be deemed to have been tendered unless otherwise indicated. 5. SIGNATURES ON LETTER OF TRANSMITTAL AND PROXY AND NOTICE OF GUARANTEED DELIVERY AND PROXY; STOCK POWERS AND ENDORSEMENTS. If either this Letter of Transmittal and Proxy or the Notice of Guaranteed Delivery and Proxy (together, the Tender and Proxy Documents) is signed by the registered holder(s) of the Shares tendered hereby, the signature(s) must correspond with the name(s) as written on the face of the certificates without alteration, enlargement or any change whatsoever. If any of the Shares tendered or voted under either Tender and Proxy Document is held of record by two or more persons, all such persons must sign such Tender and Proxy Document. If any of the Shares tendered or voted under either Tender and Proxy Document are registered in different names or different certificates, it will be necessary to complete, sign and submit as many separate Tender and Proxy Documents as there are different registrations of certificates. If either Tender and Proxy Document is signed by the registered holder(s) of the Shares tendered hereby, no endorsements of certificates or separate stock powers are required unless payment of the Purchase Price is to be made to, or Shares not tendered or not purchased are to be registered in the name of, any person other than the registered holder(s). Signatures on any such certificates or stock powers must be guaranteed by an Eligible Institution. See Instruction 1. 15 16 If this Letter of Transmittal and Proxy is signed by a person other than the registered holder(s) of the Shares tendered hereby, certificates must be endorsed or accompanied by appropriate stock powers, in either case, signed exactly as the name(s) of the registered holder(s) appear(s) on the certificates for such Shares. Signature(s) on any such certificates or stock powers must be guaranteed by an Eligible Institution. See Instruction 1. If either Tender and Proxy Document or any certificate or stock power is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, such person should so indicate when signing, and proper evidence satisfactory to NEES of the authority of such person so to act must be submitted. 6. STOCK TRANSFER TAXES. Except as set forth in this Instruction 6, NEES will pay or cause to be paid any stock transfer taxes with respect to the sale and transfer of any Shares to it or its order pursuant to the Offer. If, however, payment of the Purchase Price is to be made to, or Shares not tendered or not purchased are to be registered in the name of, any person other than the registered holder(s), or if tendered Shares are registered in the name of any person other than the person(s) signing this Letter of Transmittal and Proxy, the amount of any stock transfer taxes (whether imposed on the registered holder(s), such other person or otherwise) payable on account of the transfer to such person will be deducted from the Purchase Price unless satisfactory evidence of the payment of such taxes, or exemption therefrom, is submitted. Each Preferred Shareholder will be responsible for paying any income or gross receipts taxes imposed by any jurisdiction by reason of the Special Cash Payment (as defined in the Booklet) and/or the sale of the Shares in the Offer. See Terms of the Offer -- Acceptance of Shares for Payment and Payment of Purchase Price and Dividends and Certain U.S. Federal Income Tax Considerations in the Booklet. EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY TO AFFIX TRANSFER TAX STAMPS TO THE CERTIFICATES REPRESENTING SHARES TENDERED HEREBY. 7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If the check for the Purchase Price of any Shares purchased is to be issued in the name of, any Shares not tendered or not purchased are to be returned to, and/or the check for the Special Cash Payment is to be issued in the name of, a person other than the person(s) signing this Letter of Transmittal and Proxy or if the check and/or any certificate for Shares not tendered or not purchased are to be mailed to someone other than the person(s) signing this Letter of Transmittal and Proxy or to an address other than that shown in the box above under the heading "Description of Shares Tendered," then the "Special Payment Instructions" and/or "Special Delivery Instructions" on this Letter of Transmittal and Proxy should be completed. Preferred Shareholders tendering Shares by book-entry transfer will have any Shares not accepted for payment returned by crediting the account maintained by such Preferred Shareholder at the Book-Entry Transfer Facility from which such transfer was made. 8. SUBSTITUTE FORM W-9 AND FORM W-8. A tendering and/or voting Preferred Shareholder is required to provide the Depositary with either a correct Taxpayer Identification Number (TIN) on Substitute Form W-9, which is provided under "Important Tax Information" below, or a properly completed Form W-8 unless exempt therefrom. Failure to provide the information on either Substitute Form W-9 or Form W-8 may subject the tendering and/or voting Preferred Shareholder to 31% federal income tax backup withholding on the payment of the Purchase Price for the Shares or on the Special Cash Payment. The tendering and/or voting Preferred Shareholder may write "Applied For" in Part I of Substitute Form W-9 and sign the "Certificate of Awaiting Taxpayer Identification Number" of Substitute Form W-9 if the Preferred Shareholder has not been issued a TIN and has applied for a number or intends to apply for a number in the near future. If "Applied For" is written in Part I of Substitute Form W-9 and the "Certificate of Awaiting Taxpayer Identification Number" of Substitute Form W-9 is signed and the Depositary is not provided with a TIN by the time of payment, the Depositary will withhold 31% on all payments of the Purchase Price for the Shares or the Special Cash Payment thereafter until a TIN is provided to the Depositary. 16 17 9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Any questions or requests for assistance may be directed to the Information Agent or the Dealer Manager at their respective telephone numbers and addresses listed below. Requests for additional copies of the Booklet, this Letter of Transmittal and Proxy, or other tender offer materials may be directed to the Information Agent or the Dealer Manager and such copies will be furnished promptly at NEES' expense. Preferred Shareholders may also contact their local broker, dealer, commercial bank or trust company for assistance concerning the Offer. 10. SOLICITED TENDERS. Upon the terms and subject to the conditions of the Offer and this Instruction, NEES will pay to designated brokers and dealers a solicitation fee of $1.50 per Share for any Shares tendered, accepted for payment, and paid for pursuant to the Offer and for share of Dividend Series Preferred Stock not tendered by voted in favor on the Proposed Amendment (except that for transactions for beneficial owners equal to or exceeding 2,500 Shares, NEES will pay a solicitation fee of $1.00 per Share, of which at least eighty percent (80%) shall be paid to the Dealer Manager and twenty percent (20%) to the Soliciting Dealer (which may be the Dealer Manager)). With respect to fees payable pursuant to this paragraph involving transactions for beneficial owners whose ownership is less than 2,500 Shares, any fees payable hereunder shall be paid in full to the Dealer Manager unless a Soliciting Dealer is designated (as described below), in which case such fee shall be payable in full to such designated Soliciting Dealer (which designated Soliciting Dealer may be the Dealer Manager). The Letters of Transmittal and Proxy must include the name of an entity which obtained the tender or proxy and which is either (a) a broker or dealer in securities, including the Dealer Manager in its capacity as a broker or dealer, which is a member of any national securities exchange or of the National Association of Securities Dealers, Inc. (NASD), (b) a foreign broker or dealer not eligible for membership in the NASD which agrees to conform to the NASD's Rules of Fair Practice in soliciting tenders outside the United States to the same extent as though it were an NASD member, or (c) a bank or trust company (each of which is referred to herein as a Soliciting Dealer). No solicitation fee shall be payable to a Soliciting Dealer with respect to the tender of Shares or delivery of a proxy unless the Letter of Transmittal and Proxy accompanying such tender or delivery of a proxy designates such Soliciting Dealer. No solicitation fee shall be payable to a Soliciting Dealer in respect of Shares registered in the name of such Soliciting Dealer unless such Shares are held by such Soliciting Dealer as nominee and such Shares are being tendered or delivered for the benefit of one or more beneficial owners identified on the Letter of Transmittal or on the Notice of Solicited Tenders. No solicitation fee shall be payable to a Soliciting Dealer if such Soliciting Dealer is required for any reason to transfer the amount of such fee to a depositing holder (other than itself). No solicitation fee shall be paid to a Soliciting Dealer with respect to Shares tendered or delivered for such Soliciting Dealer's own account. Soliciting Dealers will not be entitled to a solicitation fee for Shares beneficially owned by such Soliciting Dealer. No broker, dealer, bank, trust company, or fiduciary shall be deemed to be the agent of NEES, the Power Company, the Depositary, the Information Agent, or the Dealer Manager for purposes of the Offer. Soliciting Dealers will include any of the organizations described in clauses (a), (b), and (c) above even when the activities of such organizations in connection with the Offer consist solely of forwarding to clients materials relating to the Offer, including the Letter of Transmittal, and tendering Shares or delivering as directed by beneficial owners thereof. No Soliciting Dealer is required to make any recommendation to holders of Shares as to whether to tender or refrain from tendering in the Offer. No assumption is made, in making payment to any Soliciting Dealer, that its activities in connection with the Offer included any activities other than those described above, and for all purposes noted in all materials relating to the Offer, the term "solicit" shall be deemed to mean no more than processing shares tendered or forwarding to customers materials regarding the Offer. 17 18 11. IRREGULARITIES. All questions as to the form of documents and the validity, eligibility (including time of receipt) and acceptance of any tender of Shares will be determined by NEES, in its sole discretion, and its determination shall be final and binding. NEES reserves the absolute right to reject any and all tenders of Shares that it determines are not in proper form or the acceptance for payment of or payment for Shares that may, in the opinion of NEES' counsel, be unlawful. NEES also reserves the absolute right to waive any of the conditions to the Offer or any defect or irregularity in any tender of Shares and NEES' interpretation of the terms and conditions of the Offer (including these instructions) shall be final and binding. Unless waived, any defects or irregularities in connection with tenders must be cured within such time as NEES shall determine. None of NEES, the Dealer Manager, the Depositary, the Information Agent or any other person shall be under any duty to give notice of any defect or irregularity in tenders nor shall any of them incur any liability for failure to give any such notice. Tenders will not be deemed to have been made until all defects and irregularities have been cured or waived. 12. LOST, DESTROYED OR STOLEN CERTIFICATES. If any certificate representing Shares has been lost, destroyed or stolen, the Preferred Shareholder should promptly notify the Depositary by checking the box above immediately following the "Special Payment Instructions/Special Delivery Instructions" and indicating the number of Shares lost, destroyed or stolen. The Preferred Shareholder will then be instructed as to the procedures that must be taken in order to replace the certificate. The tender of Shares pursuant to this Letter of Transmittal and Proxy will not be valid unless on or prior to the Expiration Date: (a) such procedures have been completed and a replacement certificate for the Shares has been delivered to the Depositary or (b) a Notice of Guaranteed Delivery and Proxy has been delivered to the Depositary. See Instruction 2. IMPORTANT: THIS LETTER OF TRANSMITTAL AND PROXY (OR A FACSIMILE COPY HEREOF), DULY EXECUTED, TOGETHER WITH, IF APPLICABLE, CERTIFICATES OR CONFIRMATION OF A BOOK-ENTRY TRANSFER, AND ALL OTHER REQUIRED DOCUMENTS MUST BE RECEIVED BY THE DEPOSITARY, OR, IF APPLICABLE, THE NOTICE OF GUARANTEED DELIVERY AND PROXY MUST BE RECEIVED BY THE DEPOSITARY, ON OR PRIOR TO THE EXPIRATION DATE. 18 19 IMPORTANT TAX INFORMATION Under Federal income tax law, a Preferred Shareholder whose tendered Shares are accepted for payment, or who will receive a Special Cash Payment as a result of voting in favor of the Proposed Amendment, is required to provide the Depositary (as payer) with either such Preferred Shareholder's correct TIN on Substitute Form W-9 below or a properly completed Form W-8. If such Preferred Shareholder is an individual, the TIN is such Preferred Shareholder's social security number. For businesses and other entities, the number is the Federal employer identification number. If the Depositary is not provided with the correct TIN or properly completed Form W-8, the Preferred Shareholder may be subject to a $50 penalty imposed by the Internal Revenue Service. In addition, (a) payments that are made to such Preferred Shareholder with respect to Shares purchased pursuant to the Offer or (b) Special Cash Payments made to a Preferred Shareholder with respect to Shares voted pursuant to the proxy solicitation may be subject to backup withholding. The Form W-8 can be obtained from the Depositary. See the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" below for additional instructions. If Federal income tax backup withholding applies, the Depositary is required to withhold 31% of any payments made to the Preferred Shareholder. Backup withholding is not an additional tax. Rather, the Federal income tax liability of persons subject to backup withholding will be reduced by the amount of the tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained. PURPOSE OF SUBSTITUTE FORM W-9 AND FORM W-8 To avoid backup withholding on payments that are made to a Preferred Shareholder with respect to Shares purchased pursuant to the Offer or on Special Cash Payments, the Preferred Shareholder is required to notify the Depositary of his or her correct TIN by completing the Substitute Form W-9 below certifying that the TIN provided on Substitute Form W-9 is correct and that (a) the Preferred Shareholder has not been notified by the Internal Revenue Service that he or she is subject to Federal income tax backup withholding as a result of failure to report all interest or dividends or (b) the Internal Revenue Service has notified the Preferred Shareholder that he or she is no longer subject to Federal income tax backup withholding. Foreign Preferred Shareholders must submit a properly completed Form W-8 in order to avoid the applicable backup withholding; provided, however, that backup withholding will not apply to foreign Preferred Shareholders subject to 30% (or lower treaty rate) withholding on gross payments received pursuant to the Offer or on the Special Cash Payments. WHAT NUMBER TO GIVE THE DEPOSITARY The Preferred Shareholder is required to give the Depositary the social security number or employer identification number of the registered owner of the Shares. If the Shares are in more than one name or are not in the name of the actual owner, consult the "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" below for additional guidance on which number to report. 19 20 SEE "GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER OF SUBSTITUTE FORM W-9" FOR ADDITIONAL INSTRUCTIONS. SUBSTITUTE FORM W-9
- ---------------------------------------------------------------------------------------------- PAYER'S NAME: IBJ SCHRODER BANK & TRUST COMPANY, AS DEPOSITARY - ---------------------------------------------------------------------------------------------- SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN IN THE FORM W-9 BOX AT RIGHT AND CERTIFY BY SIGNING AND ---------------------- DATING BELOW. ---------------------------------------- Social Security Number or Employer NAME (Please Print) Identification Number (If Awaiting TIN write ---------------------------------------- "Applied for") ------------------------ PAYER'S REQUEST FOR ADDRESS TAXPAYER IDENTIFICATION PART II -- For Payees NUMBER (TIN) NOT subject to backup ---------------------------------------- withholding, see the CITY STATE ZIP CODE "Guidelines for Cer- tification of Taxpayer Identification Number on Substitute Form DEPARTMENT OF THE TREASURY W-9" and complete as INTERNAL REVENUE SERVICE instructed therein ---------------------------------------------------------------------------------------------
PART III -- CERTIFICATION: -- Under penalties of perjury, I certify that: (1) The number shown on this form is my correct taxpayer identification number (or I am waiting for a number to be issued to me), and (2) I am not subject to backup withholding either because: (a) I am exempt from backup withholding, or (b) I have not been notified by the Internal Revenue Service (IRS) that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding.
SIGNATURE DATE , 1997 ------------------------------------ --------------------------------
CERTIFICATION INSTRUCTIONS -- You must cross out item (2) above if you have been notified by the IRS that you are currently subject to backup withholding because of underreporting interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding you received another notification from the IRS that you are no longer subject to backup withholding do not cross out item (2). Also see instructions in the enclosed Guidelines. - -------------------------------------------------------------------------------- YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU WRITE "APPLIED FOR" IN PART I OF SUBSTITUTE FORM W-9. - -------------------------------------------------------------------------------- CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (a) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (b) I intend to mail or deliver such an application in the near future. I understand that if I do not provide a taxpayer identification number within sixty (60) days, 31% of all reportable payments made to me thereafter will be withheld until I provide a number.
-------------------------------------------- -------------------------------------, 1997 SIGNATURE DATE
- -------------------------------------------------------------------------------- NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU. PLEASE REVIEW THE "GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9" FOR ADDITIONAL DETAILS. 20 21 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 SECTION REFERENCES ARE TO THE INTERNAL REVENUE CODE. PURPOSE OF FORM. A person who is required to file an information return with the IRS must obtain your correct taxpayer identification number (TIN) to report income paid to you, real estate transactions, mortgage interest you paid, the acquisition or abandonment of secured property, or contributions you made to an IRA. Use Form W-9 to furnish your correct TIN to the requester (the person asking you to furnish your TIN) and, when applicable, (1) to certify that the TIN you are furnishing is correct (or that you are waiting for a number to be issued), (2) to certify that you are not subject to backup withholding, and (3) to claim exemption from backup withholding if you are an exempt payee. Furnishing your correct TIN and making the appropriate certifications will prevent certain payments from being subject to backup withholding. NOTE: IF A REQUESTER GIVES YOU A FORM OTHER THAN W-9 TO REQUEST YOUR TIN, YOU MUST USE THE REQUESTER'S FORM. HOW TO OBTAIN A TIN. If you do not have a TIN, apply for one immediately. To apply, get Form SS-5, Application for a Social Security Card (for Individuals), from your local office of the Social Security Administration, or Form SS-4, Application for Employer Identification Number (for businesses and all other entities), from your local IRS office. To complete Form W-9 if you do not have a TIN, write "Applied for" in the space for the TIN in Part 1, sign and date the form, and give it to the requester. Generally, you will than have 60 days to obtain a TIN and furnish it to the requester. If the requester does not receive your TIN within 60 days, backup withholding, if applicable, will begin and continue until you furnish your TIN to the requester. For reportable interest or dividend payments, the payor must exercise one of the following options concerning backup withholding during this 60-day period. Under option (1), a payor must backup withhold on any withdrawals you make from your account after 7 business days after the requester receives this form back from you. Under option (2), the payor must backup withhold on any reportable interest or dividend payments made to your account, regardless of whether you make any withdrawals. The backup withholding under option (2) must begin no later than 7 business days after the requester receives this form back. Under option (2), the payor is required to refund the amounts withheld if your certified TIN is received within the 60-day period and you were not subject to backup withholding during that period. NOTE: WRITING "APPLIED FOR" ON THE FORM MEANS THAT YOU HAVE ALREADY APPLIED FOR A TIN OR THAT YOU INTEND TO APPLY FOR ONE IN THE NEAR FUTURE. As soon as you receive your TIN, complete another Form W-9, include your TIN, sign and date the form, and give it to the requester. WHAT IS BACKUP WITHHOLDING? -- Persons making certain payments to you must withhold and pay to the IRS 31% of such payments under certain conditions. This is called "backup withholding." Payments that could be subject to backup withholding include interest, dividends, broker and barter exchange transactions, rents, royalties, nonemployee compensation, and certain payments from fishing boat operators, but do not include real estate transactions. If you give the requester your correct TIN, make the appropriate certifications, and report all your taxable interest and dividends on your tax return, your payments will not be subject to backup withholding. Payments you receive will be subject to backup withholding if: (1) You do not furnish your TIN to the requester, or (2) The IRS notifies the requester that you furnished an incorrect TIN, or (3) You are notified by the IRS that you are subject to withholding because you failed to report all your interest and dividends on your tax return (for reportable interest and dividends only), or (4) You do not certify to the requester that you are not subject to backup withholding under 3 above, (for reportable interest and dividend accounts opened after 1983 only), or (5) You do not certify your TIN. Except as explained in 5 above, other reportable payments are subject to backup withholding only if 1 or 2 above applies. Certain payees and payments are exempt from backup withholding and information reporting. See Payees and Payments Exempt From Backup Withholding, below, and Exempt Payees and Payments under Signing the Certification, below if you are an exempt payee. PAYEES AND PAYMENTS EXEMPT FROM BACKUP WITHHOLDING. The following is a list of payees exempt from backup withholding and for which no information reporting is required. For interest and dividends, all listed payees are exempt except as listed in item (9). For broker transactions, payees listed in items (1) through (13) and a person registered under the Investment Advisers Act of 1940 who regularly acts as a broker are exempt. Payments subject to reporting under sections 6041 and 6041A are generally exempt from backup withholding only if made to payees described in items (1) through (7), except a corporation that provides medical and health care services or bills and collects payments for such services is not exempt from backup withholding or information reporting. Only payees described in items (2) through (6) are 21 22 exempt from backup withholding for barter exchange transactions and patronage dividends. (1) A corporation. (2) An organization exempt from tax under section 501(a), an IRA, or a custodial account under section 402(b)(7). (3) The United States or any of its agencies or instrumentalities. (4) A state, the District of Columbia, a possession of the United States, or any of their political subdivisions or instrumentalities. (5) A foreign government or any of its political subdivisions, agencies, or instrumentalities. (6) An international organization or any of its agencies or instrumentalities. (7) A foreign central bank of issue. (8) A dealer in securities or commodities required to register in the United States or a possession of the United States. (9) A futures commission merchant registered with the Commodity Futures Trading Commission. (10) A real estate investment trust. (11) An entity registered at all times during the tax year under the Investment Company Act of 1940. (12) A common trust fund operated by a bank under section 584(a). (13) A financial institution. (14) A middleman known in the investment community as a nominee or listed in the most recent publication of the American Society of Corporation Secretaries, Inc., Nominee List. (15) A trust exempt from tax under section 664 or described in section 4947. Payments of dividend and patronage dividends generally not subject to backup withholding include the following: - Payments to nonresident aliens subject to withholding under section 1441. - Payments to partnerships not engaged in a trade or business in the United States and that have at least one nonresident partner. - Payments of patronage dividends not paid in money. - Payments made by certain foreign organizations. - Section 404(k) payments made by an ESOP. Payments of interest generally not subject to backup withholding include the following: - Payments of interest on obligations issued by individuals. NOTE: YOU MAY BE SUBJECT TO BACKUP WITHHOLDING IF THIS INTEREST IS $600 OR MORE AND IS PAID IN THE COURSE OF THE PAYER'S TRADE OR BUSINESS AND YOU HAVE NOT PROVIDED YOUR CORRECT TIN TO THE PAYER. - Payments of tax-exempt interest (including exempt-interest dividends under section 852). - Payments described in section 6049(b)(5) to nonresident aliens. - Payments on tax-free covenant bonds under section 1451. - Payments made by certain foreign organizations. - Mortgage interest paid to you. Other types of payments generally not subject to backup withholding include: - Wages. - Distributions from a pension, annuity, profit-sharing or stock bonus plan, or an IRA. - Distributions from an owner-employee plan. - Certain surrenders of life insurance contracts. - Gambling winnings, if withholding is required under section 3402(q). However, if withholding is not required under section 3402(q), backup withholding applies if the payee fails to furnish a TIN. - Real estate transactions reportable under section 6045. Payments that are not subject to information reporting are also not subject to backup withholding. For details, see sections 6041, 6041A, 6042, 6044, 6045, 6049, 6050A, and 6050N, and the regulations under those sections. PENALTIES FAILURE TO FURNISH TIN. If you fail to furnish your correct TIN to a requester, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. If you make a false statement with no reasonable basis that results in no backup withholding, you are subject to a $500 penalty. CRIMINAL PENALTY FOR FALSIFYING INFORMATION. Willfully falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. MISUSE OF TINS. If the requester discloses or uses TINs in violation of Federal law, the requester may be subject to civil and criminal penalties. SPECIFIC INSTRUCTIONS WHAT NAME AND NUMBER TO GIVE THE REQUESTER 22 23 NAME -- If you are an individual, you must generally provide the name shown on your social security card. However, if you have changed your last name, for instance, due to marriage, without informing the Social Security Administration of the name change, please enter your first name, the last name shown on your social security card, and your new last name. NUMBER -- If you are a sole proprietor, you must furnish your individual name and either your SSN or EIN. You may also enter your business name or "doing business as" name on the business name line. Enter your name(s) as shown on your social security card and/or as it was used to apply for your EIN on Form SS-4. WHAT NAME AND NUMBER TO GIVE THE REQUESTER SIGNING THE "PART III -- CERTIFICATION" ON THE SUBSTITUTE FORM W-9 (1) INTEREST, DIVIDEND, AND BARTER EXCHANGE ACCOUNTS OPENED BEFORE 1984 AND BROKER ACCOUNTS CONSIDERED ACTIVE DURING 1983 -- You are required to furnish your correct TIN, but you are not required to sign the certification. (2) INTEREST, DIVIDEND, BROKER, AND BARTER EXCHANGE ACCOUNTS OPENED AFTER 1983 AND BROKER ACCOUNTS CONSIDERED INACTIVE DURING 1983 -- You must sign the certification or backup withholding will apply. If you are subject to backup withholding and you are merely providing your correct TIN to the requester, you must cross out item 2 in the certification before signing the form. (3) REAL ESTATE TRANSACTIONS. You must sign the certification. You may cross out item 2 of the certification. (4) OTHER PAYMENTS. You are required to furnish your correct TIN, but you are not required to sign the certification unless you have been notified that you have previously given an incorrect TIN. Other payments include payments made in the course of the requester's trade or business for rents, royalties, goods (other than bills for merchandise), medical and health care services (including payments to corporations), payments to a nonemployee for services (including attorney and accounting fees), and payments to certain fishing boat crew members. (5) MORTGAGE INTEREST PAID BY YOU, ACQUISITION OR ABANDONMENT OF SECURED PROPERTY, OR IRA CONTRIBUTIONS. You are required to furnish your correct TIN, but you are not required to sign the certification. (6) EXEMPT PAYEES AND PAYMENTS. If you are exempt from backup withholding, you should complete this form to avoid possible erroneous backup withholding. Enter your correct TIN in Part I, write "EXEMPT" in the block in Part II, and sign and date the form. If you are a nonresident alien or foreign entity not subject to backup withholding, give the requester a complete Form W-8, Certificate of Foreign Status. (7) TIN "APPLIED FOR." Follow the instructions under How To Obtain a TIN, on page 1, and sign and date this form. SIGNATURE: For a joint account, only the person whose TIN is shown in Part 1 should sign. PRIVACY ACT NOTICE: Section 6109 requires you to furnish your correct TIN to persons who must file information returns with the IRS to report interest, dividends, and certain other income paid to you, mortgage interest you paid, the acquisition or abandonment of secured property, or contributions you made to an IRA. The IRS uses the numbers for identification purposes and to help verify the accuracy of your tax return. You must provide your TIN whether or not you are required to file a tax return. Payers must generally withhold 31% of taxable interest, dividends, and certain other payments to a payee who does not furnish a TIN to a payor. Certain penalties may also apply. 23 24 WHAT NAME AND NUMBER TO GIVE THE REQUESTER
- --------------------------------------------------- For this type of account: Give name and SSN of: - --------------------------------------------------- 1. Individual The individual 2. Two or more The actual owner of individuals (joint the account or, if account) combined funds, the first individual on the account(1) 3. Custodian account of a The minor(2) minor (Uniform Gift to Minors Act) 4. a. The usual revocable The grantor-trustee(1) savings trust (grantor is also trustee) b. So-called trust The actual owner(1) account that is not a legal or valid trust under state law 5. Sole proprietorship The owner(3) - --------------------------------------------------- - --------------------------------------------------- For this type of account: Give name and SSN of: - --------------------------------------------------- 6. A valid trust, estate, Legal entity(4) or pension trust 7. Corporate The corporation 8. Association, club, The organization religious, charitable, educational, or other tax-exempt organization 9. Partnership The partnership 10. A broker or registered The broker or nominee nominee 11. Account with the The public entity. Department of Agriculture in the name of a public entity (such as a state or local government, school district, or prison) that receives agricultural program payments. - ---------------------------------------------------
(1) List first and circle the name of the person whose number you furnish. (2) Circle the minor's name and furnish the minor's SSN. (3) You must show your individual name, but you may also enter your business or "doing business as" name. You may use either your SSN or EIN. (4) List first and circle the name of the legal trust, estate, or pension trust. (Do not furnish the TIN of the personal representative or trustee unless the legal entity itself is not designated in the account title.) NOTE: If no name is circled when more than one name is listed, the number will be considered to be that of the first name listed. 24 25 Any questions or requests for assistance or additional copies of Booklets, this Letter of Transmittal and Proxy, the Notice of Guaranteed Delivery and Proxy or other materials may be directed to the Information Agent at the address and telephone number set forth below. THE INFORMATION AGENT: [GEORGESON & COMPANY LOGO] WALL STREET PLAZA NEW YORK, NEW YORK 10005 (800) 223-2064 (CALL TOLL-FREE) BANKS AND BROKERS CALL COLLECT: (212) 440-9918 Preferred Shareholders may contact the Dealer Manager at its address and telephone number set forth below with any questions regarding the terms of the Offer and solicitation of proxies. In addition, Preferred Shareholders may also contact their broker, dealer, commercial bank, trust company or other nominee for assistance concerning the Offer and solicitation of proxies. THE DEALER MANAGER: MERRILL LYNCH & CO. WORLD FINANCIAL CENTER 250 VESEY STREET NEW YORK, NEW YORK 10281 (888) ML4-TNDR (TOLL-FREE) (888) 654-8637 (TOLL-FREE) EX-99.(A)B-3B 4 NE POWER FORM OF L/T - 6% CUMULATIVE PREFERRED 1 LETTER OF TRANSMITTAL RELATING TO SHARES OF 6% CUMULATIVE PREFERRED STOCK OF [NEW ENGLAND POWER COMPANY LOGO] NEW ENGLAND POWER COMPANY TENDERED PURSUANT TO THE OFFER TO PURCHASE FOR CASH BY NEW ENGLAND ELECTRIC SYSTEM, DATED NOVEMBER 6, 1997, FOR PURCHASE AT A PURCHASE PRICE OF $ PER SHARE - -------------------------------------------------------------------------------- THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., EASTERN STANDARD TIME, ON FRIDAY, DECEMBER 12, 1997, UNLESS THE OFFER IS EXTENDED (THE EXPIRATION DATE). - -------------------------------------------------------------------------------- To: IBJ Schroder Bank & Trust Company (the Depositary) By First-Class Mail: IBJ Schroder Bank & Trust Company P.O. Box 8-1 Bowling Green Station New York, New York 10274 Attn: Reorganization Department By Facsimile: (212) 858-2611 By Hand or Overnight Delivery: IBJ Schroder Bank & Trust Company One State Street New York, New York 10004 Attn: Reorganization Department Securities Processing Window SC-1 To Conform: (212) 858-2103 ATTENTION THIS LETTER OF TRANSMITTAL IS TO BE USED BY PREFERRED SHAREHOLDERS WHO ARE TENDERING SHARES PURSUANT TO THE OFFER. ANY PREFERRED SHAREHOLDER WHO HAS ANY QUESTIONS AS TO HOW TO COMPLETE THIS LETTER OF TRANSMITTAL SHOULD CONTACT THE INFORMATION AGENT AT (800) 223-2064 (TOLL FREE AND FOR BANKS AND BROKERS (212) 440-9918 (CALL COLLECT. 2 All capitalized terms used herein and not defined herein have the meanings ascribed to them in the Offer to Purchase and Proxy Statement and Information Statement. NEW ENGLAND ELECTRIC SYSTEM, A MASSACHUSETTS VOLUNTARY ASSOCIATION (NEES), WILL NOT BE REQUIRED TO ACCEPT FOR PAYMENT OR PAY FOR ANY SHARES TENDERED IF THE PROPOSED AMENDMENT IS NOT APPROVED AND ADOPTED AT THE SPECIAL MEETING. 6% CUMULATIVE PREFERRED SHAREHOLDERS HAVE THE RIGHT TO VOTE ON THE PROPOSED AMENDMENT REGARDLESS OF WHETHER THEY TENDER THEIR SHARES BY VOTING IN PERSON AT THE SPECIAL MEETING. NOTE: SIGNATURES MUST BE PROVIDED BELOW. PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY. NOTE: IF SHARES ARE BEING TENDERED, THE REMAINDER OF THIS LETTER OF TRANSMITTAL MUST BE COMPLETED, INCLUDING THE SUBSTITUTE FORM W-9 BELOW. The name "New England Electric System" means the trustee or trustees for the time being (as trustee or trustees but not personally) under an agreement and declaration of trust dated January 2, 1926, as amended, which is hereby referred to, and a copy of which as amended has been filed with the Secretary of the Commonwealth of Massachusetts. Any agreement, obligation or liability made, entered into or incurred by or on behalf of New England Electric System binds only its trust estate, and no shareholder, director, trustee, officer or agent thereof assumes or shall be held to any liability therefor. 2 3 PLEASE COMPLETE IF APPLICABLE. - -------------------------------------------------------------------------------- DESCRIPTION OF SHARES TENDERED(1)
- --------------------------------------------------------------------------------------------------------------------- NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) (PLEASE USE PREADDRESSED LABEL OR FILL IN, IF BLANK, EXACTLY AS NAME(S) APPEAR(S) ON SHARE SHARE CERTIFICATE(S) AND SHARE(S) TENDERED/VOTED CERTIFICATE(S) AND SHARE(S) TENDERED) (ATTACH ADDITIONAL SIGNED LIST IF NECESSARY)(1) - --------------------------------------------------------------------------------------------------------------------- NUMBER OF TOTAL NUMBER SHARES NOT OF SHARES TENDERED BUT REPRESENTED NUMBER AS TO WHICH SHARE CERTIFICATE BY SHARE OF SHARES PROXIES NUMBER(S)(2) CERTIFICATE(S)(2) TENDERED(3) GIVEN ONLY --------------------------------------------------------------------- --------------------------------------------------------------------- --------------------------------------------------------------------- --------------------------------------------------------------------- Total Shares: - ------------------------------------------------------------------------------------------------------------------
(1) If tendering or voting Share(s), please fill in table exactly as information appears on the Certificate(s). (2) Need not be completed by Preferred Shareholders tendering by book-entry transfer. (3) Unless otherwise indicated, it will be assumed that all Shares represented by any Certificate(s) delivered to the Depositary are being tendered. See Instruction 4. - -------------------------------------------------------------------------------- 3 4 PLEASE COMPLETE IF APPLICABLE. - -------------------------------------------------------------------------------- SIGNATURE(S) OF REGISTERED HOLDER(S)* -------------------------------------------------------------------------- (SIGNATURE) -------------------------------------------------------------------------- (SIGNATURE) Dated: ---------------------------------------------------------------- , 1997 Name(s): ---------------------------------------------------------------------- ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ (PLEASE PRINT) Capacity (full title): -------------------------------------------------------- Address: ---------------------------------------------------------------------- ------------------------------------------------------------------------------ (INCLUDE ZIP CODE) Daytime Area Code and Telephone No.: ------------------------------------------ * Must be signed by the registered holder(s) exactly as name(s) appear(s) on the stock certificate(s) or on a security position listing or by person(s) authorized to become registered holder(s) by certificates and documents transmitted herewith. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, please set forth full title and see Instruction 5. GUARANTEE OF SIGNATURE(S) (SEE INSTRUCTIONS 1 AND 5) Authorized Signature: --------------------------------------------------------- Name: ------------------------------------------------------------------------- Name of Firm: ----------------------------------------------------------------- (PLEASE PRINT) Address of Firm: -------------------------------------------------------------- ------------------------------------------------------------------------------ (INCLUDE ZIP CODE) Area Code and Telephone No.: -------------------------------------------------- Dated: ----------------------------------------------------------------- , 1997 ------------------------------------------------------------------------------ 4 5 DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS TO A FACSIMILE NUMBER OTHER THAN THE ONE LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. YOU MUST SIGN THIS LETTER OF TRANSMITTAL IN THE APPROPRIATE SPACE THEREFOR PROVIDED ABOVE AND COMPLETE THE SUBSTITUTE FORM W-9 SET FORTH BELOW OR A FORM W-8, AS APPLICABLE. SEE INSTRUCTION 8 AND "IMPORTANT TAX INFORMATION" BELOW. DO NOT SEND ANY CERTIFICATES TO NEES, NEW ENGLAND POWER COMPANY, A MASSACHUSETTS CORPORATION AND DIRECT SUBSIDIARY OF NEES (THE POWER COMPANY), MERRILL LYNCH & CO., OR GEORGESON & COMPANY, INC. THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. This Letter of Transmittal is to be used if (i) Certificates are to be forwarded herewith or (ii) delivery of Shares (as defined below) is to be made by book-entry transfer pursuant to the procedures set forth under the heading Terms of the Offer -- Procedure for Tendering Shares in the Offer to Purchase and Proxy and Information Statement (as defined below). Preferred Shareholders who wish to tender Shares but cannot deliver their Shares and all other documents required hereby to the Depositary on or prior to the Expiration Date must tender their Shares pursuant to the guaranteed delivery procedure set forth under the heading Terms of the Offer -- Procedure for Tendering Shares -- Guaranteed Delivery Procedure in the Offer to Purchase and Proxy and Information Statement. See Instruction 2. DELIVERY OF DOCUMENTS TO NEES, THE POWER COMPANY OR A BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE A VALID DELIVERY. 5 6 PLEASE COMPLETE: - -------------------------------------------------------------------------------- [ ] CHECK HERE IF TENDERED SHARES ARE ENCLOSED HEREWITH.
- -------------------------------------------------------------------------------- (BOXES BELOW FOR USE BY ELIGIBLE INSTITUTIONS ONLY) - -------------------------------------------------------------------------------- [ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER TO THE DEPOSITARY'S ACCOUNT AT ONE OF THE BOOK-ENTRY TRANSFER FACILITIES AND COMPLETE THE FOLLOWING: Name of tendering institution: ---------------------------------------------------- (PLEASE PRINT) Check applicable box: [ ] DTC [ ] PDTC Account No. ----------------------------------------------------------------------- Transaction Code No. -------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- [ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING: Name(s) of tendering Preferred Shareholder(s): ------------------------------------- ----------------------------------------------------------------------------------- (PLEASE PRINT) Date of execution of Notice of Guaranteed Delivery: ---------------------------------- Name of institution that guaranteed delivery: ---------------------------------------- If delivery is by book-entry transfer: Name of tendering institution: ------------------------------------------------------- Account No. ------------------------------------------------- at [ ] DTC or [ ] PDTC (CHECK ONE) Transaction Code No. -----------------------------------------------------------------
- -------------------------------------------------------------------------------- 6 7 NOTE: SIGNATURES MUST BE PROVIDED ABOVE PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY Ladies and Gentlemen: The above signed hereby tenders to NEES the shares in the amount set forth in the box above labeled "Description of Shares Tendered" pursuant to NEES' offer to purchase any and all of the outstanding shares of the 6% Cumulative Preferred Stock (the Shares) of the Power Company shown above to which this Letter of Transmittal is applicable at the purchase price per Share shown above (the Purchase Price), net to the seller in cash, upon the terms and subject to the conditions set forth in the Offer to Purchase and Proxy and Information Statement, dated November 6, 1997 (the Booklet), receipt of which is hereby acknowledged, and in this Letter of Transmittal (which together constitutes the Offer). THE OFFER IS CONDITIONED UPON THE PROPOSED AMENDMENT BEING APPROVED AND ADOPTED AT THE SPECIAL MEETING (AS DEFINED IN THE BOOKLET). See Proposed Amendment and Proxy Solicitation, Terms of the Offer -- Extension of Tender Period; Termination; Amendments and Terms of the Offer -- Certain Conditions of the Offer in the Booklet. Subject to, and effective upon, acceptance for payment of and payment for the Shares tendered herewith in accordance with the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of any such extension or amendment), the above signed hereby sells, assigns and transfers to, or upon the order of, NEES all right, title and interest in and to all the Shares that are being tendered hereby and hereby constitutes and appoints IBJ Schroder Bank & Trust Company (the Depositary) the true and lawful agent and attorney-in-fact of the above signed with respect to such Shares, with full power of substitution (such power of attorney being an irrevocable power coupled with an interest), to (a) deliver certificates for such Shares, or transfer ownership of such Shares on the account books maintained by any of the Book-Entry Transfer Facilities, together, in any such case, with all accompanying evidences of transfer and authenticity, to or upon the order of NEES, (b) present such Shares for registration and transfer on the books of the Power Company and (c) receive all benefits and otherwise exercise all rights of beneficial ownership of such Shares, all in accordance with the terms of the Offer. The above signed hereby represents and warrants that the above signed has full power and authority to tender, sell, assign and transfer the Shares tendered hereby and that, when and to the extent the same are accepted for payment by NEES, NEES will acquire good, marketable and unencumbered title thereto, free and clear of all liens, restrictions, charges, encumbrances, conditional sales agreements or other obligations relating to the sale or transfer thereof, and the same will not be subject to any adverse claims. The above signed will, upon request, execute and deliver any additional documents deemed by the Depositary or NEES to be necessary or desirable to complete the sale, assignment and transfer of the Shares tendered hereby. All authority herein conferred or agreed to be conferred shall not be affected by, and shall survive, the death or incapacity of the above signed, and any obligations of the above signed hereunder shall be binding upon the heirs, personal representatives, successors and assigns of the above signed. Except as stated in the Offer, this tender is irrevocable. The above signed understands that tenders of Shares pursuant to any one of the procedures described under the heading Terms of the Offer -- Procedure for Tendering Shares in the Booklet and in the instructions hereto will constitute the above signed's acceptance of the terms and conditions of the Offer, including the above signed's representation and warranty that (a) the above signed has a net long position in the Shares being tendered within the meaning of Rule 14e-4 promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act), and (b) the tender of such Shares complies with Rule 14e-4. NEES' acceptance for payment of Shares tendered pursuant to the Offer will constitute a binding agreement between the above signed and NEES upon the terms and subject to the conditions of the Offer. The above signed recognizes that, under certain circumstances set forth in the Booklet, NEES may terminate or amend the Offer or may not be required to purchase any of the Shares tendered hereby. In either event, the above signed understands that certificate(s) for any Shares not tendered or not purchased will be returned to the above signed. 7 8 Unless otherwise indicated in the box below under the heading "Special Payment Instructions," please issue the check for the Purchase Price of any Shares purchased, and/or return any Shares not tendered or not purchased, in the name(s) of the above signed (and, in the case of Shares tendered by book-entry transfer, by credit to the account at the Book-Entry Transfer Facility designated above). Unless otherwise indicated in the box below under the heading "Special Delivery Instructions," please mail the check for the Purchase Price of any Shares purchased and/or any certificates for Shares not tendered or not purchased (and accompanying documents, as appropriate) to the above signed at the address shown below. In the event that both "Special Payment Instructions" and "Special Delivery Instructions" are completed, please issue the check for the Purchase Price of any Shares purchased and/or return any Shares not tendered or not purchased in the name(s) of, and mail said check and/or any certificates to, the person(s) so indicated. The above signed recognizes that NEES has no obligation, pursuant to the "Special Payment Instructions," to transfer any Shares from the name of the registered holder(s) thereof if NEES does not accept for payment any of the Shares so tendered. 8 9 - -------------------------------------------------- -------------------------------------------------- SPECIAL PAYMENT INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS SEE INSTRUCTIONS 4, 6, AND 7 SEE INSTRUCTIONS 4, 6, AND 7 To be completed ONLY if the check for To be completed ONLY if the check for the the Purchase Price of Shares purchased Purchase Price of Shares purchased and/or and/or certificates for Shares not tendered certificates for Shares not tendered or not or not purchased are to be issued in the purchased are to be mailed to someone other name of someone other than the above signed. than the above signed or to the above signedat an address other than that shown below the above signed's signature(s). Issue: [ ] Check [ ] Certificate(s) to: Mail: [ ] Check [ ] Certificate(s) to: Name Name ------------------------------------------- ------------------------------------------- (PLEASE PRINT) (PLEASE PRINT) Address Address ---------------------------------------- ---------------------------------------- ----------------------------------------------- ----------------------------------------------- (INCLUDE ZIP CODE) (INCLUDE ZIP CODE) ----------------------------------------------- ----------------------------------------------- (TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER)* * SEE SUBSTITUTE FORM W-9 BELOW. Credit Shares delivered by book-entry transfer and not purchased to the Book-Entry Transfer Facility Account set forth below: [ ] DTC [ ] PDTC Account No.: ----------------------------------------------- - -------------------------------------------------- --------------------------------------------------
[ ] CHECK HERE IF ANY OF THE CERTIFICATES REPRESENTING SHARES THAT YOU OWN AND WISH TO TENDER HAVE BEEN LOST, DESTROYED OR STOLEN. (SEE INSTRUCTION 12.) Number of Shares represented by lost, destroyed or stolen certificates: -------------------------------------- 9 10 SOLICITED TENDERS (SEE INSTRUCTION 10) As provided in the Offer to Purchase and Proxy and Information Statement and Instruction 10 to the Letter of Transmittal, NEES will pay to any Soliciting Dealer, as defined in Instruction 10, a solicitation fee of $1.50 per Share for any Shares tendered, accepted for payment and paid pursuant to the Offer (except that for transactions for beneficial owners equal to or exceeding 2,500 Shares, NEES will pay a solicitation fee of $1.00 per Share). Solicitation fees payable in transactions for beneficial owners of 2,500 or more Shares shall be paid 80% to the Dealer Manager and 20% to the Soliciting Dealers (which may be the Dealer Manager). However, Soliciting Dealers will not be entitled to a solicitation fee for Shares beneficially owned by such Soliciting Dealer. The undersigned represents that the Soliciting Dealer which solicited and obtained this tender is: Name of Firm: ------------------------------------------------------------------ (PLEASE PRINT) Name of Individual Broker or Financial Consultant: ----------------------------- Telephone Number of Broker or Financial Consultant: ---------------------------- Identification Number (if known): ---------------------------------------------- Address: ----------------------------------------------------------------------- - ------------------------------------------------------------------------------- (INCLUDE ZIP CODE) The following to be completed ONLY if customer's Shares held in nominee name are tendered. (ATTACH ADDITIONAL LIST IF NECESSARY.) - -------------------------------------------------------------------------------- NAME OF BENEFICIAL OWNER NUMBER OF SHARES TENDERED - ----------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------------
The acceptance of compensation by such Soliciting Dealer will constitute a representation by it that (a) it has complied with the applicable requirements of the Exchange Act and the applicable rules and regulations thereunder, in connection with such solicitation; (b) it is entitled to such compensation for such solicitation under the terms and conditions of the Offer (unless such solicitation fee is directed to another Soliciting Dealer); (c) in soliciting tenders of Shares, it has used no soliciting materials other than those furnished by NEES; and (d) if it is a foreign broker or dealer not eligible for membership in the National Association of Securities Dealers, Inc. (the NASD), it has agreed to conform to the NASD's Rules of Fair Practice in making the solicitations. The payment of compensation to any Soliciting Dealer is dependent on such Soliciting Dealer returning a Notice of Solicited Tenders to the Depositary. (IF SHARES ARE BEING TENDERED, PLEASE ALSO COMPLETE SUBSTITUTE FORM W-9 BELOW OR A FORM W-8, AS APPLICABLE) SIGN HERE: ---------------------------------------------------------------------- - -------------------------------------------------------------------------------- (SIGNATURE(S) OF REGISTERED HOLDER(S)) 10 11 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER 1. GUARANTEE OF SIGNATURES. Except as otherwise provided below, all signatures on this Letter of Transmittal must be guaranteed by a firm that is a member of a registered national securities exchange or the NASD, or by a commercial bank or trust company having an office or correspondent in the United States which is a participant in an approved Signature Guarantee Medallion Program (an Eligible Institution). Signatures on this Letter of Transmittal need not be guaranteed (a) if this Letter of Transmittal is signed by the registered holder(s) of the Shares (which term, for purposes of this document, shall include any participant in one of the Book-Entry Transfer Facilities whose name appears on a security position listing as the owner of Shares) tendered herewith and such holder(s) has not completed the box above under the heading "Special Payment Instructions" or the box above under the heading "Special Delivery Instructions" on this Letter of Transmittal or (b) if such Shares are tendered for the account of an Eligible Institution. See Instruction 5. 2. DELIVERY OF LETTER OF TRANSMITTAL AND SHARES. This Letter of Transmittal is to be used if (a) certificates are to be forwarded herewith or (b) delivery of Shares is to be made by book-entry transfer pursuant to the procedures set forth under the heading Terms of the Offer -- Procedure for Tendering Shares in the Booklet. Certificates for all physically delivered Shares, or a confirmation of a book-entry transfer into the Depositary's account at the Book-Entry Transfer Facilities of Shares delivered electronically, as well as a properly completed and duly executed Letter of Transmittal (or facsimile thereof) and any other documents required by this Letter of Transmittal, must be received by the Depositary at one of its addresses set forth on the front page of this Letter of Transmittal on or prior to the Expiration Date with respect to all Shares. Preferred Shareholders who wish to tender their Shares yet who cannot deliver their Shares and all other required documents to the Depositary on or prior to the Expiration Date must tender their Shares pursuant to the guaranteed delivery procedure set forth under the heading Terms of the Offer -- Procedure for Tendering Shares in the Booklet. Pursuant to such procedure: (i) such tender must be made by or through an Eligible Institution, (ii) a properly completed and duly executed Notice of Guaranteed Delivery in the form provided by NEES (with any required signature guarantees) must be received by the Depositary on or prior to the applicable Expiration Date and (iii) the certificates for all physically delivered Shares, or a confirmation of a book-entry transfer into the Depositary's account at one of the Book-Entry Transfer Facilities of Shares delivered electronically, as well as a properly completed and duly executed Letter of Transmittal (or facsimile thereof) and any other documents required by this Letter of Transmittal must be received by the Depositary by 5:00 p.m. (New York City time) within three New York Stock Exchange (NYSE) trading days after the date of execution of such Notice of Guaranteed Delivery, all as provided under the heading Terms of the Offer -- Procedure for Tendering Shares in the Booklet. A NYSE trading day is any day on which the NYSE is open for business. THE METHOD OF DELIVERY OF SHARES AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING PREFERRED SHAREHOLDER. IF CERTIFICATES FOR SHARES ARE SENT BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. No alternative, conditional or contingent tenders will be accepted. See Terms of the Offer -- Number of Shares; Purchase Price; Expiration Date; Dividends in the Booklet. By executing this Letter of Transmittal (or facsimile thereof), the tendering Preferred Shareholder waives any right to receive any notice of the acceptance for payment of the Shares. 3. VOTING. THE OFFER IS CONDITIONED UPON THE PROPOSED AMENDMENT BEING APPROVED AND ADOPTED AT THE SPECIAL MEETING. In addition, Preferred Shareholders have the right to vote on the Proposed Amendment regardless of whether they tender their Shares by voting in person at the Special Meeting. By executing a Notice of Guaranteed Delivery, a Preferred Shareholder is deemed to have tendered the Shares described in such Notice of Guaranteed Delivery. The Offer is being sent to all persons in whose names Shares are registered on the books of the Power Company on November 6, 1997 as well as to all persons in whose name Shares are registered on November 12, 1997, which is the Record 11 12 Date. No record date is fixed for determining which persons are permitted to tender Shares. However, only the holders of record, or holders who acquire an assignment of proxy from such holders, are permitted to vote on the Proposed Amendment. Any person who is the beneficial owner but not the record holder of Shares must arrange for the record transfer of such Shares prior to tendering or direct the record holder to tender on behalf of the beneficial holder. 4. PARTIAL TENDERS. NOT APPLICABLE TO SHAREHOLDERS WHO TENDER BY BOOK- ENTRY TRANSFER. If fewer than all the Shares represented by any certificate delivered to the Depositary are to be tendered, fill in the number of Shares that are to be tendered in the box above under the heading "Description of Shares Tendered." In such case, a new certificate for the remainder of the Shares represented by the old certificate will be sent to the person(s) signing this Letter of Transmittal, unless otherwise provided in the box above under the heading "Special Payment Instructions" or "Special Delivery Instructions," as promptly as practicable following the expiration or termination of the Offer. All Shares represented by certificates delivered to the Depositary will be deemed to have been tendered unless otherwise indicated. 5. SIGNATURES ON LETTER OF TRANSMITTAL AND NOTICE OF GUARANTEED DELIVERY; STOCK POWERS AND ENDORSEMENTS. If either this Letter of Transmittal or the Notice of Guaranteed Delivery (together, the Tender Documents) is signed by the registered holder(s) of the Shares tendered hereby, the signature(s) must correspond with the name(s) as written on the face of the certificates without alteration, enlargement or any change whatsoever. If any of the Shares tendered under either Tender Document is held of record by two or more persons, all such persons must sign such Tender Document. If any of the Shares tendered or voted under either Tender Document are registered in different names or different certificates, it will be necessary to complete, sign and submit as many separate Tender Documents as there are different registrations of certificates. If either Tender Document is signed by the registered holder(s) of the Shares tendered hereby, no endorsements of certificates or separate stock powers are required unless payment of the Purchase Price is to be made to, or Shares not tendered or not purchased are to be registered in the name of, any person other than the registered holder(s). Signatures on any such certificates or stock powers must be guaranteed by an Eligible Institution. See Instruction 1. If this Letter of Transmittal is signed by a person other than the registered holder(s) of the Shares tendered hereby, certificates must be endorsed or accompanied by appropriate stock powers, in either case, signed exactly as the name(s) of the registered holder(s) appear(s) on the certificates for such Shares. Signature(s) on any such certificates or stock powers must be guaranteed by an Eligible Institution. See Instruction 1. If either Tender Document or any certificate or stock power is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, such person should so indicate when signing, and proper evidence satisfactory to NEES of the authority of such person so to act must be submitted. 6. STOCK TRANSFER TAXES. Except as set forth in this Instruction 6, NEES will pay or cause to be paid any stock transfer taxes with respect to the sale and transfer of any Shares to it or its order pursuant to the Offer. If, however, payment of the Purchase Price is to be made to, or Shares not tendered or not purchased are to be registered in the name of, any person other than the registered holder(s), or if tendered Shares are registered in the name of any person other than the person(s) signing this Letter of Transmittal, the amount of any stock transfer taxes (whether imposed on the registered holder(s), such other person or otherwise) payable on account of the transfer to such person will be deducted from the Purchase Price unless satisfactory evidence of the payment of such taxes, or exemption therefrom, is submitted. See Terms of the Offer -- Acceptance of Shares for Payment and Payment of Purchase Price and Dividends and Certain U.S. Federal Income Tax Considerations in the Booklet. EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY TO AFFIX TRANSFER TAX STAMPS TO THE CERTIFICATES REPRESENTING SHARES TENDERED HEREBY. 12 13 7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If the check for the Purchase Price of any Shares purchased is to be issued in the name of, and/or any Shares not tendered or not purchased are to be returned to, a person other than the person(s) signing this Letter of Transmittal or if the check and/or any certificate for Shares not tendered or not purchased are to be mailed to someone other than the person(s) signing this Letter of Transmittal or to an address other than that shown in the box above under the heading "Description of Shares Tendered," then the "Special Payment Instructions" and/or "Special Delivery Instructions" on this Letter of Transmittal should be completed. Preferred Shareholders tendering Shares by book-entry transfer will have any Shares not accepted for payment returned by crediting the account maintained by such Preferred Shareholder at the Book-Entry Transfer Facility from which such transfer was made. 8. SUBSTITUTE FORM W-9 AND FORM W-8. A tendering Preferred Shareholder is required to provide the Depositary with either a correct Taxpayer Identification Number (TIN) on Substitute Form W-9, which is provided under "Important Tax Information" below, or a properly completed Form W-8 unless exempt therefrom. Failure to provide the information on either Substitute Form W-9 or Form W-8 may subject the tendering and/or voting Preferred Shareholder to 31% federal income tax backup withholding on the payment of the Purchase Price for the Shares or on the Special Cash Payment. The tendering and/or voting Preferred Shareholder may write "Applied For" in Part I of Substitute Form W-9 and sign the "Certificate of Awaiting Taxpayer Identification Number" of Substitute Form W-9 if the Preferred Shareholder has not been issued a TIN and has applied for a number or intends to apply for a number in the near future. If "Applied For" is written in Part I of Substitute Form W-9 and the "Certificate of Awaiting Taxpayer Identification Number" of Substitute Form W-9 is signed and the Depositary is not provided with a TIN by the time of payment, the Depositary will withhold 31% on all payments of the Purchase Price for the Shares until a TIN is provided to the Depositary. 9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Any questions or requests for assistance may be directed to the Information Agent or the Dealer Manager at their respective telephone numbers and addresses listed below. Requests for additional copies of the Booklet, this Letter of Transmittal, or other tender offer materials may be directed to the Information Agent or the Dealer Manager and such copies will be furnished promptly at NEES' expense. Preferred Shareholders may also contact their local broker, dealer, commercial bank or trust company for assistance concerning the Offer. 10. SOLICITED TENDERS. Upon the terms and subject to the conditions of the Offer and this instruction, NEES will pay a solicitation fee of $1.50 per Share (except that for transactions for beneficial owners equal to or exceeding 2,500 Shares, NEES will pay a solicitation fee of $1.00 per Share of which at least eighty percent (80%) shall be paid to the Dealer Manager and twenty percent (20%) to the Soliciting Dealer (which may be the Dealer Manager)). With respect to fees payable pursuant to this paragraph involving transactions for beneficial owners whose ownership is less than 2,500 Shares, any fees payable hereunder shall be paid in full to the Dealer Manager unless a Soliciting Dealer is designated (as described below), in which case such fee shall be payable in full to such designated Soliciting Dealer (which designated Soliciting Dealer may be the Dealer Manager). The Letters of Transmittal must include the name of an entity which) for any Shares tendered, accepted for payment and paid pursuant to the Offer obtained the tender, the name of (a) any broker or dealer in securities, including the Dealer Manager in its capacity as a broker or dealer, which is a member of any national securities exchange or of the NASD, (b) a foreign broker or dealer not eligible for membership in the NASD which agrees to conform to the NASD's Rules of Fair Practice in soliciting tenders outside the United States to the same extent as though it were an NASD member, or (c) bank or trust company (each of which is referred to herein as a Soliciting Dealer). No solicitation fee shall be payable to a Soliciting Dealer with respect to the tender of Shares by a holder unless the Letter of Transmittal accompanying such tender designates such Soliciting Dealer. No solicitation fee shall be payable to a Soliciting Dealer in respect of Shares registered in the name of such Soliciting Dealer unless such Shares are held by such Soliciting Dealer as nominee and such Shares are being tendered, for the benefit of one or more beneficial owners identified on the Letter of Transmittal or on the Notice of Solicited Tenders. No solicitation fee shall be payable to a Soliciting Dealer if such Soliciting Dealer is required for any reason to transfer the amount of such fee to a depositing holder (other than itself). No solicitation fee shall be paid to a Soliciting Dealer with respect to Shares tendered or proxies tendered for such Soliciting Dealer's own account. A Soliciting Dealer shall not be 13 14 entitled to a solicitation fee for Shares beneficially owned by such Soliciting Dealer. No broker, dealer, bank, trust company or other nominee shall be deemed to be the agent of NEES, the Power Company, the Depositary, the Dealer Manager or the Information Agent for purposes of the Offer. Soliciting Dealers will include any of the organizations described in clauses (a), (b) and (c) above even when the activities of such organizations in connection with the Offer consist solely of forwarding to clients materials relating to the Offer, including the Letter of Transmittal and tendering Shares as directed by beneficial owners thereof. No Soliciting Dealer is authorized to make any recommendation to holders of Shares as to whether to tender or refrain from tendering in the Offer. No assumption is made, in making payment to any Soliciting Dealer, that its activities in connection with the Offer included any activities other than those described above, and for all purposes noted in all materials relating to the Offer, the term "solicit" shall be deemed to mean no more than processing shares tendered or forwarding to customers materials regarding the Offer. 11. IRREGULARITIES. All questions as to the form of documents and the validity, eligibility (including time of receipt) and acceptance of any tender of Shares will be determined by NEES, in its sole discretion, and its determination shall be final and binding. NEES reserves the absolute right to reject any and all tenders of Shares that it determines are not in proper form or the acceptance for payment of or payment for Shares that may, in the opinion of NEES' counsel, be unlawful. NEES also reserves the absolute right to waive any of the conditions to the Offer or any defect or irregularity in any tender of Shares and NEES' interpretation of the terms and conditions of the Offer (including these instructions) shall be final and binding. Unless waived, any defects or irregularities in connection with tenders must be cured within such time as NEES shall determine. None of NEES, the Dealer Manager, the Depositary, the Information Agent or any other person shall be under any duty to give notice of any defect or irregularity in tenders nor shall any of them incur any liability for failure to give any such notice. Tenders will not be deemed to have been made until all defects and irregularities have been cured or waived. 12. LOST, DESTROYED OR STOLEN CERTIFICATES. If any certificate representing Shares has been lost, destroyed or stolen, the Preferred Shareholder should promptly notify the Depositary by checking the box above immediately following the "Special Payment Instructions/Special Delivery Instructions" and indicating the number of Shares lost, destroyed or stolen. The Preferred Shareholder will then be instructed as to the procedures that must be taken in order to replace the certificate. The tender of Shares pursuant to this Letter of Transmittal will not be valid unless on or prior to the Expiration Date: (a) such procedures have been completed and a replacement certificate for the Shares has been delivered to the Depositary or (b) a Notice of Guaranteed Delivery has been delivered to the Depositary. See Instruction 2. IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE COPY HEREOF), DULY EXECUTED, TOGETHER WITH, IF APPLICABLE, CERTIFICATES OR CONFIRMATION OF A BOOK-ENTRY TRANSFER, AND ALL OTHER REQUIRED DOCUMENTS MUST BE RECEIVED BY THE DEPOSITARY, OR, IF APPLICABLE, THE NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE DEPOSITARY, ON OR PRIOR TO THE EXPIRATION DATE. 14 15 IMPORTANT TAX INFORMATION Under Federal income tax law, a Preferred Shareholder whose tendered Shares are accepted for payment is required to provide the Depositary (as payer) with either such Preferred Shareholder's correct TIN on Substitute Form W-9 below or a properly completed Form W-8. If such Preferred Shareholder is an individual, the TIN is such Preferred Shareholder's social security number. For businesses and other entities, the number is the Federal employer identification number. If the Depositary is not provided with the correct TIN or properly completed Form W-8, the Preferred Shareholder may be subject to a $50 penalty imposed by the Internal Revenue Service. In addition, payments that are made to such Preferred Shareholder with respect to Shares purchased pursuant to the Offer may be subject to backup withholding. The Form W-8 can be obtained from the Depositary. See the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" below for additional instructions. If Federal income tax backup withholding applies, the Depositary is required to withhold 31% of any payments made to the Preferred Shareholder. Backup withholding is not an additional tax. Rather, the Federal income tax liability of persons subject to backup withholding will be reduced by the amount of the tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained. PURPOSE OF SUBSTITUTE FORM W-9 AND FORM W-8 To avoid backup withholding on payments that are made to a Preferred Shareholder with respect to Shares purchased pursuant to the Offer, the Preferred Shareholder is required to notify the Depositary of his or her correct TIN by completing the Substitute Form W-9 below certifying that the TIN provided on Substitute Form W-9 is correct and that (a) the Preferred Shareholder has not been notified by the Internal Revenue Service that he or she is subject to Federal income tax backup withholding as a result of failure to report all interest or dividends or (b) the Internal Revenue Service has notified the Preferred Shareholder that he or she is no longer subject to Federal income tax backup withholding. Foreign Preferred Shareholders must submit a properly completed Form W-8 in order to avoid the applicable backup withholding; provided, however, that backup withholding will not apply to foreign Preferred Shareholders subject to 30% (or lower treaty rate) withholding on gross payments received pursuant to the Offer. WHAT NUMBER TO GIVE THE DEPOSITARY The Preferred Shareholder is required to give the Depositary the social security number or employer identification number of the registered owner of the Shares. If the Shares are in more than one name or are not in the name of the actual owner, consult the "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" below for additional guidance on which number to report. 15 16 SEE "GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER OF SUBSTITUTE FORM W-9" FOR ADDITIONAL INSTRUCTIONS. SUBSTITUTE FORM W-9 - ---------------------------------------------------------------------------------------------- PAYER'S NAME: IBJ SCHRODER BANK & TRUST COMPANY, AS DEPOSITARY - ---------------------------------------------------------------------------------------------- SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN IN THE FORM W-9 BOX AT RIGHT AND CERTIFY BY SIGNING AND ---------------------- DATING BELOW. ---------------------------------------- Social Security Number or Employer NAME (Please Print) Identification Number (If Awaiting TIN write PAYER'S REQUEST FOR "Applied for") TAXPAYER IDENTIFICATION ---------------------------------------------------------------- NUMBER (TIN) ADDRESS PART II -- For Payees NOT subject to backup withholding, see the ---------------------------------------- "Guidelines for Cer- CITY STATE ZIP CODE tification of Taxpayer Identification Number on Substitute Form DEPARTMENT OF THE TREASURY W-9" and complete as INTERNAL REVENUE SERVICE instructed therein ---------------------------------------------------------------------------------------------
PART III -- CERTIFICATION: -- Under penalties of perjury, I certify that: (1) The number shown on this form is my correct taxpayer identification number (or I am waiting for a number to be issued to me), and (2) I am not subject to backup withholding either because: (a) I am exempt from backup withholding, or (b) I have not been notified by the Internal Revenue Service (IRS) that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding. SIGNATURE DATE , 1997 --------------------------- -------------------- CERTIFICATION INSTRUCTIONS -- You must cross out item (2) above if you have been notified by the IRS that you are currently subject to backup withholding because of underreporting interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding you received another notification from the IRS that you are no longer subject to backup withholding do not cross out item (2). Also see instructions in the enclosed Guidelines. - -------------------------------------------------------------------------------- YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU WRITE "APPLIED FOR" IN PART I OF SUBSTITUTE FORM W-9. - -------------------------------------------------------------------------------- CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (a) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (b) I intend to mail or deliver such an application in the near future. I understand that if I do not provide a taxpayer identification number within sixty (60) days, 31% of all reportable payments made to me thereafter will be withheld until I provide a number. ---------------------------------------- ----------------------------, 1997 SIGNATURE DATE - -------------------------------------------------------------------------------- NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU. PLEASE REVIEW THE "GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9" FOR ADDITIONAL DETAILS. 16 17 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 SECTION REFERENCES ARE TO THE INTERNAL REVENUE CODE. PURPOSE OF FORM. A person who is required to file an information return with the IRS must obtain your correct taxpayer identification number (TIN) to report income paid to you, real estate transactions, mortgage interest you paid, the acquisition or abandonment of secured property, or contributions you made to an IRA. Use Form W-9 to furnish your correct TIN to the requester (the person asking you to furnish your TIN) and, when applicable, (1) to certify that the TIN you are furnishing is correct (or that you are waiting for a number to be issued), (2) to certify that you are not subject to backup withholding, and (3) to claim exemption from backup withholding if you are an exempt payee. Furnishing your correct TIN and making the appropriate certifications will prevent certain payments from being subject to backup withholding. NOTE: IF A REQUESTER GIVES YOU A FORM OTHER THAN W-9 TO REQUEST YOUR TIN, YOU MUST USE THE REQUESTER'S FORM. HOW TO OBTAIN A TIN. If you do not have a TIN, apply for one immediately. To apply, get Form SS-5, Application for a Social Security Card (for Individuals), from your local office of the Social Security Administration, or Form SS-4, Application for Employer Identification Number (for businesses and all other entities), from your local IRS office. To complete Form W-9 if you do not have a TIN, write "Applied for" in the space for the TIN in Part 1, sign and date the form, and give it to the requester. Generally, you will than have 60 days to obtain a TIN and furnish it to the requester. If the requester does not receive your TIN within 60 days, backup withholding, if applicable, will begin and continue until you furnish your TIN to the requester. For reportable interest or dividend payments, the payor must exercise one of the following options concerning backup withholding during this 60-day period. Under option (1), a payor must backup withhold on any withdrawals you make from your account after 7 business days after the requester receives this form back from you. Under option (2), the payor must backup withhold on any reportable interest or dividend payments made to your account, regardless of whether you make any withdrawals. The backup withholding under option (2) must begin no later than 7 business days after the requester receives this form back. Under option (2), the payor is required to refund the amounts withheld if your certified TIN is received within the 60-day period and you were not subject to backup withholding during that period. NOTE: WRITING "APPLIED FOR" ON THE FORM MEANS THAT YOU HAVE ALREADY APPLIED FOR A TIN OR THAT YOU INTEND TO APPLY FOR ONE IN THE NEAR FUTURE. As soon as you receive your TIN, complete another Form W-9, include your TIN, sign and date the form, and give it to the requester. WHAT IS BACKUP WITHHOLDING? -- Persons making certain payments to you must withhold and pay to the IRS 31% of such payments under certain conditions. This is called "backup withholding." Payments that could be subject to backup withholding include interest, dividends, broker and barter exchange transactions, rents, royalties, nonemployee compensation, and certain payments from fishing boat operators, but do not include real estate transactions. If you give the requester your correct TIN, make the appropriate certifications, and report all your taxable interest and dividends on your tax return, your payments will not be subject to backup withholding. Payments you receive will be subject to backup withholding if: (1) You do not furnish your TIN to the requester, or (2) The IRS notifies the requester that you furnished an incorrect TIN, or (3) You are notified by the IRS that you are subject to withholding because you failed to report all your interest and dividends on your tax return (for reportable interest and dividends only), or (4) You do not certify to the requester that you are not subject to backup withholding under 3 above, (for reportable interest and dividend accounts opened after 1983 only), or (5) You do not certify your TIN. Except as explained in 5 above, other reportable payments are subject to backup withholding only if 1 or 2 above applies. Certain payees and payments are exempt from backup withholding and information reporting. See Payees and Payments Exempt From Backup Withholding, below, and Exempt Payees and Payments under Signing the Certification, below if you are an exempt payee. PAYEES AND PAYMENTS EXEMPT FROM BACKUP WITHHOLDING. The following is a list of payees exempt from backup withholding and for which no information reporting is required. For interest and dividends, all listed payees are exempt except as listed in item (9). For broker transactions, payees listed in items (1) through (13) and a person registered under the Investment Advisers Act of 1940 who regularly acts as a broker are exempt. Payments subject to reporting under sections 6041 and 6041A are generally exempt from backup withholding only if made to payees described in items (1) through (7), except a corporation that provides medical and health care services or bills and collects payments for such services is not exempt from backup withholding or information reporting. Only payees described in items (2) through (6) are 17 18 exempt from backup withholding for barter exchange transactions and patronage dividends. (1) A corporation. (2) An organization exempt from tax under section 501(a), an IRA, or a custodial account under section 402(b)(7). (3) The United States or any of its agencies or instrumentalities. (4) A state, the District of Columbia, a possession of the United States, or any of their political subdivisions or instrumentalities. (5) A foreign government or any of its political subdivisions, agencies, or instrumentalities. (6) An international organization or any of its agencies or instrumentalities. (7) A foreign central bank of issue. (8) A dealer in securities or commodities required to register in the United States or a possession of the United States. (9) A futures commission merchant registered with the Commodity Futures Trading Commission. (10) A real estate investment trust. (11) An entity registered at all times during the tax year under the Investment Company Act of 1940. (12) A common trust fund operated by a bank under section 584(a). (13) A financial institution. (14) A middleman known in the investment community as a nominee or listed in the most recent publication of the American Society of Corporation Secretaries, Inc., Nominee List. (15) A trust exempt from tax under section 664 or described in section 4947. Payments of dividend and patronage dividends generally not subject to backup withholding include the following: - Payments to nonresident aliens subject to withholding under section 1441. - Payments to partnerships not engaged in a trade or business in the United States and that have at least one nonresident partner. - Payments of patronage dividends not paid in money. - Payments made by certain foreign organizations. - Section 404(k) payments made by an ESOP. Payments of interest generally not subject to backup withholding include the following: - Payments of interest on obligations issued by individuals. NOTE: YOU MAY BE SUBJECT TO BACKUP WITHHOLDING IF THIS INTEREST IS $600 OR MORE AND IS PAID IN THE COURSE OF THE PAYER'S TRADE OR BUSINESS AND YOU HAVE NOT PROVIDED YOUR CORRECT TIN TO THE PAYER. - Payments of tax-exempt interest (including exempt-interest dividends under section 852). - Payments described in section 6049(b)(5) to nonresident aliens. - Payments on tax-free covenant bonds under section 1451. - Payments made by certain foreign organizations. - Mortgage interest paid to you. Other types of payments generally not subject to backup withholding include: - Wages. - Distributions from a pension, annuity, profit-sharing or stock bonus plan, or an IRA. - Distributions from an owner-employee plan. - Certain surrenders of life insurance contracts. - Gambling winnings, if withholding is required under section 3402(q). However, if withholding is not required under section 3402(q), backup withholding applies if the payee fails to furnish a TIN. - Real estate transactions reportable under section 6045. Payments that are not subject to information reporting are also not subject to backup withholding. For details, see sections 6041, 6041A, 6042, 6044, 6045, 6049, 6050A, and 6050N, and the regulations under those sections. PENALTIES FAILURE TO FURNISH TIN. If you fail to furnish your correct TIN to a requester, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. If you make a false statement with no reasonable basis that results in no backup withholding, you are subject to a $500 penalty. CRIMINAL PENALTY FOR FALSIFYING INFORMATION. Willfully falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. MISUSE OF TINS. If the requester discloses or uses TINs in violation of Federal law, the requester may be subject to civil and criminal penalties. SPECIFIC INSTRUCTIONS WHAT NAME AND NUMBER TO GIVE THE REQUESTER 18 19 NAME -- If you are an individual, you must generally provide the name shown on your social security card. However, if you have changed your last name, for instance, due to marriage, without informing the Social Security Administration of the name change, please enter your first name, the last name shown on your social security card, and your new last name. NUMBER -- If you are a sole proprietor, you must furnish your individual name and either your SSN or EIN. You may also enter your business name or "doing business as" name on the business name line. Enter your name(s) as shown on your social security card and/or as it was used to apply for your EIN on Form SS-4. WHAT NAME AND NUMBER TO GIVE THE REQUESTER SIGNING THE "PART III -- CERTIFICATION" ON THE SUBSTITUTE FORM W-9 (1) INTEREST, DIVIDEND, AND BARTER EXCHANGE ACCOUNTS OPENED BEFORE 1984 AND BROKER ACCOUNTS CONSIDERED ACTIVE DURING 1983 -- You are required to furnish your correct TIN, but you are not required to sign the certification. (2) INTEREST, DIVIDEND, BROKER, AND BARTER EXCHANGE ACCOUNTS OPENED AFTER 1983 AND BROKER ACCOUNTS CONSIDERED INACTIVE DURING 1983 -- You must sign the certification or backup withholding will apply. If you are subject to backup withholding and you are merely providing your correct TIN to the requester, you must cross out item 2 in the certification before signing the form. (3) REAL ESTATE TRANSACTIONS. You must sign the certification. You may cross out item 2 of the certification. (4) OTHER PAYMENTS. You are required to furnish your correct TIN, but you are not required to sign the certification unless you have been notified that you have previously given an incorrect TIN. Other payments include payments made in the course of the requester's trade or business for rents, royalties, goods (other than bills for merchandise), medical and health care services (including payments to corporations), payments to a nonemployee for services (including attorney and accounting fees), and payments to certain fishing boat crew members. (5) MORTGAGE INTEREST PAID BY YOU, ACQUISITION OR ABANDONMENT OF SECURED PROPERTY, OR IRA CONTRIBUTIONS. You are required to furnish your correct TIN, but you are not required to sign the certification. (6) EXEMPT PAYEES AND PAYMENTS. If you are exempt from backup withholding, you should complete this form to avoid possible erroneous backup withholding. Enter your correct TIN in Part I, write "EXEMPT" in the block in Part II, and sign and date the form. If you are a nonresident alien or foreign entity not subject to backup withholding, give the requester a complete Form W-8, Certificate of Foreign Status. (7) TIN "APPLIED FOR." Follow the instructions under How To Obtain a TIN, on page 1, and sign and date this form. SIGNATURE: For a joint account, only the person whose TIN is shown in Part 1 should sign. PRIVACY ACT NOTICE: Section 6109 requires you to furnish your correct TIN to persons who must file information returns with the IRS to report interest, dividends, and certain other income paid to you, mortgage interest you paid, the acquisition or abandonment of secured property, or contributions you made to an IRA. The IRS uses the numbers for identification purposes and to help verify the accuracy of your tax return. You must provide your TIN whether or not you are required to file a tax return. Payers must generally withhold 31% of taxable interest, dividends, and certain other payments to a payee who does not furnish a TIN to a payor. Certain penalties may also apply. 19 20 WHAT NAME AND NUMBER TO GIVE THE REQUESTER
- --------------------------------------------------- --------------------------------------------------- For this type of account: Give name and SSN of: For this type of account: Give name and SSN of: - --------------------------------------------------- --------------------------------------------------- 1. Individual The individual 6. A valid trust, estate, Legal entity(4) 2. Two or more The actual owner of or pension trust individuals (joint the account or, if 7. Corporate The corporation account) combined funds, the 8. Association, club, The organization first individual on religious, charitable, the account(1) educational, or other 3. Custodian account of a The minor(2) tax-exempt organization minor (Uniform Gift to 9. Partnership The partnership Minors Act) 10. A broker or registered The broker or nominee 4. a. The usual revocable The grantor-trustee(1) nominee savings trust 11. Account with the The public entity. (grantor is also Department of trustee) Agriculture in the name b. So-called trust The actual owner(1) of a public entity (such account that is not as a state or local a legal or valid government, school trust under state district, or prison) law that receives 5. Sole proprietorship The owner(3) agricultural program payments. - --------------------------------------------------- ---------------------------------------------------
(1) List first and circle the name of the person whose number you furnish. (2) Circle the minor's name and furnish the minor's SSN. (3) You must show your individual name, but you may also enter your business or "doing business as" name. You may use either your SSN or EIN. (4) List first and circle the name of the legal trust, estate, or pension trust. (Do not furnish the TIN of the personal representative or trustee unless the legal entity itself is not designated in the account title.) NOTE: If no name is circled when more than one name is listed, the number will be considered to be that of the first name listed. 20 21 Any questions or requests for assistance or additional copies of the Booklet, this Letter of Transmittal, the Notice of Guaranteed Delivery or other materials may be directed to the Information Agent at the address and telephone number set forth below. THE INFORMATION AGENT: [GEORGESON & COMPANY LOGO] WALL STREET PLAZA NEW YORK, NEW YORK 10005 (800) 223-2064 (CALL TOLL-FREE) BANKS AND BROKERS CALL COLLECT: (212) 440-9918 Preferred Shareholders may contact the Dealer Manager at its address and telephone number set forth below with any questions regarding the terms of the Offer and solicitation of proxies. In addition, Preferred Shareholders may also contact their broker, dealer, commercial bank, trust company or other nominee for assistance concerning the Offer and solicitation of proxies. THE DEALER MANAGER: MERRILL LYNCH & CO. WORLD FINANCIAL CENTER 250 VESEY STREET NEW YORK, NEW YORK 10281 (888) ML4-TNDR (TOLL-FREE) (888) 654-8637 (TOLL-FREE) EX-99.(A)B-4 5 MASS ELECTRIC DRAFT PURCHASE & PROXY STATEMENT 1 OFFER TO PURCHASE AND PROXY STATEMENT LOGO NEW ENGLAND ELECTRIC SYSTEM OFFER TO PURCHASE FOR CASH ANY AND ALL OUTSTANDING SHARES OF THE FOLLOWING SERIES OF PREFERRED STOCK OF MASSACHUSETTS ELECTRIC COMPANY 75,000 SHARES, DIVIDEND SERIES PREFERRED STOCK, $100 PAR VALUE, 4.44% SERIES AT A PURCHASE PRICE OF $ . PER SHARE CUSIP NUMBER 575634 20 9 75,000 SHARES, DIVIDEND SERIES PREFERRED STOCK, $100 PAR VALUE, 4.76% SERIES AT A PURCHASE PRICE OF $ . PER SHARE CUSIP NUMBER 575634 30 8 200,000 SHARES, DIVIDEND SERIES PREFERRED STOCK, $100 PAR VALUE, 6.99% SERIES AT A PURCHASE PRICE OF $ . PER SHARE CUSIP NUMBER 575634 70 4 600,000 SHARES, PREFERRED STOCK -- CUMULATIVE, $25 PAR VALUE, 6.84% SERIES AT A PURCHASE PRICE OF $ . PER SHARE CUSIP NUMBER 575634 80 3 ------------------------ MASSACHUSETTS ELECTRIC COMPANY PROXY STATEMENT 25 RESEARCH DRIVE, WESTBOROUGH, MASSACHUSETTS 01582 SPECIAL MEETING OF STOCKHOLDERS DECEMBER 12, 1997 ------------------------ THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., EASTERN STANDARD TIME, ON FRIDAY, DECEMBER 12, 1997, UNLESS THE OFFER IS EXTENDED. ------------------------ New England Electric System, a Massachusetts voluntary association (NEES), invites the holders of each series of Preferred Stock listed above (each a Series of Preferred or a Series, and each holder thereof a Preferred Shareholder) of Massachusetts Electric Company, a Massachusetts corporation and direct utility subsidiary of NEES (Mass. Electric or the Company), to tender any and all of their shares of any Series of Preferred (the Shares) for purchase at the purchase price per Share listed above, plus accrued dividends, net to the seller in cash, upon the terms and subject to the conditions set forth in this Offer to Purchase and Proxy Statement (the Booklet) and in the accompanying Letter of Transmittal and Proxy (which together constitute the Offer). NEES will purchase all Shares validly tendered and not withdrawn, upon the terms and subject to the conditions of the Offer. See Terms of the Offer -- Certain Conditions of the Offer and Terms of the Offer -- Extension of Tender Period; Termination; Amendments. THE OFFER FOR A SERIES OF PREFERRED IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES OF ANY SERIES BEING TENDERED AND EACH IS INDEPENDENT OF THE OFFER FOR ANY OTHER SERIES OF PREFERRED. THE OFFER, HOWEVER, IS CONDITIONED UPON, AMONG OTHER THINGS, THE APPROVAL AND ADOPTION OF THE PROPOSED AMENDMENT, AS DESCRIBED BELOW, AT THE SPECIAL MEETING OF SHAREHOLDERS. SEE TERMS OF THE OFFER -- CERTAIN CONDITIONS OF THE OFFER. Concurrently with the Offer, the Board of Directors of Mass. Electric is soliciting proxies from the Preferred Shareholders for use at the Special Meeting of Shareholders of Mass. Electric to be held at Mass. Electric's principal office, 25 Research Drive, Westborough, Massachusetts, on December 12, 1997 at 4:30 p.m., Eastern Standard Time, or any adjournment or postponement of such meeting (the Special Meeting). The Special Meeting is being held to consider an amendment (the Proposed Amendment) to Mass. Electric's By-Laws and Articles of Organization (the Provisions), which would remove from the Provisions a limitation on Mass. Electric's ability to issue unsecured debt without the prior approval of the Preferred Shareholders. PREFERRED SHAREHOLDERS WHO WISH TO TENDER THEIR SHARES MUST VOTE IN FAVOR OF THE PROPOSED AMENDMENT. THE OFFER IS FURTHER CONDITIONED UPON THE APPROVAL AND ADOPTION OF THE PROPOSED AMENDMENT AT THE SPECIAL MEETING. IF THE PROPOSED AMENDMENT IS APPROVED AND ADOPTED BY MASS. ELECTRIC'S PREFERRED SHAREHOLDERS, MASS. ELECTRIC WILL MAKE A SPECIAL CASH PAYMENT (AS DEFINED HEREIN) IN THE AMOUNT OF $1.00 PER SHARE TO EACH DIVIDEND SERIES PREFERRED SHAREHOLDER AND $.25 PER SHARE TO EACH PREFERRED STOCK -- CUMULATIVE SHAREHOLDER WHO VOTED IN FAVOR OF THE PROPOSED AMENDMENT, BUT DID NOT TENDER SUCH SHARES PURSUANT TO THE OFFER. THOSE PREFERRED SHAREHOLDERS WHO VALIDLY TENDER THEIR SHARES WILL BE ENTITLED ONLY TO THE PURCHASE PRICE PER SHARE LISTED ABOVE BUT NOT THE SPECIAL CASH PAYMENT. ------------------------ MASS. ELECTRIC'S BOARD OF DIRECTORS RECOMMENDS VOTING FOR THE PROPOSED AMENDMENTS. ------------------------ This Booklet is first being mailed to Preferred Shareholders on or about November 7, 1997. ------------------------ The Company will pay to a Soliciting Dealer (as defined herein) a solicitation fee for any Shares tendered, accepted for payment, and paid for pursuant to the Offer and for each Share not tendered but voted in favor of the Proposed Amendment, subject to certain conditions. See Fees and Expenses Paid to Dealers. ------------------------ NEITHER NEES, MASS. ELECTRIC, THEIR RESPECTIVE BOARDS OF DIRECTORS, ANY OF THEIR RESPECTIVE OFFICERS, NOR ANY OTHER PERSON AUTHORIZED BY THEM MAKES ANY RECOMMENDATION TO ANY PREFERRED SHAREHOLDER AS TO WHETHER TO TENDER ANY OR ALL SHARES. EACH PREFERRED SHAREHOLDER MUST MAKE HIS OR HER OWN DECISION AS TO WHETHER TO TENDER SHARES AND, IF SO, HOW MANY SHARES TO TENDER. ------------------------ Each Series of Preferred is traded in the over-the-counter market (the OTC) and is not listed on any national securities exchange. Through October 31, 1997, the last reported sales prices for the 4.44% Series, the 4.76% Series, the 6.99% Series, and the 6.84% Series were $68.00, $73.05, $108.50, and $24.75, respectively, as reported by the Nasdaq Stock Market, Inc. Preferred Shareholders are urged to obtain a current market quotation, if available, for their Shares. ------------------------ Questions or requests for assistance may be directed to Georgeson & Company, Inc. (Georgeson or the Information Agent) or to Merrill Lynch & Co. (Merrill Lynch or the Dealer Manager) at their respective telephone numbers and addresses set forth on the back cover of this Booklet. Requests for additional copies of this Booklet, the Letter of Transmittal and Proxy, or other tender offer or proxy materials may be directed to the Information Agent, and such copies will be furnished promptly at Mass. Electric's expense. Preferred Shareholders may also contact their local broker, dealer, commercial bank, or trust company for assistance concerning the Offer. ------------------------ The Dealer Manager for the Offer is: MERRILL LYNCH & CO. November 6, 1997 2 IMPORTANT Any Preferred Shareholder desiring to accept the Offer and tender any or all Shares should, on or prior to the Expiration Date (as defined below), either (i) request such Preferred Shareholder's broker, dealer, commercial bank, trust company, or other nominee to effect the transaction for such Preferred Shareholder pursuant to the procedure for book-entry transfer set forth below under Terms of the Offer -- Procedure for Tendering Shares, or (ii) complete and sign the Letter of Transmittal and Proxy in accordance with the instructions in the Letter of Transmittal and Proxy, and mail or deliver it, the certificates for such Shares, and any other required documents to IBJ Schroder Bank & Trust Company (the Depositary). A Preferred Shareholder whose Shares are registered in the name of a broker, dealer, commercial bank, trust company, or other nominee must contact such broker, dealer, commercial bank, trust company, or other nominee if such Preferred Shareholder desires to tender such Shares. Any Preferred Shareholder who desires to tender Shares and whose certificates for such Shares are not immediately available, or who cannot comply in a timely manner with the procedure for book-entry transfer, should tender such Shares by following the procedures for guaranteed delivery set forth below under Terms of the Offer -- Procedure for Tendering Shares -- Guaranteed Delivery Procedure. EACH SERIES OF PREFERRED HAS ITS OWN LETTER OF TRANSMITTAL AND PROXY, AND ONLY THE APPLICABLE LETTER OF TRANSMITTAL AND PROXY FOR SUCH SERIES OF PREFERRED OR A NOTICE OF GUARANTEED DELIVERY MAY BE USED TO TENDER SHARES OF SUCH SERIES OF PREFERRED. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER OTHER THAN THOSE CONTAINED HEREIN OR IN THE RELATED LETTER OF TRANSMITTAL AND PROXY. IF GIVEN OR MADE, SUCH RECOMMENDATION AND SUCH INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY NEES OR MASS. ELECTRIC. 2 3 TABLE OF CONTENTS
PAGE ----- SUMMARY............................................................................... 4 PURPOSE OF THE OFFER, PROPOSED AMENDMENT, AND PROXY SOLICITATION...................... 7 Proposed Amendment.................................................................. 7 Purpose of the Offer................................................................ 7 TERMS OF THE OFFER.................................................................... 7 Number of Shares; Purchase Prices; Expiration Date; Dividends....................... 7 Procedure for Tendering Shares...................................................... 8 Withdrawal Rights................................................................... 10 Acceptance of Shares for Payment and Payment of Purchase Price and Dividends........ 10 Certain Conditions of the Offer..................................................... 11 Extension of Tender Period; Termination; Amendments................................. 13 Certain Effects of the Offer........................................................ 13 Other Information................................................................... 15 PROPOSED AMENDMENT AND PROXY SOLICITATION............................................. 16 Notice of Special Meeting of Stockholders........................................... 16 Special Meeting..................................................................... 17 Proxies............................................................................. 17 Relationship to the Offer; Special Cash Payment..................................... 17 Voting Securities, Rights and Procedures............................................ 17 Security Ownership of Certain Beneficial Owners and Management...................... 18 DESCRIPTION OF THE PROPOSED AMENDMENT................................................. 19 Explanation of the Proposed Amendment............................................... 19 Reasons for the Proposed Amendment.................................................. 20 Recommendation of Board of Directors................................................ 20 Certain Effects of the Proposed Amendment........................................... 21 Other Matters....................................................................... 21 PRICE RANGE OF SHARES; DIVIDENDS...................................................... 22 CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS........................................ 23 Tax Considerations for Tendering Preferred Shareholders............................. 23 Tax Considerations for Non-Tendering Preferred Shareholders......................... 24 Tax Considerations of Accrued and Unpaid Dividends Payment.......................... 24 Tax Considerations of Special Cash Payment.......................................... 24 Backup Withholding.................................................................. 25 SOURCE AND AMOUNT OF FUNDS............................................................ 25 TRANSACTIONS AND AGREEMENTS CONCERNING THE SHARES..................................... 25 FEES AND EXPENSES PAID TO DEALERS..................................................... 26 Dealer Manager Fees................................................................. 26 Solicited Tender Fees............................................................... 26 Stock Transfer Taxes................................................................ 27 SUMMARY OF FINANCIAL INFORMATION...................................................... 28 CERTAIN INFORMATION REGARDING NEES AND MASS. ELECTRIC; INCORPORATION BY REFERENCE..... 29 MISCELLANEOUS......................................................................... 30
3 4 SUMMARY The following summary is provided solely for the convenience of the Preferred Shareholders. This summary is not intended to be complete and is qualified in its entirety by reference to the full text and more specific details contained in this Booklet and the Letter of Transmittal and Proxy and any amendments hereto or thereto. Preferred Shareholders are urged to read these documents in their entirety. Each of the capitalized terms used in this summary and not defined herein has the meaning set forth elsewhere in this Booklet. The Companies.............. NEES, 25 Research Drive, Westborough, Massachusetts 01582, is a registered holding company under the Public Utility Holding Company Act of 1935, as amended (the Holding Company Act), which owns, directly or indirectly, all of the outstanding common stock of its electric utility subsidiaries, including Mass. Electric. The service area of NEES' electric utility subsidiaries covers portions of Massachusetts, New Hampshire, and Rhode Island. The name "New England Electric System" means the trustee or trustees for the time being (as trustee or trustees but not personally) under an agreement and declaration of trust dated January 2, 1926, as amended, which is hereby referred to, and a copy of which as amended has been filed with the Secretary of the Commonwealth of Massachusetts. Any agreement, obligation or liability made, entered into or incurred by or on behalf of New England Electric System binds only its trust estate, and no shareholder, director, trustee, officer or agent thereof assumes or shall be held to any liability therefor. Mass. Electric, 25 Research Drive, Westborough, Massachusetts 01582, is a retail electric utility incorporated and doing business solely in Massachusetts. Electric service is provided to approximately 960,000 customers in 146 cities and towns having a population of approximately 2,160,000. The Shares................. 4.44% Dividend Series Preferred Stock, $100 par value, CUSIP Number 575634 20 9 4.76% Dividend Series Preferred Stock, $100 par value, CUSIP Number 575634 30 8 6.99% Dividend Series Preferred Stock, $100 par value, CUSIP Number 575634 70 4 6.84% Preferred Stock - Cumulative, $25 par value, CUSIP Number 575634 80 3 The Offer and Purchase Price...................... Offer to purchase any or all shares of each Series of Preferred listed below at the price set forth below. $ . for 4.44% Series $ . for 4.76% Series $ . for 6.99% Series $ . for 6.84% Series Dividends.................. NEES will pay to tendering Preferred Shareholders any accrued dividends through the Expiration Date (as defined herein). Independent Offer.......... The Offer for a Series of Preferred is not conditioned upon any minimum number of Shares of any Series being tendered and each is independent of the Offer for any other Series of Preferred. The Offer, however, is conditioned upon, among other things, the approval and adoption of the Proposed Amendment, as described below, at the Special Meeting. See Terms of the Offer -- Certain Conditions of the Offer. It is a condition to the Offer that Preferred Shareholders who tender their Shares must vote 4 5 in favor of the Proposed Amendment. NEES will not be required to accept or pay for tendered Shares if the Proposed Amendment is not approved and unless certain other conditions are met. Expiration Date of the Offer...................... The Offer expires at 5:00 p.m., Eastern Standard Time, on December 12, 1997, unless extended (the Expiration Date). How to Tender Shares....... See Terms of the Offer -- Procedure for Tendering Shares. For further information, call the Information Agent or the Dealer Manager or consult your broker for assistance. Withdrawal Rights.......... Tendered Shares of any Series of Preferred may be withdrawn at any time until the Expiration Date with respect to such Series of Preferred and, unless previously accepted for payment, may also be withdrawn after January 12, 1998. See Terms of the Offer -- Withdrawal Rights. A withdrawal of a tender does not in and of itself revoke a proxy. Purpose of the Offer....... NEES is making the Offer because NEES believes that the purchase of Shares is economically attractive to Mass. Electric and indirectly to NEES and its shareholders. In addition, the Offer gives Preferred Shareholders the opportunity to sell their Shares at a price which NEES believes to be a premium over the market price and without the usual transaction costs associated with a market sale. See Purpose of the Offer, Proposed Amendment, and Proxy Solicitation -- Purpose of the Offer; and Terms of the Offer -- Certain Effects of the Offer. Brokerage Commissions...... Not payable by Preferred Shareholders. Solicitation Fee........... NEES will pay to each designated Soliciting Dealer (as defined herein) a solicitation fee of (i) $1.50 per Share for any Dividend Series Preferred Stock and (ii) $0.375 per Share for any Preferred Stock -- Cumulative tendered, accepted for payment, and paid for pursuant to the Offer and for each Share not tendered but voted in favor of the Proposed Amendment (except that for transactions for beneficial owners equal to or exceeding 2,500 Shares of all Series of Preferred combined, NEES will pay a solicitation fee of (i) $1.00 per Share for any Dividend Series Preferred Shares and (ii) $0.25 per Share for any Preferred Stock -- Cumulative Shares, of which at least eighty percent (80%) shall be paid to the Dealer Manager). A Soliciting Dealer will not be entitled to a solicitation fee for Shares beneficially owned by such Soliciting Dealer. See Fees and Expenses Paid to Dealers -- Solicited Tender Fees. Proposed Amendment......... Concurrently with the Offer, the Board of Directors of Mass. Electric is soliciting proxies from the Preferred Shareholders for use at the Special Meeting. The Special Meeting is being held to consider the Proposed Amendment to the Provisions which would remove a provision that limits Mass. Electric's ability to issue unsecured debt. If the Proposed Amendment is approved by the Preferred Shareholders, Mass. Electric's ability to issue or assume unsecured indebtedness will no longer be subject to approval of any Shares that remain outstanding after the consummation of the Offer. See Purpose of the Offer, Proposed Amendment, and Proxy Solicitation -- Purpose of the Offer; and Proposed Amendment and Proxy Solicitation -- Certain Effects of the Proposed Amendment. Record Date................ November 12, 1997. 5 6 Special Cash Payment....... Preferred Shareholders of record who do not tender their Shares have the right to vote for or against the Proposed Amendment. If the Proposed Amendment is approved and adopted by Mass. Electric's Preferred Shareholders, Mass. Electric will make a Special Cash Payment of $1.00 per Share to each Dividend Series Preferred Shareholder and $.25 per Share to each Preferred Stock -- Cumulative Shareholder who voted in favor of the Proposed Amendment but who did not tender such Shares (the Special Cash Payment). Preferred Shareholders who validly tender their Shares will be entitled only to the purchase price per Share listed on the front cover of this Booklet plus an amount in cash equivalent to any dividends accrued through the Expiration Date (as defined herein). Stock Transfer Tax......... Except as described herein, NEES will pay or cause to be paid any stock transfer taxes with respect to the sale and transfer of any Shares to it or its order pursuant to the Offer. See Instruction 6 of the applicable Letter of Transmittal and Proxy. See Terms of the Offer -- Acceptance of Shares for Payment and Payment of Purchase Price and Dividends. Payment Date............... Promptly after the Expiration Date or any extension thereof. Further Information........ Additional copies of this Booklet and the applicable Letter of Transmittal and Proxy may be obtained by contacting Georgeson, Wall Street Plaza, New York, New York 10005, telephone (800) 223-2064 (toll-free) and (212) 440-9800 (banks and brokers). Questions about the Offer should be directed to Merrill Lynch at (888) ML4-TNDR (toll-free) ((888)-654-8637 (toll-free)). 6 7 PURPOSE OF THE OFFER, PROPOSED AMENDMENT, AND PROXY SOLICITATION The Offer and the Proposed Amendment constitute an integrated strategic response by NEES and Mass. Electric to the need to achieve greater flexibility in their financing. PURPOSE OF THE OFFER NEES believes that the purchase of the Shares at this time in conjunction with the Proposed Amendment represents an attractive economic opportunity that will benefit NEES, its shareholders, Mass. Electric, and Mass. Electric's utility customers by (1) contributing to the elimination of the provisions concerning unsecured indebtedness and (2) retiring of outstanding Shares of Mass. Electric's Preferred Stock in contemplation of their potential replacement with comparatively less expensive financing alternatives. In addition, the Offer gives Preferred Shareholders the opportunity to sell their Shares at a price which NEES believes to be a premium to the market price on the date of the announcement of the Offer and without the usual transaction costs associated with such a sale. PROPOSED AMENDMENT In order to increase its financial flexibility and to better face the challenges of a competitive electric industry, and as discussed further under Proposed Amendment and Proxy Solicitation -- Reasons for the Proposed Amendment, Mass. Electric seeks to amend the Provisions to eliminate the limitation on the Company's ability to issue unsecured debt without the approval of a majority vote of the holders of the Preferred, voting together as a single class. TERMS OF THE OFFER NUMBER OF SHARES; PURCHASE PRICES; EXPIRATION DATE; DIVIDENDS Upon the terms and subject to the conditions described herein and in the applicable Letter of Transmittal and Proxy, NEES will purchase any and all Shares that are validly tendered on or prior to the Expiration Date (and not properly withdrawn in accordance with the procedures set forth under Withdrawal Rights) at the purchase price per Share listed on the front cover of this Booklet for the Shares tendered, plus accrued dividends for the Shares tendered through the Expiration Date, net to the seller in cash. See Certain Conditions of the Offer and Extension of Tender Period; Termination; Amendments. THE OFFER FOR A SERIES OF PREFERRED IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES OF SUCH SERIES BEING TENDERED AND IS INDEPENDENT OF THE OFFER FOR ANY OTHER SERIES. THE OFFER, HOWEVER, IS CONDITIONED UPON, AMONG OTHER THINGS, APPROVAL AND ADOPTION OF THE PROPOSED AMENDMENT, AS DESCRIBED HEREIN, AT THE SPECIAL MEETING. SEE CERTAIN CONDITIONS OF THE OFFER. The Offer is being sent to all persons in whose names Shares are registered on the books of Mass. Electric as of the close of business on November 3, 1997, as well as to all persons in whose names Shares are registered on November 12, 1997, the Record Date. Only a record holder of Shares on the Record Date may vote in person or by proxy at the Special Meeting. No record date is fixed for determining which persons are permitted to tender Shares. Any person who is the beneficial owner but not the record holder of Shares on the Record Date must arrange for the record transfer of such Shares prior to tendering. The Shares will trade "with proxy" during the period which begins two days prior to the Record Date and which will end at the close of business on the Expiration Date, as further discussed under Proposed Amendment and Proxy Solicitation -- Voting Securities, Rights and Procedures. With respect to each Series, the Expiration Date is the later of 5:00 p.m., Eastern Standard Time, on Friday, December 12, 1997 or the latest time and date to which the Offer with respect to such Series of 7 8 Preferred is extended. NEES expressly reserves the right, in its sole discretion, and at any time and/or from time to time, to extend the period of time during which the Offer for any Series is open, by giving oral or written notice of such extension to the Depositary and making a public announcement thereof, without extending the period of time during which the Offer for any other Series is open. There is no assurance whatsoever that NEES will exercise its right to extend the Offer for any Series. If NEES decides, in its sole discretion, to (i) decrease the number of Shares of any Series being sought, (ii) increase or decrease the consideration offered in the Offer to holders of any Series, or (iii) increase or decrease the Soliciting Dealers' fees and, at the time that notice of such increase or decrease is first published, sent, or given to holders of such Series in the manner specified herein, the Offer for such Series is scheduled to expire at any time earlier than the tenth business day from the date that such notice is first so published, sent, or given, such Offer will be extended until the expiration of such ten-business-day period. For purposes of the Offer, a business day means any day other than a Saturday, Sunday, or Federal holiday and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern Standard Time. NO ALTERNATIVE, CONDITIONAL, OR CONTINGENT TENDERS WILL BE ACCEPTED. NEES will pay to tendering Preferred Shareholders any accrued dividends through the Expiration Date. PROCEDURE FOR TENDERING SHARES To tender Shares of any Series of Preferred pursuant to the Offer, the tendering owner of Shares must either: (a) send to the Depositary (at one of its addresses set forth on the back cover of this Booklet) a properly completed and duly executed Letter of Transmittal and Proxy, together with any required signature guarantees and any other documents required by the Letter of Transmittal and Proxy (and either (i) tender certificates for the Shares to the Depositary at one of its addresses or (ii) deliver such Shares pursuant to the procedures for book-entry transfer described herein (and a confirmation of such delivery must be received by the Depositary (a Book-Entry Confirmation)), in each case on or prior to the Expiration Date); or (b) comply with the guaranteed delivery procedure described under Guaranteed Delivery Procedure below. A tender of Shares made pursuant to any method of delivery set forth herein or in the Letter of Transmittal and Proxy will constitute a binding agreement between the tendering holder and NEES upon the terms and subject to the conditions of the Offer. The Depositary will establish an account with respect to the Shares of each Series of Preferred at The Depository Trust Company and the Philadelphia Depository Trust Company (each a Book-Entry Transfer Facility) for purposes of the Offer within two business days after the date of this Booklet, and any financial institution that is a participant in the system of the Book-Entry Transfer Facility may make delivery of Shares by causing the Book-Entry Transfer Facility to transfer such Shares into the Depositary's account in accordance with the procedures of the Book-Entry Transfer Facility. Although delivery of Shares may be effected through book-entry transfer, such delivery must be accompanied by either (i) a properly completed and duly executed Letter of Transmittal and Proxy, together with any required signature guarantees and any other required documents or (ii) an Agent's Message (as hereinafter defined) and, in any case, must be received by the Depositary at one of its addresses set forth on the back cover of this Booklet on or prior to the Expiration Date. DELIVERY OF SUCH LETTER OF TRANSMITTAL AND PROXY AND ANY OTHER REQUIRED DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY OR TO NEES DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY. The term "Agent's Message" means a message, transmitted by the Book-Entry Transfer Facility, received by the Depositary, and forms a part of the Book-Entry Confirmation when the tender is initiated, which states that the Book-Entry Transfer Facility has received an express acknowledgment from a participant in such Book-Entry Transfer Facility tendering Shares that the participant has received and agrees to be bound by the terms of the Letter of Transmittal and Proxy and that NEES may enforce such agreement against the participant. 8 9 Except as otherwise provided below, all signatures on a Letter of Transmittal and Proxy must be guaranteed by a firm that is a member of a registered national securities exchange or the National Association of Securities Dealers, Inc. (the NASD), or by a commercial bank or trust company having an office or correspondent in the United States that is a participant in an approved Signature Guarantee Medallion Program (each of the foregoing being referred to as an Eligible Institution). Signatures on a Letter of Transmittal and Proxy need not be guaranteed if (a) the Letter of Transmittal and Proxy is signed by the registered owner of the Shares tendered therewith and such owner has not completed the box entitled "Special Payment Instructions" or the box entitled "Special Delivery Instructions" on the Letter of Transmittal and Proxy or (b) such Shares are tendered for the account of an Eligible Institution. See Instructions 1 and 5 of the Letter of Transmittal and Proxy. If Shares are registered in the name of a person other than the signatory on the Letter of Transmittal and Proxy, or if unpurchased Shares are to be issued to a person other than the registered holder(s), the certificates must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name or names of the registered holder(s) appear on the Shares with the signature(s) on the Shares or stock powers guaranteed as stated above. See Instructions 4, 6, and 7 to the Letter of Transmittal and Proxy. Guaranteed Delivery Procedure. If a Preferred Shareholder desires to tender Shares pursuant to the Offer and such Shareholder's certificates are not immediately available or the procedures for book-entry transfer cannot be completed on a timely basis or time will not permit all required documents to reach the Depositary on or prior to the Expiration Date, such Shares may nevertheless be tendered if all of the following guaranteed delivery procedures are complied with: (i) such tender is made by or through an Eligible Institution; (ii) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form provided by NEES and Mass. Electric herewith, is received (with any required signatures or signature guarantees) by the Depositary as provided below on or prior to the Expiration Date; and (iii) the certificates for all tendered Shares in proper form for transfer or a Book-Entry Confirmation with respect to all tendered Shares, together with a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal and Proxy, are received by the Depositary no later than three New York Stock Exchange, Inc. (NYSE) trading days after the date of execution of such Notice of Guaranteed Delivery. A NYSE trading day is any day on which the NYSE is open for business. The Notice of Guaranteed Delivery may be either delivered by hand or mailed to the Depositary and must include an endorsement by an Eligible Institution in the form set forth in such Notice of Guaranteed Delivery. In all cases, Shares shall not be deemed validly tendered unless a properly completed and duly executed Letter of Transmittal and Proxy or, if applicable, an Agent's Message, is received by the Depositary. Notwithstanding any other provision hereof, payment for Shares accepted for payment pursuant to the Offer in all cases will be made only after timely receipt by the Depositary of certificates for (or an Agent's Message with respect to) such Shares, a Letter of Transmittal and Proxy, properly completed and duly executed, with any required signature guarantees, and all other documents required by the Letter of Transmittal and Proxy. THE METHOD OF DELIVERY OF SHARES AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING SHAREHOLDER. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. BECAUSE IT IS THE TIME OF RECEIPT, NOT THE TIME OF MAILING, WHICH DETERMINES WHETHER A TENDER HAS BEEN MADE PRIOR TO THE EXPIRATION DATE, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. TO AVOID FEDERAL INCOME TAX BACKUP WITHHOLDING EQUAL TO 31% OF THE GROSS PAYMENTS MADE PURSUANT TO THE OFFER, EACH TENDERING PREFERRED 9 10 SHAREHOLDER WHO IS A UNITED STATES PERSON MUST NOTIFY THE DEPOSITARY OF THE CORRECT TAXPAYER IDENTIFICATION NUMBER AND PROVIDE CERTAIN OTHER INFORMATION BY PROPERLY COMPLETING AND EXECUTING THE SUBSTITUTE FORM W-9 INCLUDED IN THE LETTER OF TRANSMITTAL AND PROXY (OR, IN THE CASE OF A FOREIGN SHAREHOLDER, FORM W-8 OBTAINABLE FROM THE DEPOSITARY). SEE CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS. EACH PREFERRED SHAREHOLDER IS URGED TO CONSULT WITH SUCH PREFERRED SHAREHOLDER'S OWN TAX ADVISOR REGARDING THE TAX CONSEQUENCES OF THE OFFER. All questions as to the form of documents and the validity, eligibility (including the time of receipt), and acceptance for payment of any tender of Shares will be determined by NEES, in its sole discretion, and its determination will be final and binding. NEES reserves the absolute right to reject any or all tenders of Shares that (i) it determines are not in proper form or (ii) the acceptance for payment of or payment for which may, in the opinion of NEES's counsel, be unlawful. NEES also reserves the absolute right to waive any defect or irregularity in any tender of Shares. None of NEES, Mass. Electric, the Dealer Manager, the Depositary, the Information Agent, or any other person will be under any duty to give notice of any defect or irregularity in tenders, nor shall any of them incur any liability for failure to give any such notice. Any condition to the Offer may be waived by NEES, in whole or in part, at any time and from time to time in its sole discretion. WITHDRAWAL RIGHTS Tenders of Shares made pursuant to the Offer may be withdrawn at any time on or prior to the Expiration Date. Thereafter, such tenders are irrevocable, except that they may be withdrawn after January 12, 1998, unless previously accepted for payment as provided in this Booklet. To be effective, a written notice of withdrawal must be timely received by the Depositary, at one of its addresses set forth on the back cover of this Booklet, and must specify the name of the person who tendered the Shares to be withdrawn and the number of Shares to be withdrawn. If the Shares to be withdrawn have been delivered to the Depositary, a signed notice of withdrawal with signatures guaranteed by an Eligible Institution (except in the case of Shares tendered by an Eligible Institution) must be submitted prior to the release of such Shares. In addition, such notice must specify, in the case of Shares tendered by delivery of certificates, the name of the registered owner (if different from that of the tendering Shareholder) and the serial numbers shown on the particular certificates evidencing the Shares to be withdrawn or, in the case of Shares tendered by book-entry transfer, the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Shares and the name of the registered holder (if different from the name of such account). Withdrawals may not be rescinded, and Shares withdrawn will thereafter be deemed not validly tendered for purposes of the Offer. However, withdrawn Shares may be re-tendered by again following one of the procedures described in Terms of the Offer -- Procedure for Tendering Shares at any time on or prior to the Expiration Date. All questions as to the form and validity (including time of receipt) of any notice of withdrawal will be determined by NEES, in its sole discretion, and its determination will be final and binding. None of NEES, Mass. Electric, the Dealer Manager, the Depositary, the Information Agent, or any other person will be under any duty to give notification of any defect or irregularity in any notice of withdrawal or will incur any liability for failure to give any such notification. ACCEPTANCE OF SHARES FOR PAYMENT AND PAYMENT OF PURCHASE PRICE AND DIVIDENDS Upon the terms and subject to the conditions of the Offer, and as promptly as practicable after the Expiration Date, NEES will accept for payment (and thereby purchase) and pay for Shares validly tendered and not withdrawn as permitted in Terms of the Offer -- Withdrawal Rights. Thereafter, payment for all Shares validly tendered on or prior to the Expiration Date and accepted pursuant to the Offer will be made by the Depositary by check as promptly as practicable after the Expiration Date. In all cases, payment for Shares accepted for payment pursuant to the Offer will be made promptly but only after timely receipt by the 10 11 Depositary of certificates for such Shares (or an Agent's Message), a properly completed and duly executed Letter of Transmittal and Proxy, and any other required documents. For purposes of the Offer, NEES will be deemed to have accepted for payment (and thereby purchased) Shares that are validly tendered and not withdrawn as, if, and when it gives oral or written notice to the Depositary of its acceptance for payment of such Shares. NEES will pay for Shares that it has purchased pursuant to the Offer by depositing the purchase price therefor (plus accrued and unpaid dividends thereon) with the Depositary, which will act as agent for tendering Preferred Shareholders for the purpose of receiving payment from NEES and transmitting payment to the tendering Shareholders. Under no circumstances will interest be paid on amounts to be paid to tendering Preferred Shareholders, regardless of any delay in making such payment. Certificates for all Shares not validly tendered will be returned or, in the case of Shares tendered by book-entry transfer, such Shares will be credited to an account maintained with the Book-Entry Transfer Facility, as promptly as practicable, without expense to the tendering Preferred Shareholder. If certain events occur, NEES may not be obligated to purchase Shares pursuant to the Offer. See Certain Conditions of the Offer. NEES will pay or cause to be paid any stock transfer taxes with respect to the sale and transfer of any Shares to it or its order pursuant to the Offer. If, however, payment of the purchase price is to be made to, or Shares not tendered or not purchased are to be registered in the name of, any person other than the registered owner, or if tendered Shares are registered in the name of any person other than the person signing the Letter of Transmittal and Proxy, the amount of any stock transfer taxes (whether imposed on the registered owner, such other person, or otherwise) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the payment of such taxes, or exemption therefrom, is submitted. See Instruction 6 of the accompanying Letter of Transmittal and Proxy. CERTAIN CONDITIONS OF THE OFFER NEES WILL NOT BE REQUIRED TO ACCEPT FOR PAYMENT OR PAY FOR ANY SHARES OF ANY SERIES TENDERED IF THE PROPOSED AMENDMENT IS NOT APPROVED AND ADOPTED AT THE SPECIAL MEETING OR IF THE TENDERING PREFERRED SHAREHOLDER DID NOT VOTE IN FAVOR OF THE PROPOSED AMENDMENT. In addition, notwithstanding any other provision of the Offer, NEES will not be required to accept for payment or pay for any Shares tendered, and may terminate or amend the Offer (by oral or written notice to the Depositary and timely public announcement) or may postpone (subject to the requirements of the Securities Exchange Act of 1934, as amended (the Exchange Act), for prompt payment for or return of Shares) the acceptance for payment of, or payment for, Shares tendered, if at any time after November 5, 1997, and on or prior to the Expiration Date, any of the following shall have occurred (which shall not have been waived by NEES): (a) there shall have been threatened, instituted, or pending any action or proceeding by any government or governmental, regulatory or administrative agency, authority, or tribunal or any other person, domestic or foreign, or before any court, authority, agency, or tribunal that (i) challenges the acquisition of Shares pursuant to the Offer or otherwise in any manner relates to or affects the Offer or (ii) in the reasonable judgment of NEES, would or might materially and adversely affect the business, condition (financial or otherwise), income, operations, or prospects of NEES and its subsidiaries taken as a whole, or otherwise materially impair in any way the contemplated future conduct of the business of NEES or any of its subsidiaries or materially impair the Offer's contemplated benefits to NEES; (b) there shall have been any action threatened, pending, or taken, or approval withheld, or any statute, rule, regulation, judgment, order, or injunction threatened, proposed, sought, promulgated, enacted, entered, amended, enforced, or deemed to be applicable to the Offer or NEES or any of its subsidiaries, by any legislative body, court, authority, agency, or tribunal that, in NEES's reasonable judgment, would or might directly or indirectly (i) make the acceptance for payment of, or payment for, 11 12 some or all of the Shares illegal or otherwise restrict or prohibit consummation of the Offer; (ii) delay or restrict the ability of NEES, or render NEES unable, to accept for payment or pay for some or all of the Shares; (iii) materially impair the contemplated benefits of the Offer to NEES or Mass. Electric (including materially increasing the effective interest cost of certain types of unsecured debt); or (iv) materially affect the business, condition (financial or otherwise), income, operations, or prospects of NEES and its subsidiaries taken as a whole, or otherwise materially impair in any way the contemplated future conduct of the business of NEES or any of its subsidiaries; (c) there shall have occurred (i) any significant decrease in the market price of the Shares; (ii) any change in the general political, market, economic, or financial conditions in the United States or abroad that, in the reasonable judgment of NEES, would or might have a material adverse effect on NEES's business, operations, prospects, or ability to obtain financing generally or the trading in the Shares or equity securities of NEES; (iii) the declaration of a banking moratorium or any suspension of payments in respect of banks in the United States or any limitation on, or any event that, in NEES's reasonable judgment, would or might affect the extension of credit by lending institutions in the United States; (iv) the commencement or escalation of war, armed hostilities, or other international or national calamity directly or indirectly involving the United States; (v) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or in the over-the-counter market; (vi) in the case of any of the foregoing existing at the time of the commencement of the Offer, in NEES's reasonable judgment, a material acceleration or worsening thereof; (vii) any decline in either the Dow Jones Industrial Average or the Standard and Poor's Composite 500 Stock Index by an amount in excess of 10% measured from the close of business on November 5, 1997; or (viii) a decline in the ratings accorded any of NEES's or Mass. Electric's securities by Standard & Poor's, a division of The McGraw Hill Companies (S&P), Moody's Investors Service, Inc. (Moody's), or Duff & Phelps, Inc. (D&P) or an announcement by S&P, Moody's, or D&P that it has placed any such rating under surveillance or review with negative implications; (d) any tender or exchange offer with respect to some or all of the Shares (other than the Offer) or any equity securities of NEES, or a merger, acquisition, or other business combination proposal for NEES, shall have been proposed, announced, or made by any person or entity; (e) there shall have occurred any event or events that have resulted, or, in NEES's reasonable judgment, may result, in an actual or threatened change in the business, condition (financial or otherwise), income, operations, stock ownership, or prospects of NEES and its subsidiaries; or (f) the SEC shall have withheld approval, under the Holding Company Act, of the acquisition of the Shares by NEES pursuant to the Offer or the approval and adoption of the Proposed Amendment at the Special Meeting; and, in the sole judgment of NEES, such event or events make it undesirable or inadvisable to proceed with the Offer or with such acceptance for payment or payment. With respect to the approval of the SEC referenced in clause (f) above, the SEC must find that the acquisition of the Shares by NEES is not detrimental to the public interest or the interests of the investors or consumers, and that the consideration paid in connection with the acquisition and the adoption of the Proposed Amendment, including fees, commissions, and other remuneration, is reasonable. The foregoing conditions (including the condition that the Proposed Amendment be approved and adopted at the Special Meeting) are for the sole benefit of NEES and may be asserted by NEES regardless of the circumstances (including any action or inaction by NEES) giving rise to any such condition, and any such condition may be waived by NEES, in whole or in part, at any time and from time to time in its sole discretion. A decision by NEES to terminate or otherwise amend the Offer, following the occurrence of any of the foregoing, with respect to one Series will not create an obligation on behalf of NEES to terminate or otherwise amend in a similar manner the Offer with respect to any other Series. The failure by NEES at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right and each such right shall be deemed an ongoing right which may be asserted at any time and from time to time. Any determination by NEES concerning the events described above will be final and binding on all parties. 12 13 EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENTS NEES expressly reserves the right, in its sole discretion, and at any time and from time to time on or prior to the Expiration Date, to extend the period of time during which the Offer for any Series is open by giving oral or written notice of such extension to the Depositary, without extending the period of time during which the Offer for any other Series is open. There can be no assurance, however, that NEES will exercise its right to extend the Offer for any Series. During any such extension, all Shares of the subject Series previously tendered will remain subject to the Offer, except to the extent that such Shares may be withdrawn as set forth in Withdrawal Rights. NEES also expressly reserves the right, in its sole discretion, to, among other things, terminate the Offer and not accept for payment or pay for any Shares tendered, subject to Rule 13e-4(f)(5) under the Exchange Act, which requires NEES either to pay the consideration offered or to return the Shares tendered promptly after the termination or withdrawal of the Offer upon the occurrence of any of the conditions specified in Certain Conditions of the Offer by giving oral or written notice of such termination to the Depositary, and making a public announcement thereof. Subject to compliance with applicable law, NEES further reserves the right, in its sole discretion, to amend the Offer in any respect. Amendments to the Offer may be made at any time and from time to time effected by public announcement thereof, such announcement, in the case of an extension, to be issued no later than 9:00 a.m., Eastern Standard Time, on the next business day after the previously scheduled Expiration Date. Any public announcement made pursuant to the Offer will be disseminated promptly to Preferred Shareholders affected thereby in a manner reasonably designed to inform such Preferred Shareholders of such change. Without limiting the manner in which NEES may choose to make a public announcement, except as required by applicable law, NEES shall have no obligation to publish, advertise, or otherwise communicate any such public announcement other than by making a release to the Dow Jones News Service. If NEES materially changes the terms of the Offer or the information concerning the Offer, or if it waives a material condition of the Offer, NEES will extend the Offer to the extent required by Rules 13e-4(d)(2) and 13e-4(e)(2) under the Exchange Act. Those rules require that the minimum period during which the Offer must remain open following material changes in the terms of the Offer or information concerning the Offer (other than a change in price, a change in percentage of securities sought, or a change in the dealer's solicitation fee) will depend on the facts and circumstances, including the relative materiality of such terms or information. The SEC has stated that, in its view, an offer should remain open for a minimum of five business days from the date that a notice of such a material change is first published, sent, or given. If the Offer is scheduled to expire at any time earlier than the expiration of a period ending on the tenth business day from, and including, the date that NEES publishes, sends, or gives to Preferred Shareholders a notice that it will (i) increase or decrease the price it will pay for Shares, (ii) decrease the percentage of Shares it seeks, or (iii) increase or decrease the soliciting dealers' fees, the Offer will be extended until the expiration of such period of ten business days. THE OFFER FOR EACH SERIES OF PREFERRED IS INDEPENDENT OF THE OFFER FOR ANY OTHER SERIES. IF NEES EXTENDS OR AMENDS ANY OFFER WITH RESPECT TO ONE SERIES OF PREFERRED FOR ANY REASON, NEES WILL HAVE NO OBLIGATION TO EXTEND THE OFFER FOR ANY OTHER SERIES OF PREFERRED. CERTAIN EFFECTS OF THE OFFER Shares validly tendered to the Depositary pursuant to the Offer and not withdrawn in accordance with the procedures set forth herein shall be held until the Expiration Date (or returned to the extent the Offer is terminated in accordance herewith). To the extent that the Proposed Amendment is approved and the Shares tendered are accepted for payment and paid for in accordance with the terms hereof, NEES intends either to sell its Shares to Mass. Electric or to donate the Shares to Mass. Electric as a capital contribution. At that time, it is expected that Mass. Electric will retire and cancel the Shares. However, in the event the Proposed Amendment is not adopted at the Special Meeting, NEES may elect, but is not obligated, to waive, subject to applicable law, such condition. Mass. Electric anticipates that, subsequent to that waiver and purchase of the 13 14 Shares, it would call another special meeting of its shareholders and solicit proxies therefrom for an amendment substantially similar to the Proposed Amendment. At that meeting, NEES would vote any Shares acquired by it pursuant to the Offer or otherwise (together with its shares of common stock) in favor of such amendment, thereby maximizing the prospects for the adoption of such amendment. Trading and Liquidity. Any purchase of Shares by NEES will reduce the number of Shares of each of the Series of Preferred that might otherwise trade publicly or become available for purchase or sale and will likely reduce the number of owners of Shares of each of the Series of Preferred, which could adversely affect the liquidity and sale value of the Shares not purchased in the Offer. To the extent that Shares of any Series of the Preferred are tendered and accepted for payment in the Offer, the trading market for Shares of such Series that remain outstanding may be significantly more limited, which might adversely affect the liquidity, market value, and price volatility of such Shares. Equity securities with a smaller outstanding market value available for trading (the float) may command a lower price than would comparable equity securities with a greater float. Therefore, the market price for Shares that are not tendered in the Offer may be affected adversely to the extent that the amount of Shares purchased pursuant to the Offer reduces the float. The reduced float may also make the trading price of the Shares that are not tendered and accepted for payment more volatile. Holders of the remaining Shares may attempt to obtain quotations for the Shares from their brokers, through the Electronic Bulletin Board, or otherwise; however, there can be no assurance that any trading market will exist for such Shares following consummation of the Offer. To the extent a market continues to exist for the Shares after the Offer, the Shares may trade at a discount compared to present trading, depending on the market for Shares with similar features, the performance of Mass. Electric, and other factors. There is no assurance that an active market in the Shares will exist and no assurance as to the prices at which the Shares may trade. The Shares are currently registered under Section 12(g) of the Exchange Act. If the Shares are no longer held by more than 300 owners of record, Mass. Electric may apply to the SEC for termination of such registration. Such termination would substantially reduce the information required to be furnished by Mass. Electric to holders of the Preferred Stock and could make certain provisions of the Exchange Act no longer applicable to Mass. Electric. As of September 29, 1997, there were 17 registered holders of the 4.44% Series, 27 registered holders of the 4.76% Series, 1 registered holder of the 6.99% Series, and 15 registered holders of the 6.84% Series. Future Purchases or Redemption of Shares. Preferred Shareholders are not under any obligation to tender Shares pursuant to the Offer. The Offer does not constitute a notice of redemption of any Series of Preferred pursuant to Mass. Electric's Provisions, neither does NEES or Mass. Electric intend to effect any such redemption by making the Offer. Further, the Offer does not constitute a waiver by Mass. Electric of any option it has to redeem Shares. Shares which are not tendered will continue to be subject to their current redemption and liquidation provisions. The various Series of the Preferred are redeemable in whole or in part upon not less than thirty days' notice at the applicable redemption prices plus accrued dividends through the date fixed for redemption. The redemption prices for the 4.44% Series and the 4.76% Series are $104.068 and $103.730, respectively. The 6.99% Series is redeemable after August 1, 2003 at a price equal to $103.50. The 6.84% Series is redeemable after October 1, 1998 at a price equal to $25.80. There are no sinking funds for any of the Series of Preferred. The Preferred Shareholders have no preemptive or conversion rights. Upon liquidation, dissolution, or winding up of the affairs of Mass. Electric or any distribution of capital of Mass. Electric, owners of the Shares of each Series of Preferred would be entitled to receive an amount equal to the full distributive amounts fixed therefor together with accrued dividends through the date fixed for the payment of such distributive amounts. In case any liquidation, dissolution, or winding up of Mass. Electric is voluntary, owners of the Shares of each Series of Preferred shall be entitled to receive said redemption prices plus accrued dividends through the date fixed for the payment of such distributive amounts; if involuntary, to $100 per Share for Dividend Series Preferred Stock and $25 for Preferred Stock -- Cumulative plus in each case accrued dividends through the date fixed for the payment of such distributive amounts. 14 15 After the consummation of the Offer, NEES or Mass. Electric may purchase additional Shares on the open market, in privately negotiated transactions, through one or more tender offers, or otherwise. Any such purchases may be on the same terms as, or on terms which are more or less favorable to holders of Shares than, the terms of the Offer. However, Rule 13e-4(f)(6) under the Exchange Act prohibits NEES and its affiliates (including Mass. Electric) from purchasing any Shares of a Series of Preferred, other than pursuant to the Offer, until at least ten business days after the Expiration Date with respect to that Series of Preferred. Any future purchases of Shares by NEES or Mass. Electric would depend on many factors, including the market price of the Shares, NEES's business and financial position, and legal restrictions on NEES's ability to purchase Shares, as well as general economic and market conditions. OTHER INFORMATION As discussed in the documents incorporated herein by reference, the NEES companies are divesting themselves of or attempting to divest themselves of their generation business. This process will result in reductions in employees and may result in reallocation of executive and Board responsibilities. Although Mass. Electric itself has no generation facilities, it expects to be impacted by this process. Further, the NEES companies have considered various strategies to enhance their competitive business, including business combinations with other companies. Except as disclosed herein and in the documents incorporated by reference, neither NEES nor Mass. Electric has plans or proposals that would relate to or result in (a) the acquisition by any person or entity of additional securities of Mass. Electric or the disposition of securities of Mass. Electric, other than in the ordinary course of business; (b) an extraordinary corporate transaction, such as a merger, reorganization, or liquidation, involving Mass. Electric; (c) a sale or transfer of a material amount of assets of Mass. Electric; (d) any change in the present Board or management of Mass. Electric; (e) any material change in the present dividend rate or policy, or indebtedness or capitalization of Mass. Electric; (f) any other material change in Mass. Electric's corporate structure or business; (g) any change in the Provisions or any actions that may impede the acquisition of control of Mass. Electric by any person; (h) a class of equity securities of Mass. Electric being no longer authorized to be quoted on the OTC; (i) a class of equity securities of Mass. Electric becoming eligible for termination of registration pursuant to Section 12(g)(4) of the Exchange Act; or (j) the suspension of Mass. Electric's obligation to file reports pursuant to Section 15(d) of the Exchange Act. 15 16 PROPOSED AMENDMENT AND PROXY SOLICITATION LOGO MASSACHUSETTS ELECTRIC COMPANY NOTICE OF SPECIAL MEETING OF STOCKHOLDERS 25 RESEARCH DRIVE WESTBOROUGH, MASSACHUSETTS 01582 NOVEMBER 6, 1997 To the Holders of Common Stock, Preferred Stock -- Cumulative and Dividend Series Preferred Stock of MASSACHUSETTS ELECTRIC COMPANY You are hereby notified that the Special Meeting of Stockholders of Massachusetts Electric Company will be held in the Directors Room, 25 Research Drive, Westborough, Massachusetts, on December 12, 1997, at 4:30 p.m., Eastern Standard Time, for the following purposes: 1. Amendment of the Articles of Organization and By-laws to delete in its entirety Article XVIII, Section 4E(4), limiting Mass. Electric's ability to issue unsecured indebtedness; and 2. Transaction of such other business as may be appropriate and incidental to the foregoing purposes or which may properly come before the meeting or any adjourned session thereof. Stockholders entitled to vote will be determined on the basis of the records of the Company at the close of business on November 12, 1997. The accompanying material contains further information about the matters to be considered at the meeting. By order of the Board of Directors. ROBERT KING WULFF Clerk 16 17 SPECIAL MEETING This Booklet is first being mailed on or about November 7, 1997 to the Preferred Shareholders of Mass. Electric in connection with the solicitation of proxies by the Board of Directors of Mass. Electric (the Board) for use at the Special Meeting. At the Special Meeting, the Preferred Shareholders of record of Mass. Electric will vote upon the Proposed Amendment to its Provisions. PROXIES THE PROXY INCLUDED IN THE LETTER OF TRANSMITTAL AND PROXY IS SOLICITED FROM THE HOLDERS OF THE PREFERRED STOCK BY THE BOARD, WHICH RECOMMENDS VOTING FOR THE PROPOSED AMENDMENT. All shares of Mass. Electric's common stock will be voted in favor of the Proposed Amendment. Shares of Mass. Electric's Preferred Stock represented by properly executed proxies received at or prior to the Special Meeting will be voted in accordance with the instructions thereon. If no instructions are indicated, duly executed proxies will be voted in accordance with the recommendation of the Board. It is not anticipated that any other matters will be brought before the Special Meeting. However, the enclosed proxy gives discretionary authority to the proxy holders named therein should any other matters be presented at the Special Meeting, and it is the intention of the proxy holders to act on any other matters in accordance with their best judgment. Execution of a proxy will not prevent a Preferred Shareholder from attending the Special Meeting and voting in person. Any Preferred Shareholder giving a proxy may revoke it at any time before it is voted by delivering to the Clerk of Mass. Electric written notice of revocation bearing a later date than the proxy, by delivering a duly executed proxy bearing a later date, or by voting in person by ballot at the Special Meeting. Withdrawal of Shares tendered pursuant to the Offer will not revoke a properly executed proxy. RELATIONSHIP TO THE OFFER; SPECIAL CASH PAYMENT As noted above, the Offer and Proposed Amendment constitute an integrated strategy of NEES and Mass. Electric to achieve greater flexibility in their financing. See Purpose of the Offer, Proposed Amendment, and Proxy Solicitation. Preferred Shareholders who wish to tender their Shares pursuant to the Offer are required to vote in favor of the Proposed Amendment. Further, the Offer is conditioned upon the Proposed Amendment being approved and adopted at the Special Meeting. Subject to the terms and conditions set forth in this Booklet, if (but only if) the Proposed Amendment is approved and adopted by Mass. Electric's shareholders, Mass. Electric will make a Special Cash Payment in the amount of $1.00 per Share to each Dividend Series Preferred Shareholder of record and $.25 per Share to each Preferred Stock -- Cumulative Shareholder of record who voted in favor of the Proposed Amendment, provided that such Shares have not been tendered pursuant to the Offer. Mass. Electric intends to make the Special Cash Payment although there is no binding legal precedent as to the permissibility of such payment and there can be no assurance as to how a court would rule on the question. If a Preferred Shareholder votes against the Proposed Amendment or abstains, such Preferred Shareholder shall not be entitled to the Special Cash Payment (regardless of whether the Proposed Amendment is approved and adopted). The Special Cash Payment will be paid out of Mass. Electric's general funds promptly after the Proposed Amendment shall have become effective. However, no accrued interest will be paid on the Special Cash Payment regardless of any delay in making such payments. VOTING SECURITIES, RIGHTS, AND PROCEDURES Only holders of record of Mass. Electric's voting securities at the close of business on November 12, 1997, the Record Date (or their legal representatives or attorneys-in-fact), will be entitled to vote in person or by proxy at the Special Meeting and to receive the Special Cash Payment from Mass. Electric. Any beneficial holder of Shares who is not the registered holder of such Shares as of the Record Date (as would be the case for any beneficial holder whose Shares are registered in the name of such holder's broker, dealer, commercial bank, trust company, or other nominee) must arrange with the holder of record on the Record Date to execute 17 18 and deliver a proxy form on such beneficial owner's behalf. If a beneficial holder of Shares intends to attend the Special Meeting and vote in person, such beneficial holder must obtain a legal proxy form from the beneficial holder's broker, dealer, commercial bank, trust company, or other nominee. The Shares will trade, during the period which begins two days prior to the Record Date and which will end at the close of business on the Expiration Date, in the over-the-counter market under the symbols "MSSDT" for the 4.44% Series, "MSSGT" for the 4.76% Series, "MSSIT" for the 6.99% Series, and "MSSJT" for the 6.84% Series, indicating that such Shares are trading "with proxy." A Preferred Shareholder who acquires Shares during this period must obtain, or have his or her authorized representative obtain, an assignment of proxy (which is included in the applicable Letter of Transmittal and Proxy) at settlement from the seller. The NASD and The Depository Trust Company have issued notices informing their members and participants that the Shares will trade "with proxy" and that settlement of all trades during the period described above should include an assignment of proxy from the seller. Mass. Electric's outstanding voting securities consist of common stock, Dividend Series Preferred Stock, and Preferred Stock -- Cumulative. There are three series of Dividend Series Preferred Stock currently outstanding. There is only one series of Preferred Stock -- Cumulative. The common stock votes as one class. The three series of Dividend Series Preferred Stock and the one series of Preferred Stock -- Cumulative will vote together as a single class. The Shares outstanding as of the Record Date, and the vote to which each Share is entitled in consideration of the Proposed Amendment, are as follows:
CLASS SHARES OUTSTANDING VOTES PER SHARE --------------------------------------------------- ------------------ --------------- Common............................................. 6,449,896 one Dividend Series Preferred 4.44%............................................ 75,000 one 4.76%............................................ 75,000 one 6.99%............................................ 200,000 one Preferred Stock -- Cumulative 6.84%............................................ 600,000 one-quarter Total Preferred Votes voting as a class................................ 500,000
The affirmative vote of more than two-thirds of the outstanding shares of each of Mass. Electric's (i) common stock voting as a class, and (ii) Dividend Series Preferred Stock and Preferred Stock -- Cumulative, all series voting together as a single class, is required to approve the Proposed Amendment to be presented at the Special Meeting. Abstentions and broker non-votes will have the same effect as votes cast against the Proposed Amendment. NEES has advised Mass. Electric that it intends to vote all of the outstanding shares of common stock of Mass. Electric in favor of the Proposed Amendment. There are no rights of appraisal in connection with the Proposed Amendment. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT As noted above, NEES owns all the outstanding common stock of Mass. Electric. Pursuant to Section 13(d) of the Exchange Act, a beneficial owner of a security is any person who directly or indirectly has or shares voting or investment power over such security. No person or group is known by management of Mass. Electric to be the beneficial owner of more than 5% of the outstanding shares of Mass. Electric's Preferred Stock as of the Record Date. 18 19 NEES and Mass. Electric's directors and executive officers do not beneficially own any Shares as of the Record Date. The beneficial ownership of NEES's common shares held by each Mass. Electric director, as well as Mass. Electric directors and executive officers as a group, as of October 1, 1997, is set forth in the following table.
NAME SHARES --------------------------------------------------------------------------- -------- Urville J. Beaumont........................................................ 308 Joan T. Bok................................................................ 17,504 Sally L. Collins........................................................... 310 Kalyan K. Ghosh............................................................ 53 Charles B. Housen.......................................................... 20 Robert L. McCabe........................................................... 9,924 Patricia McGovern.......................................................... 167 John F. Reilly............................................................. 310 Lawrence J. Reilly......................................................... 2,861 John W. Rowe............................................................... 23,105 Nancy H. Sala.............................................................. 8,013 Richard P. Sergel.......................................................... 8,723 Roslyn M. Watson........................................................... 310 Directors and officers as a group (representing less than 1% of the outstanding Shares)...................................................... 132,425
Listed below is the only person or group known to NEES as of October 1, 1997, to beneficially own 5% or more of NEES's common shares. However, T. Rowe Price Trust Company disclaims beneficial ownership of all such shares. The amount of common shares listed below is as of September 8, 1997.
NAME AND ADDRESS AMOUNT AND NATURE PERCENT OF OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP COMMON SHARES - ---------------------------------------------------- ------------------------- ------------- T. Rowe Price Trust Company......................... 5,358,604 shares as 8.3% trustee 100 East Pratt Street for Company employee Baltimore, MD 21202 benefits plans
DESCRIPTION OF THE PROPOSED AMENDMENT THE FOLLOWING STATEMENTS, UNLESS THE CONTEXT OTHERWISE REQUIRES, ARE SUMMARIES OF THE SUBSTANCE OR GENERAL EFFECT OF A SECTION OF THE PROVISIONS, AND ARE QUALIFIED IN THEIR ENTIRETY BY THE PROVISIONS (AS DESCRIBED BELOW). EXPLANATION OF THE PROPOSED AMENDMENT The purpose of the Proxy Solicitation is the elimination of the section in the Provisions restricting the ability of Mass. Electric to incur certain unsecured indebtedness. ARTICLE XVIII, Section 4E(4) of the Provisions provides that, without a vote of a majority of the outstanding Dividend Series Preferred Stock and Preferred Stock -- Cumulative (voting together as a single class), Mass. Electric will not: issue or assume any unsecured notes, debentures or other securities representing unsecured indebtedness for purposes other than (x) the refunding of outstanding unsecured indebtedness theretofore issued or assumed by the corporation resulting in maturities later than the maturity of the indebtedness being refunded or (y) the reacquisition, redemption or other retirement of any indebtedness which reacquisition, redemption or other retirement has been authorized under the provisions of the Public Utility Holding Company Act of 1935, if, immediately after such issue or assumption, the total principal amount of all unsecured notes, debentures or other securities representing both long and short-term unsecured indebtedness issued or assumed by the corporation and then to be outstanding (but excluding unsecured 19 20 indebtedness theretofore so voted for by holders of Preferred Stock and Preferred Stock -- Cumulative) would exceed twenty per cent (20%) of total capitalization, or if, immediately after such issue or assumption, such short-term unsecured indebtedness issued or assumed by the corporation after September 30, 1998 and then to be outstanding (but excluding short-term unsecured indebtedness theretofore so voted for by holders of Preferred Stock and Preferred Stock -- Cumulative) would exceed ten per cent (10%) of total capitalization; provided, however, that in the event such short-term unsecured indebtedness (but excluding short-term unsecured indebtedness theretofore so voted for by holders of Preferred Stock and Preferred Stock -- Cumulative) exceeds such latter limit, no unsecured securities representing unsecured indebtedness shall be issued or assumed (except for the purposes specified in clauses (x) and (y) above) unless such ratio of short-term unsecured indebtedness immediately after such issue or assumption is not in excess of such limit. "Short-term unsecured indebtedness" as used in this subsection E(4) means unsecured indebtedness of an original maturity of less than ten years and "long-term unsecured indebtedness" means unsecured indebtedness of an original maturity of ten years or more. For the purposes hereof, when any long-term unsecured indebtedness becomes due within five years, or when any long-term unsecured indebtedness is to be retired within five years through a sinking fund or otherwise, such long-term unsecured indebtedness, in each case, shall be considered short-term unsecured indebtedness. "Total capitalization" as used in this subsection E(4) means the aggregate of (i) the total principal amount of all bonds and other securities representing secured indebtedness issued or assumed by the corporation and then outstanding and (ii) the capital, premium and surplus of the corporation as then stated on the books of account of the corporation. It is proposed to delete the above section in its entirety; conforming changes to cross references elsewhere in the Provisions will also be made. REASONS FOR THE PROPOSED AMENDMENT Mass. Electric believes that the prudent use of unsecured debt is important to the effective financial management of its business. Unsecured debt provides flexibility in meeting temporary fluctuations in cash requirements, can be used when unfavorable conditions prevail in the market for long-term capital, acts as a bridge between issues of permanent capital, and may present more flexibility in terms and conditions than secured debt. If the Proposed Amendment is adopted, Mass. Electric will have increased flexibility (i) to choose among different types of debt financing and (ii) to finance projects using the most cost effective means. The availability and flexibility of unsecured debt is necessary to take full advantage of changing conditions in the securities and financial markets. In addition, although Mass. Electric's earnings currently are sufficient to meet the earnings coverage tests that must be satisfied before issuing additional first mortgage bonds and preferred stock, other utilities have been unable to issue mortgage bonds during certain periods because of restrictive covenants in their mortgages. Any inability by Mass. Electric to issue first mortgage bonds or preferred stock in the future, combined with the inability to issue additional unsecured debt, would limit its financing options to more costly securities, including additional common equity. RECOMMENDATION OF BOARD OF DIRECTORS IT IS FOR ALL THE ABOVE REASONS THAT MASS. ELECTRIC'S BOARD BELIEVES THE BEST LONG-TERM INTERESTS OF THE PREFERRED SHAREHOLDERS ARE SERVED BY, AND ENCOURAGES PREFERRED SHAREHOLDERS TO VOTE FOR, THE ADOPTION OF THE PROPOSED AMENDMENTS. The Proposed Amendment to the Provisions and the Offer are subject to approval by the SEC under the Holding Company Act. NEES and Mass. Electric have filed a declaration with the SEC with respect to the Proposed Amendment and the acquisition of the Shares by NEES pursuant to the Offer. 20 21 CERTAIN EFFECTS OF THE PROPOSED AMENDMENT If the Proposed Amendment becomes effective, Preferred Shareholders of Shares that are not tendered and purchased pursuant to the Offer will no longer be entitled to the benefits of the unsecured debt limitation provision. As discussed above, the debt limitation provision places restrictions on Mass. Electric's ability to issue or assume unsecured indebtedness. Although future Mass. Electric debt instruments may contain certain restrictions on Mass. Electric's ability to issue or assume debt, any such restrictions may be waived and the increased flexibility afforded Mass. Electric by the deletion of the debt limitation provision may permit Mass. Electric to take certain actions that may increase the credit risks with respect to Mass. Electric, adversely affecting the market price and credit rating of the remaining Shares, or that may otherwise be materially adverse to the interests of the remaining Preferred Shareholders. OTHER MATTERS The foregoing is the only business which management intends to present or is advised that others will present for action at the Special Meeting or any adjournment thereof. If any other matters should properly come before the Special Meeting, the proxies for NEES and for any other stockholders who have sent in their proxies will be voted by the persons named therein, or their substitutes, in accordance with their judgment. The expense of preparing and mailing this Booklet and the incidental expenses of soliciting the Preferred Shareholders will be paid by Mass. Electric. Mass. Electric has engaged Georgeson to act as Information Agent in connection with the solicitation of proxies for a fee of $6,000 plus reimbursement of reasonable out-of-pocket expenses. Mass. Electric has requested that brokers, dealers, and other custodians, nominees, and fiduciaries forward solicitation materials to the beneficial owners of Shares held of record by such persons and will reimburse such brokers and other fiduciaries for their reasonable out-of-pocket expenses incurred in connection therewith. In addition to the use of the mails, proxies from holders of the Preferred Stock may be solicited by officers and regular employees connected with Mass. Electric or its affiliates, personally or by telephone or telegraph, without any additional compensation. The Information Agent has not been retained to make, and will not make, solicitations or recommendations in connection with the Proposed Amendment. While Mass. Electric has no audit committee, its parent NEES has an audit committee which recommends an independent auditor to audit the accounts of the parent and its subsidiaries. Coopers and Lybrand have been auditors of Mass. Electric for many years and their selection as auditors for the current year was approved at the Annual Meeting on March 19, 1997. It is not expected that representatives of Coopers and Lybrand will be present at the Special Meeting on December 12, 1997, but they will be available on short notice to attend to answer questions regarding the Proposed Amendment, if any holder of Shares so requests in writing prior to December 10, 1997. 21 22 PRICE RANGE OF SHARES; DIVIDENDS Trading in the Shares has generally been sporadic. Each Series of Preferred is traded in the OTC and is not listed on any national securities exchange. PREFERRED SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS, IF AVAILABLE, FOR THE SHARES. The following table sets forth the high and low sales prices of each Series of Preferred and Preferred Stock -- Cumulative as reported by the Nasdaq Stock Market, Inc., and the cash dividends paid thereon for the fiscal quarters indicated. DIVIDENDS AND PRICE RANGES OF PREFERRED STOCK BY QUARTERS (1997, 1996 AND 1995)
1997 - QUARTERS 1996 - QUARTERS --------------------------------------- ------------------------------------------ 1ST 2ND 3RD 4TH* 1ST 2ND 3RD 4TH --------- --------- --------- --------- ---------- --------- ---------- ---------- DIVIDEND SERIES PREFERRED STOCK: 4.44% SERIES Dividends Paid Per Share.......... $ 1.11 $ 1.11 $ 1.11 $ 1.11 $ 1.11 $ 1.11 $ 1.11 $ 1.11 Market Price Per Share (OTC) -- High......................... 68.68 64.75 69.125 69.75 61.00 62.225 65.40 58.00 -- Low.......................... 58.00 59.50 64.25 68.00 61.00 58.00 58.00 58.00 4.76% SERIES Dividends Paid Per Share.......... $ 1.19 $ 1.19 $ 1.19 $ 1.19 $ 1.19 $ 1.19 $ 1.19 $ 1.19 Market Price Per Share (OTC) -- High......................... 71.608 67.70 73.50 -- 71.00 67.25 69.15 74.52 -- Low.......................... 62.00 63.875 64.125 -- 63.50 62.00 62.625 62.00 6.99% SERIES Dividends Paid Per Share.......... $ 1.7475 $ 1.7475 $ 1.7475 $ 1.7475 $ 1.7475 $ 1.7475 $ 1.7475 $ 1.7475 Market Price Per Share (OTC) -- High......................... -- -- -- 108.50 103.50 97.32 100.125 105.29 -- Low.......................... -- -- -- 100.00 96.00 97.32 100.125 100.25 PREFERRED STOCK -- CUMULATIVE 6.84% SERIES Dividends Paid Per Share.......... $ 0.4275 $ 0.4275 $ 0.4275 $ 0.4275 $ 0.4275 $ 0.4275 $ 0.4275 $ 0.4275 Market Price Per Share (OTC) -- High......................... 24.875 25.25 25.25 25.125 26.15 24.15 24.75 24.75 -- Low.......................... 23.875 23.90 24.25 24.50 22.75 21.00 22.125 23.125 1995 - QUARTERS ------------------------------------------- 1ST 2ND 3RD 4TH --------- ---------- --------- --------- DIVIDEND SERIES PREFERRED STOCK: 4.44% SERIES Dividends Paid Per Share..........$ 1.11 $ 1.11 $ 1.11 $ 1.11 Market Price Per Share (OTC) -- High......................... 58.125 59.50 64.05 58.00 -- Low.......................... 48.25 54.25 56.75 58.00 4.76% SERIES Dividends Paid Per Share..........$ 1.19 $ 1.19 $ 1.19 $ 1.19 Market Price Per Share (OTC) -- High......................... 53.50 70.50 68.70 67.875 -- Low.......................... 53.50 54.50 60.25 63.00 6.99% SERIES Dividends Paid Per Share..........$ 1.7475 $ 1.7475 $ 1.7475 $ 1.7475 Market Price Per Share (OTC) -- High......................... -- 102.00 -- 105.39 -- Low.......................... -- 97.875 -- 104.50 PREFERRED STOCK -- CUMULATIVE 6.84% SERIES Dividends Paid Per Share..........$ 0.4275 $ 0.4275 $ 0.4275 $ 0.4275 Market Price Per Share (OTC) -- High......................... 21.90 25.58 24.60 25.75 -- Low.......................... 19.50 20.875 22.95 23.625
- --------------- * Prices through October 31 Note -- The above bid and asked quotations represent prices between dealers and do not represent actual transactions. A dash indicates that a quotation was not available. Dividends for a Series of Preferred are payable when, as and if declared by Mass. Electric's Board at the rate per annum included in such title of the Series of Preferred. NEES will pay to tendering Preferred Shareholders any accrued dividends through the Expiration Date. 22 23 CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS EACH HOLDER OF SHARES IS URGED TO CONSULT AND RELY UPON SUCH HOLDER'S OWN TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES TO THE HOLDER OF TENDERING SHARES PURSUANT TO THE OFFER. In the opinion of Hale and Dorr LLP, tax counsel to NEES and Mass. Electric, the following summary describes the principal United States Federal income tax consequences of sales of Shares pursuant to the Offer, the receipt of accrued and unpaid dividends and the receipt of Special Cash Payments in connection with the approval and adoption of the Proposed Amendment. This summary is based on the Internal Revenue Code of 1986, as amended to the date hereof (the "Code"), administrative pronouncements, judicial decisions and existing and proposed Treasury Regulations, changes to any of which subsequent to the date of this Booklet may adversely affect the tax consequences described herein, possibly on a retroactive basis. This summary is addressed to Preferred Shareholders who hold Shares as capital assets within the meaning of Section 1221 of the Code. This summary does not discuss all of the tax consequences that may be relevant to a Preferred Shareholder in light of such Preferred Shareholder's particular circumstances or to Preferred Shareholders subject to special rules (including certain financial institutions, tax-exempt organizations, insurance companies, dealers in securities or currencies, foreign persons or entities selling Shares pursuant to the Offer who own or have owned, actually or constructively, more than five percent of the outstanding amount of such Shares, Preferred Shareholders who acquired their Shares pursuant to the exercise of stock options or other compensation arrangements with Mass. Electric or Preferred Shareholders holding the Shares as part of a conversion transaction, as part of a hedge or hedging transaction, or as a position in a straddle for tax purposes). Preferred Shareholders should consult their tax advisors with regard to the application of the United States Federal income tax laws to their particular situations as well as any tax consequences arising under the laws of any state, local or foreign taxing jurisdiction. As used herein, the term "United States Holder" means an owner of a Share that is (i) for United States Federal income tax purposes a citizen or resident of the United States; (ii) a corporation, partnership or other entity created or organized in or under the laws of the United States or of any political subdivision thereof; (iii) an estate, or, for taxable years beginning on or before December 31, 1996, in general, any trust, the income of which is subject to United States Federal income taxation regardless of its source; or (iv) for taxable years beginning after December 31, 1996, any trust if a court within the United States is able to exercise primary supervision over the administration of such trust and one or more United States fiduciaries have the authority to control all substantial decisions of such trust. A "Non-United States Holder" is a Preferred Shareholder that is not a United States Holder. TAX CONSIDERATIONS FOR TENDERING PREFERRED SHAREHOLDERS Characterization of the Sale. A sale of Shares by a Preferred Shareholder pursuant to the Offer will be a taxable transaction for Federal income tax purposes. For U.S. Federal income tax purposes, a portion of the purchase price per Share paid to Tendering Preferred Shareholders equal in amount to the Special Cash Payment (payable to Preferred Shareholders who vote in favor of the Proposed Amendment, but who do not tender their Shares) will be taxed in the same manner as the Special Cash Payment received by Non-Tendering Preferred Shareholders (see Tax Considerations of Special Cash Payment). The balance of the Purchase Price per Share paid to Preferred Shareholders will be taxed as an amount received in exchange for Shares resulting in gain or loss as described in the following two paragraphs. United States Holders. A United States Holder will recognize gain or loss equal to the difference between the tax basis of such Holder's Shares and the amount of cash received from NEES in exchange therefor. A United States Holder's gain or loss will be long-term capital gain or loss if the holding period for the Shares is more than one year as to the date of the sale of such Shares. The excess of net long-term capital gains over net short-term capital losses is taxed at a lower rate than ordinary income for certain non-corporate taxpayers. Capital gain on Shares held by non-corporate taxpayers for more than eighteen months prior to the date of the sale of such Shares will be subject to a reduced tax rate. The distinction between long-term capital 23 24 gain or loss and short-term gain or loss is also relevant for purposes of, among other things, limitations on the deductibility of capital losses. Non-United States Holders. Any gain realized upon the sale of Shares by a Non-United States Holder pursuant to the Offer generally will not be subject to United States Federal income tax unless (i) such gain is effectively connected with a trade or business in the United States of the Non-United States Holder, or (ii) in the case of a Non-United States Holder who is an individual, such individual is present in the United States for 183 days or more in the taxable year of such sale and certain other conditions are met. A Non-United States Holder with gain described in clause (i) above will be taxed on the net gain derived from the sale at regular graduated United States Federal income tax rates. If a Non-United States Holder that is a foreign corporation has gain described under clause (i) above, it may also be subject to an additional "branch profits tax" at a 30% rate (or such lower rate as may be specified by an applicable income tax treaty). Unless an applicable tax treaty provides otherwise, an individual Non-United States Holder described in clause (ii) above will be subject to a flat 30% tax on the gain derived from the sale, which may be offset by United States capital losses (notwithstanding the fact that the individual is not considered a resident of the United States). TAX CONSIDERATIONS FOR NON-TENDERING PREFERRED SHAREHOLDERS Non-Tendering Preferred Shareholders, whether or not they receive Special Cash Payments, will not recognize any taxable gain or loss with respect to the Shares as a result of the modification of the Provisions by the Proposed Amendment. TAX CONSIDERATIONS OF ACCRUED AND UNPAID DIVIDENDS PAYMENT Payment of accrued and unpaid dividends received by the tendering Preferred Shareholder with respect to rights to dividends declared prior to the Offer will be treated as dividends to the extent of the Preferred Shareholder's allocable portion of Mass. Electric's current and accumulated earnings and profits as determined under United States Federal income tax principles and not as proceeds from the sale of such Shares. Such dividend payments will be taxed to the Preferred Shareholder in the same manner as prior dividend payments have customarily been taxed. TAX CONSIDERATIONS OF SPECIAL CASH PAYMENT United States Holders. There is no direct authority concerning the Federal income tax consequences of the receipt of Special Cash Payments. Mass. Electric will, for information reporting purposes, treat Special Cash Payments as ordinary non-dividend income to recipient United States Holders. Non-United States Holders. Mass. Electric will treat Special Cash Payments paid to a Non-United States Holder of Shares as subject to withholding of United States Federal income tax at a 30% rate. However, Special Cash Payments that are effectively connected with the conduct of a trade or business by the Non-United States Holder within the United States are not subject to the withholding tax (provided such Non-United States Holder provides two originals of Internal Revenue Service ("IRS") Form 4224 stating that such Special Cash Payments are so effectively connected), but instead are subject to United States Federal income tax on a net income basis at applicable graduated individual or corporate rates. Any such effectively connected Special Cash Payments received by a foreign corporation may, under certain circumstances, be subject to an additional "branch profits tax" at a 30% rate (or such lower rate as may be specified by an applicable income tax treaty). A Non-United States Holder of Shares eligible for a reduced rate of United States withholding tax pursuant to an income tax treaty may obtain a refund of any excess amounts withheld by filing an appropriate claim for refund with the IRS. 24 25 BACKUP WITHHOLDING ANY TENDERING PREFERRED SHAREHOLDER WHO FAILS TO COMPLETE AND SIGN THE SUBSTITUTE FORM W-9 THAT IS INCLUDED IN THE APPLICABLE LETTER OF TRANSMITTAL (OR, IN THE CASE OF A FOREIGN PREFERRED SHAREHOLDER, FORM W-8 OBTAINABLE FROM THE DEPOSITARY) MAY BE SUBJECT TO A REQUIRED FEDERAL INCOME TAX BACKUP WITHHOLDING OF 31% OF THE GROSS PROCEEDS PAYABLE TO SUCH PREFERRED SHAREHOLDER PURSUANT TO THE OFFER. To prevent backup United States Federal income tax withholding with respect to the purchase price of Shares purchased pursuant to the Offer, a United States Holder must provide the Depositary with the Preferred Shareholder's correct taxpayer identification number and certify that the Preferred Shareholder is not subject to backup withholding of Federal income tax by completing the Substitute Form W-9 included in the applicable Letter of Transmittal. Certain Preferred Shareholders (including, among others, all corporations and certain foreign shareholders) are exempt from backup withholding. For a corporate United States Holder to qualify for such exemption, such Preferred Shareholder must provide the Depositary with a properly completed and executed Substitute Form W-9 attesting to its exempt status. In order for a foreign Preferred Shareholder to qualify as an exempt recipient, the foreign holder must submit a Form W-8, Certificate of Foreign Status, signed under penalties of perjury, attesting to that Preferred Shareholder's exempt status. A copy of Form W-8 may be obtained from the Depositary. Unless a Preferred Shareholder provides the appropriate certification, under the applicable law and regulations concerning "backup withholding" of United States Federal income tax, the Depositary will be required to withhold, and will withhold, 31% of the gross proceeds otherwise payable to such Preferred Shareholder or other payee. The amount of any backup withholding from a payment to a Preferred Shareholder will be allowed as a credit against such Preferred Shareholder's United States Federal income tax liability and may entitle such Preferred Shareholder to a refund, provided that the required information is furnished to the IRS. SOURCE AND AMOUNT OF FUNDS Assuming that NEES purchases all outstanding Shares of each Series of Preferred pursuant to the Offer, the total amount required by NEES to purchase such Shares will be approximately $55 million, exclusive of the payment of accrued dividends, but including fees and other expenses. NEES intends to fund the Offer through the use of its general funds (which, in the ordinary course, include funds from Mass. Electric) and funds borrowed pursuant to NEES' committed lines of credit, including any bank revolving credit agreements. The interest rates depend upon the timing, amount of borrowings, and market rates at that time. NEES currently has regulatory authority to borrow $100 million and is seeking to increase that amount. Mass. Electric sells commercial paper directly to commercial paper dealers who reoffer the commercial paper to investors. TRANSACTIONS AND AGREEMENTS CONCERNING THE SHARES Each of NEES and Mass. Electric has been advised by its directors and executive officers that no directors or executive officers of the respective companies own any Shares. Based upon the companies' records and upon information provided to each company by its directors and executive officers, neither company nor, to the knowledge of either, any of their subsidiaries, affiliates, directors, or executive officers, or any associates of the foregoing, has engaged in any transactions involving Shares during the 40 business days preceding the date hereof. Neither company nor, to the knowledge of either, any of their directors or executive officers or any associate of the foregoing is a party to any contract, arrangement, understanding, or relationship relating directly or indirectly to the Offer with any other person or entity with respect to any securities of Mass. Electric. 25 26 FEES AND EXPENSES PAID TO DEALERS DEALER MANAGER FEES Merrill Lynch will act as Dealer Manager for NEES in connection with the Offer. NEES has agreed to pay the Dealer Manager a fee of $0.50 for each Share of Dividend Series Preferred Stock and $0.125 for each Share of Preferred Stock -- Cumulative tendered, accepted for payment, and paid for pursuant to the Offer and a fee of $0.50 for each Share of Dividend Series Preferred Stock and $0.125 for each Share of Preferred Stock -- Cumulative that are not tendered pursuant to the Offer but which vote in favor of the Proposed Amendment. The Dealer Manager will also be reimbursed by NEES for its reasonable out-of-pocket expenses, including attorneys' fees, and will be indemnified against certain liabilities, including certain liabilities under the federal securities laws, in connection with the Offer. The Dealer Manager has rendered, is currently rendering, and is expected to continue to render various investment banking and other advisory services to NEES and Mass. Electric. The Dealer Manager has received, and will continue to receive, customary compensation from NEES and Mass. Electric for such services. NEES has retained IBJ Schroder Bank & Trust Company as Depositary and Georgeson & Company, Inc. as Information Agent in connection with the Offer. The Depositary and the Information Agent will receive reasonable and customary compensation for their services and will also be reimbursed for reasonable out-of-pocket expenses, including attorney fees. Neither the Depositary nor the Information Agent has been retained to make solicitations or recommendations in connection with the Offer. SOLICITED TENDER FEES Upon the terms and subject to the conditions of the Offer and pursuant to Instruction 10 of the accompanying Letter of Transmittal and Proxy, NEES will pay to designated brokers and dealers a solicitation fee of (i) $1.50 per Share for any Dividend Series Preferred Stock and (ii) $0.375 per Share for Shares of Preferred Stock -- Cumulative tendered, accepted for payment, and paid for pursuant to the Offer and for each such Share not tendered but voted in favor of the Proposed Amendment (except that for transactions for beneficial owners equal to or exceeding 2,500 Shares, NEES will pay a solicitation fee of (i) $1.00 per Share for any Dividend Series Preferred Stock and (ii) $0.25, per Share for any Preferred Stock -- Cumulative, of which eighty percent (80%) shall be paid to the Dealer Manager and twenty percent (20%) to the Soliciting Dealer (which may be the Dealer Manager)). With respect to fees payable pursuant to this paragraph involving transactions for beneficial owners whose ownership is less than 2,500 Shares, any fees payable hereunder shall be paid in full to the Dealer Manager unless a Soliciting Dealer is designated (as described below), in which case such fee shall be payable in full to such designated Soliciting Dealer (which designated Soliciting Dealer may be the Dealer Manager). The Letters of Transmittal and Proxy must include the name of an entity which obtained the tender or proxy and which is either (a) a broker or dealer in securities, including the Dealer Manager in its capacity as a broker or dealer, which is a member of a national securities exchange or of the NASD, (b) a foreign broker or dealer not eligible for membership in the NASD which agrees to conform to the NASD's Rules of Fair Practice in soliciting tenders outside the United States to the same extent as though it were an NASD member, or (c) a bank or trust company (each of which is referred to herein as a Soliciting Dealer). No solicitation fee shall be payable to a Soliciting Dealer with respect to the tender of Shares by a holder unless the Letter of Transmittal and Proxy accompanying such tender designates such Soliciting Dealer. No solicitation fee shall be payable to a Soliciting Dealer in respect of Shares registered in the name of such Soliciting Dealer unless such Shares are held by such Soliciting Dealer as nominee and such Shares are being tendered for the benefit of one or more beneficial owners identified on the Letter of Transmittal and Proxy or on the Notice of Solicited Tenders. No solicitation fee shall be payable to a Soliciting Dealer if such Soliciting Dealer is required for any reason to transfer the amount of such fee to a depositing holder (other than itself). No solicitation fee shall be paid to a Soliciting Dealer with respect to Shares tendered for such Soliciting Dealer's own account. Soliciting Dealers will not be entitled to a solicitation fee for Shares beneficially owned by such Soliciting Dealer. No broker, dealer, bank, trust company, or other nominee shall be deemed to be the agent of NEES, Mass. Electric, the Depositary, the Information Agent, or the Dealer Manager for purposes of the Offer. 26 27 Soliciting Dealers will include any of the organizations described in clauses (a), (b), and (c) above even when the activities of such organizations in connection with the Offer consist solely of forwarding to clients materials relating to the Offer, including the Letter of Transmittal and Proxy and tendering Shares as directed by beneficial owners thereof. No Soliciting Dealer is authorized to make any recommendation to holders of Shares as to whether to tender or refrain from tendering in the Offer. No assumption is made, in making payment to any Soliciting Dealer, that its activities in connection with the Offer included any activities other than those described above, and for all purposes noted in all materials relating to the Offer, the term "solicit" shall be deemed to mean no more than processing shares tendered or forwarding to customers materials regarding the Offer. STOCK TRANSFER TAXES NEES will pay all stock transfer taxes, if any, payable on account of the acquisition of Shares by NEES pursuant to the Offer, except in certain circumstances where special payment or delivery procedures are utilized pursuant to Instruction 6 of the accompanying Letter of Transmittal and Proxy. 27 28 SUMMARY OF FINANCIAL INFORMATION Set forth below is certain historical financial information of Mass. Electric. The historical financial information (other than the ratios of earnings to fixed charges) was derived from the audited financial statements included in Mass. Electric's Annual Report on Form 10-K for the year ended December 31, 1996 and the unaudited consolidated financial statements included in Mass. Electric's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997. CONDENSED INCOME STATEMENT DATA:
(UNAUDITED) SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ------------------------- ----------------------- 1996 1995 1997 1996 ---------- ---------- -------- -------- (THOUSANDS, EXCEPT RATIOS) Operating Revenues......................... $1,538,537 $1,505,676 $775,060 $749,298 Operating Income........................... 71,961 61,670 43,938 34,470 Allowance for Borrowed and Equity Funds Used During Construction (credit)........ (740) (657) (216) (464) Net Income................................. 37,926 29,101 23,989 16,190 Preferred Stock Dividend Requirements...... 3,114 3,114 1,557 1,557 Earnings Applicable to Common Stock........ 34,812 25,987 22,432 14,633 Ratio of Earnings to Fixed Charges......... 2.82 2.45 3.12(a) 2.85(a)
- --------------- (a) Ratio for the twelve months ended June 30. CONDENSED BALANCE SHEET DATA (AT END OF PERIOD):
(UNAUDITED) DECEMBER 31, JUNE 30, ------------------------- --------------------------- 1996 1995 1997 1996 ---------- ---------- ---------- ---------- (THOUSANDS) ASSETS: Net Utility Plant in Service............ $1,079,311 $1,020,358 $1,089,964 $1,046,636 Construction Work in Progress........... 9,119 21,118 17,608 18,628 Cash and Cash Equivalents............... 2,356 1,840 1,163 997 Other Current Assets.................... 233,453 234,694 215,786 222,861 Other Assets............................ 66,019 65,090 51,047 61,147 ---------- ---------- ---------- ---------- $1,390,258 $1,343,100 $1,375,568 $1,350,269 ========== ========== ========== ========== LIABILITIES: Common Equity........................... $ 427,061 $ 411,433 $ 432,706 $ 415,275 Cumulative Preferred Stock.............. 50,000 50,000 50,000 50,000 Long-term Debt (less amounts due within one year)............................. 343,321 353,267 333,415 338,356 Current Liabilities..................... 329,748 278,012 329,396 308,013 Other Liabilities....................... 240,128 250,388 230,051 238,625 ---------- ---------- ---------- ---------- $1,390,258 $1,343,100 $1,375,568 $1,350,269 ========== ========== ========== ==========
28 29 CERTAIN INFORMATION REGARDING NEES AND MASS. ELECTRIC; INCORPORATION BY REFERENCE Mass. Electric, a Massachusetts corporation, is a wholly owned subsidiary of NEES. Mass. Electric is a retail electric utility incorporated and doing business solely in Massachusetts. Electric service is provided to approximately 960,000 customers in 146 cities and towns having a population of approximately 2,160,000. NEES and Mass. Electric are subject to the informational requirements of the Exchange Act and in accordance therewith file reports and other information with the SEC. Such reports and other information may be inspected and copied at the public reference facilities maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549; 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511; and Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of such material can be obtained from the Public Reference Section of the SEC, 450 Fifth Street, N.W., Washington D.C. 20549 at prescribed rates. The SEC maintains a Web site at http://www.sec.gov containing reports, proxy, and other information regarding registrants that file electronically with the SEC, including NEES and Mass. Electric. Reports, proxy materials, and other information about NEES are also available at the offices of the New York Stock Exchange, 20 Broad Street, New York, New York 10005. In connection with the Offer NEES has filed an Issuer Tender Offer Statement on Schedule 13E-4 with the SEC that includes certain additional information relating to the Offer. NEES's Schedule 13E-4 will not be available at the SEC's regional offices. The following documents, which have heretofore been filed by NEES and Mass. Electric with the SEC pursuant to the Exchange Act, are incorporated by reference herein and shall be deemed a part hereof: (1) Annual report on Form 10-K for the year ended December 31, 1996, which contains or incorporates by reference financial statements and financial statement schedules of NEES and Mass. Electric as of December 31, 1996, and for each of the three years in the period ended December 31, 1996, incorporates by reference or includes the related reports of Coopers & Lybrand, independent certified public accountants; (2) Quarterly reports on Form 10-Q for NEES for the quarters ended March 31, 1997 and June 30, 1997; (3) Quarterly reports on Form 10-Q for Mass. Electric for the quarters ended March 31, 1997 and June 30, 1997; (4) Reports on Form 8-K for NEES for the periods ended April 14, 1997, May 20, 1997, and August 6, 1997; and (5) Reports on Form 8-K for Mass. Electric for the periods ended May 20, 1997 and August 6, 1997. All reports filed by NEES and Mass. Electric with the SEC pursuant to these sections subsequent to the date of this Booklet and prior to the Expiration Date (or any extension thereof) shall be incorporated herein by reference and shall be deemed a part hereof on the date of filing of such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Booklet to the extent that a statement contained herein or in any other subsequently filed documents which 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 Booklet. NEES and Mass. Electric hereby undertake to provide without charge to each person to whom a copy of this Booklet has been delivered, upon the written or oral request of such person, a copy of any or all of the documents referred to above which have been or may be incorporated by reference in this Booklet, other than exhibits to such documents. Written or oral requests for such copies should be directed to the Treasurer, Massachusetts Electric Company, 25 Research Drive, Westborough, Massachusetts 01582, telephone (508) 389-2000. 29 30 The information relating to NEES and Mass. Electric contained in this Booklet does not purport to be comprehensive and should be read together with the information contained in the documents incorporated by reference. MISCELLANEOUS The Offer is not being made to, nor will NEES accept tenders from, owners of Shares in any jurisdiction in which the Offer or its acceptance would not be in compliance with the laws of such jurisdiction. NEES is not aware of any jurisdiction where the making of the Offer or the tender of Shares would not be in compliance with applicable law. If NEES becomes aware of any jurisdiction where the making of the Offer or the tender of Shares is not in compliance with any applicable law, NEES will make a good faith effort to comply with such law. If, after such good faith effort, NEES cannot comply with such law, the Offer will not be made to (nor will tenders be accepted from or on behalf of) the owners of Shares residing in such jurisdiction. In any jurisdiction in which the securities, blue sky, or other laws require the Offer to be made by a licensed broker or dealer, the Offer will be deemed to be made on NEES's behalf by one or more registered brokers or dealers licensed under the laws of such jurisdiction. NEW ENGLAND ELECTRIC SYSTEM MASSACHUSETTS ELECTRIC COMPANY The name "New England Electric System" means the trustee or trustees for the time being (as trustee or trustees but not personally) under an agreement and declaration of trust dated January 2, 1926, as amended, which is hereby referred to, and a copy of which as amended has been filed with the Secretary of the Commonwealth of Massachusetts. Any agreement, obligation or liability made, entered into or incurred by or on behalf of New England Electric System binds only its trust estate, and no shareholder, director, trustee, officer or agent thereof assumes or shall be held to any liability therefor. 30 31 The Letter of Transmittal and Proxy and, if applicable, certificates for Shares should be sent or delivered by each tendering or voting Preferred Shareholder of Mass. Electric or such Preferred Shareholder's broker, dealer, bank, or trust company to the Depositary at one of its addresses set forth below. The Depositary is: IBJ SCHRODER BANK & TRUST COMPANY By Mail: By Hand or Overnight Delivery: P.O. Box 84 One State Street Bowling Green Station New York, New York 10004 New York, New York 10274-0084 Attn: Reorganization Department Attn: Reorganization Department Securities Processing Window SC-1 By Facsimile: To Confirm: (212) 858-2611 (212) 858-2103
Any questions or requests for assistance may be directed to the Information Agent or the Dealer Manager at their respective telephone numbers and addresses listed below. Requests for additional copies of this Booklet, the Letter of Transmittal and Proxy, or other tender offer or proxy materials may be directed to the Information Agent and such copies will be furnished promptly at the companies' expense. Preferred Shareholders may also contact their broker, dealer, commercial bank, trust company, or other nominee for assistance concerning the Offer. The Information Agent: [GEORGESON AND COMPANY INC. LOGO] Wall Street Plaza New York, New York 10005 (800) 223-2064 (toll-free) Banks and Brokers call collect: (212) 440-9800 The Dealer Manager: MERRILL LYNCH & CO. World Financial Center 250 Vesey Street New York, New York 10281 (888)-ML4-TNDR (toll-free) (888) 654-8637 (toll-free) ATTENTION Preferred Shareholders who have lost certificates, please call Boston EquiServe, L.P., the Transfer Agent, at (617) 575-2000 for assistance. EX-99.(A)B-6A 6 MASS ELECTRIC FORM OF L/T DIVIDEND SERIES 1 LETTER OF TRANSMITTAL AND PROXY RELATING TO SHARES OF 4.44% SERIES OF DIVIDEND SERIES PREFERRED STOCK OF MASSACHUSETTS ELECTRIC COMPANY TENDERED PURSUANT TO THE OFFER TO PURCHASE FOR CASH BY NEW ENGLAND ELECTRIC SYSTEM, DATED NOVEMBER 6, 1997, FOR PURCHASE AT A PURCHASE PRICE OF $ PER SHARE AND/OR VOTED PURSUANT TO THE PROXY STATEMENT, DATED NOVEMBER 6, 1997, OF [MASSACHUSETTS ELECTRIC COMPANY LOGO] MASSACHUSETTS ELECTRIC COMPANY - -------------------------------------------------------------------------------- THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., EASTERN STANDARD TIME, ON FRIDAY, DECEMBER 12, 1997, UNLESS THE OFFER IS EXTENDED (THE EXPIRATION DATE). - -------------------------------------------------------------------------------- THE PROXY CONTAINED IN THIS DOCUMENT IS IN RESPECT OF THE SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON FRIDAY, DECEMBER 12, 1997, OR ON SUCH DATE TO WHICH THE MEETING IS ADJOURNED OR POSTPONED. To: IBJ Schroder Bank & Trust Company (the Depositary) By First-Class Mail: By Hand or Overnight Delivery: IBJ Schroder Bank & Trust Company IBJ Schroder Bank & Trust Company P.O. Box 8-1 One State Street Bowling Green Station New York, New York 10004 New York, New York 10274 Attn: Reorganization Department Attn: Reorganization Department Securities Processing Window SC-1 By Facsimile: To Confirm: (212) 858-2611 (212) 858-2103 ATTENTION THIS LETTER OF TRANSMITTAL AND PROXY IS TO BE USED BY BOTH (1) PREFERRED SHAREHOLDERS WHO ARE TENDERING AND VOTING SHARES PURSUANT TO THE OFFER AND (2) PREFERRED SHAREHOLDERS WHO ARE ONLY VOTING ON THE PROPOSED AMENDMENT AND NOT TENDERING SHARES. ANY PREFERRED SHAREHOLDER WHO HAS ANY QUESTIONS AS TO HOW TO COMPLETE THIS LETTER OF TRANSMITTAL AND PROXY SHOULD CONTACT THE INFORMATION AGENT AT (800) 223-2064 (TOLL-FREE) AND FOR BANKS AND BROKERS (212) 440-9918 (CALL COLLECT). 2 All capitalized terms used herein and not defined herein have the meanings ascribed to them in the Offer to Purchase and Proxy Statement. DIVIDEND SERIES PREFERRED SHAREHOLDERS (INCLUDING DIVIDEND SERIES PREFERRED SHAREHOLDERS WHO ACQUIRE SHARES SUBSEQUENT TO THE RECORD DATE) WILL NOT BE ABLE TO VALIDLY TENDER THEIR SHARES UNLESS THEY HAVE SUBMITTED A DULY COMPLETED, VALID AND UNREVOKED PROXY INDICATING THEIR VOTE FOR THE PROPOSED AMENDMENT OR INDICATE IN THE ACCOMPANYING PROXY THEIR INTENTION TO VOTE FOR THE PROPOSED AMENDMENT AT THE SPECIAL MEETING. NEW ENGLAND ELECTRIC SYSTEM, A MASSACHUSETTS VOLUNTARY ASSOCIATION (NEES), WILL NOT BE REQUIRED TO ACCEPT FOR PAYMENT OR PAY FOR ANY SHARES TENDERED IF THE PROPOSED AMENDMENT IS NOT APPROVED AND ADOPTED AT THE SPECIAL MEETING. PREFERRED SHAREHOLDERS HAVE THE RIGHT TO VOTE ON THE PROPOSED AMENDMENT REGARDLESS OF WHETHER THEY TENDER THEIR SHARES BY CASTING THEIR VOTE AND SIGNING THE PROXY CONTAINED WITHIN THIS LETTER OF TRANSMITTAL AND PROXY OR BY VOTING IN PERSON AT THE SPECIAL MEETING. IF THE PROPOSED AMENDMENT IS APPROVED AND ADOPTED, MASSACHUSETTS ELECTRIC COMPANY, A MASSACHUSETTS CORPORATION AND A DIRECT UTILITY SUBSIDIARY OF NEES (MASS. ELECTRIC), WILL MAKE A SPECIAL CASH PAYMENT TO EACH DIVIDEND SERIES PREFERRED SHAREHOLDER WHO VOTED IN FAVOR OF THE PROPOSED AMENDMENT, PROVIDED THAT THEIR SHARES ARE NOT TENDERED PURSUANT TO THE OFFER. DIVIDEND SERIES PREFERRED SHAREHOLDERS WHO PURCHASE OR WHOSE PURCHASE SETTLES OR IS REGISTERED AFTER THE CLOSE OF BUSINESS ON NOVEMBER 12, 1997 (THE RECORD DATE) AND WHO WISH TO TENDER IN THE OFFER MUST ARRANGE WITH THEIR SELLER TO RECEIVE A DULY COMPLETED, VALID AND UNREVOKED PROXY (WHICH MAY BE IN THE FORM OF AN IRREVOCABLE ASSIGNMENT OF PROXY AS SET FORTH IN THIS LETTER OF TRANSMITTAL AND PROXY) FROM THE HOLDER ON THE RECORD DATE OF SUCH SHARES. IN ORDER TO FACILITATE RECEIPT OF PROXIES, SHARES SHALL, DURING THE PERIOD WHICH COMMENCES NOVEMBER 10, 1997 (TWO BUSINESS DAYS PRIOR TO THE RECORD DATE) AND WHICH WILL END AT THE CLOSE OF BUSINESS ON THE EXPIRATION DATE, TRADE IN THE OVER-THE-COUNTER MARKET WITH A PROXY PROVIDING THE TRANSFEREE WITH THE RIGHT TO VOTE SUCH ACQUIRED SHARES IN THE PROXY SOLICITATION. NOTE: SIGNATURES MUST BE PROVIDED BELOW. PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY. NOTE: IF SHARES ARE BEING TENDERED, THE REMAINDER OF THIS LETTER OF TRANSMITTAL AND PROXY MUST BE COMPLETED, INCLUDING THE SUBSTITUTE FORM W-9 BELOW. IF SHARES ARE NOT BEING TENDERED, YOU NEED ONLY COMPLETE THE BOXES BELOW TITLED "PROXY" (OR, IF APPLICABLE, "IRREVOCABLE PROXY") AND "SIGNATURES(S) OF REGISTERED HOLDER(S)" AND THE SUBSTITUTE FORM W-9. The name "New England Electric System" means the trustee or trustees for the time being (as trustee or trustees but not personally) under an agreement and declaration of trust dated January 2, 1926, as amended, which is hereby referred to, and a copy of which as amended has been filed with the Secretary of the Commonwealth of Massachusetts. Any agreement, obligation or liability made, entered into or incurred by or on behalf of New England Electric System binds only its trust estate, and no shareholder, director, trustee, officer or agent thereof assumes or shall be held to any liability therefor. 2 3 PLEASE COMPLETE: - -------------------------------------------------------------------------------- PROXY The undersigned hereby appoints John G. Cochrane, Michael E. Jeganis, and Robert King Wulff, or any of them, as proxies, each with the power to appoint his substitute, and hereby authorizes them to represent and to vote as designated hereunder and in their discretion with respect to any other business properly brought before the Special Meeting, all the shares (Shares) of 4.44% Series of Dividend Series Preferred Stock of Massachusetts Electric Company (Mass. Electric) which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on Friday, December 12, 1997, or any adjournment(s) or postponement(s) thereof. NOTE: IF YOU ARE VOTING BUT NOT TENDERING SHARES, DO NOT SEND ANY SHARE CERTIFICATES WITH THIS LETTER OF TRANSMITTAL AND PROXY. THIS LETTER OF TRANSMITTAL AND PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF MASS. ELECTRIC. The proxy contained herein, when properly executed, will be voted in the manner directed herein by the undersigned shareholder(s). If no direction is made, the proxy will be voted FOR Item 1. INDICATE YOUR VOTE BY AN (X). THE BOARD OF DIRECTORS OF MASS. ELECTRIC RECOMMENDS VOTING FOR ITEM 1. HOLDERS OF SHARES WHO WISH TO TENDER THEIR SHARES MUST VOTE "FOR" THE PROPOSED AMENDMENT EITHER BY SUBMITTING THIS PROXY OR BY VOTING AT THE SPECIAL MEETING. ITEM 1. To amend the Articles of Organization and By-laws to delete in its entirety ARTICLE XVIII, Section 4E(4), limiting Mass. Electric's ability to issue unsecured indebtedness. [ ] FOR [ ] AGAINST [ ] ABSTAIN NOTE: IF SHARES ARE BEING VOTED "FOR" THE PROPOSED AMENDMENT, THE SUBSTITUTE FORM W-9 BELOW SHOULD BE COMPLETED TO AVOID BACK-UP WITHHOLDING ON THE SPECIAL CASH PAYMENT. SHARES REPRESENTED BY ALL PROPERLY EXECUTED PROXIES WILL BE VOTED IN ACCORDANCE WITH INSTRUCTIONS APPEARING ON THIS PROXY. IN THE ABSENCE OF SPECIFIC INSTRUCTIONS, PROXIES WILL BE VOTED "FOR" THE PROPOSED AMENDMENT AND OTHERWISE IN ACCORDANCE WITH THE RECOMMENDATIONS OF THE BOARD OF DIRECTORS OF MASS. ELECTRIC, AND IN THE DISCRETION OF THE PROXY HOLDERS AS TO ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE SPECIAL MEETING. Any holder of Shares held of record on the Record Date in the name of another holder must establish to the satisfaction of Mass. Electric such holder's entitlement to exercise or transfer this Proxy. This will ordinarily require an assignment by such record holder in blank, or if not in blank, to and from each successive transferee, including the holder, with each signature guaranteed by an Eligible Institution. A form of irrevocable assignment of proxy has been provided herein. Please check box if you plan to attend the Special Meeting. [ ] - -------------------------------------------------------------------------------- 3 4 PLEASE COMPLETE IF APPLICABLE: - -------------------------------------------------------------------------------- DESCRIPTION OF SHARES TENDERED(1)
- --------------------------------------------------------------------------------------------------------------------- NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) (PLEASE USE PREADDRESSED LABEL OR FILL IN, IF BLANK, EXACTLY AS NAME(S) APPEAR(S) ON SHARE SHARE CERTIFICATE(S) AND SHARE(S) TENDERED/VOTED CERTIFICATE(S) AND SHARE(S) TENDERED) (ATTACH ADDITIONAL SIGNED LIST IF NECESSARY)(1) ------------------------------------------------------------------------------------------------------------------ NUMBER OF TOTAL NUMBER SHARES NOT OF SHARES TENDERED BUT REPRESENTED NUMBER AS TO WHICH SHARE CERTIFICATE BY SHARE OF SHARES PROXIES NUMBER(S)(2) CERTIFICATE(S)(2) TENDERED(3) GIVEN ONLY --------------------------------------------------------------------- --------------------------------------------------------------------- --------------------------------------------------------------------- --------------------------------------------------------------------- Total Shares: - ---------------------------------------------------------------------------------------------------------------------
(1) If tendering or voting Share(s), please fill in table exactly as information appears on the Certificate(s). (2) Need not be completed by Preferred Shareholders tendering by book-entry transfer. (3) Unless otherwise indicated, it will be assumed that all Shares represented by any Certificate(s) delivered to the Depositary are being tendered and a proxy is being delivered. See Instruction 4. You must vote "FOR" the Proposed Amendment with respect to any Shares tendered. - -------------------------------------------------------------------------------- NOTE: IF YOU ARE DELIVERING A PROXY BUT NOT TENDERING SHARES, DO NOT SEND ANY SHARE CERTIFICATES. 4 5 PLEASE COMPLETE IF APPLICABLE: - -------------------------------------------------------------------------------- SIGNATURE(S) OF REGISTERED HOLDER(S)* - -------------------------------------------------------------------------------- (SIGNATURE) - -------------------------------------------------------------------------------- (SIGNATURE) Dated: , 1997 -------------------------------------------------------------------- Name(s): ------------------------------------------------------------------------ - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (PLEASE PRINT) Capacity (full title): ---------------------------------------------------------- Address: ------------------------------------------------------------------------ - -------------------------------------------------------------------------------- (INCLUDE ZIP CODE) Daytime Area Code and Telephone No.: -------------------------------------------- * Must be signed by the registered holder(s) exactly as name(s) appear(s) on the stock certificate(s) or on a security position listing or by person(s) authorized to become registered holder(s) by certificates and documents transmitted herewith. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, please set forth full title and see Instruction 5. GUARANTEE OF SIGNATURE(S) (SEE INSTRUCTIONS 1 AND 5) Authorized Signature: ----------------------------------------------------------- Name: --------------------------------------------------------------------------- Name of Firm: ------------------------------------------------------------------- (PLEASE PRINT) Address of Firm: ---------------------------------------------------------------- - -------------------------------------------------------------------------------- (INCLUDE ZIP CODE) Area Code and Telephone No.: ---------------------------------------------------- Dated: , 1997 -------------------------------------------------------------------- - -------------------------------------------------------------------------------- 5 6 IF SELLING SHARES ON OR AFTER NOVEMBER 10, 1997, A RECORD HOLDER MUST COMPLETE THE FOLLOWING IRREVOCABLE PROXY. PLEASE SIGN THIS TO IRREVOCABLY TRANSFER A PREFERRED STOCK PROXY TO A SUBSEQUENT HOLDER OF PREFERRED STOCK WHO WAS NOT A HOLDER OF RECORD ON NOVEMBER 12, 1997. - -------------------------------------------------------------------------------- IRREVOCABLE PROXY * WITH RESPECT TO SHARES OF THE 4.44% SERIES OF DIVIDEND SERIES PREFERRED STOCK (THE SHARES) OF MASSACHUSETTS ELECTRIC COMPANY (MASS. ELECTRIC) The undersigned hereby irrevocably appoints: ------------------------------------ TYPE OR PRINT NAME OF TRANSFEREE as attorney and proxy, with full power of substitution, to vote and otherwise act for and in the name(s) of the undersigned with respect to the Shares indicated below which were held of record by the undersigned on November 12, 1997, in the manner in which the undersigned would be entitled to vote and otherwise act in respect of such Shares on any and all matters. This proxy shall be effective whether or not the Shares indicated below are tendered in the Offer. This instrument supersedes and revokes any and all previous appointments of proxies heretofore made by the undersigned with respect to the Shares indicated below as to any and all matters. THIS PROXY IS IRREVOCABLE AND IS COUPLED WITH AN INTEREST. All authority conferred or agreed to be conferred herein shall survive the death or incapacity of the undersigned, and any obligation of the undersigned hereunder shall be binding upon the heirs, executors, administrators, legal and personal representatives, successors in interest and assigned of the undersigned. The undersigned understands that tenders of Shares pursuant to any of the procedures described in the Offer to Purchase and Proxy Statement and in this Letter of Transmittal and Proxy will constitute a binding agreement between the undersigned and Mass. Electric upon the terms and subject to the conditions of the Offer. DESCRIPTION OF PREFERRED STOCK
CERTIFICATE NUMBER(S) AGGREGATE NUMBER (ATTACH LIST IF NECESSARY) OF SHARES - -------------------------- -------------------------- 1. - -------------------------- -------------------------- 2. - -------------------------- -------------------------- 3. - -------------------------- -------------------------- Total --------------------------
- --------------- * This irrevocable proxy must be signed on the next page to be effective. - -------------------------------------------------------------------------------- 6 7 - -------------------------------------------------------------------------------- IRREVOCABLE PROXY SIGNATURE(S) OF RECORD OR AUTHORIZED SIGNATORY* - -------------------------------------------------------------------------------- (SIGNATURE) - -------------------------------------------------------------------------------- (PLEASE PRINT) Dated: 1997 --------------------------------------------------------------------, Tax Identification or Social Security No(s) ------------------------------------- - -------------------------------------------------------------------------------- (SIGNATURE) - -------------------------------------------------------------------------------- (PLEASE PRINT) Dated: 1997 ---------------------------------------------------------------------, Tax Identification or Social Security No(s) ------------------------------------- * Must be signed by the registered holder(s) exactly as name(s) appear(s) on the Record Date on the stock certificate(s) or on a security position listing or by person(s) authorized to become registered holder(s) by certificates and documents transmitted herewith. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation, agent or other person acting in a fiduciary or representative capacity, please provide the following information and see Instruction 5. GUARANTEE OF SIGNATURE(S) (SEE INSTRUCTIONS 1 AND 5) Authorized Signature: ----------------------------------------------------------- Name: -------------------------------------------------------------------------- (PLEASE PRINT) Capacity (Full Title): ---------------------------------------------------------- Name of Firm: ------------------------------------------------------------------- (PLEASE PRINT) Address of Firm: ---------------------------------------------------------------- - -------------------------------------------------------------------------------- (INCLUDE ZIP CODE) Area Code and Telephone No.: ---------------------------------------------------- Dated: 1997 ---------------------------------------------------------------------, - -------------------------------------------------------------------------------- 7 8 NOTE: IF SHARES ARE BEING TENDERED, THE REMAINDER OF THIS LETTER OF TRANSMITTAL AND PROXY MUST BE COMPLETED, INCLUDING THE SUBSTITUTE FORM W-9 BELOW OR A FORM W-8, AS APPLICABLE. DELIVERY OF THIS LETTER OF TRANSMITTAL AND PROXY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS TO A FACSIMILE NUMBER OTHER THAN THE ONE LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. YOU MUST SIGN THIS LETTER OF TRANSMITTAL AND PROXY IN THE APPROPRIATE SPACE THEREFOR PROVIDED ABOVE AND, IF YOU ARE TENDERING ANY SHARES OR VOTING "FOR" THE PROPOSED AMENDMENT, COMPLETE THE SUBSTITUTE FORM W-9 SET FORTH BELOW OR A FORM W-8, AS APPLICABLE. SEE INSTRUCTION 8 AND "IMPORTANT TAX INFORMATION" BELOW. DO NOT SEND ANY CERTIFICATES TO NEES, MASS. ELECTRIC, MERRILL LYNCH & CO., OR GEORGESON & COMPANY, INC. THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL AND PROXY SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL AND PROXY IS COMPLETED. This Letter of Transmittal and Proxy is to be used if (a) certificates are to be forwarded herewith (b) delivery of Shares is to be made by book-entry transfer pursuant to the procedures set forth under the heading Terms of the Offer -- Procedure for Tendering Shares in the Offer to Purchase and Proxy Statement (as defined below) or (c) Shares are being voted in connection with the Offer. Preferred Shareholders who wish to tender Shares but cannot deliver their Shares and all other documents required hereby to the Depositary on or prior to the Expiration Date must tender their Shares pursuant to the guaranteed delivery procedure set forth under the heading Terms of the Offer -- Procedure for Tendering Shares -- Guaranteed Delivery Procedure in the Offer to Purchase and Proxy Statement. See Instruction 2. DELIVERY OF DOCUMENTS TO NEES, MASS. ELECTRIC OR A BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE A VALID DELIVERY. PLEASE COMPLETE: - -------------------------------------------------------------------------------- [ ] CHECK HERE IF TENDERED SHARES ARE ENCLOSED HEREWITH. A HOLDER TENDERING SHARES PURSUANT TO THIS LETTER OF TRANSMITTAL AND PROXY MUST CHECK ONE OF THE FOLLOWING BOXES: [ ] A duly completed, valid and unrevoked proxy indicating a vote "FOR" the Proposed Amendment is included herein. [ ] A vote "FOR" the Proposed Amendment will be cast at the Special Meeting. - -------------------------------------------------------------------------------- 8 9 (BOXES BELOW FOR USE BY ELIGIBLE INSTITUTIONS ONLY) - -------------------------------------------------------------------------------- [ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER TO THE DEPOSITARY'S ACCOUNT AT ONE OF THE BOOK-ENTRY TRANSFER FACILITIES AND COMPLETE THE FOLLOWING: Name of tendering institution: ----------------------------------------------------------- (PLEASE PRINT) Check applicable box: [ ] DTC [ ] PDTC Account No. ------------------------------------------------------------------------------ Transaction Code No. --------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- [ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY AND PROXY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING: Name(s) of tendering Preferred Shareholder(s): ------------------------------------------- ----------------------------------------------------------------------------------------- (PLEASE PRINT) Date of execution of Notice of Guaranteed Delivery and Proxy: ---------------------------- Name of institution that guaranteed delivery: -------------------------------------------- If delivery is by book-entry transfer: Name of tendering institution: ----------------------------------------------------------- Account No. ------------------------------------------------------- at [ ] DTC or [ ] PDTC (CHECK ONE) Transaction Code No. --------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- A HOLDER ELECTING TO TENDER SHARES PURSUANT TO A NOTICE OF GUARANTEED DELIVERY AND PROXY MUST CHECK ONE OF THE FOLLOWING BOXES: [ ] A duly completed, valid and unrevoked proxy indicating a vote "FOR" the Proposed Amendment was included with the Notice of Guaranteed Delivery and Proxy previously sent to the Depositary. [ ] A duly completed, valid and unrevoked proxy indicating a vote "FOR" the Proposed Amendment is being delivered pursuant to a Notice of Guaranteed Delivery and Proxy previously sent to the Depositary. [ ] A vote "FOR" the Proposed Amendment will be cast at the Special Meeting.
- -------------------------------------------------------------------------------- 9 10 NOTE: SIGNATURES MUST BE PROVIDED ABOVE PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY Ladies and Gentlemen: The above signed hereby tenders to NEES the shares in the amount set forth in the box above labeled "Description of Shares Tendered" pursuant to NEES' offer to purchase any and all of the outstanding shares of the 4.44% Series of Dividend Series Preferred Stock (the Shares) of Mass. Electric, shown above as to which this Letter of Transmittal and Proxy is applicable at the purchase price per Share shown above (the Purchase Price), net to the seller in cash, upon the terms and subject to the conditions set forth in the Offer to Purchase and Proxy Statement, dated November 6, 1997 (the Booklet), receipt of which is hereby acknowledged, and in this Letter of Transmittal and Proxy (which together constitute the Offer). PREFERRED SHAREHOLDERS WHO WISH TO TENDER THEIR SHARES PURSUANT TO THE OFFER MUST VOTE IN FAVOR OF THE PROPOSED AMENDMENT TO THE POWER COMPANY'S BY-LAWS AND ARTICLES OF ORGANIZATION (THE PROVISIONS), AS SET FORTH IN THE BOOKLET (THE PROPOSED AMENDMENT). THE OFFER IS CONDITIONED UPON THE PROPOSED AMENDMENT BEING APPROVED AND ADOPTED AT THE SPECIAL MEETING (AS DEFINED IN THE BOOKLET). See Proposed Amendment and Proxy Solicitation, Terms of the Offer -- Extension of Tender Period; Termination; Amendments and Terms of the Offer -- Certain Conditions of the Offer in the Booklet. Subject to, and effective upon, acceptance for payment of and payment for the Shares tendered herewith in accordance with the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of any such extension or amendment), the above signed hereby sells, assigns and transfers to, or upon the order of, NEES all right, title and interest in and to all the Shares that are being tendered hereby and hereby constitutes and appoints IBJ Schroder Bank & Trust Company (the Depositary) the true and lawful agent and attorney-in-fact of the above signed with respect to such Shares, with full power of substitution (such power of attorney being an irrevocable power coupled with an interest), to (a) deliver certificates for such Shares, or transfer ownership of such Shares on the account books maintained by any of the Book-Entry Transfer Facilities, together, in any such case, with all accompanying evidences of transfer and authenticity, to or upon the order of NEES, (b) present such Shares for registration and transfer on the books of Mass. Electric and (c) receive all benefits and otherwise exercise all rights of beneficial ownership of such Shares, all in accordance with the terms of the Offer. The above signed hereby represents and warrants that the above signed has full power and authority to tender, sell, assign and transfer the Shares tendered hereby and that, when and to the extent the same are accepted for payment by NEES, NEES will acquire good, marketable and unencumbered title thereto, free and clear of all liens, restrictions, charges, encumbrances, conditional sales agreements or other obligations relating to the sale or transfer thereof, and the same will not be subject to any adverse claims. The above signed will, upon request, execute and deliver any additional documents deemed by the Depositary or NEES to be necessary or desirable to complete the sale, assignment and transfer of the Shares tendered hereby. All authority herein conferred or agreed to be conferred shall not be affected by, and shall survive, the death or incapacity of the above signed, and any obligations of the above signed hereunder shall be binding upon the heirs, personal representatives, successors and assigns of the above signed. Except as stated in the Offer, this tender is irrevocable. The above signed understands that tenders of Shares pursuant to any one of the procedures described under the heading Terms of the Offer -- Procedure for Tendering Shares in the Booklet and in the instructions hereto will constitute the above signed's acceptance of the terms and conditions of the Offer, including the above signed's representation and warranty that (a) the above signed has a net long position in the Shares being tendered within the meaning of Rule 14e-4 promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act), and (b) the tender of such Shares complies with Rule 14e-4. NEES' acceptance for payment of Shares tendered pursuant to the Offer will constitute a binding agreement between the above signed and NEES upon the terms and subject to the conditions of the Offer. 10 11 The above signed recognizes that, under certain circumstances set forth in the Booklet, NEES may terminate or amend the Offer or may not be required to purchase any of the Shares tendered hereby. In either event, the above signed understands that certificate(s) for any Shares not tendered or not purchased will be returned to the above signed. Unless otherwise indicated in the box below under the heading "Special Payment Instructions," please issue the check for the Purchase Price of any Shares purchased, and/or return any Shares not tendered or not purchased, in the name(s) of the above signed (and, in the case of Shares tendered by book-entry transfer, by credit to the account at the Book-Entry Transfer Facility designated above). Unless otherwise indicated in the box below under the heading "Special Delivery Instructions," please mail the check for the Purchase Price of any Shares purchased and/or any certificates for Shares not tendered or not purchased (and accompanying documents, as appropriate) to the above signed at the address shown below. In the event that both "Special Payment Instructions" and "Special Delivery Instructions" are completed, please issue the check for the Purchase Price of any Shares purchased and/or return any Shares not tendered or not purchased in the name(s) of, and mail said check and/or any certificates to, the person(s) so indicated. The above signed recognizes that NEES has no obligation, pursuant to the "Special Payment Instructions," to transfer any Shares from the name of the registered holder(s) thereof if NEES does not accept for payment any of the Shares so tendered. 11 12 PLEASE COMPLETE IF APPLICABLE: - -------------------------------------------------------------------------------- SPECIAL PAYMENT INSTRUCTIONS SEE INSTRUCTIONS 4, 6, AND 7 To be completed ONLY if the check for the Purchase Price of Shares purchased and/or certificates for Shares not tendered or not purchased are to be issued in the name of someone other than the above signed. Issue: [ ] Check [ ] Certificate(s) to: Name ----------------------------------------------------------------- (PLEASE PRINT) Address -------------------------------------------------------------- -------------------------------------------------------------- (INCLUDE ZIP CODE) -------------------------------------------------------------- (TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER)* * SEE SUBSTITUTE FORM W-9 BELOW. Credit Shares delivered by book-entry transfer and not purchased to the Book-Entry Transfer Facility Account set forth below: [ ] DTC [ ] PDTC Account No: ---------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SPECIAL DELIVERY INSTRUCTIONS SEE INSTRUCTIONS 4, 6, AND 7 To be completed ONLY if the check for the Purchase Price of Shares purchased and/or certificates for Shares not tendered or not purchased are to be mailed to someone other than the above signed or to the above signed at an address other than that shown below the above signed's signature(s). Mail: [ ] Check [ ] Certificate(s) to: Name ----------------------------------------------------------------- (PLEASE PRINT) Address -------------------------------------------------------------- -------------------------------------------------------------- (INCLUDE ZIP CODE) - -------------------------------------------------------------------------------- [ ] CHECK HERE IF ANY OF THE CERTIFICATES REPRESENTING SHARES THAT YOU OWN AND WISH TO TENDER HAVE BEEN LOST, DESTROYED OR STOLEN. (SEE INSTRUCTION 12.) Number of Shares represented by lost, destroyed or stolen certificates: ------------------------ 12 13 SOLICITED TENDERS (SEE INSTRUCTION 10) As provided in the Offer to Purchase and Proxy Statement and Instruction 10 to the Letter of Transmittal and Proxy, NEES will pay to any Soliciting Dealer, as defined in Instruction 10, a solicitation fee of $1.50 per Share for any Shares tendered, accepted for payment and paid pursuant to the Offer and for any Shares not tendered but voted in favor of the Proposed Amendment (except that for transactions for beneficial owners equal to or exceeding 2,500 Shares, NEES will pay a solicitation fee of $1.00 per Share). Solicitation fees payable in transactions for beneficial owners of 2,500 or more Shares shall be paid 80% to the Dealer Manager and 20% to the Soliciting Dealers (which may be the Dealer Manager). However, Soliciting Dealers will not be entitled to a solicitation fee for Shares beneficially owned by such Soliciting Dealer. The undersigned represents that the Soliciting Dealer which solicited and obtained this tender is: Name of Firm: ------------------------------------------------------------------- (PLEASE PRINT) Name of Individual Broker or Financial Consultant: ------------------------------ Telephone Number of Broker or Financial Consultant: ----------------------------- Identification Number (if known): ----------------------------------------------- Address: ------------------------------------------------------------------------ - -------------------------------------------------------------------------------- (INCLUDE ZIP CODE) The following to be completed ONLY if customer's Shares held in nominee name are tendered. (ATTACH ADDITIONAL LIST IF NECESSARY.) NAME OF BENEFICIAL OWNER NUMBER OF SHARES TENDERED - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------
The acceptance of compensation by such Soliciting Dealer will constitute a representation by it that (a) it has complied with the applicable requirements of the Exchange Act and the applicable rules and regulations thereunder, in connection with such solicitation; (b) it is entitled to such compensation for such solicitation under the terms and conditions of the Offer (unless such solicitation fee is directed to another Soliciting Dealer); (c) in soliciting tenders of Shares, it has used no soliciting materials other than those furnished by NEES; and (d) if it is a foreign broker or dealer not eligible for membership in the National Association of Securities Dealers, Inc. (the NASD), it has agreed to conform to the NASD's Rules of Fair Practice in making the solicitations. The payment of compensation to any Soliciting Dealer is dependent on such Soliciting Dealer returning a Notice of Solicited Tenders to the Depositary. (IF SHARES ARE BEING TENDERED AND/OR VOTED, PLEASE ALSO COMPLETE SUBSTITUTE FORM W-9 BELOW OR A FORM W-8, AS APPLICABLE) SIGN HERE:---------------------------------------------------------------------- - -------------------------------------------------------------------------------- (SIGNATURE(S) OF REGISTERED HOLDER(S)) 13 14 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER 1. GUARANTEE OF SIGNATURES. Except as otherwise provided below, all signatures on this Letter of Transmittal and Proxy must be guaranteed by a firm that is a member of a registered national securities exchange or the NASD, or by a commercial bank or trust company having an office or correspondent in the United States which is a participant in an approved Signature Guarantee Medallion Program (an Eligible Institution). Signatures on this Letter of Transmittal and Proxy need not be guaranteed (a) if this Letter of Transmittal and Proxy is signed by the registered holder(s) of the Shares (which term, for purposes of this document, shall include any participant in one of the Book-Entry Transfer Facilities whose name appears on a security position listing as the owner of Shares) tendered herewith and such holder(s) has not completed the box above under the heading "Special Payment Instructions" or the box above under the heading "Special Delivery Instructions" on this Letter of Transmittal and Proxy, (b) if such Shares are tendered for the account of an Eligible Institution or (c) if this Letter of Transmittal and Proxy is being used solely for the purpose of voting Shares which are not being tendered pursuant to the Offer. See Instruction 5. 2. DELIVERY OF LETTER OF TRANSMITTAL AND PROXY AND SHARES. This Letter of Transmittal and Proxy is to be used if (a) certificates are to be forwarded herewith, (b) delivery of Shares is to be made by book-entry transfer pursuant to the procedures set forth under the heading Terms of the Offer -- Procedure for Tendering Shares in the Booklet or (c) Shares are being voted in connection with the Offer. Certificates for all physically delivered Shares, or a confirmation of a book-entry transfer into the Depositary's account at the Book-Entry Transfer Facilities of Shares delivered electronically, as well as a properly completed and duly executed Letter of Transmittal and Proxy (or facsimile thereof) and any other documents required by this Letter of Transmittal and Proxy, must be received by the Depositary at one of its addresses set forth on the front page of this Letter of Transmittal and Proxy on or prior to the Expiration Date with respect to all Shares. Preferred Shareholders who wish to tender their Shares yet who cannot deliver their Shares and all other required documents to the Depositary on or prior to the Expiration Date must tender their Shares pursuant to the guaranteed delivery procedure set forth under the heading Terms of the Offer -- Procedure for Tendering Shares in the Booklet. Pursuant to such procedure: (i) such tender must be made by or through an Eligible Institution, (ii) a properly completed and duly executed Notice of Guaranteed Delivery and Proxy in the form provided by NEES (with any required signature guarantees) must be received by the Depositary on or prior to the applicable Expiration Date and (iii) the certificates for all physically delivered Shares, or a confirmation of a book-entry transfer into the Depositary's account at one of the Book-Entry Transfer Facilities of Shares delivered electronically, as well as a properly completed and duly executed Letter of Transmittal and Proxy (or facsimile thereof) and any other documents required by this Letter of Transmittal and Proxy must be received by the Depositary within three New York Stock Exchange (NYSE) trading days after the date of execution of such Notice of Guaranteed Delivery and Proxy, all as provided under the heading Terms of the Offer -- Procedure for Tendering Shares in the Booklet. A NYSE trading day is any day on which the NYSE is open for business. THE METHOD OF DELIVERY OF SHARES AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING PREFERRED SHAREHOLDER. IF CERTIFICATES FOR SHARES ARE SENT BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. No alternative, conditional or contingent tenders will be accepted. See Terms of the Offer -- Number of Shares; Purchase Price; Expiration Date; Dividends in the Booklet. By executing this Letter of Transmittal and Proxy (or facsimile thereof), the tendering Preferred Shareholder waives any right to receive any notice of the acceptance for payment of the Shares. 3. VOTING. PREFERRED SHAREHOLDERS (INCLUDING PREFERRED SHAREHOLDERS WHO ACQUIRE SHARES SUBSEQUENT TO THE RECORD DATE) WHO WISH TO TENDER THEIR SHARES PURSUANT TO THE OFFER MUST VOTE IN FAVOR OF THE PROPOSED AMENDMENT TO MASS. ELECTRIC'S PROVISIONS, AS SET FORTH IN THE BOOKLET. THE OFFER IS CONDITIONED UPON THE PROPOSED AMENDMENT BEING APPROVED AND 14 15 ADOPTED AT THE SPECIAL MEETING. In addition, Preferred Shareholders have the right to vote on the Proposed Amendment regardless of whether they tender their Shares by casting their vote and duly executing the Proxy included in this Letter of Transmittal and Proxy or by voting in person at the Special Meeting. By executing a Notice of Guaranteed Delivery and Proxy, a Preferred Shareholder is deemed to have tendered the Shares described in such Notice of Guaranteed Delivery and Proxy and to have voted such Shares in accordance with the proxy contained therein. If no vote is indicated on an otherwise properly executed proxy contained within this Letter of Transmittal and Proxy (or within a Notice of Guaranteed Delivery and Proxy), then all Shares in respect of such proxy will be voted in favor of the Proposed Amendment. See "Proposed Amendment and Proxy Solicitation" in the Booklet. The Offer is being sent to all persons in whose names Shares are registered on the books of Mass. Electric on November 6, 1997 as well as to all persons in whose name Shares are registered on November 12, 1997, which is the Record Date. Preferred Shareholders who purchase or whose purchase is registered after the Record Date and who wish to tender in the Offer must arrange with their seller to receive a proxy from the holder of record on the Record Date of such Shares. Any holder of Shares held of record on the Record Date in the name of another holder must establish to the satisfaction of Mass. Electric such holder's entitlement to exercise or transfer such Proxy. This will ordinarily require an assignment by such record holder in blank, or if not in blank, to and from each successive transferee, including the holder, with each signature guaranteed by an Eligible Institution. See Instruction 5. In order to facilitate receipt of proxies, Shares shall, during the period which commences November 10, 1997 and which will end at the close of business on the Expiration Date, trade in the over-the-counter market with a proxy providing the transferee with the right to vote such acquired shares in the Proxy Solicitation. No record date is fixed for determining which persons are permitted to tender Shares. However, only the holders of record, or holders who acquire an assignment of proxy from such holders, are permitted to vote for the Proposed Amendment and thereby validly tender Shares pursuant to the Offer. Any person who is the beneficial owner but not the record holder of Shares must arrange for the record transfer of such Shares prior to tendering or direct the record holder to tender on behalf of the beneficial holder. 4. PARTIAL TENDERS. NOT APPLICABLE TO SHAREHOLDERS WHO TENDER BY BOOK- ENTRY TRANSFER. If fewer than all the Shares represented by any certificate delivered to the Depositary are to be tendered, fill in the number of Shares that are to be tendered in the box above under the heading "Description of Shares Tendered." In such case, a new certificate for the remainder of the Shares represented by the old certificate will be sent to the person(s) signing this Letter of Transmittal and Proxy, unless otherwise provided in the box above under the heading "Special Payment Instructions" or "Special Delivery Instructions," as promptly as practicable following the expiration or termination of the Offer. All Shares represented by certificates delivered to the Depositary will be deemed to have been tendered unless otherwise indicated. 5. SIGNATURES ON LETTER OF TRANSMITTAL AND PROXY AND NOTICE OF GUARANTEED DELIVERY AND PROXY; STOCK POWERS AND ENDORSEMENTS. If either this Letter of Transmittal and Proxy or the Notice of Guaranteed Delivery and Proxy (together, the Tender and Proxy Documents) is signed by the registered holder(s) of the Shares tendered hereby, the signature(s) must correspond with the name(s) as written on the face of the certificates without alteration, enlargement or any change whatsoever. If any of the Shares tendered or voted under either Tender and Proxy Document is held of record by two or more persons, all such persons must sign such Tender and Proxy Document. If any of the Shares tendered or voted under either Tender and Proxy Document are registered in different names or different certificates, it will be necessary to complete, sign and submit as many separate applicable Tender and Proxy Documents as there are different registrations of certificates. If either Tender and Proxy Document is signed by the registered holder(s) of the Shares tendered hereby, no endorsements of certificates or separate stock powers are required unless payment of the Purchase Price is to be made to, or Shares not tendered or not purchased are to be registered in the name of, any person other than the registered holder(s). Signatures on any such certificates or stock powers must be guaranteed by an Eligible Institution. See Instruction 1. 15 16 If this Letter of Transmittal and Proxy is signed by a person other than the registered holder(s) of the Shares tendered hereby, certificates must be endorsed or accompanied by appropriate stock powers, in either case, signed exactly as the name(s) of the registered holder(s) appear(s) on the certificates for such Shares. Signature(s) on any such certificates or stock powers must be guaranteed by an Eligible Institution. See Instruction 1. If either Tender and Proxy Document or any certificate or stock power is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, such person should so indicate when signing, and proper evidence satisfactory to NEES of the authority of such person so to act must be submitted. 6. STOCK TRANSFER TAXES. Except as set forth in this Instruction 6, NEES will pay or cause to be paid any stock transfer taxes with respect to the sale and transfer of any Shares to it or its order pursuant to the Offer. If, however, payment of the Purchase Price is to be made to, or Shares not tendered or not purchased are to be registered in the name of, any person other than the registered holder(s), or if tendered Shares are registered in the name of any person other than the person(s) signing this Letter of Transmittal and Proxy, the amount of any stock transfer taxes (whether imposed on the registered holder(s), such other person or otherwise) payable on account of the transfer to such person will be deducted from the Purchase Price unless satisfactory evidence of the payment of such taxes, or exemption therefrom, is submitted. Each Preferred Shareholder will be responsible for paying any income or gross receipts taxes imposed by any jurisdiction by reason of the Special Cash Payment (as defined in the Booklet) and/or the sale of the Shares in the Offer. See Terms of the Offer -- Acceptance of Shares for Payment and Payment of Purchase Price and Dividends and Certain U.S. Federal Income Tax Considerations in the Booklet. EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY TO AFFIX TRANSFER TAX STAMPS TO THE CERTIFICATES REPRESENTING SHARES TENDERED HEREBY. 7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If the check for the Purchase Price of any Shares purchased is to be issued in the name of, any Shares not tendered or not purchased are to be returned to, and/or the check for the Special Cash Payment is to be issued in the name of, a person other than the person(s) signing this Letter of Transmittal and Proxy or if the check and/or any certificate for Shares not tendered or not purchased are to be mailed to someone other than the person(s) signing this Letter of Transmittal and Proxy or to an address other than that shown in the box above under the heading "Description of Shares Tendered," then the "Special Payment Instructions" and/or "Special Delivery Instructions" on this Letter of Transmittal and Proxy should be completed. Preferred Shareholders tendering Shares by book-entry transfer will have any Shares not accepted for payment returned by crediting the account maintained by such Preferred Shareholder at the Book-Entry Transfer Facility from which such transfer was made. 8. SUBSTITUTE FORM W-9 AND FORM W-8. A tendering and/or voting Preferred Shareholder is required to provide the Depositary with either a correct Taxpayer Identification Number (TIN) on Substitute Form W-9, which is provided under "Important Tax Information" below, or a properly completed Form W-8 unless exempt therefrom. Failure to provide the information on either Substitute Form W-9 or Form W-8 may subject the tendering and/or voting Preferred Shareholder to 31% federal income tax backup withholding on the payment of the Purchase Price for the Shares or on the Special Cash Payment. The tendering and/or voting Preferred Shareholder may write "Applied For" in Part I of Substitute Form W-9 and sign the "Certificate of Awaiting Taxpayer Identification Number" of Substitute Form W-9 if the Preferred Shareholder has not been issued a TIN and has applied for a number or intends to apply for a number in the near future. If "Applied For" is written in Part I of Substitute Form W-9 and the "Certificate of Awaiting Taxpayer Identification Number" of Substitute Form W-9 is signed and the Depositary is not provided with a TIN by the time of payment, the Depositary will withhold 31% on all payments of the Purchase Price for the Shares or the Special Cash Payment thereafter until a TIN is provided to the Depositary. 16 17 9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Any questions or requests for assistance may be directed to the Information Agent or the Dealer Manager at their respective telephone numbers and addresses listed below. Requests for additional copies of the Booklet, this Letter of Transmittal and Proxy, or other tender offer materials may be directed to the Information Agent or the Dealer Manager and such copies will be furnished promptly at NEES' expense. Preferred Shareholders may also contact their local broker, dealer, commercial bank or trust company for assistance concerning the Offer. 10. SOLICITED TENDERS. Upon the terms and subject to the conditions of the Offer and this Instruction, NEES will pay to designated brokers and dealers a solicitation fee of $1.50 per Share for any Shares tendered, accepted for payment, and paid for pursuant to the Offer and for share of Dividend Series Preferred Stock not tendered by voted in favor on the Proposed Amendment (except that for transactions for beneficial owners equal to or exceeding 2,500 Shares, NEES will pay a solicitation fee of $1.00 per Share, of which at least eighty percent (80%) shall be paid to the Dealer Manager and twenty percent (20%) to the Soliciting Dealer (which may be the Dealer Manager)). With respect to fees payable pursuant to this paragraph involving transactions for beneficial owners whose ownership is less than 2,500 Shares, any fees payable hereunder shall be paid in full to the Dealer Manager unless a Soliciting Dealer is designated (as described below), in which case such fee shall be payable in full to such designated Soliciting Dealer (which designated Soliciting Dealer may be the Dealer Manager). The Letter of Transmittal and Proxy must include the name of an entity which obtained the tender or proxy and which is either (a) a broker or dealer in securities, including the Dealer Manager in its capacity as a broker or dealer, which is a member of any national securities exchange or of the National Association of Securities Dealers, Inc. (NASD), (b) a foreign broker or dealer not eligible for membership in the NASD which agrees to conform to the NASD's Rules of Fair Practice in soliciting tenders outside the United States to the same extent as though it were an NASD member, or (c) a bank or trust company (each of which is referred to herein as a Soliciting Dealer). No solicitation fee shall be payable to a Soliciting Dealer with respect to the tender of Shares or delivery of a proxy unless the Letter of Transmittal and Proxy accompanying such tender or delivery of a proxy designates such Soliciting Dealer. No solicitation fee shall be payable to a Soliciting Dealer in respect of Shares registered in the name of such Soliciting Dealer unless such Shares are held by such Soliciting Dealer as nominee and such Shares are being tendered or delivered for the benefit of one or more beneficial owners identified on the Letter of Transmittal or on the Notice of Solicited Tenders. No solicitation fee shall be payable to a Soliciting Dealer if such Soliciting Dealer is required for any reason to transfer the amount of such fee to a depositing holder (other than itself). No solicitation fee shall be paid to a Soliciting Dealer with respect to Shares tendered or delivered for such Soliciting Dealer's own account. Soliciting Dealers will not be entitled to a solicitation fee for Shares beneficially owned by such Soliciting Dealer. No broker, dealer, bank, trust company, or fiduciary shall be deemed to be the agent of NEES, the Power Company, the Depositary, the Information Agent, or the Dealer Manager for purposes of the Offer. Soliciting Dealers will include any of the organizations described in clauses (a), (b), and (c) above even when the activities of such organizations in connection with the Offer consist solely of forwarding to clients materials relating to the Offer, including the Letter of Transmittal, and tendering Shares or delivering as directed by beneficial owners thereof. No Soliciting Dealer is required to make any recommendation to holders of Shares as to whether to tender or refrain from tendering in the Offer. No assumption is made, in making payment to any Soliciting Dealer, that its activities in connection with the Offer included any activities other than those described above, and for all purposes noted in all materials relating to the Offer, the term "solicit" shall be deemed to mean no more than processing shares tendered or forwarding to customers materials regarding the Offer. 17 18 11. IRREGULARITIES. All questions as to the form of documents and the validity, eligibility (including time of receipt) and acceptance of any tender of Shares will be determined by NEES, in its sole discretion, and its determination shall be final and binding. NEES reserves the absolute right to reject any and all tenders of Shares that it determines are not in proper form or the acceptance for payment of or payment for Shares that may, in the opinion of NEES' counsel, be unlawful. NEES also reserves the absolute right to waive any of the conditions to the Offer or any defect or irregularity in any tender of Shares and NEES' interpretation of the terms and conditions of the Offer (including these instructions) shall be final and binding. Unless waived, any defects or irregularities in connection with tenders must be cured within such time as NEES shall determine. None of NEES, the Dealer Manager, the Depositary, the Information Agent or any other person shall be under any duty to give notice of any defect or irregularity in tenders nor shall any of them incur any liability for failure to give any such notice. Tenders will not be deemed to have been made until all defects and irregularities have been cured or waived. 12. LOST, DESTROYED OR STOLEN CERTIFICATES. If any certificate representing Shares has been lost, destroyed or stolen, the Preferred Shareholder should promptly notify the Depositary by checking the box above immediately following the "Special Payment Instructions/Special Delivery Instructions" and indicating the number of Shares lost, destroyed or stolen. The Preferred Shareholder will then be instructed as to the procedures that must be taken in order to replace the certificate. The tender of Shares pursuant to this Letter of Transmittal and Proxy will not be valid unless on or prior to the Expiration Date: (a) such procedures have been completed and a replacement certificate for the Shares has been delivered to the Depositary or (b) a Notice of Guaranteed Delivery and Proxy has been delivered to the Depositary. See Instruction 2. IMPORTANT: THIS LETTER OF TRANSMITTAL AND PROXY (OR A FACSIMILE COPY HEREOF), DULY EXECUTED, TOGETHER WITH, IF APPLICABLE, CERTIFICATES OR CONFIRMATION OF A BOOK-ENTRY TRANSFER, AND ALL OTHER REQUIRED DOCUMENTS MUST BE RECEIVED BY THE DEPOSITARY, OR, IF APPLICABLE, THE NOTICE OF GUARANTEED DELIVERY AND PROXY MUST BE RECEIVED BY THE DEPOSITARY, ON OR PRIOR TO THE EXPIRATION DATE. 18 19 IMPORTANT TAX INFORMATION Under Federal income tax law, a Preferred Shareholder whose tendered Shares are accepted for payment, or who will receive a Special Cash Payment as a result of voting in favor of the Proposed Amendment, is required to provide the Depositary (as payer) with either such Preferred Shareholder's correct TIN on Substitute Form W-9 below or a properly completed Form W-8. If such Preferred Shareholder is an individual, the TIN is such Preferred Shareholder's social security number. For businesses and other entities, the number is the Federal employer identification number. If the Depositary is not provided with the correct TIN or properly completed Form W-8, the Preferred Shareholder may be subject to a $50 penalty imposed by the Internal Revenue Service. In addition, (a) payments that are made to such Preferred Shareholder with respect to Shares purchased pursuant to the Offer or (b) Special Cash Payments made to a Preferred Shareholder with respect to Shares voted pursuant to the proxy solicitation may be subject to backup withholding. The Form W-8 can be obtained from the Depositary. See the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" below for additional instructions. If Federal income tax backup withholding applies, the Depositary is required to withhold 31% of any payments made to the Preferred Shareholder. Backup withholding is not an additional tax. Rather, the Federal income tax liability of persons subject to backup withholding will be reduced by the amount of the tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained. PURPOSE OF SUBSTITUTE FORM W-9 AND FORM W-8 To avoid backup withholding on payments that are made to a Preferred Shareholder with respect to Shares purchased pursuant to the Offer or on Special Cash Payments, the Preferred Shareholder is required to notify the Depositary of his or her correct TIN by completing the Substitute Form W-9 below certifying that the TIN provided on Substitute Form W-9 is correct and that (a) the Preferred Shareholder has not been notified by the Internal Revenue Service that he or she is subject to Federal income tax backup withholding as a result of failure to report all interest or dividends or (b) the Internal Revenue Service has notified the Preferred Shareholder that he or she is no longer subject to Federal income tax backup withholding. Foreign Preferred Shareholders must submit a properly completed Form W-8 in order to avoid the applicable backup withholding; provided, however, that backup withholding will not apply to foreign Preferred Shareholders subject to 30% (or lower treaty rate) withholding on gross payments received pursuant to the Offer or on the Special Cash Payments. WHAT NUMBER TO GIVE THE DEPOSITARY The Preferred Shareholder is required to give the Depositary the social security number or employer identification number of the registered owner of the Shares. If the Shares are in more than one name or are not in the name of the actual owner, consult the "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" below for additional guidance on which number to report. 19 20 SEE "GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER OF SUBSTITUTE FORM W-9" FOR ADDITIONAL INSTRUCTIONS. SUBSTITUTE FORM W-9 - ----------------------------------------------------------------------------------------------------------- PAYER'S NAME: IBJ SCHRODER BANK & TRUST COMPANY, AS DEPOSITARY - ----------------------------------------------------------------------------------------------------------- SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN IN THE ------------------------------------- FORM W-9 BOX AT RIGHT AND CERTIFY BY SIGNING AND DATING BELOW. Social Security Number ---------------------------------------- or Employer PAYER'S REQUEST FOR Identification TAXPAYER IDENTIFICATION NAME (Please Print) Number NUMBER (TIN) (If Awaiting TIN write "Applied for") ---------------------------------------- -------------------------------------- ADDRESS PART II -- For Payees NOT subject to backup withholding, see the ---------------------------------------- "Guidelines for Cer- CITY STATE ZIP CODE tification of Taxpayer Identification Number DEPARTMENT OF THE TREASURY on Substitute Form INTERNAL REVENUE SERVICE W-9" and complete as instructed therein ---------------------------------------------------------------------------------------------------------- PART III -- CERTIFICATION: -- Under penalties of perjury, I certify that: (1) The number shown on this form is my correct taxpayer identification number (or I am waiting for a number to be issued to me), and (2) I am not subject to backup withholding either because: (a) I am exempt from backup withholding, or (b) I have not been notified by the Internal Revenue Service (IRS) that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding. SIGNATURE DATE , 1997 ----------------------------------- ------------------------ CERTIFICATION INSTRUCTIONS -- You must cross out item (2) above if you have been notified by the IRS that you are currently subject to backup withholding because of underreporting interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding you received another notification from the IRS that you are no longer subject to backup withholding do not cross out item (2). Also see instructions in the enclosed Guidelines. - -----------------------------------------------------------------------------------------------------------
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU WRITE "APPLIED FOR" IN PART I OF SUBSTITUTE FORM W-9. ------------------------------------------------------------------------------- CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (a) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (b) I intend to mail or deliver such an application in the near future. I understand that if I do not provide a taxpayer identification number within sixty (60) days, 31% of all reportable payments made to me thereafter will be withheld until I provide a number. -------------------------------------------- -------------------------, 1997 SIGNATURE DATE ------------------------------------------------------------------------------- NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU. PLEASE REVIEW THE "GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9" FOR ADDITIONAL DETAILS. 20 21 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 SECTION REFERENCES ARE TO THE INTERNAL REVENUE CODE. PURPOSE OF FORM. A person who is required to file an information return with the IRS must obtain your correct taxpayer identification number (TIN) to report income paid to you, real estate transactions, mortgage interest you paid, the acquisition or abandonment of secured property, or contributions you made to an IRA. Use Form W-9 to furnish your correct TIN to the requester (the person asking you to furnish your TIN) and, when applicable, (1) to certify that the TIN you are furnishing is correct (or that you are waiting for a number to be issued), (2) to certify that you are not subject to backup withholding, and (3) to claim exemption from backup withholding if you are an exempt payee. Furnishing your correct TIN and making the appropriate certifications will prevent certain payments from being subject to backup withholding. NOTE: IF A REQUESTER GIVES YOU A FORM OTHER THAN W-9 TO REQUEST YOUR TIN, YOU MUST USE THE REQUESTER'S FORM. HOW TO OBTAIN A TIN. If you do not have a TIN, apply for one immediately. To apply, get Form SS-5, Application for a Social Security Card (for Individuals), from your local office of the Social Security Administration, or Form SS-4, Application for Employer Identification Number (for businesses and all other entities), from your local IRS office. To complete Form W-9 if you do not have a TIN, write "Applied for" in the space for the TIN in Part 1, sign and date the form, and give it to the requester. Generally, you will than have 60 days to obtain a TIN and furnish it to the requester. If the requester does not receive your TIN within 60 days, backup withholding, if applicable, will begin and continue until you furnish your TIN to the requester. For reportable interest or dividend payments, the payor must exercise one of the following options concerning backup withholding during this 60-day period. Under option (1), a payor must backup withhold on any withdrawals you make from your account after 7 business days after the requester receives this form back from you. Under option (2), the payor must backup withhold on any reportable interest or dividend payments made to your account, regardless of whether you make any withdrawals. The backup withholding under option (2) must begin no later than 7 business days after the requester receives this form back. Under option (2), the payor is required to refund the amounts withheld if your certified TIN is received within the 60-day period and you were not subject to backup withholding during that period. NOTE: WRITING "APPLIED FOR" ON THE FORM MEANS THAT YOU HAVE ALREADY APPLIED FOR A TIN OR THAT YOU INTEND TO APPLY FOR ONE IN THE NEAR FUTURE. As soon as you receive your TIN, complete another Form W-9, include your TIN, sign and date the form, and give it to the requester. WHAT IS BACKUP WITHHOLDING? -- Persons making certain payments to you must withhold and pay to the IRS 31% of such payments under certain conditions. This is called "backup withholding." Payments that could be subject to backup withholding include interest, dividends, broker and barter exchange transactions, rents, royalties, nonemployee compensation, and certain payments from fishing boat operators, but do not include real estate transactions. If you give the requester your correct TIN, make the appropriate certifications, and report all your taxable interest and dividends on your tax return, your payments will not be subject to backup withholding. Payments you receive will be subject to backup withholding if: (1) You do not furnish your TIN to the requester, or (2) The IRS notifies the requester that you furnished an incorrect TIN, or (3) You are notified by the IRS that you are subject to withholding because you failed to report all your interest and dividends on your tax return (for reportable interest and dividends only), or (4) You do not certify to the requester that you are not subject to backup withholding under 3 above, (for reportable interest and dividend accounts opened after 1983 only), or (5) You do not certify your TIN. Except as explained in 5 above, other reportable payments are subject to backup withholding only if 1 or 2 above applies. Certain payees and payments are exempt from backup withholding and information reporting. See Payees and Payments Exempt From Backup Withholding, below, and Exempt Payees and Payments under Signing the Certification, below if you are an exempt payee. PAYEES AND PAYMENTS EXEMPT FROM BACKUP WITHHOLDING. The following is a list of payees exempt from backup withholding and for which no information reporting is required. For interest and dividends, all listed payees are exempt except as listed in item (9). For broker transactions, payees listed in items (1) through (13) and a person registered under the Investment Advisers Act of 1940 who regularly acts as a broker are exempt. Payments subject to reporting under sections 6041 and 6041A are generally exempt from backup withholding only if made to payees described in items (1) through (7), except a corporation that provides medical and health care services or bills and collects payments for such services is not exempt from backup withholding or information reporting. Only payees described in items (2) through (6) are 21 22 exempt from backup withholding for barter exchange transactions and patronage dividends. (1) A corporation. (2) An organization exempt from tax under section 501(a), an IRA, or a custodial account under section 402(b)(7). (3) The United States or any of its agencies or instrumentalities. (4) A state, the District of Columbia, a possession of the United States, or any of their political subdivisions or instrumentalities. (5) A foreign government or any of its political subdivisions, agencies, or instrumentalities. (6) An international organization or any of its agencies or instrumentalities. (7) A foreign central bank of issue. (8) A dealer in securities or commodities required to register in the United States or a possession of the United States. (9) A futures commission merchant registered with the Commodity Futures Trading Commission. (10) A real estate investment trust. (11) An entity registered at all times during the tax year under the Investment Company Act of 1940. (12) A common trust fund operated by a bank under section 584(a). (13) A financial institution. (14) A middleman known in the investment community as a nominee or listed in the most recent publication of the American Society of Corporation Secretaries, Inc., Nominee List. (15) A trust exempt from tax under section 664 or described in section 4947. Payments of dividend and patronage dividends generally not subject to backup withholding include the following: - Payments to nonresident aliens subject to withholding under section 1441. - Payments to partnerships not engaged in a trade or business in the United States and that have at least one nonresident partner. - Payments of patronage dividends not paid in money. - Payments made by certain foreign organizations. - Section 404(k) payments made by an ESOP. Payments of interest generally not subject to backup withholding include the following: - Payments of interest on obligations issued by individuals. NOTE: YOU MAY BE SUBJECT TO BACKUP WITHHOLDING IF THIS INTEREST IS $600 OR MORE AND IS PAID IN THE COURSE OF THE PAYER'S TRADE OR BUSINESS AND YOU HAVE NOT PROVIDED YOUR CORRECT TIN TO THE PAYER. - Payments of tax-exempt interest (including exempt-interest dividends under section 852). - Payments described in section 6049(b)(5) to nonresident aliens. - Payments on tax-free covenant bonds under section 1451. - Payments made by certain foreign organizations. - Mortgage interest paid to you. Other types of payments generally not subject to backup withholding include: - Wages. - Distributions from a pension, annuity, profit-sharing or stock bonus plan, or an IRA. - Distributions from an owner-employee plan. - Certain surrenders of life insurance contracts. - Gambling winnings, if withholding is required under section 3402(q). However, if withholding is not required under section 3402(q), backup withholding applies if the payee fails to furnish a TIN. - Real estate transactions reportable under section 6045. Payments that are not subject to information reporting are also not subject to backup withholding. For details, see sections 6041, 6041A, 6042, 6044, 6045, 6049, 6050A, and 6050N, and the regulations under those sections. PENALTIES FAILURE TO FURNISH TIN. If you fail to furnish your correct TIN to a requester, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. If you make a false statement with no reasonable basis that results in no backup withholding, you are subject to a $500 penalty. CRIMINAL PENALTY FOR FALSIFYING INFORMATION. Willfully falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. MISUSE OF TINS. If the requester discloses or uses TINs in violation of Federal law, the requester may be subject to civil and criminal penalties. SPECIFIC INSTRUCTIONS WHAT NAME AND NUMBER TO GIVE THE REQUESTER 22 23 NAME -- If you are an individual, you must generally provide the name shown on your social security card. However, if you have changed your last name, for instance, due to marriage, without informing the Social Security Administration of the name change, please enter your first name, the last name shown on your social security card, and your new last name. NUMBER -- If you are a sole proprietor, you must furnish your individual name and either your SSN or EIN. You may also enter your business name or "doing business as" name on the business name line. Enter your name(s) as shown on your social security card and/or as it was used to apply for your EIN on Form SS-4. WHAT NAME AND NUMBER TO GIVE THE REQUESTER SIGNING THE "PART III -- CERTIFICATION" ON THE SUBSTITUTE FORM W-9 (1) INTEREST, DIVIDEND, AND BARTER EXCHANGE ACCOUNTS OPENED BEFORE 1984 AND BROKER ACCOUNTS CONSIDERED ACTIVE DURING 1983 -- You are required to furnish your correct TIN, but you are not required to sign the certification. (2) INTEREST, DIVIDEND, BROKER, AND BARTER EXCHANGE ACCOUNTS OPENED AFTER 1983 AND BROKER ACCOUNTS CONSIDERED INACTIVE DURING 1983 -- You must sign the certification or backup withholding will apply. If you are subject to backup withholding and you are merely providing your correct TIN to the requester, you must cross out item 2 in the certification before signing the form. (3) REAL ESTATE TRANSACTIONS. You must sign the certification. You may cross out item 2 of the certification. (4) OTHER PAYMENTS. You are required to furnish your correct TIN, but you are not required to sign the certification unless you have been notified that you have previously given an incorrect TIN. Other payments include payments made in the course of the requester's trade or business for rents, royalties, goods (other than bills for merchandise), medical and health care services (including payments to corporations), payments to a nonemployee for services (including attorney and accounting fees), and payments to certain fishing boat crew members. (5) MORTGAGE INTEREST PAID BY YOU, ACQUISITION OR ABANDONMENT OF SECURED PROPERTY, OR IRA CONTRIBUTIONS. You are required to furnish your correct TIN, but you are not required to sign the certification. (6) EXEMPT PAYEES AND PAYMENTS. If you are exempt from backup withholding, you should complete this form to avoid possible erroneous backup withholding. Enter your correct TIN in Part I, write "EXEMPT" in the block in Part II, and sign and date the form. If you are a nonresident alien or foreign entity not subject to backup withholding, give the requester a complete Form W-8, Certificate of Foreign Status. (7) TIN "APPLIED FOR." Follow the instructions under How To Obtain a TIN, on page 1, and sign and date this form. SIGNATURE: For a joint account, only the person whose TIN is shown in Part 1 should sign. PRIVACY ACT NOTICE: Section 6109 requires you to furnish your correct TIN to persons who must file information returns with the IRS to report interest, dividends, and certain other income paid to you, mortgage interest you paid, the acquisition or abandonment of secured property, or contributions you made to an IRA. The IRS uses the numbers for identification purposes and to help verify the accuracy of your tax return. You must provide your TIN whether or not you are required to file a tax return. Payers must generally withhold 31% of taxable interest, dividends, and certain other payments to a payee who does not furnish a TIN to a payer. Certain penalties may also apply. 23 24 WHAT NAME AND NUMBER TO GIVE THE REQUESTER
- --------------------------------------------------- For this type of account: Give name and SSN of: - --------------------------------------------------- 1. Individual The individual 2. Two or more The actual owner of individuals (joint the account or, if account) combined funds, the first individual on the account(1) 3. Custodian account of a The minor(2) minor (Uniform Gift to Minors Act) 4. a. The usual revocable The grantor-trustee(1) savings trust (grantor is also trustee) b. So-called trust The actual owner(1) account that is not a legal or valid trust under state law 5. Sole proprietorship The owner(3) - --------------------------------------------------- - --------------------------------------------------- For this type of account: Give name and SSN of: - --------------------------------------------------- 6. A valid trust, estate, Legal entity(4) or pension trust 7. Corporate The corporation 8. Association, club, The organization religious, charitable, educational, or other tax-exempt organization 9. Partnership The partnership 10. A broker or registered The broker or nominee nominee 11. Account with the The public entity. Department of Agriculture in the name of a public entity (such as a state or local government, school district, or prison) that receives agricultural program payments. - ---------------------------------------------------
(1) List first and circle the name of the person whose number you furnish. (2) Circle the minor's name and furnish the minor's SSN. (3) You must show your individual name, but you may also enter your business or "doing business as" name. You may use either your SSN or EIN. (4) List first and circle the name of the legal trust, estate, or pension trust. (Do not furnish the TIN of the personal representative or trustee unless the legal entity itself is not designated in the account title.) NOTE: If no name is circled when more than one name is listed, the number will be considered to be that of the first name listed. 24 25 Any questions or requests for assistance or additional copies of the Booklet, this Letter of Transmittal and Proxy, the Notice of Guaranteed Delivery and Proxy or other materials may be directed to the Information Agent at the address and telephone number set forth below. THE INFORMATION AGENT: [GEORGESON & COMPANY INC. LOGO] WALL STREET PLAZA NEW YORK, NEW YORK 10005 (800) 223-2064 (CALL TOLL-FREE) BANKS AND BROKERS CALL COLLECT: (212) 440-9918 Preferred Shareholders may contact the Dealer Manager at its address and telephone number set forth below with any questions regarding the terms of the Offer and solicitation of proxies. In addition, Preferred Shareholders may also contact their broker, dealer, commercial bank, trust company or other nominee for assistance concerning the Offer and solicitation of proxies. THE DEALER MANAGER: MERRILL LYNCH & CO. WORLD FINANCIAL CENTER 250 VESEY STREET NEW YORK, NEW YORK 10281 (888) ML4-TNDR (TOLL-FREE) (888) 654-8637 (TOLL-FREE) EX-99.(A)B-6B 7 MASS ELECTRIC FORM OF L/T PREFERRED STOCK 1 LETTER OF TRANSMITTAL AND PROXY RELATING TO SHARES OF 6.84% PREFERRED STOCK -- CUMULATIVE OF MASSACHUSETTS ELECTRIC COMPANY TENDERED PURSUANT TO THE OFFER TO PURCHASE FOR CASH BY NEW ENGLAND ELECTRIC SYSTEM, DATED NOVEMBER 6, 1997, FOR PURCHASE AT A PURCHASE PRICE OF $ PER SHARE AND/OR VOTED PURSUANT TO THE PROXY STATEMENT, DATED NOVEMBER 6, 1997, OF [MASSACHUSETTS ELECTRIC COMPANY LOGO] MASSACHUSETTS ELECTRIC COMPANY - -------------------------------------------------------------------------------- THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., EASTERN STANDARD TIME, ON FRIDAY, DECEMBER 12, 1997, UNLESS THE OFFER IS EXTENDED (THE EXPIRATION DATE). - -------------------------------------------------------------------------------- THE PROXY CONTAINED IN THIS DOCUMENT IS IN RESPECT OF THE SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON FRIDAY, DECEMBER 12, 1997, OR ON SUCH DATE TO WHICH THE MEETING IS ADJOURNED OR POSTPONED. To: IBJ Schroder Bank & Trust Company (the Depositary) By First-Class Mail: By Hand or Overnight Delivery: IBJ Schroder Bank & Trust Company IBJ Schroder Bank & Trust Company P.O. Box 8-1 One State Street Bowling Green Station New York, New York 10004 New York, New York 10274 Attn: Reorganization Department Attn: Reorganization Department Securities Processing Window SC-1 By Facsimile: To Conform: (212) 858-2611 (212) 858-2103 ATTENTION THIS LETTER OF TRANSMITTAL AND PROXY IS TO BE USED BY BOTH (1) PREFERRED SHAREHOLDERS WHO ARE TENDERING AND VOTING SHARES PURSUANT TO THE OFFER AND (2) PREFERRD SHAREHOLDERS WHO ARE ONLY VOTING ON THE PROPOSED AMENDMENT AND NOT TENDERING SHARES. ANY PREFERRED SHAREHOLDER WHO HAS ANY QUESTIONS AS TO HOW TO COMPLETE THIS LETTER OF TRANSMITTAL AND PROXY SHOULD CONTACT THE INFORMATION AGENT AT (800) 223-2064 (TOLL-FREE) AND FOR BANKS AND BROKERS (212) 440-9918 (CALL COLLECT). 2 All capitalized terms used herein and not defined herein have the meanings ascribed to them in the Offer to Purchase and Proxy Statement. PREFERRED SHAREHOLDERS (INCLUDING PREFERRED SHAREHOLDERS WHO ACQUIRE SHARES SUBSEQUENT TO THE RECORD DATE) WILL NOT BE ABLE TO VALIDLY TENDER THEIR SHARES UNLESS THEY HAVE SUBMITTED A DULY COMPLETED, VALID AND UNREVOKED PROXY INDICATING THEIR VOTE FOR THE PROPOSED AMENDMENT OR INDICATE IN THE ACCOMPANYING PROXY THEIR INTENTION TO VOTE FOR THE PROPOSED AMENDMENT AT THE SPECIAL MEETING. NEW ENGLAND ELECTRIC SYSTEM, A MASSACHUSETTS VOLUNTARY ASSOCIATION (NEES), WILL NOT BE REQUIRED TO ACCEPT FOR PAYMENT OR PAY FOR ANY SHARES TENDERED IF THE PROPOSED AMENDMENT IS NOT APPROVED AND ADOPTED AT THE SPECIAL MEETING. PREFERRED SHAREHOLDERS HAVE THE RIGHT TO VOTE ON THE PROPOSED AMENDMENT REGARDLESS OF WHETHER THEY TENDER THEIR SHARES BY CASTING THEIR VOTE AND SIGNING THE PROXY CONTAINED WITHIN THIS LETTER OF TRANSMITTAL AND PROXY OR BY VOTING IN PERSON AT THE SPECIAL MEETING. IF THE PROPOSED AMENDMENT IS APPROVED AND ADOPTED, MASSACHUSETTS ELECTRIC COMPANY, A MASSACHUSETTS CORPORATION AND DIRECT UTILITY SUBSIDIARY OF NEES (MASS. ELECTRIC), WILL MAKE A SPECIAL CASH PAYMENT TO EACH DIVIDEND SERIES PREFERRED SHAREHOLDER WHO VOTED IN FAVOR OF THE PROPOSED AMENDMENT, PROVIDED THAT THEIR SHARES ARE NOT TENDERED PURSUANT TO THE OFFER. PREFERRED SHAREHOLDERS WHO PURCHASE OR WHOSE PURCHASE SETTLES OR IS REGISTERED AFTER THE CLOSE OF BUSINESS ON NOVEMBER 12, 1997 (THE RECORD DATE) AND WHO WISH TO TENDER IN THE OFFER MUST ARRANGE WITH THEIR SELLER TO RECEIVE A DULY COMPLETED, VALID AND UNREVOKED PROXY (WHICH MAY BE IN THE FORM OF AN IRREVOCABLE ASSIGNMENT OF PROXY AS SET FORTH IN THIS LETTER OF TRANSMITTAL AND PROXY) FROM THE HOLDER ON THE RECORD DATE OF SUCH SHARES. IN ORDER TO FACILITATE RECEIPT OF PROXIES, SHARES SHALL, DURING THE PERIOD WHICH COMMENCES NOVEMBER 10, 1997 (TWO BUSINESS DAYS PRIOR TO THE RECORD DATE) AND WHICH WILL END AT THE CLOSE OF BUSINESS ON THE EXPIRATION DATE, TRADE IN THE OVER-THE-COUNTER MARKET WITH A PROXY PROVIDING THE TRANSFEREE WITH THE RIGHT TO VOTE SUCH ACQUIRED SHARES IN THE PROXY SOLICITATION. NOTE: SIGNATURES MUST BE PROVIDED BELOW. PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY. NOTE: IF SHARES ARE BEING TENDERED, THE REMAINDER OF THIS LETTER OF TRANSMITTAL AND PROXY MUST BE COMPLETED, INCLUDING THE SUBSTITUTE FORM W-9 BELOW. IF SHARES ARE NOT BEING TENDERED, YOU NEED ONLY COMPLETE THE BOXES BELOW TITLED "PROXY" (OR, IF APPLICABLE, "IRREVOCABLE PROXY") AND "SIGNATURES(S) OF REGISTERED HOLDER(S)" AND THE SUBSTITUTE FORM W-9. The name "New England Electric System" means the trustee or trustees for the time being (as trustee or trustees but not personally) under an agreement and declaration of trust dated January 2, 1926, as amended, which is hereby referred to, and a copy of which as amended has been filed with the Secretary of the Commonwealth of Massachusetts. Any agreement, obligation or liability made, entered into or incurred by or on behalf of New England Electric System binds only its trust estate, and no shareholder, director, trustee, officer or agent thereof assumes or shall be held to any liability therefor. 2 3 PLEASE COMPLETE: - -------------------------------------------------------------------------------- PROXY The undersigned hereby appoints John E. Cochrane, Michael E. Jeganis and Robert King Wulff, or any of them, as proxies, each with the power to appoint his substitute, and hereby authorizes them to represent and to vote as designated hereunder and in their discretion with respect to any other business properly brought before the Special Meeting, all the shares (Shares) of 6.84% Preferred Stock -- Cumulative of Massachusetts Electric Company (Mass. Electric) which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on Friday, December 12, 1997, or any adjournment(s) or postponement(s) thereof. NOTE: IF YOU ARE VOTING BUT NOT TENDERING SHARES, DO NOT SEND ANY SHARE CERTIFICATES WITH THIS LETTER OF TRANSMITTAL AND PROXY. THIS LETTER OF TRANSMITTAL AND PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF MASS. ELECTRIC. The proxy contained herein, when properly executed, will be voted in the manner directed herein by the undersigned shareholder(s). If no direction is made, the proxy will be voted FOR Item 1. INDICATE YOUR VOTE BY AN (X). THE BOARD OF DIRECTORS OF MASS. ELECTRIC RECOMMENDS VOTING FOR ITEM 1. HOLDERS OF SHARES WHO WISH TO TENDER THEIR SHARES MUST VOTE "FOR" THE PROPOSED AMENDMENT EITHER BY SUBMITTING THIS PROXY OR BY VOTING AT THE SPECIAL MEETING. ITEM 1. To amend the Articles of Organization and By-laws to delete in its entirety ARTICLE XVIII, Section 4E(4), limiting the Mass. Electric's ability to issue unsecured indebtedness. [ ] FOR [ ] AGAINST [ ] ABSTAIN NOTE: IF SHARES ARE BEING VOTED "FOR" THE PROPOSED AMENDMENT, THE SUBSTITUTE FORM W-9 BELOW SHOULD BE COMPLETED TO AVOID BACK-UP WITHHOLDING ON THE SPECIAL CASH PAYMENT. SHARES REPRESENTED BY ALL PROPERLY EXECUTED PROXIES WILL BE VOTED IN ACCORDANCE WITH INSTRUCTIONS APPEARING ON THIS PROXY. IN THE ABSENCE OF SPECIFIC INSTRUCTIONS, PROXIES WILL BE VOTED "FOR" THE PROPOSED AMENDMENT AND OTHERWISE IN ACCORDANCE WITH THE RECOMMENDATIONS OF THE BOARD OF DIRECTORS OF MASS. ELECTRIC, AND IN THE DISCRETION OF THE PROXY HOLDERS AS TO ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE SPECIAL MEETING. Any holder of Shares held of record on the Record Date in the name of another holder must establish to the satisfaction of Mass. Electric such holder's entitlement to exercise or transfer this Proxy. This will ordinarily require an assignment by such record holder in blank, or if not in blank, to and from each successive transferee, including the holder, with each signature guaranteed by an Eligible Institution. A form of irrevocable assignment of proxy has been provided herein. Please check box if you plan to attend the Special Meeting. [ ] - -------------------------------------------------------------------------------- 3 4 PLEASE COMPLETE IF APPLICABLE: - -------------------------------------------------------------------------------- DESCRIPTION OF SHARES TENDERED(1)
- ------------------------------------------------------------------------------------------------------------------ NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) (PLEASE USE PREADDRESSED LABEL OR FILL IN, IF BLANK, EXACTLY AS NAME(S) APPEAR(S) ON SHARE SHARE CERTIFICATE(S) AND SHARE(S) TENDERED/VOTED CERTIFICATE(S) AND SHARE(S) TENDERED) (ATTACH ADDITIONAL SIGNED LIST IF NECESSARY)(1) - ------------------------------------------------------------------------------------------------------------------ NUMBER OF TOTAL NUMBER SHARES NOT OF SHARES TENDERED BUT REPRESENTED NUMBER AS TO WHICH SHARE CERTIFICATE BY SHARE OF SHARES PROXIES NUMBER(S)(2) CERTIFICATE(S)(2) TENDERED(3) GIVEN ONLY --------------------------------------------------------------------- --------------------------------------------------------------------- --------------------------------------------------------------------- --------------------------------------------------------------------- Total Shares: - ------------------------------------------------------------------------------------------------------------------
(1) If tendering or voting Share(s), please fill in table exactly as information appears on the Certificate(s). (2) Need not be completed by Preferred Shareholders tendering by book-entry transfer. (3) Unless otherwise indicated, it will be assumed that all Shares represented by any Certificate(s) delivered to the Depositary are being tendered and a proxy is being delivered. See Instruction 4. You must vote "FOR" the Proposed Amendment with respect to any Shares tendered. - -------------------------------------------------------------------------------- NOTE: IF YOU ARE DELIVERING A PROXY BUT NOT TENDERING SHARES, DO NOT SEND ANY SHARE CERTIFICATES. 4 5 PLEASE COMPLETE IF APPLICABLE: - -------------------------------------------------------------------------------- SIGNATURE(S) OF REGISTERED HOLDER(S)* ________________________________________________________________________________ (SIGNATURE) ________________________________________________________________________________ (SIGNATURE) Dated: _________________________________________________________________ , 1997 Name(s): _______________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (PLEASE PRINT) Capacity (full title): _________________________________________________________ Address: _______________________________________________________________________ ________________________________________________________________________________ (INCLUDE ZIP CODE) Daytime Area Code and Telephone No.: _________________________________________ * Must be signed by the registered holder(s) exactly as name(s) appear(s) on the stock certificate(s) or on a security position listing or by person(s) authorized to become registered holder(s) by certificates and documents transmitted herewith. If signature is by a trustee, executor, administrator, guardian, attorney_in_fact, officer of a corporation or other person acting in a fiduciary or representative capacity, please set forth full title and see Instruction 5. GUARANTEE OF SIGNATURE(S) (SEE INSTRUCTIONS 1 AND 5) Authorized Signature: __________________________________________________________ Name: __________________________________________________________________________ Name of Firm: __________________________________________________________________ (PLEASE PRINT) Address of Firm: _______________________________________________________________ ________________________________________________________________________________ (INCLUDE ZIP CODE) Area Code and Telephone No.: ___________________________________________________ Dated: __________________________________________________________________ , 1997 - -------------------------------------------------------------------------------- 5 6 IF SELLING SHARES ON OR AFTER NOVEMBER 10, 1997, A RECORD HOLDER MUST COMPLETE THE FOLLOWING IRREVOCABLE PROXY. PLEASE SIGN THIS TO IRREVOCABLY TRANSFER A PREFERRED STOCK PROXY TO A SUBSEQUENT HOLDER OF PREFERRED STOCK WHO WAS NOT A HOLDER OF RECORD ON NOVEMBER 12, 1997. - -------------------------------------------------------------------------------- IRREVOCABLE PROXY * WITH RESPECT TO SHARES OF THE 6.84% PREFERRED STOCK -- CUMULATIVE (THE SHARES) OF MASSACHUSETTS ELECTRIC COMPANY (MASS. ELECTRIC) The undersigned hereby irrevocably appoints: ------------------------------------ TYPE OR PRINT NAME OF TRANSFEREE as attorney and proxy, with full power of substitution, to vote and otherwise act for and in the name(s) of the undersigned with respect to the Shares indicated below which were held of record by the undersigned on November 12, 1997, in the manner in which the undersigned would be entitled to vote and otherwise act in respect of such Shares on any and all matters. This proxy shall be effective whether or not the Shares indicated below are tendered in the Offer. This instrument supersedes and revokes any and all previous appointments of proxies heretofore made by the undersigned with respect to the Shares indicated below as to any and all matters. THIS PROXY IS IRREVOCABLE AND IS COUPLED WITH AN INTEREST. All authority conferred or agreed to be conferred herein shall survive the death or incapacity of the undersigned, and any obligation of the undersigned hereunder shall be binding upon the heirs, executors, administrators, legal and personal representatives, successors in interest and assigned of the undersigned. The undersigned understands that tenders of Shares pursuant to any of the procedures described in the Offer to Purchase and Proxy Statement and in this Letter of Transmittal and Proxy will constitute a binding agreement between the undersigned and Mass. Electric upon the terms and subject to the conditions of the Offer. DESCRIPTION OF PREFERRED STOCK
CERTIFICATE NUMBER(S) (ATTACH LIST IF NECESSARY) AGGREGATE NUMBER OF SHARES - ------------------------- ------------------------- 1. - ------------------------- ------------------------- 2. - ------------------------- ------------------------- 3. - ------------------------- ------------------------- Total -------------------------
- --------------- * This irrevocable proxy must be signed on the next page to be effective. - -------------------------------------------------------------------------------- 6 7 - -------------------------------------------------------------------------------- IRREVOCABLE PROXY SIGNATURE(S) OF RECORD OR AUTHORIZED SIGNATORY* - -------------------------------------------------------------------------------- (SIGNATURE) - -------------------------------------------------------------------------------- (PLEASE PRINT) Dated: 1997 --------------------------------------------------------------------, Tax Identification or Social Security No(s) ------------------------------------- - -------------------------------------------------------------------------------- (SIGNATURE) - -------------------------------------------------------------------------------- (PLEASE PRINT) Dated: 1997 --------------------------------------------------------------------, Tax Identification or Social Security No(s) ------------------------------------- * Must be signed by the registered holder(s) exactly as name(s) appear(s) on the Record Date on the stock certificate(s) or on a security position listing or by person(s) authorized to become registered holder(s) by certificates and documents transmitted herewith. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation, agent or other person acting in a fiduciary or representative capacity, please provide the following information and see Instruction 5. GUARANTEE OF SIGNATURE(S) (SEE INSTRUCTIONS 1 AND 5) Authorized Signature: ----------------------------------------------------------- Name: --------------------------------------------------------------------------- (PLEASE PRINT) Capacity (Full Title): ---------------------------------------------------------- Name of Firm: ------------------------------------------------------------------- (PLEASE PRINT) Address of Firm: ---------------------------------------------------------------- - -------------------------------------------------------------------------------- (INCLUDE ZIP CODE) Area Code and Telephone No.: ---------------------------------------------------- Dated: 1997 --------------------------------------------------------------------, - -------------------------------------------------------------------------------- 7 8 NOTE: IF SHARES ARE BEING TENDERED, THE REMAINDER OF THIS LETTER OF TRANSMITTAL AND PROXY MUST BE COMPLETED, INCLUDING THE SUBSTITUTE FORM W-9 BELOW OR A FORM W-8, AS APPLICABLE. DELIVERY OF THIS LETTER OF TRANSMITTAL AND PROXY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS TO A FACSIMILE NUMBER OTHER THAN THE ONE LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. YOU MUST SIGN THIS LETTER OF TRANSMITTAL AND PROXY IN THE APPROPRIATE SPACE THEREFOR PROVIDED ABOVE AND, IF YOU ARE TENDERING ANY SHARES OR VOTING "FOR" THE PROPOSED AMENDMENT, COMPLETE THE SUBSTITUTE FORM W-9 SET FORTH BELOW OR A FORM W-8, AS APPLICABLE. SEE INSTRUCTION 8 AND "IMPORTANT TAX INFORMATION" BELOW. DO NOT SEND ANY CERTIFICATES TO NEES, MASS. ELECTRIC, MERRILL LYNCH & CO., OR GEORGESON & COMPANY, INC. THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL AND PROXY SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL AND PROXY IS COMPLETED. This Letter of Transmittal and Proxy is to be used if (a) Certificates are to be forwarded herewith, (b) delivery of Shares is to be made by book-entry transfer pursuant to the procedures set forth under the heading Terms of the Offer -- Procedure for Tendering Shares in the Offer to Purchase and Proxy Statement (as defined below) or (c) Shares are being voted in connection with the Offer. Preferred Shareholders who wish to tender Shares but cannot deliver their Shares and all other documents required hereby to the Depositary on or prior to the Expiration Date must tender their Shares pursuant to the guaranteed delivery procedure set forth under the heading Terms of the Offer -- Procedure for Tendering Shares -- Guaranteed Delivery Procedure in the Offer to Purchase and Proxy Statement. See Instruction 2. DELIVERY OF DOCUMENTS TO NEES, MASS. ELECTRIC OR A BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE A VALID DELIVERY. PLEASE COMPLETE: - -------------------------------------------------------------------------------- [ ] CHECK HERE IF TENDERED SHARES ARE ENCLOSED HEREWITH. A HOLDER TENDERING SHARES PURSUANT TO THIS LETTER OF TRANSMITTAL AND PROXY MUST CHECK ONE OF THE FOLLOWING BOXES: [ ] A duly completed, valid and unrevoked proxy indicating a vote "FOR" the Proposed Amendment is included herein. [ ] A vote "FOR" the Proposed Amendment will be cast at the Special Meeting. - -------------------------------------------------------------------------------- 8 9 (BOXES BELOW FOR USE BY ELIGIBLE INSTITUTIONS ONLY) [ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER TO THE DEPOSITARY'S ACCOUNT AT ONE OF THE BOOK-ENTRY TRANSFER FACILITIES AND COMPLETE THE FOLLOWING: Name of tendering institution: ------------------------------------------------------------------------------ (PLEASE PRINT) Check applicable box: [ ] DTC [ ] PDTC Account No. --------------------------------------------------------------------------- Transaction Code No. ----------------------------------------------------------------- ] [CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY AND PROXY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING: Name(s) of tendering Preferred Shareholder(s): ------------------------------------- ----------------------------------------------------------------------------------------- (PLEASE PRINT) Date of execution of Notice of Guaranteed Delivery and Proxy: --------------------- Name of institution that guaranteed delivery: ----------------------------------------- If delivery is by book-entry transfer: Name of tendering institution: --------------------------------------------------------- Account No. --------------------------------------------------------------------- at [ ] DTC or [ ] PDTC (CHECK ONE) Transaction Code No. ----------------------------------------------------------------- A HOLDER ELECTING TO TENDER SHARES PURSUANT TO A NOTICE OF GUARANTEED DELIVERY AND PROXY MUST CHECK ONE OF THE FOLLOWING BOXES: [ ] A duly completed, valid and unrevoked proxy indicating a vote "FOR" the Proposed Amendment was included with the Notice of Guaranteed Delivery and Proxy previously sent to the Depositary. [ ] A duly completed, valid and unrevoked proxy indicating a vote "FOR" the Proposed Amendment is being delivered pursuant to a Notice of Guaranteed Delivery and Proxy previously sent to the Depositary. [ ] A vote "FOR" the Proposed Amendment will be cast at the Special Meeting.
9 10 NOTE: SIGNATURES MUST BE PROVIDED ABOVE PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY Ladies and Gentlemen: The above signed hereby tenders to NEES the shares in the amount set forth in the box above labeled "Description of Shares Tendered" pursuant to NEES' offer to purchase any and all of the outstanding shares of the 6.84% Preferred Stock -- Cumulative (the Shares) of Mass. Electric shown above as to which this Letter of Transmittal and Proxy is applicable at the purchase price per Share shown above (the Purchase Price), net to the seller in cash, upon the terms and subject to the conditions set forth in the Offer to Purchase and Proxy Statement, dated November 6, 1997 (the Booklet), receipt of which is hereby acknowledged, and in this Letter of Transmittal and Proxy (which together constitute the Offer). PREFERRED SHAREHOLDERS WHO WISH TO TENDER THEIR SHARES PURSUANT TO THE OFFER MUST VOTE IN FAVOR OF THE PROPOSED AMENDMENT TO MASS. ELECTRIC'S BY-LAWS AND ARTICLES OF ORGANIZATION (THE PROVISIONS), AS SET FORTH IN THE BOOKLET (THE PROPOSED AMENDMENT). THE OFFER IS CONDITIONED UPON THE PROPOSED AMENDMENT BEING APPROVED AND ADOPTED AT THE SPECIAL MEETING (AS DEFINED IN THE BOOKLET). See Proposed Amendment and Proxy Solicitation, Terms of the Offer -- Extension of Tender Period; Termination; Amendments and Terms of the Offer -- Certain Conditions of the Offer in the Booklet. Subject to, and effective upon, acceptance for payment of and payment for the Shares tendered herewith in accordance with the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of any such extension or amendment), the above signed hereby sells, assigns and transfers to, or upon the order of, NEES all right, title and interest in and to all the Shares that are being tendered hereby and hereby constitutes and appoints IBJ Schroder Bank & Trust Company (the Depositary) the true and lawful agent and attorney-in-fact of the above signed with respect to such Shares, with full power of substitution (such power of attorney being an irrevocable power coupled with an interest), to (a) deliver certificates for such Shares, or transfer ownership of such Shares on the account books maintained by any of the Book-Entry Transfer Facilities, together, in any such case, with all accompanying evidences of transfer and authenticity, to or upon the order of NEES, (b) present such Shares for registration and transfer on the books of Mass. Electric and (c) receive all benefits and otherwise exercise all rights of beneficial ownership of such Shares, all in accordance with the terms of the Offer. The above signed hereby represents and warrants that the above signed has full power and authority to tender, sell, assign and transfer the Shares tendered hereby and that, when and to the extent the same are accepted for payment by NEES, NEES will acquire good, marketable and unencumbered title thereto, free and clear of all liens, restrictions, charges, encumbrances, conditional sales agreements or other obligations relating to the sale or transfer thereof, and the same will not be subject to any adverse claims. The above signed will, upon request, execute and deliver any additional documents deemed by the Depositary or NEES to be necessary or desirable to complete the sale, assignment and transfer of the Shares tendered hereby. All authority herein conferred or agreed to be conferred shall not be affected by, and shall survive, the death or incapacity of the above signed, and any obligations of the above signed hereunder shall be binding upon the heirs, personal representatives, successors and assigns of the above signed. Except as stated in the Offer, this tender is irrevocable. The above signed understands that tenders of Shares pursuant to any one of the procedures described under the heading Terms of the Offer -- Procedure for Tendering Shares in the Booklet and in the instructions hereto will constitute the above signed's acceptance of the terms and conditions of the Offer, including the above signed's representation and warranty that (a) the above signed has a net long position in the Shares being tendered within the meaning of Rule 14e-4 promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act), and (b) the tender of such Shares complies with Rule 14e-4. NEES' acceptance for payment of Shares tendered pursuant to the Offer will constitute a binding agreement between the above signed and NEES upon the terms and subject to the conditions of the Offer. 10 11 The above signed recognizes that, under certain circumstances set forth in the Booklet, NEES may terminate or amend the Offer or may not be required to purchase any of the Shares tendered hereby. In either event, the above signed understands that certificate(s) for any Shares not tendered or not purchased will be returned to the above signed. Unless otherwise indicated in the box below under the heading "Special Payment Instructions," please issue the check for the Purchase Price of any Shares purchased, and/or return any Shares not tendered or not purchased, in the name(s) of the above signed (and, in the case of Shares tendered by book-entry transfer, by credit to the account at the Book-Entry Transfer Facility designated above). Unless otherwise indicated in the box below under the heading "Special Delivery Instructions," please mail the check for the Purchase Price of any Shares purchased and/or any certificates for Shares not tendered or not purchased (and accompanying documents, as appropriate) to the above signed at the address shown below. In the event that both "Special Payment Instructions" and "Special Delivery Instructions" are completed, please issue the check for the Purchase Price of any Shares purchased and/or return any Shares not tendered or not purchased in the name(s) of, and mail said check and/or any certificates to, the person(s) so indicated. The above signed recognizes that NEES has no obligation, pursuant to the "Special Payment Instructions," to transfer any Shares from the name of the registered holder(s) thereof if NEES does not accept for payment any of the Shares so tendered. 11 12 PLEASE COMPLETE IF APPLICABLE: - -------------------------------------------------------------------------------- SPECIAL PAYMENT INSTRUCTIONS SEE INSTRUCTIONS 4, 6, AND 7 To be completed ONLY if the check for the Purchase Price of Shares purchased and/or certificates for Shares not tendered or not purchased are to be issued in the name of someone other than the above signed. Issue: [ ] Check [ ] Certificate(s) to: Name ---------------------------------------------------------------------- (PLEASE PRINT) Address ------------------------------------------------------------------- - ------------------------------------------------------------------------------ (INCLUDE ZIP CODE) - ------------------------------------------------------------------------------ (TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER)* * SEE SUBSTITUTE FORM W-9 BELOW. Credit Shares delivered by book-entry transfer and not purchased to the Book-Entry Transfer Facility Account set forth below: [ ] DTC [ ] PDTC Account No.: - ------------------------------------------------------------------------------ - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SPECIAL DELIVERY INSTRUCTIONS SEE INSTRUCTIONS 4, 6, AND 7 To be completed ONLY if the check for the Purchase Price of Shares purchased and/or certificates for Shares not tendered or not purchased are to be mailed to someone other than the above signed or to the above signed at an address other than that shown below the above signed's signature(s). Mail: [ ] Check [ ] Certificate(s) to: Name ---------------------------------------------------------------------- (PLEASE PRINT) Address ------------------------------------------------------------------- - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ (INCLUDE ZIP CODE) - -------------------------------------------------------------------------------- [ ] CHECK HERE IF ANY OF THE CERTIFICATES REPRESENTING SHARES THAT YOU OWN AND WISH TO TENDER HAVE BEEN LOST, DESTROYED OR STOLEN. (SEE INSTRUCTION 12.) Number of Shares represented by lost, destroyed or stolen certificates: ------------------------------------------------------------ 12 13 SOLICITED TENDERS (SEE INSTRUCTION 10) As provided in the Booklet and Instruction 10 to the Letter of Transmittal and Proxy, NEES will pay to any Soliciting Dealer, as defined in Instruction 10, a solicitation fee of $.375 per Share for any Shares tendered, accepted for payment and paid pursuant to the Offer and for any Shares not tendered but voted in favor of the Proposed Amendment (except that for transactions for beneficial owners equal to or exceeding 2,500 Shares, NEES will pay a solicitation fee of $.25 per Share). Solicitation fees payable in transactions for beneficial owners of 2,500 or more Shares shall be paid 80% to the Dealer Manager and 20% to the Soliciting Dealers (which may be the Dealer Manager). However, Soliciting Dealers will not be entitled to a solicitation fee for Shares beneficially owned by such Soliciting Dealer. The undersigned represents that the Soliciting Dealer which solicited and obtained this tender is: Name of Firm: __________________________________________________________________ (PLEASE PRINT) Name of Individual Broker or Financial Consultant:______________________________ Telephone Number of Broker or Financial Consultant: ____________________________ Identification Number (if known): ______________________________________________ Address: _______________________________________________________________________ ________________________________________________________________________________ (INCLUDE ZIP CODE) The following to be completed ONLY if customer's Shares held in nominee name are tendered. (ATTACH ADDITIONAL LIST IF NECESSARY.) __________________________________________________________________________________________________________________ NAME OF BENEFICIAL OWNER NUMBER OF SHARES TENDERED __________________________________________________________________________________________________________________ __________________________________________________________________________________________________________________ __________________________________________________________________________________________________________________ __________________________________________________________________________________________________________________
The acceptance of compensation by such Soliciting Dealer will constitute a representation by it that (a) it has complied with the applicable requirements of the Exchange Act and the applicable rules and regulations thereunder, in connection with such solicitation; (b) it is entitled to such compensation for such solicitation under the terms and conditions of the Offer (unless such solicitation fee is directed to another Soliciting Dealer); (c) in soliciting tenders of Shares, it has used no soliciting materials other than those furnished by NEES; and (d) if it is a foreign broker or dealer not eligible for membership in the National Association of Securities Dealers, Inc. (the NASD), it has agreed to conform to the NASD's Rules of Fair Practice in making the solicitations. The payment of compensation to any Soliciting Dealer is dependent on such Soliciting Dealer returning a Notice of Solicited Tenders to the Depositary. (IF SHARES ARE BEING TENDERED AND/OR VOTED, PLEASE ALSO COMPLETE SUBSTITUTE FORM W-9 BELOW OR A FORM W-8, AS APPLICABLE) SIGN HERE: _____________________________________________________________________ ________________________________________________________________________________ (SIGNATURE(S) OF REGISTERED HOLDER(S)) 13 14 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER 1. GUARANTEE OF SIGNATURES. Except as otherwise provided below, all signatures on this Letter of Transmittal and Proxy must be guaranteed by a firm that is a member of a registered national securities exchange or the NASD, or by a commercial bank or trust company having an office or correspondent in the United States which is a participant in an approved Signature Guarantee Medallion Program (an Eligible Institution). Signatures on this Letter of Transmittal and Proxy need not be guaranteed (a) if this Letter of Transmittal and Proxy is signed by the registered holder(s) of the Shares (which term, for purposes of this document, shall include any participant in one of the Book-Entry Transfer Facilities whose name appears on a security position listing as the owner of Shares) tendered herewith and such holder(s) has not completed the box above under the heading "Special Payment Instructions" or the box above under the heading "Special Delivery Instructions" on this Letter of Transmittal and Proxy, (b) if such Shares are tendered for the account of an Eligible Institution or (c) if this Letter of Transmittal and Proxy is being used solely for the purpose of voting Shares which are not being tendered pursuant to the Offer. See Instruction 5. 2. DELIVERY OF LETTER OF TRANSMITTAL AND PROXY AND SHARES. This Letter of Transmittal and Proxy is to be used if (a) certificates are to be forwarded herewith, (b) delivery of Shares is to be made by book-entry transfer pursuant to the procedures set forth under the heading Terms of the Offer -- Procedure for Tendering Shares in the Booklet or (c) Shares are being voted in connection with the Offer. Certificates for all physically delivered Shares, or a confirmation of a book-entry transfer into the Depositary's account at the Book-Entry Transfer Facilities of Shares delivered electronically, as well as a properly completed and duly executed Letter of Transmittal and Proxy (or facsimile thereof) and any other documents required by this Letter of Transmittal and Proxy, must be received by the Depositary at one of its addresses set forth on the front page of this Letter of Transmittal and Proxy on or prior to the Expiration Date with respect to all Shares. Preferred Shareholders who wish to tender their Shares yet who cannot deliver their Shares and all other required documents to the Depositary on or prior to the Expiration Date must tender their Shares pursuant to the guaranteed delivery procedure set forth under the heading Terms of the Offer -- Procedure for Tendering Shares in the Booklet. Pursuant to such procedure: (i) such tender must be made by or through an Eligible Institution, (ii) a properly completed and duly executed Notice of Guaranteed Delivery and Proxy in the form provided by NEES (with any required signature guarantees) must be received by the Depositary on or prior to the applicable Expiration Date and (iii) the certificates for all physically delivered Shares, or a confirmation of a book-entry transfer into the Depositary's account at one of the Book-Entry Transfer Facilities of all Shares delivered electronically, as well as a properly completed and duly executed Letter of Transmittal and Proxy (or facsimile thereof) and any other documents required by this Letter of Transmittal and Proxy must be received by the Depositary within three New York Stock Exchange (NYSE) trading days after the date of execution of such Notice of Guaranteed Delivery and Proxy, all as provided under the heading Terms of the Offer -- Procedure for Tendering Shares in the Booklet. A NYSE trading day is any day on which the NYSE is open for business. THE METHOD OF DELIVERY OF SHARES AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING PREFERRED SHAREHOLDER. IF CERTIFICATES FOR SHARES ARE SENT BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. No alternative, conditional or contingent tenders will be accepted. See Terms of the Offer -- Number of Shares; Purchase Price; Expiration Date; Dividends in the Booklet. By executing this Letter of Transmittal and Proxy (or facsimile thereof), the tendering Preferred Shareholder waives any right to receive any notice of the acceptance for payment of the Shares. 3. VOTING. PREFERRED SHAREHOLDERS (INCLUDING PREFERRED SHAREHOLDERS WHO ACQUIRE SHARES SUBSEQUENT TO THE RECORD DATE) WHO WISH TO TENDER THEIR SHARES PURSUANT TO THE OFFER MUST VOTE IN FAVOR OF THE PROPOSED AMENDMENT TO THE MASS. ELECTRIC'S PROVISIONS, AS SET FORTH IN THE BOOKLET. 14 15 THE OFFER IS CONDITIONED UPON THE PROPOSED AMENDMENT BEING APPROVED AND ADOPTED AT THE SPECIAL MEETING. In addition, Preferred Shareholders have the right to vote on the Proposed Amendment regardless of whether they tender their Shares by casting their vote and duly executing the Proxy included in this Letter of Transmittal and Proxy or by voting in person at the Special Meeting. By executing a Notice of Guaranteed Delivery and Proxy, a Preferred Shareholder is deemed to have tendered the Shares described in such Notice of Guaranteed Delivery and Proxy and to have voted such Shares in accordance with the proxy contained therein. If no vote is indicated on an otherwise properly executed proxy contained within this Letter of Transmittal and Proxy (or within a Notice of Guaranteed Delivery and Proxy), then all Shares in respect of such proxy will be voted in favor of the Proposed Amendment. See Proposed Amendment and Proxy Solicitation in the Booklet. The Offer is being sent to all persons in whose names Shares are registered on the books of Mass. Electric on November 6, 1997 as well as to all persons in whose name Shares are registered on November 12, 1997, which is the Record Date. Preferred Shareholders who purchase or whose purchase is registered after the Record Date and who wish to tender in the Offer must arrange with their seller to receive a proxy from the holder of record on the Record Date of such Shares. Any holder of Shares held of record on the Record Date in the name of another holder must establish to the satisfaction of Mass. Electric such holder's entitlement to exercise or transfer such Proxy. This will ordinarily require an assignment by such record holder in blank, or if not in blank, to and from each successive transferee, including the holder, with each signature guaranteed by an Eligible Institution. See Instruction 5. In order to facilitate receipt of proxies, Shares shall, during the period which commences November 10, 1997 and which will end at the close of business on the Expiration Date, trade in the over-the-counter market with a proxy providing the transferee with the right to vote such acquired shares in the Proxy Solicitation. No record date is fixed for determining which persons are permitted to tender Shares. However, only the holders of record, or holders who acquire an assignment of proxy from such holders, are permitted to vote for the Proposed Amendment and thereby validly tender Shares pursuant to the Offer. Any person who is the beneficial owner but not the record holder of Shares must arrange for the record transfer of such Shares prior to tendering or direct the record holder to tender on behalf of the beneficial holder. 4. PARTIAL TENDERS. NOT APPLICABLE TO SHAREHOLDERS WHO TENDER BY BOOK- ENTRY TRANSFER. If fewer than all the Shares represented by any certificate delivered to the Depositary are to be tendered, fill in the number of Shares that are to be tendered in the box above under the heading "Description of Shares Tendered." In such case, a new certificate for the remainder of the Shares represented by the old certificate will be sent to the person(s) signing this Letter of Transmittal and Proxy, unless otherwise provided in the box above under the heading "Special Payment Instructions" or "Special Delivery Instructions," as promptly as practicable following the expiration or termination of the Offer. All Shares represented by certificates delivered to the Depositary will be deemed to have been tendered unless otherwise indicated. 5. SIGNATURES ON LETTER OF TRANSMITTAL AND PROXY AND NOTICE OF GUARANTEED DELIVERY AND PROXY; STOCK POWERS AND ENDORSEMENTS. If either this Letter of Transmittal and Proxy or the Notice of Guaranteed Delivery and Proxy (together, the Tender and Proxy Documents) is signed by the registered holder(s) of the Shares tendered hereby, the signature(s) must correspond with the name(s) as written on the face of the certificates without alteration, enlargement or any change whatsoever. If any of the Shares tendered or voted under either Tender and Proxy Document is held of record by two or more persons, all such persons must sign such Tender and Proxy Document. If any of the Shares tendered or voted under either Tender and Proxy Document are registered in different names or different certificates, it will be necessary to complete, sign and submit as many separate applicable Tender and Proxy Documents as there are different registrations of certificates. If either Tender and Proxy Document is signed by the registered holder(s) of the Shares tendered hereby, no endorsements of certificates or separate stock powers are required unless payment of the Purchase Price is to be made to, or Shares not tendered or not purchased are to be registered in the name of, any person other than the registered holder(s). Signatures on any such certificates or stock powers must be guaranteed by an Eligible Institution. See Instruction 1. 15 16 If this Letter of Transmittal and Proxy is signed by a person other than the registered holder(s) of the Shares tendered hereby, certificates must be endorsed or accompanied by appropriate stock powers, in either case, signed exactly as the name(s) of the registered holder(s) appear(s) on the certificates for such Shares. Signature(s) on any such certificates or stock powers must be guaranteed by an Eligible Institution. See Instruction 1. If either Tender and Proxy Document or any certificate or stock power is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, such person should so indicate when signing, and proper evidence satisfactory to NEES of the authority of such person so to act must be submitted. 6. STOCK TRANSFER TAXES. Except as set forth in this Instruction 6, NEES will pay or cause to be paid any stock transfer taxes with respect to the sale and transfer of any Shares to it or its order pursuant to the Offer. If, however, payment of the Purchase Price is to be made to, or Shares not tendered or not purchased are to be registered in the name of, any person other than the registered holder(s), or if tendered Shares are registered in the name of any person other than the person(s) signing this Letter of Transmittal and Proxy, the amount of any stock transfer taxes (whether imposed on the registered holder(s), such other person or otherwise) payable on account of the transfer to such person will be deducted from the Purchase Price unless satisfactory evidence of the payment of such taxes, or exemption therefrom, is submitted. Each Preferred Shareholder will be responsible for paying any income or gross receipts taxes imposed by any jurisdiction by reason of the Special Cash Payment (as defined in the Booklet) and/or the sale of the Shares in the Offer. See Terms of the Offer -- Acceptance of Shares for Payment and Payment of Purchase Price and Dividends and Certain U.S. Federal Income Tax Considerations in the Booklet. EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY TO AFFIX TRANSFER TAX STAMPS TO THE CERTIFICATES REPRESENTING SHARES TENDERED HEREBY. 7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If the check for the Purchase Price of any Shares purchased is to be issued in the name of, any Shares not tendered or not purchased are to be returned to, and/or the check for the Special Cash Payment is to be issued in the name of, a person other than the person(s) signing this Letter of Transmittal and Proxy or if the check and/or any certificate for Shares not tendered or not purchased are to be mailed to someone other than the person(s) signing this Letter of Transmittal and Proxy or to an address other than that shown in the box above under the heading "Description of Shares Tendered," then the "Special Payment Instructions" and/or "Special Delivery Instructions" on this Letter of Transmittal and Proxy should be completed. Preferred Shareholders tendering Shares by book-entry transfer will have any Shares not accepted for payment returned by crediting the account maintained by such Preferred Shareholder at the Book-Entry Transfer Facility from which such transfer was made. 8. SUBSTITUTE FORM W-9 AND FORM W-8. A tendering and/or voting Preferred Shareholder is required to provide the Depositary with either a correct Taxpayer Identification Number (TIN) on Substitute Form W-9, which is provided under "Important Tax Information" below, or a properly completed Form W-8 unless exempt therefrom. Failure to provide the information on either Substitute Form W-9 or Form W-8 may subject the tendering and/or voting Preferred Shareholder to 31% federal income tax backup withholding on the payment of the Purchase Price for the Shares or on the Special Cash Payment. The tendering and/or voting Preferred Shareholder may write "Applied For" in Part I of Substitute Form W-9 and sign the "Certificate of Awaiting Taxpayer Identification Number" of Substitute Form W-9 if the Preferred Shareholder has not been issued a TIN and has applied for a number or intends to apply for a number in the near future. If "Applied For" is written in Part I of Substitute Form W-9 and the "Certificate of Awaiting Taxpayer Identification Number" of Substitute Form W-9 is signed and the Depositary is not provided with a TIN by the time of payment, the Depositary will withhold 31% on all payments of the Purchase Price for the Shares or the Special Cash Payment thereafter until a TIN is provided to the Depositary. 16 17 9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Any questions or requests for assistance may be directed to the Information Agent or the Dealer Manager at their respective telephone numbers and addresses listed below. Requests for additional copies of the Booklet, this Letter of Transmittal and Proxy, or other tender offer materials may be directed to the Information Agent or the Dealer Manager and such copies will be furnished promptly at NEES' expense. Preferred Shareholders may also contact their local broker, dealer, commercial bank or trust company for assistance concerning the Offer. 10. SOLICITED TENDERS. Upon the terms and subject to the conditions of the Offer this Instruction, NEES will pay to designated brokers and dealers a solicitation fee of $.375 per Share for any Shares tendered, accepted for payment, and paid for pursuant to the Offer and for share of Dividend Series Preferred Stock not tendered by voted in favor on the Proposed Amendment (except that for transactions for beneficial owners equal to or exceeding 2,500 Shares, NEES will pay a solicitation fee of $.25 per Share, of which at least eighty percent (80%) shall be paid to the Dealer Manager and twenty percent (20%) to the Soliciting Dealer (which may be the Dealer Manager)). With respect to fees payable pursuant to this paragraph involving transactions for beneficial owners whose ownership is less than 2,500 Shares, any fees payable hereunder shall be paid in full to the Dealer Manager unless a Soliciting Dealer is designated (as described below), in which case such fee shall be payable in full to such designated Soliciting Dealer (which designated Soliciting Dealer may be the Dealer Manager). The Letters of Transmittal and Proxy must include the name of an entity which obtained the tender or proxy and which is either (a) a broker or dealer in securities, including the Dealer Manager in its capacity as a broker or dealers, which is a member of any national securities exchange or of the National Association of Securities Dealers, Inc. (NASD), (b) a foreign broker or dealer not eligible for membership in the NASD which agrees to conform to the NASD's Rules of Fair Practice in soliciting tenders outside the United States to the same extent as though it were an NASD member, or (c) a bank or trust company (each of which is referred to herein as a Soliciting Dealer). No solicitation fee shall be payable to a Soliciting Dealer with respect to the tender of Shares or delivery of a proxy unless the Letter of Transmittal and Proxy accompanying such tender or delivery of a proxy designates such Soliciting Dealer. No solicitation fee shall be payable to a Soliciting Dealer in respect of Shares registered in the name of such Soliciting Dealer unless such Shares are held by such Soliciting Dealer as nominee and such Shares are being tendered or delivered for the benefit of one or more beneficial owners identified on the Letter of Transmittal or on the Notice of Solicited Tenders. No solicitation fee shall be payable to a Soliciting Dealer if such Soliciting Dealer is required for any reason to transfer the amount of such fee to a depositing holder (other than itself). No solicitation fee shall be paid to a Soliciting Dealer with respect to Shares tendered or delivered for such Soliciting Dealer's own account. Soliciting Dealers will not be entitled to a solicitation fee for Shares beneficially owned by such Soliciting Dealer. No broker, dealer, bank, trust company, or fiduciary shall be deemed to be the agent of NEES, the Power Company, the Depositary, the Information Agent, or the Dealer Manager for purposes of the Offer. Soliciting Dealers will include any of the organizations described in clauses (a), (b), and (c) above even when the activities of such organizations in connection with the Offer consist solely of forwarding to clients materials relating to the Offer, including the Letter of Transmittal, and tendering Shares or delivering as directed by beneficial owners thereof. No Soliciting Dealer is required to make any recommendation to holders of Shares as to whether to tender or refrain from tendering in the Offer. No assumption is made, in making payment to any Soliciting Dealer, that its activities in connection with the Offer included any activities other than those described above, and for all purposes noted in all materials relating to the Offer, the term "solicit" shall be deemed to mean no more than processing shares tendered or forwarding to customers materials regarding the Offer. 17 18 11. IRREGULARITIES. All questions as to the form of documents and the validity, eligibility (including time of receipt) and acceptance of any tender of Shares will be determined by NEES, in its sole discretion, and its determination shall be final and binding. NEES reserves the absolute right to reject any and all tenders of Shares that it determines are not in proper form or the acceptance for payment of or payment for Shares that may, in the opinion of NEES' counsel, be unlawful. NEES also reserves the absolute right to waive any of the conditions to the Offer or any defect or irregularity in any tender of Shares and NEES' interpretation of the terms and conditions of the Offer (including these instructions) shall be final and binding. Unless waived, any defects or irregularities in connection with tenders must be cured within such time as NEES shall determine. None of NEES, the Dealer Manager, the Depositary, the Information Agent or any other person shall be under any duty to give notice of any defect or irregularity in tenders nor shall any of them incur any liability for failure to give any such notice. Tenders will not be deemed to have been made until all defects and irregularities have been cured or waived. 12. LOST, DESTROYED OR STOLEN CERTIFICATES. If any certificate representing Shares has been lost, destroyed or stolen, the Preferred Shareholder should promptly notify the Depositary by checking the box above immediately following the "Special Payment Instructions/Special Delivery Instructions" and indicating the number of Shares lost, destroyed or stolen. The Preferred Shareholder will then be instructed as to the procedures that must be taken in order to replace the certificate. The tender of Shares pursuant to this Letter of Transmittal and Proxy will not be valid unless on or prior to the Expiration Date: (a) such procedures have been completed and a replacement certificate for the Shares has been delivered to the Depositary or (b) a Notice of Guaranteed Delivery and Proxy has been delivered to the Depositary. See Instruction 2. IMPORTANT: THIS LETTER OF TRANSMITTAL AND PROXY (OR A FACSIMILE COPY HEREOF), DULY EXECUTED, TOGETHER WITH, IF APPLICABLE, CERTIFICATES OR CONFIRMATION OF A BOOK-ENTRY TRANSFER, AND ALL OTHER REQUIRED DOCUMENTS MUST BE RECEIVED BY THE DEPOSITARY, OR, IF APPLICABLE, THE NOTICE OF GUARANTEED DELIVERY AND PROXY MUST BE RECEIVED BY THE DEPOSITARY, ON OR PRIOR TO THE EXPIRATION DATE. 18 19 IMPORTANT TAX INFORMATION Under Federal income tax law, a Preferred Shareholder whose tendered Shares are accepted for payment, or who will receive a Special Cash Payment as a result of voting in favor of the Proposed Amendment, is required to provide the Depositary (as payer) with either such Preferred Shareholder's correct TIN on Substitute Form W-9 below or a properly completed Form W-8. If such Preferred Shareholder is an individual, the TIN is such Preferred Shareholder's social security number. For businesses and other entities, the number is the Federal employer identification number. If the Depositary is not provided with the correct TIN or properly completed Form W-8, the Preferred Shareholder may be subject to a $50 penalty imposed by the Internal Revenue Service. In addition, (a) payments that are made to such Preferred Shareholder with respect to Shares purchased pursuant to the Offer or (b) Special Cash Payments made to a Preferred Shareholder with respect to Shares voted pursuant to the proxy solicitation may be subject to backup withholding. The Form W-8 can be obtained from the Depositary. See the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" below for additional instructions. If Federal income tax backup withholding applies, the Depositary is required to withhold 31% of any payments made to the Preferred Shareholder. Backup withholding is not an additional tax. Rather, the Federal income tax liability of persons subject to backup withholding will be reduced by the amount of the tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained. PURPOSE OF SUBSTITUTE FORM W-9 AND FORM W-8 To avoid backup withholding on payments that are made to a Preferred Shareholder with respect to Shares purchased pursuant to the Offer or on Special Cash Payments, the Preferred Shareholder is required to notify the Depositary of his or her correct TIN by completing the Substitute Form W-9 below certifying that the TIN provided on Substitute Form W-9 is correct and that (a) the Preferred Shareholder has not been notified by the Internal Revenue Service that he or she is subject to Federal income tax backup withholding as a result of failure to report all interest or dividends or (b) the Internal Revenue Service has notified the Preferred Shareholder that he or she is no longer subject to Federal income tax backup withholding. Foreign Preferred Shareholders must submit a properly completed Form W-8 in order to avoid the applicable backup withholding; provided, however, that backup withholding will not apply to foreign Preferred Shareholders subject to 30% (or lower treaty rate) withholding on gross payments received pursuant to the Offer or on the Special Cash Payments. WHAT NUMBER TO GIVE THE DEPOSITARY The Preferred Shareholder is required to give the Depositary the social security number or employer identification number of the registered owner of the Shares. If the Shares are in more than one name or are not in the name of the actual owner, consult the "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" below for additional guidance on which number to report. 19 20 SEE "GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER OF SUBSTITUTE FORM W-9" FOR ADDITIONAL INSTRUCTIONS. SUBSTITUTE FORM W-9 - ---------------------------------------------------------------------------------------------- PAYER'S NAME: IBJ SCHRODER BANK & TRUST COMPANY, AS DEPOSITARY - ---------------------------------------------------------------------------------------------- SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN IN THE FORM W-9 BOX AT RIGHT AND CERTIFY BY SIGNING AND ----------------------- DATING BELOW. Social Security Number ---------------------------------------- or Employer PAYER'S REQUEST FOR Identification TAXPAYER IDENTIFICATION NAME (Please Print) Number NUMBER (TIN) (If Awaiting TIN write "Applied for") ---------------------------------------- ----------------------- ADDRESS PART II -- For Payees NOT subject to backup withholding, see the ---------------------------------------- "Guidelines for Cer- CITY STATE ZIP CODE tification of Taxpayer Identification Number on Substitute Form DEPARTMENT OF THE TREASURY W-9" and complete as INTERNAL REVENUE SERVICE instructed therein --------------------------------------------------------------------------------------------- PART III -- CERTIFICATION: -- Under penalties of perjury, I certify that: (1) The number shown on this form is my correct taxpayer identification number (or I am waiting for a number to be issued to me), and (2) I am not subject to backup withholding either because: (a) I am exempt from backup withholding, or (b) I have not been notified by the Internal Revenue Service (IRS) that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding. SIGNATURE DATE , 1997 ----------------------------------- ------------------------------ CERTIFICATION INSTRUCTIONS -- You must cross out item (2) above if you have been notified by the IRS that you are currently subject to backup withholding because of underreporting interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding you received another notification from the IRS that you are no longer subject to backup withholding do not cross out item (2). Also see instructions in the enclosed Guidelines. ---------------------------------------------------------------------------------------------
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU WRITE "APPLIED FOR" IN PART I OF SUBSTITUTE FORM W-9. - -------------------------------------------------------------------------------- CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (a) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (b) I intend to mail or deliver such an application in the near future. I understand that if I do not provide a taxpayer identification number within sixty (60) days, 31% of all reportable payments made to me thereafter will be withheld until I provide a number. -------------------------------- -----------------------------------, 1997 SIGNATURE DATE - -------------------------------------------------------------------------------- NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU. PLEASE REVIEW THE "GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9" FOR ADDITIONAL DETAILS. 20 21 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 SECTION REFERENCES ARE TO THE INTERNAL REVENUE CODE. PURPOSE OF FORM. A person who is required to file an information return with the IRS must obtain your correct taxpayer identification number (TIN) to report income paid to you, real estate transactions, mortgage interest you paid, the acquisition or abandonment of secured property, or contributions you made to an IRA. Use Form W-9 to furnish your correct TIN to the requester (the person asking you to furnish your TIN) and, when applicable, (1) to certify that the TIN you are furnishing is correct (or that you are waiting for a number to be issued), (2) to certify that you are not subject to backup withholding, and (3) to claim exemption from backup withholding if you are an exempt payee. Furnishing your correct TIN and making the appropriate certifications will prevent certain payments from being subject to backup withholding. NOTE: IF A REQUESTER GIVES YOU A FORM OTHER THAN W-9 TO REQUEST YOUR TIN, YOU MUST USE THE REQUESTER'S FORM. HOW TO OBTAIN A TIN. If you do not have a TIN, apply for one immediately. To apply, get Form SS-5, Application for a Social Security Card (for Individuals), from your local office of the Social Security Administration, or Form SS-4, Application for Employer Identification Number (for businesses and all other entities), from your local IRS office. To complete Form W-9 if you do not have a TIN, write "Applied for" in the space for the TIN in Part 1, sign and date the form, and give it to the requester. Generally, you will than have 60 days to obtain a TIN and furnish it to the requester. If the requester does not receive your TIN within 60 days, backup withholding, if applicable, will begin and continue until you furnish your TIN to the requester. For reportable interest or dividend payments, the payor must exercise one of the following options concerning backup withholding during this 60-day period. Under option (1), a payor must backup withhold on any withdrawals you make from your account after 7 business days after the requester receives this form back from you. Under option (2), the payor must backup withhold on any reportable interest or dividend payments made to your account, regardless of whether you make any withdrawals. The backup withholding under option (2) must begin no later than 7 business days after the requester receives this form back. Under option (2), the payor is required to refund the amounts withheld if your certified TIN is received within the 60-day period and you were not subject to backup withholding during that period. NOTE: WRITING "APPLIED FOR" ON THE FORM MEANS THAT YOU HAVE ALREADY APPLIED FOR A TIN OR THAT YOU INTEND TO APPLY FOR ONE IN THE NEAR FUTURE. As soon as you receive your TIN, complete another Form W-9, include your TIN, sign and date the form, and give it to the requester. WHAT IS BACKUP WITHHOLDING? -- Persons making certain payments to you must withhold and pay to the IRS 31% of such payments under certain conditions. This is called "backup withholding." Payments that could be subject to backup withholding include interest, dividends, broker and barter exchange transactions, rents, royalties, nonemployee compensation, and certain payments from fishing boat operators, but do not include real estate transactions. If you give the requester your correct TIN, make the appropriate certifications, and report all your taxable interest and dividends on your tax return, your payments will not be subject to backup withholding. Payments you receive will be subject to backup withholding if: (1) You do not furnish your TIN to the requester, or (2) The IRS notifies the requester that you furnished an incorrect TIN, or (3) You are notified by the IRS that you are subject to withholding because you failed to report all your interest and dividends on your tax return (for reportable interest and dividends only), or (4) You do not certify to the requester that you are not subject to backup withholding under 3 above, (for reportable interest and dividend accounts opened after 1983 only), or (5) You do not certify your TIN. Except as explained in 5 above, other reportable payments are subject to backup withholding only if 1 or 2 above applies. Certain payees and payments are exempt from backup withholding and information reporting. See Payees and Payments Exempt From Backup Withholding, below, and Exempt Payees and Payments under Signing the Certification, below if you are an exempt payee. PAYEES AND PAYMENTS EXEMPT FROM BACKUP WITHHOLDING. The following is a list of payees exempt from backup withholding and for which no information reporting is required. For interest and dividends, all listed payees are exempt except as listed in item (9). For broker transactions, payees listed in items (1) through (13) and a person registered under the Investment Advisers Act of 1940 who regularly acts as a broker are exempt. Payments subject to reporting under sections 6041 and 6041A are generally exempt from backup withholding only if made to payees described in items (1) through (7), except a corporation that provides medical and health care services or bills and collects payments for such services is not exempt from backup withholding or information reporting. Only payees described in items (2) through (6) are 21 22 exempt from backup withholding for barter exchange transactions and patronage dividends. (1) A corporation. (2) An organization exempt from tax under section 501(a), an IRA, or a custodial account under section 402(b)(7). (3) The United States or any of its agencies or instrumentalities. (4) A state, the District of Columbia, a possession of the United States, or any of their political subdivisions or instrumentalities. (5) A foreign government or any of its political subdivisions, agencies, or instrumentalities. (6) An international organization or any of its agencies or instrumentalities. (7) A foreign central bank of issue. (8) A dealer in securities or commodities required to register in the United States or a possession of the United States. (9) A futures commission merchant registered with the Commodity Futures Trading Commission. (10) A real estate investment trust. (11) An entity registered at all times during the tax year under the Investment Company Act of 1940. (12) A common trust fund operated by a bank under section 584(a). (13) A financial institution. (14) A middleman known in the investment community as a nominee or listed in the most recent publication of the American Society of Corporation Secretaries, Inc., Nominee List. (15) A trust exempt from tax under section 664 or described in section 4947. Payments of dividend and patronage dividends generally not subject to backup withholding include the following: - Payments to nonresident aliens subject to withholding under section 1441. - Payments to partnerships not engaged in a trade or business in the United States and that have at least one nonresident partner. - Payments of patronage dividends not paid in money. - Payments made by certain foreign organizations. - Section 404(k) payments made by an ESOP. Payments of interest generally not subject to backup withholding include the following: - Payments of interest on obligations issued by individuals. NOTE: YOU MAY BE SUBJECT TO BACKUP WITHHOLDING IF THIS INTEREST IS $600 OR MORE AND IS PAID IN THE COURSE OF THE PAYER'S TRADE OR BUSINESS AND YOU HAVE NOT PROVIDED YOUR CORRECT TIN TO THE PAYER. - Payments of tax-exempt interest (including exempt-interest dividends under section 852). - Payments described in section 6049(b)(5) to nonresident aliens. - Payments on tax-free covenant bonds under section 1451. - Payments made by certain foreign organizations. - Mortgage interest paid to you. Other types of payments generally not subject to backup withholding include: - Wages. - Distributions from a pension, annuity, profit-sharing or stock bonus plan, or an IRA. - Distributions from an owner-employee plan. - Certain surrenders of life insurance contracts. - Gambling winnings, if withholding is required under section 3402(q). However, if withholding is not required under section 3402(q), backup withholding applies if the payee fails to furnish a TIN. - Real estate transactions reportable under section 6045. Payments that are not subject to information reporting are also not subject to backup withholding. For details, see sections 6041, 6041A, 6042, 6044, 6045, 6049, 6050A, and 6050N, and the regulations under those sections. PENALTIES FAILURE TO FURNISH TIN. If you fail to furnish your correct TIN to a requester, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. If you make a false statement with no reasonable basis that results in no backup withholding, you are subject to a $500 penalty. CRIMINAL PENALTY FOR FALSIFYING INFORMATION. Willfully falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. MISUSE OF TINS. If the requester discloses or uses TINs in violation of Federal law, the requester may be subject to civil and criminal penalties. SPECIFIC INSTRUCTIONS WHAT NAME AND NUMBER TO GIVE THE REQUESTER 22 23 NAME -- If you are an individual, you must generally provide the name shown on your social security card. However, if you have changed your last name, for instance, due to marriage, without informing the Social Security Administration of the name change, please enter your first name, the last name shown on your social security card, and your new last name. NUMBER -- If you are a sole proprietor, you must furnish your individual name and either your SSN or EIN. You may also enter your business name or "doing business as" name on the business name line. Enter your name(s) as shown on your social security card and/or as it was used to apply for your EIN on Form SS-4. WHAT NAME AND NUMBER TO GIVE THE REQUESTER SIGNING THE "PART III -- CERTIFICATION" ON THE SUBSTITUTE FORM W-9 (1) INTEREST, DIVIDEND, AND BARTER EXCHANGE ACCOUNTS OPENED BEFORE 1984 AND BROKER ACCOUNTS CONSIDERED ACTIVE DURING 1983 -- You are required to furnish your correct TIN, but you are not required to sign the certification. (2) INTEREST, DIVIDEND, BROKER, AND BARTER EXCHANGE ACCOUNTS OPENED AFTER 1983 AND BROKER ACCOUNTS CONSIDERED INACTIVE DURING 1983 -- You must sign the certification or backup withholding will apply. If you are subject to backup withholding and you are merely providing your correct TIN to the requester, you must cross out item 2 in the certification before signing the form. (3) REAL ESTATE TRANSACTIONS. You must sign the certification. You may cross out item 2 of the certification. (4) OTHER PAYMENTS. You are required to furnish your correct TIN, but you are not required to sign the certification unless you have been notified that you have previously given an incorrect TIN. Other payments include payments made in the course of the requester's trade or business for rents, royalties, goods (other than bills for merchandise), medical and health care services (including payments to corporations), payments to a nonemployee for services (including attorney and accounting fees), and payments to certain fishing boat crew members. (5) MORTGAGE INTEREST PAID BY YOU, ACQUISITION OR ABANDONMENT OF SECURED PROPERTY, OR IRA CONTRIBUTIONS. You are required to furnish your correct TIN, but you are not required to sign the certification. (6) EXEMPT PAYEES AND PAYMENTS. If you are exempt from backup withholding, you should complete this form to avoid possible erroneous backup withholding. Enter your correct TIN in Part I, write "EXEMPT" in the block in Part II, and sign and date the form. If you are a nonresident alien or foreign entity not subject to backup withholding, give the requester a complete Form W-8, Certificate of Foreign Status. (7) TIN "APPLIED FOR." Follow the instructions under How To Obtain a TIN, on page 1, and sign and date this form. SIGNATURE: For a joint account, only the person whose TIN is shown in Part 1 should sign. PRIVACY ACT NOTICE: Section 6109 requires you to furnish your correct TIN to persons who must file information returns with the IRS to report interest, dividends, and certain other income paid to you, mortgage interest you paid, the acquisition or abandonment of secured property, or contributions you made to an IRA. The IRS uses the numbers for identification purposes and to help verify the accuracy of your tax return. You must provide your TIN whether or not you are required to file a tax return. Payers must generally withhold 31% of taxable interest, dividends, and certain other payments to a payee who does not furnish a TIN to a payor. Certain penalties may also apply. 23 24 WHAT NAME AND NUMBER TO GIVE THE REQUESTER
- --------------------------------------------------- --------------------------------------------------- For this type of account: Give name and SSN of: For this type of account: Give name and SSN of: - --------------------------------------------------- --------------------------------------------------- 1. Individual The individual 6. A valid trust, estate, Legal entity(4) 2. Two or more The actual owner of or pension trust individuals (joint the account or, if 7. Corporate The corporation account) combined funds, the 8. Association, club, The organization first individual on religious, charitable, the account(1) educational, or other 3. Custodian account of a The minor(2) tax-exempt minor (Uniform Gift to organization Minors Act) 9. Partnership The partnership 4. a. The usual revocable The grantor-trustee(1) 10. A broker or registered The broker or nominee savings trust nominee (grantor is also 11. Account with the The public entity. trustee) Department of b. So-called trust The actual owner(1) Agriculture in the account that is not name of a public a legal or valid entity (such as a trust under state state or local law government, school 5. Sole proprietorship The owner(3) district, or prison) that receives agricultural program payments. - --------------------------------------------------- --------------------------------------------------
(1) List first and circle the name of the person whose number you furnish. (2) Circle the minor's name and furnish the minor's SSN. (3) You must show your individual name, but you may also enter your business or "doing business as" name. You may use either your SSN or EIN. (4) List first and circle the name of the legal trust, estate, or pension trust. (Do not furnish the TIN of the personal representative or trustee unless the legal entity itself is not designated in the account title.) NOTE: If no name is circled when more than one name is listed, the number will be considered to be that of the first name listed. 24 25 Any questions or requests for assistance or additional copies of the Booklet, this Letter of Transmittal and Proxy, the Notice of Guaranteed Delivery and Proxy or other materials may be directed to the Information Agent at the address and telephone number set forth below. THE INFORMATION AGENT: [GEORGESON & COMPANY INC. LOGO] WALL STREET PLAZA NEW YORK, NEW YORK 10005 (800) 223-2064 (CALL TOLL-FREE) BANKS AND BROKERS CALL COLLECT: (212) 440-9918 Preferred Shareholders may contact the Dealer Manager at its address and telephone number set forth below with any questions regarding the terms of the Offer and solicitation of proxies. In addition, Preferred Shareholders may also contact their broker, dealer, commercial bank, trust company or other nominee for assistance concerning the Offer and solicitation of proxies. THE DEALER MANAGER: MERRILL LYNCH & CO. WORLD FINANCIAL CENTER 250 VESEY STREET NEW YORK, NEW YORK 10281 (888) ML4-TNDR (TOLL-FREE) (888) 654-8637 (TOLL-FREE) EX-99.(A)B-7 8 NARRAGANSETT DRAFT PURCHASE & PROXY STATEMENT 1 OFFER TO PURCHASE AND PROXY STATEMENT LOGO NEW ENGLAND ELECTRIC SYSTEM OFFER TO PURCHASE FOR CASH ANY AND ALL OUTSTANDING SHARES OF THE FOLLOWING SERIES OF PREFERRED STOCK OF THE NARRAGANSETT ELECTRIC COMPANY 180,000 SHARES, PREFERRED STOCK, 4.50% SERIES AT A PURCHASE PRICE OF $ . PER SHARE CUSIP NUMBER 631005 20 4 150,000 SHARES, PREFERRED STOCK, 4.64% SERIES AT A PURCHASE PRICE OF $ . PER SHARE CUSIP NUMBER 631005 30 3 400,000 SHARES, PREFERRED STOCK, 6.95% SERIES AT A PURCHASE PRICE OF $ . PER SHARE CUSIP NUMBER 631005 50 1 ------------------------ THE NARRAGANSETT ELECTRIC COMPANY PROXY STATEMENT 280 MELROSE STREET, PROVIDENCE, RHODE ISLAND 02901 SPECIAL MEETING OF STOCKHOLDERS DECEMBER 12, 1997 ------------------------ THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., EASTERN STANDARD TIME, ON FRIDAY, DECEMBER 12, 1997, UNLESS THE OFFER IS EXTENDED. ------------------------ New England Electric System, a Massachusetts voluntary association (NEES), invites the holders of each series of Preferred Stock listed above (each a Series of Preferred or a Series, and each holder thereof a Preferred Shareholder) of The Narragansett Electric Company, a Rhode Island corporation and direct utility subsidiary of NEES (Narragansett or the Company), to tender any and all of their shares of a Series of Preferred (the Shares) for purchase at the purchase price per Share listed above, plus accrued dividends, net to the seller in cash, upon the terms and subject to the conditions set forth in this Offer to Purchase and Proxy Statement (the Booklet) and in the accompanying Letter of Transmittal and Proxy (which together constitute the Offer). NEES will purchase all Shares validly tendered and not withdrawn, upon the terms and subject to the conditions of the Offer. See Terms of the Offer -- Certain Conditions of the Offer and Terms of the Offer -- Extension of Tender Period; Termination; Amendments. THE OFFER FOR A SERIES OF PREFERRED IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES OF ANY SERIES BEING TENDERED AND EACH IS INDEPENDENT OF THE OFFER FOR ANY OTHER SERIES OF PREFERRED. THE OFFER, HOWEVER, IS CONDITIONED UPON, AMONG OTHER THINGS, THE APPROVAL AND ADOPTION OF THE PROPOSED AMENDMENT, AS DESCRIBED BELOW, AT THE SPECIAL MEETING OF SHAREHOLDERS. SEE TERMS OF THE OFFER -- CERTAIN CONDITIONS OF THE OFFER. Concurrently with the Offer, the Board of Directors of Narragansett is soliciting proxies from the Preferred Shareholders for use at the Special Meeting of Shareholders of Narragansett to be held at Narragansett's principal office, 280 Melrose Street, Providence, Rhode Island, on December 12, 1997 at 4:30 p.m. Eastern Standard Time, or any adjournment or postponement of such meeting (the Special Meeting). The Special Meeting is being held to consider an amendment (the Proposed Amendment) to Narragansett's Preferred Stock Provisions (the Provisions) which would remove from the Provisions a limitation on Narragansett's ability to issue unsecured debt without the prior approval of the Preferred Shareholders. PREFERRED SHAREHOLDERS WHO WISH TO TENDER THEIR SHARES PURSUANT TO THE OFFER MUST VOTE IN FAVOR OF THE PROPOSED AMENDMENT. THE OFFER IS FURTHER CONDITIONED UPON THE APPROVAL AND ADOPTION OF THE PROPOSED AMENDMENT AT THE SPECIAL MEETING. IF THE PROPOSED AMENDMENT IS APPROVED AND ADOPTED BY NARRAGANSETT'S PREFERRED SHAREHOLDERS, NARRAGANSETT WILL MAKE A SPECIAL CASH PAYMENT (AS DEFINED HEREIN) IN THE AMOUNT OF $.50 PER SHARE TO EACH PREFERRED SHAREHOLDER WHO VOTED IN FAVOR OF THE PROPOSED AMENDMENT, BUT DID NOT TENDER SUCH SHARES PURSUANT TO THE OFFER. THOSE SHAREHOLDERS WHO VALIDLY TENDER THEIR SHARES WILL BE ENTITLE ONLY TO THE PURCHASE PRICE PER SHARE LISTED ABOVE BUT NOT THE SPECIAL CASH PAYMENT. ------------------------ NARRAGANSETT'S BOARD OF DIRECTORS RECOMMENDS VOTING FOR THE PROPOSED AMENDMENTS. ------------------------ This Booklet is first being mailed to Preferred Shareholders on or about November 7, 1997. ------------------------ The Company will pay to a Soliciting Dealer (as defined herein) a solicitation fee for any Shares tendered, accepted for payment, and paid for pursuant to the Offer and for each Share not tendered but voted in favor of the Proposed Amendment, subject to certain conditions. See Fees and Expenses Paid to Dealers. ------------------------ NEITHER NEES, NARRAGANSETT, THEIR RESPECTIVE BOARDS OF DIRECTORS, ANY OF THEIR RESPECTIVE OFFICERS, NOR ANY OTHER PERSON AUTHORIZED BY THEM MAKES ANY RECOMMENDATION TO ANY PREFERRED SHAREHOLDER AS TO WHETHER TO TENDER ANY OR ALL SHARES. EACH PREFERRED SHAREHOLDER MUST MAKE HIS OR HER OWN DECISION AS TO WHETHER TO TENDER SHARES AND, IF SO, HOW MANY SHARES TO TENDER. ------------------------ Each Series of Preferred is traded in the over-the-counter market (the OTC) and is not listed on any national securities exchange. Through October 31, 1997, the last reported sales prices for the 4.50% Series, the 4.64% Series, and the 6.95% Series were $32.75, $35.375, and $51.375, respectively, as reported by the Nasdaq Stock Market, Inc. Preferred Shareholders are urged to obtain a current market quotation, if available, for their Shares. ------------------------ Questions or requests for assistance may be directed to Georgeson & Company, Inc. (Georgeson or the Information Agent) or to Merrill Lynch & Co. (Merrill Lynch or the Dealer Manager) at their respective telephone numbers and addresses set forth on the back cover of this Booklet. Requests for additional copies of this Booklet, the Letter of Transmittal and Proxy, or other tender offer or proxy materials may be directed to the Information Agent, and such copies will be furnished promptly at Narragansett's expense. Preferred Shareholders may also contact their local broker, dealer, commercial bank, or trust company for assistance concerning the Offer. ------------------------ The Dealer Manager for the Offer is: MERRILL LYNCH & CO. November 6, 1997 2 IMPORTANT Any Preferred Shareholder desiring to accept the Offer and tender any or all Shares should, on or prior to the Expiration Date (as defined below), either (i) request such Preferred Shareholder's broker, dealer, commercial bank, trust company, or other nominee to effect the transaction for such Preferred Shareholder pursuant to the procedure for book-entry transfer set forth below under Terms of the Offer -- Procedure for Tendering Shares, or (ii) complete and sign the Letter of Transmittal and Proxy in accordance with the instructions in the Letter of Transmittal and Proxy, and mail or deliver it, the certificates for such Shares, and any other required documents to IBJ Schroder Bank & Trust Company (the Depositary). A Preferred Shareholder whose Shares are registered in the name of a broker, dealer, commercial bank, trust company, or other nominee must contact such broker, dealer, commercial bank, trust company, or other nominee if such Preferred Shareholder desires to tender such Shares. Any Preferred Shareholder who desires to tender Shares and whose certificates for such Shares are not immediately available, or who cannot comply in a timely manner with the procedure for book-entry transfer, should tender such Shares by following the procedures for guaranteed delivery set forth below under Terms of the Offer -- Procedure for Tendering Shares -- Guaranteed Delivery Procedure. EACH SERIES OF PREFERRED HAS ITS OWN LETTER OF TRANSMITTAL AND PROXY, AND ONLY THE APPLICABLE LETTER OF TRANSMITTAL AND PROXY FOR SUCH SERIES OF PREFERRED OR A NOTICE OF GUARANTEED DELIVERY MAY BE USED TO TENDER SHARES OF SUCH SERIES OF PREFERRED. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER OTHER THAN THOSE CONTAINED HEREIN OR IN THE RELATED LETTER OF TRANSMITTAL AND PROXY. IF GIVEN OR MADE, SUCH RECOMMENDATION AND SUCH INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY NEES OR NARRAGANSETT. 2 3 TABLE OF CONTENTS
PAGE ---- SUMMARY............................................................................... 4 PURPOSE OF THE OFFER, PROPOSED AMENDMENT, AND PROXY SOLICITATION...................... 7 Purpose of the Offer................................................................ 7 Proposed Amendment.................................................................. 7 TERMS OF THE OFFER.................................................................... 7 Number of Shares; Purchase Prices; Expiration Date; Dividends....................... 7 Procedure for Tendering Shares...................................................... 8 Withdrawal Rights................................................................... 10 Acceptance of Shares for Payment and Payment of Purchase Price and Dividends........ 10 Certain Conditions of the Offer..................................................... 11 Extension of Tender Period; Termination; Amendments................................. 13 Certain Effects of the Offer........................................................ 13 Other Information................................................................... 15 PROPOSED AMENDMENT AND PROXY SOLICITATION............................................. 16 Notice of Special Meeting of Stockholders........................................... 16 Special Meeting..................................................................... 17 Proxies............................................................................. 17 Relationship to the Offer; Special Cash Payments.................................... 17 Voting Securities, Rights and Procedures............................................ 17 Security Ownership of Certain Beneficial Owners and Management...................... 18 DESCRIPTION OF THE PROPOSED AMENDMENT................................................. 19 Explanation of the Proposed Amendment............................................... 19 Reasons for the Proposed Amendment.................................................. 19 Recommendation of Board of Directors................................................ 20 Certain Effects of the Proposed Amendment........................................... 20 Other Matters....................................................................... 20 PRICE RANGE OF SHARES; DIVIDENDS...................................................... 21 DIVIDENDS AND PRICE RANGES OF PREFERRED STOCK......................................... 21 CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS........................................ 21 Tax Considerations for Tendering Preferred Shareholders............................. 22 Tax Considerations for Non-Tendering Preferred Shareholders......................... 23 Tax Considerations of Accrued and Unpaid Dividends Payment.......................... 23 Tax Considerations of Special Cash Payment.......................................... 23 Backup Withholding.................................................................. 23 SOURCE AND AMOUNT OF FUNDS............................................................ 24 TRANSACTIONS AND AGREEMENTS CONCERNING THE SHARES..................................... 24 FEES AND EXPENSES PAID TO DEALERS..................................................... 24 Dealer Manager Fees................................................................. 24 Solicited Tender Fees............................................................... 25 Stock Transfer Taxes................................................................ 25 SUMMARY OF FINANCIAL INFORMATION...................................................... 26 CERTAIN INFORMATION REGARDING NEES AND NARRAGANSETT; INCORPORATION BY REFERENCE....... 26 MISCELLANEOUS......................................................................... 28
3 4 SUMMARY The following summary is provided solely for the convenience of the Preferred Shareholders. This summary is not intended to be complete and is qualified in its entirety by reference to the full text and more specific details contained in this Booklet and the Letter of Transmittal and Proxy and any amendments hereto or thereto. Preferred Shareholders are urged to read these documents in their entirety. Each of the capitalized terms used in this summary and not defined herein has the meaning set forth elsewhere in this Booklet. The Companies.............. NEES, 25 Research Drive, Westborough, Massachusetts 01582, is a registered holding company under the Public Utility Holding Company Act of 1935, as amended (the Holding Company Act), which owns, directly or indirectly, all of the outstanding common stock of its electric utility subsidiaries, including Narragansett. The service area of NEES' electric utility subsidiaries covers portions of Massachusetts, New Hampshire, and Rhode Island. The name "New England Electric System" means the trustee or trustees for the time being (as trustee or trustees but not personally) under an agreement and declaration of trust dated January 2, 1926, as amended, which is hereby referred to, and a copy of which as amended has been filed with the Secretary of the Commonwealth of Massachusetts. Any agreement, obligation or liability made, entered into or incurred by or on behalf of New England Electric System binds only its trust estate, and no shareholder, director, trustee, officer or agent thereof assumes or shall be held to any liability therefor. Narragansett, 280 Melrose Street, Providence, Rhode Island, is an electric utility incorporated and doing business solely in Rhode Island. Its business is the distribution and sale of electricity at retail. Electric service is provided to approximately 330,000 customers in 27 cities and towns having a population of approximately 725,000. The Shares................. 4.50% Series Preferred Stock, $50 par value, CUSIP Number 631005 20 4 4.64% Series Preferred Stock, $50 par value, CUSIP Number 631005 30 3 6.95% Series Preferred Stock, $50 par value, CUSIP Number 631005 50 1 The Offer and Purchase Price...................... Offer to purchase any or all shares of each Series of Preferred listed below at the price set forth below. $ . for 4.50% Series $ . for 4.64% Series $ . for 6.95% Series Dividends.................. NEES will pay to tendering Preferred Shareholders any accrued dividends through the Expiration Date (as defined herein). Independent Offer.......... The Offer for a series of Preferred is not conditioned upon any minimum number of Shares of any Series being tendered and each is independent of the Offer for any other series of Preferred. The Offer, however, is conditioned upon, among other things, the approval and adoption of the Proposed Amendment, as described below, at the Special Meeting. See Terms of the Offer -- Certain Conditions of the Offer. It is a condition of the Offer that Preferred Shareholders who tender their Shares must vote in favor of the Proposed Amendment. NEES will not be required to accept or pay for tendered Shares if the Proposed Amendment is not approved and unless certain other conditions are met. 4 5 Expiration Date of the Offer...................... The Offer expires at 5:00 p.m., Eastern Standard Time, on, December 12, 1997, unless extended (the Expiration Date). How to Tender Shares....... See Terms of the Offer -- Procedure for Tendering Shares. For further information, call the Information Agent or the Dealer Manager or consult your broker for assistance. Withdrawal Rights.......... Tendered Shares of any Series of Preferred may be withdrawn at any time until the Expiration Date with respect to such Series of Preferred and, unless previously accepted for payment, may also be withdrawn after January 12, 1998. See Terms of the Offer -- Withdrawal Rights. A withdrawal of a tender does not in and of itself revoke a proxy. Purpose of the Offer....... NEES is making the Offer because NEES believes that the purchase of Shares is economically attractive to Narragansett and indirectly to NEES and its shareholders. In addition, the Offer gives Preferred Shareholders the opportunity to sell their Shares at a price which NEES believes to be a premium over the market price and without the usual transaction costs associated with a market sale. See Purpose of the Offer, Proposed Amendment, and Proxy Solicitation -- Purpose of the Offer and Terms of the Offer -- Certain Effects of the Offer. Brokerage Commissions...... Not payable by Preferred Shareholders. Solicitation Fee........... NEES will pay to each designated Soliciting Dealer (as defined herein) a solicitation fee of $.75 per Share for any Shares tendered, accepted for payment, and paid for pursuant to the Offer and for each Share not tendered but voted in favor of the Proposed Amendment (except that for transactions for beneficial owners equal to or exceeding 2,500 Shares of all Series of Preferred combined, NEES will pay a solicitation fee of $.50 per Share of which at least eighty percent (80%) shall be paid to the Dealer Manager). A Soliciting Dealer will not be entitled to a solicitation fee for Shares beneficially owned by such Soliciting Dealer. See Fees and Expenses Paid to Dealers -- Solicited Tender Fees. Proposed Amendment......... Concurrently with the Offer, the Board of Directors of Narragansett is soliciting proxies from the Preferred Shareholders for use at the Special Meeting of Shareholders of Narragansett. The Special Meeting is being held to consider the Proposed Amendment to Narragansett's Provisions which would remove a provision that limits Narragansett's ability to issue unsecured debt. If the Proposed Amendment is approved by the Preferred Shareholders, Narragansett's ability to issue or assume unsecured indebtedness will no longer be subject to approval of any Shares that remain outstanding after the consummation of the Offer. See Purpose of the Offer, Proposed Amendment, and Proxy Solicitation -- Purpose of the Offer and Proposed Amendment and Proxy Solicitation -- Certain Effects of the Proposed Amendment. Record Date................ November 12, 1997 Special Cash Payment....... Preferred Shareholders of record as of the Record Date who do not tender their Shares have the right to vote for or against the Proposed Amendment. If the Proposed Amendment is approved and adopted by Narragansett's Preferred Shareholders, Narragansett will make a Special Cash Payment of $.50 per Share to each Preferred Shareholder who voted in favor of the Proposed Amendment but who did not tender such Shares (the Special Cash Payment). Preferred Shareholders who validly 5 6 tender their Shares will be entitled only to the purchase price per Share listed on the front cover of this Booklet plus an amount in cash equivalent to any dividends accrued through the Expiration Date (as defined herein). Stock Transfer Tax......... Except as described herein, NEES will pay or cause to be paid any stock transfer taxes with respect to the sale and transfer of any Shares to it or its order pursuant to the Offer. See Instruction 6 of the applicable Letter of Transmittal and Proxy. See Terms of the Offer -- Acceptance of Shares for Payment and Payment of Purchase Price and Dividends. Payment Date............... Promptly after the Expiration Date or any extension thereof. Further Information........ Additional copies of this Booklet and the applicable Letter of Transmittal and Proxy may be obtained by contacting Georgeson, Wall Street Plaza, New York, New York 10005, telephone (800) 223-2064 (toll-free) and (212) 440-9800 (banks and brokers). Questions about the Offer should be directed to Merrill Lynch at (888) ML4-TNDR (toll- free) ((888)-654-8637 (toll-free)). 6 7 PURPOSE OF THE OFFER, PROPOSED AMENDMENT, AND PROXY SOLICITATION The Offer and the Proposed Amendment constitute an integrated strategic response by NEES and Narragansett to the need to achieve greater flexibility in their financing. PURPOSE OF THE OFFER NEES believes that the purchase of the Shares at this time in conjunction with the Proposed Amendment represents an attractive economic opportunity that will benefit NEES, its shareholders, Narragansett, and Narragansett's utility customers by (1) contributing to the elimination of the provisions concerning unsecured indebtedness and (2) retiring of outstanding Shares of Narragansett's Preferred Stock in contemplation of their potential replacement with comparatively less expensive financing alternatives. In addition, the Offer gives Preferred Shareholders the opportunity to sell their Shares at a price which NEES believes to be a premium to the market price on the date of the announcement of the Offer and without the usual transaction costs associated with such a sale. PROPOSED AMENDMENT In order to increase its financial flexibility and to better face the challenges of a competitive electric industry, and as discussed further under Proposed Amendment and Proxy Solicitation -- Reasons for the Proposed Amendment, Narragansett seeks to amend the Provisions to eliminate the limitation on the Company's ability to issue unsecured debt without the approval of the holders of a majority of the Preferred, voting together as a single class. TERMS OF THE OFFER NUMBER OF SHARES; PURCHASE PRICES; EXPIRATION DATE; DIVIDENDS Upon the terms and subject to the conditions described herein and in the applicable Letter of Transmittal and Proxy, NEES will purchase any and all Shares that are validly tendered on or prior to the applicable Expiration Date (and not properly withdrawn in accordance with the procedures set forth under Withdrawal Rights) at the purchase price per Share listed on the front cover of this Booklet for the Shares tendered, plus accrued dividends for the Shares tendered through the Expiration Date, net to the seller in cash. See Certain Conditions of the Offer and Extension of Tender Period; Termination; Amendments. THE OFFER FOR A SERIES OF PREFERRED IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES OF SUCH SERIES BEING TENDERED AND IS INDEPENDENT OF THE OFFER FOR ANY OTHER SERIES. THE OFFER, HOWEVER, IS CONDITIONED UPON, AMONG OTHER THINGS, APPROVAL AND ADOPTION OF THE PROPOSED AMENDMENT, AS DESCRIBED HEREIN, AT THE SPECIAL MEETING. SEE CERTAIN CONDITIONS OF THE OFFER. The Offer is being sent to all persons in whose names Preferred Shares are registered on the books of Narragansett as of the close of business on November 3, 1997, as well as to all persons in whose names Shares are registered on November 12, 1997, the Record Date. Only a record holder of Shares on the Record Date (as defined herein) may vote in person or by proxy at the Special Meeting. No record date is fixed for determining which persons are permitted to tender Shares. Any person who is the beneficial owner but not the record holder of Shares on the Record Date must arrange for the record transfer of such Shares prior to tendering. The Shares will trade "with proxy" during the period which begins two days prior to the Record Date and which will end at the close of business on the Expiration Date, as further discussed under Proposed Amendment and Proxy Solicitation -- Voting Securities, Rights and Procedures. With respect to each Series, the Expiration Date is the later of 5:00 p.m., Eastern Standard Time, on Friday, December 12, 1997 or the latest time and date to which the Offer with respect to such series of 7 8 Preferred is extended. NEES expressly reserves the right, in its sole discretion, and at any time and/or from time to time, to extend the period of time during which the Offer for any Series is open, by giving oral or written notice of such extension to the Depositary and making a public announcement thereof, without extending the period of time during which the Offer for any other Series is open. There is no assurance whatsoever that NEES will exercise its right to extend the Offer for any Series. If NEES decides, in its sole discretion, to (i) decrease the number of Shares of any Series being sought, (ii) increase or decrease the consideration offered in the Offer to holders of any Series, or (iii) increase or decrease the Soliciting Dealers' fees and, at the time that notice of such increase or decrease is first published, sent, or given to holders of such Series in the manner specified herein, the Offer for such Series is scheduled to expire at any time earlier than the tenth business day from the date that such notice is first so published, sent, or given, such Offer will be extended until the expiration of such ten-business-day period. For purposes of the Offer, a business day means any day other than a Saturday, Sunday, or Federal holiday and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern Standard Time. NO ALTERNATIVE, CONDITIONAL, OR CONTINGENT TENDERS WILL BE ACCEPTED. NEES will pay to tendering Preferred Shareholders any accrued dividends through the Expiration Date. PROCEDURE FOR TENDERING SHARES To tender Shares of any Series of Preferred pursuant to the Offer, the tendering owner of Shares must either: (a) send to the Depositary (at one of its addresses set forth on the back cover of this Booklet) a properly completed and duly executed Letter of Transmittal and Proxy, together with any required signature guarantees and any other documents required by the Letter of Transmittal and Proxy (and either (i) tender certificates for the Shares to the Depositary at one of its addresses or (ii) deliver such Shares pursuant to the procedures for book-entry transfer described herein (and a confirmation of such delivery must be received by the Depositary (a Book-Entry Confirmation)), in each case on or prior to the Expiration Date); or (b) comply with the guaranteed delivery procedure described under Guaranteed Delivery Procedure below. A tender of Shares made pursuant to any method of delivery set forth herein or in the Letter of Transmittal and Proxy will constitute a binding agreement between the tendering holder and NEES upon the terms and subject to the conditions of the Offer. The Depositary will establish an account with respect to the Shares of each Series of Preferred at The Depository Trust Company and the Philadelphia Depository Trust Company (each a Book-Entry Transfer Facility) for purposes of the Offer within two business days after the date of this Booklet, and any financial institution that is a participant in the system of the Book-Entry Transfer Facility may make delivery of Shares by causing the Book-Entry Transfer Facility to transfer such Shares into the Depositary's account in accordance with the procedures of the Book-Entry Transfer Facility. Although delivery of Shares may be effected through book-entry transfer, such delivery must be accompanied by either (i) a properly completed and duly executed Letter of Transmittal and Proxy, together with any required signature guarantees and any other required documents or (ii) an Agent's Message (as hereinafter defined) and, in any case, must be received by the Depositary at one of its addresses set forth on the back cover of this Booklet on or prior to the Expiration Date. DELIVERY OF SUCH LETTER OF TRANSMITTAL AND PROXY AND ANY OTHER REQUIRED DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY OR TO NEES DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY. The term "Agent's Message" means a message, transmitted by the Book-Entry Transfer Facility, received by the Depositary, and forms a part of the Book-Entry Confirmation when the tender is initiated, which states that the Book-Entry Transfer Facility has received an express acknowledgment from a participant in such Book-Entry Transfer Facility tendering Shares that the participant has received and agrees to be bound by the terms of the Letter of Transmittal and Proxy and that NEES may enforce such agreement against the participant. 8 9 Except as otherwise provided below, all signatures on a Letter of Transmittal and Proxy must be guaranteed by a firm that is a member of a registered national securities exchange or the National Association of Securities Dealers, Inc. (the NASD), or by a commercial bank or trust company having an office or correspondent in the United States that is a participant in an approved Signature Guarantee Medallion Program (each of the foregoing being referred to as an Eligible Institution). Signatures on a Letter of Transmittal and Proxy need not be guaranteed if (a) the Letter of Transmittal and Proxy is signed by the registered owner of the Shares tendered therewith and such owner has not completed the box entitled "Special Payment Instructions" or the box entitled "Special Delivery Instructions" on the Letter of Transmittal and Proxy or (b) such Shares are tendered for the account of an Eligible Institution. See Instructions 1 and 5 of the Letter of Transmittal and Proxy. If Shares are registered in the name of a person other than the signatory on the Letter of Transmittal and Proxy, or if unpurchased Shares are to be issued to a person other than the registered holder(s), the certificates must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name or names of the registered holder(s) appear on the Shares with the signature(s) on the Shares or stock powers guaranteed as stated above. See Instructions 4, 6, and 7 to the Letter of Transmittal and Proxy. Guaranteed Delivery Procedure. If a Preferred Shareholder desires to tender Shares pursuant to the Offer and such Shareholder's certificates are not immediately available or the procedures for book-entry transfer cannot be completed on a timely basis or time will not permit all required documents to reach the Depositary on or prior to the Expiration Date, such Shares may nevertheless be tendered if all of the following guaranteed delivery procedures are complied with: (i) such tender is made by or through an Eligible Institution; (ii) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form provided by NEES and Narragansett herewith, is received (with any required signatures or signature guarantees) by the Depositary as provided below on or prior to the Expiration Date; and (iii) the certificates for all tendered Shares in proper form for transfer or a Book-Entry Confirmation with respect to all tendered Shares, together with a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal and Proxy, are received by the Depositary no later than three New York Stock Exchange, Inc. (NYSE) trading days after the date of execution of such Notice of Guaranteed Delivery. A NYSE trading day is any day on which the NYSE is open for business. The Notice of Guaranteed Delivery may be either delivered by hand or mailed to the Depositary and must include an endorsement by an Eligible Institution in the form set forth in such Notice of Guaranteed Delivery. In all cases, Shares shall not be deemed validly tendered unless a properly completed and duly executed Letter of Transmittal and Proxy or, if applicable, an Agent's Message, is received by the Depositary. Notwithstanding any other provision hereof, payment for Shares accepted for payment pursuant to the Offer in all cases will be made only after timely receipt by the Depositary of certificates for (or an Agent's Message with respect to) such Shares, a Letter of Transmittal and Proxy, properly completed and duly executed, with any required signature guarantees, and all other documents required by the Letter of Transmittal and Proxy. THE METHOD OF DELIVERY OF SHARES AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING SHAREHOLDER. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. BECAUSE IT IS THE TIME OF RECEIPT, NOT THE TIME OF MAILING, WHICH DETERMINES WHETHER A TENDER HAS BEEN MADE PRIOR TO THE EXPIRATION DATE, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. TO AVOID FEDERAL INCOME TAX BACKUP WITHHOLDING EQUAL TO 31% OF THE GROSS PAYMENTS MADE PURSUANT TO THE OFFER, EACH TENDERING PREFERRED SHAREHOLDER WHO IS A UNITED STATES PERSON MUST NOTIFY THE DEPOSITARY OF 9 10 THE CORRECT TAXPAYER IDENTIFICATION NUMBER AND PROVIDE CERTAIN OTHER INFORMATION BY PROPERLY COMPLETING AND EXECUTING THE SUBSTITUTE FORM W-9 INCLUDED IN THE LETTER OF TRANSMITTAL AND PROXY (OR, IN THE CASE OF A FOREIGN SHAREHOLDER, FORM W-8 OBTAINABLE FROM THE DEPOSITARY). SEE CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS. EACH PREFERRED SHAREHOLDER IS URGED TO CONSULT WITH SUCH PREFERRED SHAREHOLDER'S OWN TAX ADVISOR REGARDING THE TAX CONSEQUENCES OF THE OFFER. All questions as to the form of documents and the validity, eligibility (including the time of receipt), and acceptance for payment of any tender of Shares will be determined by NEES, in its sole discretion, and its determination will be final and binding. NEES reserves the absolute right to reject any or all tenders of Shares that (i) it determines are not in proper form or (ii) the acceptance for payment of or payment for which may, in the opinion of NEES's counsel, be unlawful. NEES also reserves the absolute right to waive any defect or irregularity in any tender of Shares. None of NEES, Narragansett, the Dealer Manager, the Depositary, the Information Agent, or any other person will be under any duty to give notice of any defect or irregularity in tenders, nor shall any of them incur any liability for failure to give any such notice. Any condition to the Offer may be waived by NEES, in whole or in part, at any time and from time to time in its sole discretion. WITHDRAWAL RIGHTS Tenders of Shares made pursuant to the Offer may be withdrawn at any time on or prior to the Expiration Date. Thereafter, such tenders are irrevocable, except that they may be withdrawn after January 12, 1998, unless previously accepted for payment as provided in this Booklet. To be effective, a written notice of withdrawal must be timely received by the Depositary, at one of its addresses set forth on the back cover of this Booklet, and must specify the name of the person who tendered the Shares to be withdrawn and the number of Shares to be withdrawn. If the Shares to be withdrawn have been delivered to the Depositary, a signed notice of withdrawal with signatures guaranteed by an Eligible Institution (except in the case of Shares tendered by an Eligible Institution) must be submitted prior to the release of such Shares. In addition, such notice must specify, in the case of Shares tendered by delivery of certificates, the name of the registered owner (if different from that of the tendering Shareholder) and the serial numbers shown on the particular certificates evidencing the Shares to be withdrawn or, in the case of Shares tendered by book-entry transfer, the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Shares and the name of the registered holder (if different from the name of such account). Withdrawals may not be rescinded, and Shares withdrawn will thereafter be deemed not validly tendered for purposes of the Offer. However, withdrawn Shares may be re-tendered by again following one of the procedures described in Terms of the Offer -- Procedure for Tendering Shares at any time on or prior to the Expiration Date. All questions as to the form and validity (including time of receipt) of any notice of withdrawal will be determined by NEES, in its sole discretion, and its determination will be final and binding. None of NEES, Narragansett, the Dealer Manager, the Depositary, the Information Agent, or any other person will be under any duty to give notification of any defect or irregularity in any notice of withdrawal or will incur any liability for failure to give any such notification. ACCEPTANCE OF SHARES FOR PAYMENT AND PAYMENT OF PURCHASE PRICE AND DIVIDENDS Upon the terms and subject to the conditions of the Offer, and as promptly as practicable after the Expiration Date, NEES will accept for payment (and thereby purchase) and pay for Shares validly tendered and not withdrawn as permitted in Terms of the Offer -- Withdrawal Rights. Thereafter, payment for all Shares validly tendered on or prior to the Expiration Date and accepted pursuant to the Offer will be made by the Depositary by check as promptly as practicable after the Expiration Date. In all cases, payment for Shares accepted for payment pursuant to the Offer will be made promptly but only after timely receipt by the 10 11 Depositary of certificates for such Shares (or an Agent's Message), a properly completed and duly executed Letter of Transmittal and Proxy, and any other required documents. For purposes of the Offer, NEES will be deemed to have accepted for payment (and thereby purchased) Shares that are validly tendered and not withdrawn as, if, and when it gives oral or written notice to the Depositary of its acceptance for payment of such Shares. NEES will pay for Shares that it has purchased pursuant to the Offer by depositing the purchase price therefor (plus accrued and unpaid dividends thereon) with the Depositary, which will act as agent for tendering Preferred Shareholders for the purpose of receiving payment from NEES and transmitting payment to the tendering Shareholders. Under no circumstances will interest be paid on amounts to be paid to tendering Preferred Shareholders, regardless of any delay in making such payment. Certificates for all Shares not validly tendered will be returned or, in the case of Shares tendered by book-entry transfer, such Shares will be credited to an account maintained with the Book-Entry Transfer Facility, as promptly as practicable, without expense to the tendering Preferred Shareholder. If certain events occur, NEES may not be obligated to purchase Shares pursuant to the Offer. See Certain Conditions of the Offer. NEES will pay or cause to be paid any stock transfer taxes with respect to the sale and transfer of any Shares to it or its order pursuant to the Offer. If, however, payment of the purchase price is to be made to, or Shares not tendered or not purchased are to be registered in the name of, any person other than the registered owner, or if tendered Shares are registered in the name of any person other than the person signing the Letter of Transmittal and Proxy, the amount of any stock transfer taxes (whether imposed on the registered owner, such other person, or otherwise) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the payment of such taxes, or exemption therefrom, is submitted. See Instruction 6 of the accompanying Letter of Transmittal and Proxy. CERTAIN CONDITIONS OF THE OFFER NEES WILL NOT BE REQUIRED TO ACCEPT FOR PAYMENT OR PAY FOR ANY SHARES OF ANY SERIES TENDERED IF THE PROPOSED AMENDMENTS ARE NOT APPROVED AND ADOPTED AT THE SPECIAL MEETING OR IF THE TENDERING PREFERRED SHAREHOLDER DID NOT VOTE IN FAVOR OF THE PROPOSED AMENDMENT. In addition, notwithstanding any other provision of the Offer, NEES will not be required to accept for payment or pay for any Shares tendered, and may terminate or amend the Offer (by oral or written notice to the Depositary and timely public announcement) or may postpone (subject to the requirements of the Securities Exchange Act of 1934, as amended (the Exchange Act) for prompt payment for or return of Shares) the acceptance for payment of, or payment for, Shares tendered, if at any time after November 5, 1997, and on or prior to the Expiration Date, any of the following shall have occurred (which shall not have been waived by NEES): (a) there shall have been threatened, instituted, or pending any action or proceeding by any government or governmental, regulatory, or administrative agency, authority, or tribunal or any other person, domestic or foreign, or before any court, authority, agency, or tribunal that (i) challenges the acquisition of Shares pursuant to the Offer or otherwise in any manner relates to or affects the Offer or (ii) in the reasonable judgment of NEES, would or might materially and adversely affect the business, condition (financial or otherwise), income, operations, or prospects of NEES and its subsidiaries taken as a whole, or otherwise materially impair in any way the contemplated future conduct of the business of NEES or any of its subsidiaries or materially impair the Offer's contemplated benefits to NEES; (b) there shall have been any action threatened, pending, or taken, or approval withheld, or any statute, rule, regulation, judgment, order, or injunction threatened, proposed, sought, promulgated, enacted, entered, amended, enforced, or deemed to be applicable to the Offer or NEES or any of its subsidiaries, by any legislative body, court, authority, agency, or tribunal that, in NEES's reasonable judgment, would or might directly or indirectly (i) make the acceptance for payment of, or payment for, 11 12 some or all of the Shares illegal or otherwise restrict or prohibit consummation of the Offer; (ii) delay or restrict the ability of NEES, or render NEES unable, to accept for payment or pay for some or all of the Shares; (iii) materially impair the contemplated benefits of the Offer to NEES or Narragansett (including materially increasing the effective interest cost of certain types of unsecured debt); or (iv) materially affect the business, condition (financial or otherwise), income, operations, or prospects of NEES and its subsidiaries taken as a whole, or otherwise materially impair in any way the contemplated future conduct of the business of NEES or any of its subsidiaries; (c) there shall have occurred (i) any significant decrease in the market price of the Shares; (ii) any change in the general political, market, economic, or financial conditions in the United States or abroad that, in the reasonable judgment of NEES, would or might have a material adverse effect on NEES's business, operations, prospects, or ability to obtain financing generally or the trading in the Shares or equity securities of NEES; (iii) the declaration of a banking moratorium or any suspension of payments in respect of banks in the United States or any limitation on, or any event that, in NEES's reasonable judgment, would or might affect the extension of credit by lending institutions in the United States; (iv) the commencement or escalation of war, armed hostilities, or other international or national calamity directly or indirectly involving the United States; (v) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or in the over-the-counter market; (vi) in the case of any of the foregoing existing at the time of the commencement of the Offer, in NEES's reasonable judgment, a material acceleration or worsening thereof; (vii) any decline in either the Dow Jones Industrial Average or the Standard and Poor's Composite 500 Stock Index by an amount in excess of 10% measured from the close of business on November 5, 1997; or (viii) a decline in the ratings accorded any of NEES's or Narragansett's securities by Standard & Poor's, a division of The McGraw Hill Companies (S&P), Moody's Investors Service, Inc. (Moody's), or Duff & Phelps, Inc. (D&P) or an announcement by S&P, Moody's, or D&P that it has placed any such rating under surveillance or review with negative implications; (d) any tender or exchange offer with respect to some or all of the Shares (other than the Offer) or any equity securities of NEES, or a merger, acquisition, or other business combination proposal for NEES, shall have been proposed, announced, or made by any person or entity; (e) there shall have occurred any event or events that have resulted, or, in NEES's reasonable judgment, may result, in an actual or threatened change in the business, condition (financial or otherwise), income, operations, stock ownership, or prospects of NEES and its subsidiaries; or (f) the SEC shall have withheld approval, under the Holding Company Act, of the acquisition of the Shares by NEES pursuant to the Offer or the approval and adoption of the Proposed Amendment at the Special Meeting; and, in the sole judgment of NEES, such event or events make it undesirable or inadvisable to proceed with the Offer or with such acceptance for payment or payment. With respect to the approval of the SEC referenced in clause (f) above, the SEC must find that the acquisition of the Shares by NEES is not detrimental to the public interest or the interests of the investors or consumers, and that the consideration paid in connection with the acquisition and the adoption of the Proposed Amendment, including fees, commissions, and other remuneration, is reasonable. The foregoing conditions (including the condition that the Proposed Amendment be approved and adopted at the Special Meeting) are for the sole benefit of NEES and may be asserted by NEES regardless of the circumstances (including any action or inaction by NEES) giving rise to any such condition, and any such condition may be waived by NEES, in whole or in part, at any time and from time to time in its sole discretion. A decision by NEES to terminate or otherwise amend the Offer, following the occurrence of any of the foregoing, with respect to one Series will not create an obligation on behalf of NEES to terminate or otherwise amend in a similar manner the Offer with respect to any other Series. The failure by NEES at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right and each such right shall be deemed an ongoing right which may be asserted at any time and from time to time. Any determination by NEES concerning the events described above will be final and binding on all parties. 12 13 EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENTS NEES expressly reserves the right, in its sole discretion, and at any time and from time to time on or prior to the Expiration Date, to extend the period of time during which the Offer for any Series is open by giving oral or written notice of such extension to the Depositary, without extending the period of time during which the Offer for any other Series is open. There can be no assurance, however, that NEES will exercise its right to extend the Offer for any Series. During any such extension, all Shares of the subject Series previously tendered will remain subject to the Offer, except to the extent that such Shares may be withdrawn as set forth in Withdrawal Rights. NEES also expressly reserves the right, in its sole discretion, to, among other things, terminate the Offer and not accept for payment or pay for any Shares tendered, subject to Rule 13e-4(f)(5) under the Exchange Act, which requires NEES either to pay the consideration offered or to return the Shares tendered promptly after the termination or withdrawal of the Offer upon the occurrence of any of the conditions specified in Certain Conditions of the Offer by giving oral or written notice of such termination to the Depositary, and making a public announcement thereof. Subject to compliance with applicable law, NEES further reserves the right, in its sole discretion, to amend the Offer in any respect. Amendments to the Offer may be made at any time and from time to time effected by public announcement thereof, such announcement, in the case of an extension, to be issued no later than 9:00 a.m., Eastern Standard Time, on the next business day after the previously scheduled Expiration Date. Any public announcement made pursuant to the Offer will be disseminated promptly to Preferred Shareholders affected thereby in a manner reasonably designed to inform such Preferred Shareholders of such change. Without limiting the manner in which NEES may choose to make a public announcement, except as required by applicable law, NEES shall have no obligation to publish, advertise, or otherwise communicate any such public announcement other than by making a release to the Dow Jones News Service. If NEES materially changes the terms of the Offer or the information concerning the Offer, or if it waives a material condition of the Offer, NEES will extend the Offer to the extent required by Rules 13e-4(d)(2) and 13e-4(e)(2) under the Exchange Act. Those rules require that the minimum period during which the Offer must remain open following material changes in the terms of the Offer or information concerning the Offer (other than a change in price, a change in percentage of securities sought, or a change in the dealer's solicitation fee) will depend on the facts and circumstances, including the relative materiality of such terms or information. The SEC has stated that, in its view, an offer should remain open for a minimum of five business days from the date that a notice of such a material change is first published, sent, or given. If the Offer is scheduled to expire at any time earlier than the expiration of a period ending on the tenth business day from, and including, the date that NEES publishes, sends, or gives to Preferred Shareholders a notice that it will (i) increase or decrease the price it will pay for Shares, (ii) decrease the percentage of Shares it seeks, or (iii) increase or decrease the soliciting dealers' fees, the Offer will be extended until the expiration of such period of ten business days. THE OFFER FOR EACH SERIES OF PREFERRED IS INDEPENDENT OF THE OFFER FOR ANY OTHER SERIES. IF NEES EXTENDS OR AMENDS ANY OFFER WITH RESPECT TO ONE SERIES OF PREFERRED FOR ANY REASON, NEES WILL HAVE NO OBLIGATION TO EXTEND THE OFFER FOR ANY OTHER SERIES OF PREFERRED. CERTAIN EFFECTS OF THE OFFER Shares validly tendered to the Depositary pursuant to the Offer and not withdrawn in accordance with the procedures set forth herein shall be held until the Expiration Date (or returned to the extent the Offer is terminated in accordance herewith). To the extent that the Proposed Amendment is approved and the Shares tendered are accepted for payment and paid for in accordance with the terms hereof, NEES intends either to sell its Shares to Narragansett or to donate the Shares to Narragansett as a capital contribution. At that time, it is expected that Narragansett will retire and cancel the Shares. However, in the event the Proposed Amendment is not adopted at the Special Meeting, NEES may elect, but is not obligated, to waive, subject to applicable law, such condition. Narragansett anticipates that, subsequent to that waiver and purchase of the 13 14 Shares, it would call another special meeting of its shareholders and solicit proxies therefrom for an amendment substantially similar to the Proposed Amendment. At that meeting, NEES would vote any Shares acquired by it pursuant to the Offer or otherwise (together with its shares of common stock) in favor of such amendment, thereby maximizing the prospects for the adoption of such amendment. Trading and Liquidity. Any purchase of Shares by NEES will reduce the number of Shares of each of the Series of Preferred that might otherwise trade publicly or become available for purchase or sale and will likely reduce the number of owners of Shares of each of the Series of Preferred, which could adversely affect the liquidity and sale value of the Shares not purchased in the Offer. To the extent that Shares of any Series of Preferred are tendered and accepted for payment in the Offer, the trading market for Shares of such Series that remain outstanding may be significantly more limited, which might adversely affect the liquidity, market value, and price volatility of such Shares. Equity securities with a smaller outstanding market value available for trading (the float) may command a lower price than would comparable equity securities with a greater float. Therefore, the market price for Shares that are not tendered in the Offer may be affected adversely to the extent that the amount of Shares purchased pursuant to the Offer reduces the float. The reduced float may also make the trading price of the Shares that are not tendered and accepted for payment more volatile. Holders of the remaining Shares may attempt to obtain quotations for the Shares from their brokers, through the Electronic Bulletin Board, or otherwise; however, there can be no assurance that any trading market will exist for such Shares following consummation of the Offer. To the extent a market continues to exist for the Shares after the Offer, the Shares may trade at a discount compared to present trading, depending on the market for Shares with similar features, the performance of Narragansett, and other factors. There is no assurance that an active market in the Shares will exist and no assurance as to the prices at which the Shares may trade. The Shares are currently registered under Section 12(g) of the Exchange Act. If the Shares are no longer held by more than 300 owners of record, Narragansett may apply to the SEC for termination of such registration. Such termination would substantially reduce the information required to be furnished by Narragansett to holders of the Preferred Stock and could make certain provisions of the Exchange Act no longer applicable to Narragansett. As of September 29, 1997, there were 422 registered holders of the 4.50% Series, 71 registered holders of the 4.64% Series, and 1 registered holder of the 6.95% Series. Future Purchases or Redemption of Shares. Preferred Shareholders are not under any obligation to tender Shares pursuant to the Offer. The Offer does not constitute a notice of redemption of any Series of Preferred pursuant to Narragansett's Provisions, neither does NEES or Narragansett intend to effect any such redemption by making the Offer. Further, the Offer does not constitute a waiver by Narragansett of any option it has to redeem Shares. Shares which are not tendered will continue to be subject to their current redemption and liquidation provisions. The various series of the Preferred Stock are redeemable in whole or in part upon not less than thirty days' notice at the applicable redemption prices plus accrued dividends through the date fixed for redemption. The redemption prices for the 4.50% Series and the 4.64% Series are $55.00 and $52.125, respectively. The 6.95% Series is redeemable after August 1, 2003 at a price equal to $51.74. There are no sinking funds for any of the Series of Preferred. The Preferred Shareholders have no preemptive or conversion rights. Upon liquidation, dissolution, or winding up of the affairs of Narragansett or any distribution of capital of Narragansett, owners of the Shares of each Series of Preferred would be entitled to receive an amount equal to the full distributive amounts fixed therefor together with accrued dividends through the date fixed for the payment of such distributive amounts. In case any liquidation, dissolution, or winding up of Narragansett is voluntary, owners of the Shares of each Series of Preferred shall be entitled to receive the redemption prices for their Series plus accrued dividends through the date fixed for the payment of such distributive amounts; if involuntary, to $50 per Share plus accrued dividends through the date fixed for the payment of such 14 15 distributive amounts. Any divestiture of Narragansett's generation assets would not be deemed to be a liquidation. After the consummation of the Offer, NEES or Narragansett may purchase additional Shares on the open market, in privately negotiated transactions, through one or more tender offers, or otherwise. Any such purchases may be on the same terms as, or on terms which are more or less favorable to holders of Shares than, the terms of the Offer. However, Rule 13e-4(f)(6) under the Exchange Act prohibits NEES and its affiliates (including Narragansett) from purchasing any Shares of a Series of Preferred, other than pursuant to the Offer, until at least ten business days after the Expiration Date with respect to that Series of Preferred. Any future purchases of Shares by NEES or Narragansett would depend on many factors, including the market price of the Shares, NEES's business and financial position, and legal restrictions on NEES's ability to purchase Shares, as well as general economic and market conditions. OTHER INFORMATION As discussed in the documents incorporated herein by reference, the NEES companies, including Narragansett, are divesting themselves of or attempting to divest themselves of their generation business. No approval of the Preferred Shareholders is required in connection with such divestiture. This process will result in reductions in employees and may result in reallocation of executive and Board responsibilities. Further, the NEES companies have considered various strategies to enhance their competitive business, including business combinations with other companies. Except as disclosed herein and in the documents incorporated by reference, neither NEES nor Narragansett has plans or proposals that would relate to or result in (a) the acquisition by any person or entity of additional securities of Narragansett or the disposition of securities of Narragansett, other than in the ordinary course of business; (b) an extraordinary corporate transaction, such as a merger, reorganization, or liquidation, involving Narragansett; (c) a sale or transfer of a material amount of assets of Narragansett; (d) any change in the present Board or management of Narragansett; (e) any material change in the present dividend rate or policy, or indebtedness or capitalization of Narragansett; (f) any other material change in Narragansett's corporate structure or business; (g) any change in Narragansett's Charter or Provisions or any actions that may impede the acquisition of control of Narragansett by any person; (h) a class of equity securities of Narragansett being no longer authorized to be quoted on the OTC; (i) a class of equity securities of Narragansett becoming eligible for termination of registration pursuant to Section 12(g)(4) of the Exchange Act; or (j) the suspension of Narragansett's obligation to file reports pursuant to Section 15(d) of the Exchange Act. 15 16 PROPOSED AMENDMENT AND PROXY SOLICITATION [NARRAGANSETT ELECTRIC COMPANY LOGO] THE NARRAGANSETT ELECTRIC COMPANY NOTICE OF SPECIAL MEETING OF STOCKHOLDERS 280 MELROSE STREET PROVIDENCE, RHODE ISLAND 02901 NOVEMBER 6, 1997 To the Holders of Common Stock and Preferred Stock of THE NARRAGANSETT ELECTRIC COMPANY You are hereby notified that the Special Meeting of Stockholders of The Narragansett Electric Company will be held in the Board Room, 280 Melrose Street, Providence, Rhode Island, on December 12, 1997, at 4:30 p.m., Eastern Standard Time, for the following purposes: 1. To delete in its entirety subparagraph 10(d) from the Preferred Stock Provisions as previously amended of Narragansett, limiting Narragansett's ability to issue unsecured indebtedness. 2. Transaction of such other business as may be appropriate and incidental to the foregoing purposes or which may properly come before the meeting or any adjourned session thereof. Stockholders entitled to vote will be determined on the basis of the records of the Company at the close of business on November 12, 1997. The accompanying material contains further information about the matters to be considered at the meeting. By order of the Board of Directors. THOMAS G. ROBINSON Secretary 16 17 SPECIAL MEETING This Booklet is first being mailed on or about November 7, 1997 to the Preferred Shareholders of Narragansett in connection with the solicitation of proxies by the Board of Directors of Narragansett (the Board) for use at the Special Meeting. At the Special Meeting, the Preferred Shareholders of record of Narragansett will vote upon the Proposed Amendment to its Provisions. PROXIES THE PROXY INCLUDED IN THE LETTER OF TRANSMITTAL AND PROXY IS SOLICITED FROM THE HOLDERS OF THE PREFERRED STOCK BY THE BOARD, WHICH RECOMMENDS VOTING FOR THE PROPOSED AMENDMENT. All shares of Narragansett's common stock will be voted in favor of the Proposed Amendment. Shares of Narragansett's Preferred Stock represented by properly executed proxies received at or prior to the Special Meeting will be voted in accordance with the instructions thereon. If no instructions are indicated, duly executed proxies will be voted in accordance with the recommendation of the Board. It is not anticipated that any other matters will be brought before the Special Meeting. However, the enclosed proxy gives discretionary authority to the proxy holders named therein should any other matters be presented at the Special Meeting, and it is the intention of the proxy holders to act on any other matters in accordance with their best judgment. Execution of a proxy will not prevent a Preferred Shareholder from attending the Special Meeting and voting in person. Any Preferred Shareholder giving a proxy may revoke it at any time before it is voted by delivering to the Secretary of Narragansett written notice of revocation bearing a later date than the proxy, by delivering a duly executed proxy bearing a later date, or by voting in person by ballot at the Special Meeting. Withdrawal of Shares tendered pursuant to the Offer will not revoke a properly executed proxy. RELATIONSHIP TO THE OFFER; SPECIAL CASH PAYMENTS As noted above, the Offer and Proposed Amendment constitute an integrated strategy of NEES and Narragansett to achieve greater flexibility in their financing. See Purpose of the Offer, Proposed Amendment, and Proxy Solicitation. Preferred Shareholders who wish to tender their Shares pursuant to the Offer are required to vote in favor of the Proposed Amendment. Further, the Offer is conditioned upon the Proposed Amendment being approved and adopted at the Special Meeting. Subject to the terms and conditions set forth in this Booklet, if (but only if) the Proposed Amendment is approved and adopted by Narragansett's shareholders, Narragansett will make a Special Cash Payment in the amount of $.50 per Share to each Preferred Shareholder of record who voted in favor of the Proposed Amendment, provided that such Shares have not been tendered pursuant to the Offer. Narragansett intends to make the Special Cash Payment although there is no binding legal precedent as to the permissibility of such payment and there can be no assurance as to how a court would rule on the question. If a Preferred Shareholder votes against the Proposed Amendment or abstains, such Preferred Shareholder shall not be entitled to the Special Cash Payment (regardless of whether the Proposed Amendment is approved and adopted). The Special Cash Payment will be paid out of Narragansett's general funds promptly after the Proposed Amendment shall have become effective. However, no accrued interest will be paid on the Special Cash Payments regardless of any delay in making such payments. VOTING SECURITIES, RIGHTS, AND PROCEDURES Only holders of record of Narragansett's voting securities at the close of business on November 12, 1997, the Record Date (or their legal representatives or attorneys-in-fact), will be entitled to vote in person or by proxy at the Special Meeting and to receive the Special Cash Payment from Narragansett. Any beneficial holder of Shares who is not the registered holder of such Shares as of the Record Date (as would be the case for any beneficial holder whose Shares are registered in the name of such holder's broker, dealer, commercial bank, trust company, or other nominee) must arrange with the holder of record on the Record Date to execute and deliver a proxy form on such beneficial owner's behalf. If a beneficial holder of Shares intends to attend 17 18 the Special Meeting and vote in person, such beneficial holder must obtain a legal proxy form from the beneficial holder's broker, dealer, commercial bank, trust company, or other nominee. The Shares will trade, during the period which begins two days prior to the Record Date and which will end at the close of business on the Expiration Date, in the over-the-counter market under the symbols "NRGAT" for the 4.50% Series, "NRGCT" for the 4.64% Series, and "NRGET" for the 6.95% Series, indicating that such Shares are trading "with proxy." A Preferred Shareholder who acquires Shares during this time period must obtain, or have his or her authorized representative obtain, an assignment of proxy (which is included in the applicable Letter of Transmittal and Proxy) at settlement from the seller. The NASD and The Depository Trust Company have issued notices informing their members and participants that the Shares will trade "with proxy" and that settlement of all trades during the period described above should include an assignment of proxy from the seller. Narragansett's outstanding voting securities consist of common stock and Preferred Stock. There are three series of Preferred Stock currently outstanding. The common stock votes as one class. The three series of Preferred Stock will vote together as a single class. Each share of stock has one vote per share. The Shares outstanding as of the Record Date are as follows:
CLASS SHARES OUTSTANDING -------------------------------------------- ------------------ Common...................................... 1,132,487 Preferred 4.50%..................................... 180,000 4.64%..................................... 150,000 6.95%..................................... 400,000 --------- Total Preferred........................ 730,000
The Proposed Amendment will require the approval of two-thirds of the Preferred Stock voting as a single class, the approval of 75% of the Preferred Shares present or represented at the meeting, and the approval of a majority of the Narragansett common voting as a class. Abstentions and broker non-votes will have the same effect as votes cast against the Proposed Amendment. NEES has advised Narragansett that it intends to vote all of the outstanding shares of common stock of Narragansett in favor of the Proposed Amendment. There are no rights of appraisal in connection with the Proposed Amendment. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT As noted above, NEES owns all the outstanding common stock of Narragansett. Pursuant to Section 13(d) of the Exchange Act, a beneficial owner of a security is any person who directly or indirectly has or shares voting or investment power over such security. No person or group is known by management of Narragansett to be the beneficial owner of more than 5% of the outstanding Shares of Narragansett's Cumulative Preferred Stock as of the Record Date. NEES and Narragansett's directors and executive officers do not beneficially own any Shares as of the Record Date. The beneficial ownership of NEES's common shares held by each Narragansett director, as well as Narragansett directors and executive officers as a group, as of October 1, 1997, is set forth in the following table.
NAME SHARES ---------------------------------------------------------------------------- ------- Joan T. Bok................................................................. 17,504 Stephen A. Cardi............................................................ 360 Richard W. Frost............................................................ 7,154 Frances H. Gammell.......................................................... 310 Joseph J. Kirby............................................................. 310 Robert L. McCabe............................................................ 9,924
18 19
NAME SHARES ---------------------------------------------------------------------------- ------- Richard Nadeau.............................................................. 4,353 Lawrence J. Reilly.......................................................... 2,861 John W. Rowe................................................................ 23,105 Michael F. Ryan............................................................. 430 Richard P. Sergel........................................................... 8,723 William E. Trueheart........................................................ 310 William Watkins, Jr......................................................... 5,481 Directors and officers as a group (representing less than 1% of the outstanding Shares)........................................ 110,670
Listed below is the only person or group known to NEES as of October 1, 1997, to beneficially own 5% or more of NEES's common shares. However, T. Rowe Price Trust Company disclaims beneficial ownership of all such shares. The amount of common shares listed below is as of September 8, 1997.
NAME AND ADDRESS OF AMOUNT AND NATURE PERCENT OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP COMMON SHARES - ---------------------------------------------- -------------------------------- ------------- T. Rowe Price Trust Company................... 5,358,604 shares as trustee for 8.3% 100 East Pratt Street Company employee benefits plans Baltimore, MD 21202
DESCRIPTION OF THE PROPOSED AMENDMENT The following statements, unless the context otherwise requires, are summaries of the substance or general effect of a section of the Provisions, and are qualified in their entirety by the Provisions (as described below). EXPLANATION OF THE PROPOSED AMENDMENT The purpose of the Proxy Solicitation is the elimination of the section in the Provisions restricting the ability of Narragansett to incur certain unsecured indebtedness. Subparagraph 10(d) of the Preferred Stock Provisions, as amended at meetings of the preferred stockholders, common stockholders, and directors on February 4, 1993, March 16, 1993, and March 23, 1993, respectively, provides that, without a vote of a majority of the outstanding Dividend Series Preferred Stock (voting as a single class), Narragansett will not: issue any unsecured notes, debentures or other securities representing unsecured indebtedness, or assume any such unsecured securities, for purposes other than the refunding of outstanding unsecured securities theretofore issued or assumed by the Company resulting in equal or longer maturities or the redemption or other retirement of all outstanding shares of the Preferred Stock, if, immediately after such issue or assumption, the total principal amount of all unsecured notes, debentures or other securities representing unsecured indebtedness issued or assumed by the Company and then outstanding (including the unsecured securities then to be issued or assumed) but excluding unsecured securities theretofore so consented to by holders of Preferred Stock, would exceed ten per cent (10%) of the aggregate of (i) the total principal amount of all bonds and other securities representing secured indebtedness issued or assumed by the Company and then outstanding and (ii) the capital and surplus of the Company as then stated on the books of account of the Company. It is proposed to delete the above section in its entirety; conforming changes to cross references elsewhere in the Provisions will also be made. REASONS FOR THE PROPOSED AMENDMENT Narragansett believes that the prudent use of unsecured debt is important to the effective financial management of its business. Unsecured debt provides flexibility in meeting temporary fluctuations in cash 19 20 requirements, can be used when unfavorable conditions prevail in the market for long-term capital, acts as a bridge between issues of permanent capital, and may present more flexibility in terms and conditions than secured debt. If the Proposed Amendment is adopted, Narragansett will have increased flexibility (i) to choose among different types of debt financing and (ii) to finance projects using the most cost effective means. The availability and flexibility of unsecured debt is necessary to take full advantage of changing conditions in the securities and financial markets. In addition, although Narragansett's earnings currently are sufficient to meet the earnings coverage tests that must be satisfied before issuing additional first mortgage bonds and preferred stock, other utilities have been unable to issue mortgage bonds during certain periods because of restrictive covenants in their mortgages. Any inability by Narragansett to issue first mortgage bonds or preferred stock in the future, combined with the inability to issue additional unsecured debt, would limit its financing options to more costly securities, including additional common equity. RECOMMENDATION OF BOARD OF DIRECTORS IT IS FOR ALL THE ABOVE REASONS THAT NARRAGANSETT'S BOARD BELIEVES THE BEST LONG-TERM INTERESTS OF THE PREFERRED SHAREHOLDERS ARE SERVED BY, AND ENCOURAGES PREFERRED SHAREHOLDERS TO VOTE FOR, THE ADOPTION OF THE PROPOSED AMENDMENT. The Proposed Amendment to the Provisions and the Offer are subject to approval by the SEC under the Holding Company Act. NEES and Narragansett have filed a declaration with the SEC with respect to the Proposed Amendment and the acquisition of the Shares by NEES pursuant to the Offer. CERTAIN EFFECTS OF THE PROPOSED AMENDMENT If the Proposed Amendment becomes effective, Preferred Shareholders of Shares that are not tendered and purchased pursuant to the Offer will no longer be entitled to the benefits of the unsecured debt limitation provision. As discussed above, the debt limitation provision places restrictions on Narragansett's ability to issue or assume unsecured indebtedness. Although future Narragansett debt instruments may contain certain restrictions on Narragansett's ability to issue or assume debt, any such restrictions may be waived and the increased flexibility afforded Narragansett by the deletion of the debt limitation provision may permit Narragansett to take certain actions that may increase the credit risks with respect to Narragansett, adversely affecting the market price and credit rating of the remaining Shares, or that may otherwise be materially adverse to the interests of the remaining Preferred Shareholders. OTHER MATTERS The foregoing is the only business which management intends to present or is advised that others will present for action at the Special Meeting or any adjournment thereof. If any other matters should properly come before the Special Meeting, the proxies for NEES and for any other stockholders who have sent in their proxies will be voted by the persons named therein, or their substitutes, in accordance with their judgment. The expense of preparing and mailing this Booklet and the incidental expenses of soliciting the Preferred Shareholders will be paid by Narragansett. Narragansett has engaged Georgeson to act as Information Agent in connection with the solicitation of proxies for a fee of $6,000 plus reimbursement of reasonable out-of-pocket expenses. Narragansett has requested that brokers, dealers, and other custodians, nominees, and fiduciaries forward solicitation materials to the beneficial owners of Shares held of record by such persons and will reimburse such brokers and other fiduciaries for their reasonable out-of-pocket expenses incurred in connection therewith. In addition to the use of the mails, proxies from holders of the Preferred Stock may be solicited by officers and regular employees connected with Narragansett or its affiliates, personally or by telephone or telegraph, without any additional compensation. The Information Agent has not been retained to make, and will not make, solicitations or recommendations in connection with the Proposed Amendment. While Narragansett has no audit committee, its parent NEES has an audit committee which recommends an independent auditor to audit the accounts of the parent and its subsidiaries. Coopers and Lybrand 20 21 have been auditors of Narragansett for many years and their selection as auditors for the current year was approved at the Annual Meeting on March 18, 1997. It is not expected that representatives of Coopers and Lybrand will be present at the Special Meeting on December 12, 1997, but they will be available on short notice to attend to answer questions regarding the Proposed Amendment, if any holder of Shares so requests in writing prior to December 10, 1997. PRICE RANGE OF SHARES; DIVIDENDS Each Series of Preferred is traded in the OTC and is not listed on any national securities exchange. Trading in the Shares has generally been sporadic. PREFERRED SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS, IF AVAILABLE, FOR THE SHARES. The following table sets forth the high and low sales prices of each Series of Preferred as reported by the Nasdaq Stock Market, Inc., and the cash dividends paid thereon for the fiscal quarters indicated. DIVIDENDS AND PRICE RANGES OF PREFERRED STOCK BY QUARTERS (1997, 1996 AND 1995)
1997 - QUARTERS 1996 - QUARTERS 1995 - QUARTERS --------------------------------------- --------------------------------------- --------------------------------------- 1ST 2ND 3RD 4TH* 1ST 2ND 3RD 4TH 1ST 2ND 3RD 4TH --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- PREFERRED STOCK: 4.50% SERIES Dividends Paid Per Share.... $0.5625 $0.5625 $0.5625 $0.5625 $0.5625 $0.5625 $0.5625 $0.5625 $0.5625 $0.5625 $0.5625 $0.5625 Market Price Per Share (OTC) - -- High... 31.60 32.125 33.000 34.00 33.00 31.00 32.000 33.00 27.25 30.30 31.75 31.50 -- Low... 29.25 30.000 30.625 32.125 27.50 26.74 28.875 29.00 24.75 25.00 29.00 29.00 4.64% SERIES Dividends Paid Per Share.... $0.58 $0.58 $0.58 $0.58 $0.58 $0.58 $0.58 $0.58 $0.58 $0.58 $0.58 $0.58 Market Price Per Share (OTC) - -- High... 34.125 35.375 36.31 37.50 35.250 32.825 34.175 34.85 29.50 32.00 33.625 35.50 -- Low... 30.875 31.750 32.50 33.125 30.625 30.750 29.750 30.25 26.00 26.75 30.125 30.50 6.95% SERIES Dividends Paid Per Share.... $0.86875 $0.86875 $0.86875 $0.86875 $0.86875 $0.86875 $0.86875 $0.86875 $0.86875 $0.86875 $0.86875 $0.86875 Market Price Per Share (OTC) - -- High... 52.00 51.375 -- -- -- -- -- 52.75 43.83 51.50 49.860 51.375 -- Low... 52.00 51.375 -- -- -- -- -- 52.51 42.25 48.75 47.875 51.000
- --------------- * Prices through October 31 Note -- The above bid and asked quotations represent prices between dealers and do not represent actual transactions. A dash indicates that a quotation was not available. Dividends for a Series of Preferred are payable when, as, and if declared by Narragansett's Board at the rate per annum included in the title of the Series of Preferred. NEES will pay to tendering Preferred Shareholders any accrued dividends through the Expiration Date. CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS EACH HOLDER OF SHARES IS URGED TO CONSULT AND RELY UPON SUCH HOLDER'S OWN TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES TO THE HOLDER OF TENDERING SHARES PURSUANT TO THE OFFER. In the opinion of Hale and Dorr LLP, tax counsel to NEES and Narragansett, the following summary describes the principal United States Federal income tax consequences of sales of Shares pursuant to the Offer, the receipt of accrued and unpaid dividends and the receipt of Special Cash Payments in connection with the approval and adoption of the Proposed Amendment. This summary is based on the Internal Revenue 21 22 Code of 1986, as amended to the date hereof (the "Code"), administrative pronouncements, judicial decisions and existing and proposed Treasury Regulations, changes to any of which subsequent to the date of this Booklet may adversely affect the tax consequences described herein, possibly on a retroactive basis. This summary is addressed to Preferred Shareholders who hold Shares as capital assets within the meaning of Section 1221 of the Code. This summary does not discuss all of the tax consequences that may be relevant to a Preferred Shareholder in light of such Preferred Shareholder's particular circumstances or to Preferred Shareholders subject to special rules (including certain financial institutions, tax-exempt organizations, insurance companies, dealers in securities or currencies, foreign persons or entities selling Shares pursuant to the Offer who own or have owned, actually or constructively, more than five percent of the outstanding amount of such Shares, Preferred Shareholders who acquired their Shares pursuant to the exercise of stock options or other compensation arrangements with Narragansett or Preferred Shareholders holding the Shares as part of a conversion transaction, as part of a hedge or hedging transaction, or as a position in a straddle for tax purposes). Preferred Shareholders should consult their tax advisors with regard to the application of the United States Federal income tax laws to their particular situations as well as any tax consequences arising under the laws of any state, local or foreign taxing jurisdiction. As used herein, the term "United States Holder" means an owner of a Share that is (i) for United States Federal income tax purposes a citizen or resident of the United States; (ii) a corporation, partnership or other entity created or organized in or under the laws of the United States or of any political subdivision thereof; (iii) an estate, or, for taxable years beginning on or before December 31, 1996, in general, any trust, the income of which is subject to United States Federal income taxation regardless of its source; or (iv) for taxable years beginning after December 31, 1996, any trust if a court within the United States is able to exercise primary supervision over the administration of such trust and one or more United States fiduciaries have the authority to control all substantial decisions of such trust. A "Non-United States Holder" is a Preferred Shareholder that is not a United States Holder. TAX CONSIDERATIONS FOR TENDERING PREFERRED SHAREHOLDERS Characterization of the Sale. A sale of Shares by a Preferred Shareholder pursuant to the Offer will be a taxable transaction for Federal income tax purposes. For U.S. Federal income tax purposes, a portion of the purchase price per Share paid to Tendering Preferred Shareholders equal in amount to the Special Cash Payment (payable to Preferred Shareholders who vote in favor of the Proposed Amendment, but who do not tender their Shares) will be taxed in the same manner as the Special Cash Payment received by Non-Tendering Preferred Shareholders (see Tax Considerations of Special Cash Payment). The balance of the Purchase Price per Share paid to Preferred Shareholders will be taxed as an amount received in exchange for Shares resulting in gain or loss described in the following two paragraphs. United States Holders. A United States Holder will recognize gain or loss equal to the difference between the tax basis of such Holder's Shares and the amount of cash received from NEES in exchange therefor. A United States Holder's gain or loss will be long-term capital gain or loss if the holding period for the Shares is more than one year as to the date of the sale of such Shares. The excess of net long-term capital gains over net short-term capital losses is taxed at a lower rate than ordinary income for certain non-corporate taxpayers. Capital gain on Shares held by noncorporate taxpayers for more than eighteen months prior to the date of the sale of such Shares will be subject to a reduced tax rate. The distinction between long-term capital gain or loss and short-term gain or loss is also relevant for purposes of, among other things, limitations on the deductibility of capital losses. Non-United States Holders. Any gain realized upon the sale of Shares by a Non-United States Holder pursuant to the Offer generally will not be subject to United States Federal income tax unless (i) such gain is effectively connected with a trade or business in the United States of the Non-United States Holder, or (ii) in the case of a Non-United States Holder who is an individual, such individual is present in the United States for 183 days or more in the taxable year of such sale and certain other conditions are met. A Non-United States Holder with gain described in clause (i) above will be taxed on the net gain derived from the sale at regular graduated United States Federal income tax rates. If a Non-United States Holder that 22 23 is a foreign corporation has gain described under clause (i) above, it may also be subject to an additional "branch profits tax" at a 30% rate (or such lower rate as may be specified by an applicable income tax treaty). Unless an applicable tax treaty provides otherwise, an individual Non-United States Holder described in clause (ii) above will be subject to a flat 30% tax on the gain derived from the sale, which may be offset by United States capital losses (notwithstanding the fact that the individual is not considered a resident of the United States). TAX CONSIDERATIONS FOR NON-TENDERING PREFERRED SHAREHOLDERS Non-Tendering Preferred Shareholders, whether or not they receive Special Cash Payments, will not recognize any taxable gain or loss with respect to the Shares as a result of the modification of the Provisions by the Proposed Amendment. TAX CONSIDERATIONS OF ACCRUED AND UNPAID DIVIDENDS PAYMENT Payment of accrued and unpaid dividends received by the tendering Preferred Shareholder with respect to rights to dividends declared prior to the Offer will be treated as dividends to the extent of the Preferred Shareholder's allocable portion of the Power Company's current and accumulated earnings and profits as determined under United States Federal income tax principles and not as proceeds from the sale of such Shares. Such dividend payments will be taxed to the Preferred Shareholder in the same manner as prior dividend payments have customarily been taxed. TAX CONSIDERATIONS OF SPECIAL CASH PAYMENT United States Holders. There is no direct authority concerning the Federal income tax consequences of the receipt of Special Cash Payments. Narragansett will, for information reporting purposes, treat Special Cash Payments as ordinary non-dividend income to recipient United States Holders. Non-United States Holders. Narragansett will treat Special Cash Payments paid to a Non-United States Holder of Shares as subject to withholding of United States Federal income tax at a 30% rate. However, Special Cash Payments that are effectively connected with the conduct of a trade or business by the Non-United States Holder within the United States are not subject to the withholding tax (provided such Non-United States Holder provides two originals of Internal Revenue Service ("IRS") Form 4224 stating that such Special Cash Payments are so effectively connected), but instead are subject to United States Federal income tax on a net income basis at applicable graduated individual or corporate rates. Any such effectively connected Special Cash Payments received by a foreign corporation may, under certain circumstances, be subject to an additional "branch profits tax" at a 30% rate (or such lower rate as may be specified by an applicable income tax treaty). A Non-United States Holder of Shares eligible for a reduced rate of United States withholding tax pursuant to an income tax treaty may obtain a refund of any excess amounts withheld by filing an appropriate claim for refund with the IRS. BACKUP WITHHOLDING ANY TENDERING PREFERRED SHAREHOLDER WHO FAILS TO COMPLETE AND SIGN THE SUBSTITUTE FORM W-9 THAT IS INCLUDED IN THE APPLICABLE LETTER OF TRANSMITTAL (OR, IN THE CASE OF A FOREIGN PREFERRED SHAREHOLDER, FORM W-8 OBTAINABLE FROM THE DEPOSITARY) MAY BE SUBJECT TO A REQUIRED FEDERAL INCOME TAX BACKUP WITHHOLDING OF 31% OF THE GROSS PROCEEDS PAYABLE TO SUCH PREFERRED SHAREHOLDER PURSUANT TO THE OFFER. To prevent backup United States Federal income tax withholding with respect to the purchase price of Shares purchased pursuant to the Offer, a United States Holder must provide the Depositary with the Preferred Shareholder's correct taxpayer identification number and certify that the Preferred Shareholder is not subject to backup withholding of Federal income tax by completing the Substitute Form W-9 included in the applicable Letter of Transmittal. Certain Preferred Shareholders (including, among others, all corporations and certain foreign shareholders) 23 24 are exempt from backup withholding. For a corporate United States Holder to qualify for such exemption, such Preferred Shareholder must provide the Depositary with a properly completed and executed Substitute Form W-9 attesting to its exempt status. In order for a foreign Preferred Shareholder to qualify as an exempt recipient, the foreign holder must submit a Form W-8, Certificate of Foreign Status, signed under penalties of perjury, attesting to that Preferred Shareholder's exempt status. A copy of Form W-8 may be obtained from the Depositary. Unless a Preferred Shareholder provides the appropriate certification, under the applicable law and regulations concerning "backup withholding" of United States Federal income tax, the Depositary will be required to withhold, and will withhold, 31% of the gross proceeds otherwise payable to such Preferred Shareholder or other payee. The amount of any backup withholding from a payment to a Preferred Shareholder will be allowed as a credit against such Preferred Shareholder's United States Federal income tax liability and may entitle such Preferred Shareholder to a refund, provided that the required information is furnished to the IRS. SOURCE AND AMOUNT OF FUNDS Assuming that NEES purchases all outstanding Shares of each Series of Preferred pursuant to the Offer, the total amount required by NEES to purchase such Shares will be approximately $40 million, exclusive of the payment of accrued dividends, but including fees and other expenses. NEES intends to fund the Offer through the use of its general funds (which, in the ordinary course, include funds from Narragansett) and funds borrowed pursuant to NEES' committed lines of credit, including any bank revolving credit agreements. The interest rates depend upon the timing, amount of borrowings, and market rates at that time. NEES currently has regulatory authority to borrow $100 million and is seeking to increase that amount. NEES has not had occasion to borrow monies for a number of years. Narragansett sells commercial paper directly to commercial paper dealers who reoffer the commercial paper to investors. TRANSACTIONS AND AGREEMENTS CONCERNING THE SHARES Each of NEES and Narragansett has been advised by its directors and executive officers that no directors or executive officers of the respective companies own any Shares. Based upon the companies' records and upon information provided to each company by its directors and executive officers, neither company nor, to the knowledge of either, any of their subsidiaries, affiliates, directors, or executive officers, or any associates of the foregoing, has engaged in any transactions involving Shares during the 40 business days preceding the date hereof. Neither company nor, to the knowledge of either, any of their directors or executive officers or any associate of the foregoing is a party to any contract, arrangement, understanding, or relationship relating directly or indirectly to the Offer with any other person or entity with respect to any securities of Narragansett. FEES AND EXPENSES PAID TO DEALERS DEALER MANAGER FEES Merrill Lynch will act as Dealer Manager for NEES in connection with the Offer. NEES has agreed to pay the Dealer Manager a fee of $.25 per Share for any Shares tendered, accepted for payment, and paid for pursuant to the Offer and a fee of $.25 per Share for any Shares that are not tendered pursuant to the Offer but which vote in favor of the Proposed Amendment. The Dealer Manager will also be reimbursed by NEES for its reasonable out-of-pocket expenses, including attorneys' fees, and will be indemnified against certain liabilities, including certain liabilities under the federal securities laws, in connection with the Offer. The Dealer Manager has rendered, is currently rendering, and is expected to continue to render various investment banking and other advisory services to NEES and Narragansett. The Dealer Manager has received, and will continue to receive, customary compensation from NEES and Narragansett for such services. NEES has retained IBJ Schroder Bank & Trust Company as Depositary and Georgeson & Company, Inc. as Information 24 25 Agent in connection with the Offer. The Depositary and the Information Agent will receive reasonable and customary compensation for their services and will also be reimbursed for reasonable out-of-pocket expenses, including attorney fees. Neither the Depositary nor the Information Agent has been retained to make solicitations or recommendations in connection with the Offer. SOLICITED TENDER FEES Upon the terms and subject to the conditions of the Offer and pursuant to Instruction 10 of the accompanying Letter of Transmittal and Proxy, NEES will pay to designated brokers and dealers a solicitation fee of $.75 per Share for any Shares tendered, accepted for payment, and paid for pursuant to the Offer and for each Share not tendered but voted in favor of the Propsoed Amendment (except that for transactions for beneficial owners equal to or exceeding 2,500 Shares, NEES will pay a solicitation fee of $.50 per Share, of which eighty percent (80%) shall be paid to the Dealer Manager and twenty percent (20%) to the Soliciting Dealer (which may be the Dealer Manager)). With respect to fees payable pursuant to this paragraph involving transactions for beneficial owners whose ownership is less than 2,500 Shares, any fees payable hereunder shall be paid in full to the Dealer Manager unless a Soliciting Dealer is designated (as described below), in which case such fee shall be payable in full to such designated Soliciting Dealer (which designated Soliciting Dealer may be the Dealer Manager). The Letters of Transmittal and Proxy must include the name of an entity which obtained the tender or proxy and which is either (a) a broker or dealer in securities, including the Dealer Manager in its capacity as a broker or dealer, which is a member of a national securities exchange or of the National Association of Securities Dealers, Inc. (NASD), (b) a foreign broker or dealer not eligible for membership in the NASD which agrees to conform to the NASD's Rules of Fair Practice in soliciting tenders outside the United States to the same extent as though it were an NASD member, or (c) a bank or trust company (each of which is referred to herein as a Soliciting Dealer). No solicitation fee will be paid with respect to the vote of a Preferred Shareholder. No solicitation fee shall be payable to a Soliciting Dealer with respect to the tender of Shares, or delivery of a proxy unless the Letter of Transmittal and Proxy accompanying such tender, or delivery of a proxy designates such Soliciting Dealer. No solicitation fee shall be payable to a Soliciting Dealer in respect of Shares registered in the name of such Soliciting Dealer unless such Shares are held by such Soliciting Dealer as nominee and such Shares are being tendered or delivered for the benefit of one or more beneficial owners identified on the Letter of Transmittal or on the Notice of Solicited Tenders. No solicitation fee shall be payable to a Soliciting Dealer if such Soliciting Dealer is required for any reason to transfer the amount of such fee to a depositing holder (other than itself). No solicitation fee shall be paid to a Soliciting Dealer with respect to Shares tendered or delivered for such Soliciting Dealer's own account. Soliciting Dealers will not be entitled to a solicitation fee for Shares beneficially owned by such Soliciting Dealer. No broker, dealer, bank, trust company, or other nominee shall be deemed to be the agent of NEES, Narragansett, the Depositary, the Information Agent, or the Dealer Manager for purposes of the Offer. Soliciting Dealers will include any of the organizations described in clauses (a), (b), and (c) above even when the activities of such organizations in connection with the Offer consist solely of forwarding to clients materials relating to the Offer, including the Letter of Transmittal and tendering Shares as directed by beneficial owners thereof. No Soliciting Dealer is authorized to make any recommendation to holders of Shares as to whether to tender or refrain from tendering in the Offer. No assumption is made, in making payment to any Soliciting Dealer, that its activities in connection with the Offer included any activities other than those described above, and for all purposes noted in all materials relating to the Offer, the term "solicit" shall be deemed to mean no more than processing shares tendered or forwarding to customers materials regarding the Offer. STOCK TRANSFER TAXES NEES will pay all stock transfer taxes, if any, payable on account of the acquisition of Shares by NEES pursuant to the Offer, except in certain circumstances where special payment or delivery procedures are utilized pursuant to Instruction 6 of the accompanying Letter of Transmittal. 25 26 SUMMARY OF FINANCIAL INFORMATION Set forth below is certain historical financial information of Narragansett. The historical financial information (other than the ratios of earnings to fixed charges) was derived from the audited financial statements included in Narragansett's Annual Report on Form 10-K for the year ended December 31, 1996 and the unaudited consolidated financial statements included in Narragansett's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997. CONDENSED INCOME STATEMENT DATA:
(UNAUDITED) SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, --------------------- --------------------- 1996 1995 1997 1996 -------- -------- -------- -------- (THOUSANDS, EXCEPT RATIOS) Operating Revenues.............................. $503,585 $499,113 $251,360 $243,755 Operating Income................................ 43,511 42,425 23,222 20,531 Allowance for Borrowed and Equity Funds Used During Construction (credit).................. (263) (1,967) (58) (220) Net Income...................................... 22,954 23,910 12,778 9,407 Preferred Stock Dividend Requirements........... 2,143 2,143 1,072 1,072 Earnings Applicable to Common Stock............. 20,811 21,767 11,706 8,335 Ratio of Earnings to Fixed Charges.............. 2.69 2.68 3.06(a) 2.58(a)
- --------------- (a) Ratio for the twelve months ended June 30. CONDENSED BALANCE SHEET DATA (AT END OF PERIOD):
(UNAUDITED) DECEMBER 31, JUNE 30, --------------------- --------------------- 1996 1995 1997 1996 -------- -------- -------- -------- (THOUSANDS) ASSETS: Net Utility Plant in Service.................... $554,791 $526,515 $556,915 $544,340 Construction Work in Progress................... 5,392 8,733 6,836 5,949 Cash and Cash Equivalents....................... 1,727 1,999 1,385 859 Other Current Assets............................ 88,211 102,206 84,110 92,016 Other Assets.................................... 56,881 60,168 54,672 59,917 -------- -------- -------- -------- $707,002 $699,621 $703,918 $703,081 ======== ======== ======== ======== LIABILITIES: Common Equity................................... $256,772 $245,021 $259,418 $247,977 Cumulative Preferred Stock...................... 36,500 36,500 36,500 36,500 Long-term Debt (less amounts due within one year)......................................... 178,517 210,892 173,574 185,958 Current Liabilities............................. 126,688 107,500 129,338 132,868 Other Liabilities............................... 108,525 99,708 105,088 99,778 -------- -------- -------- -------- $707,002 $699,621 $703,918 $703,081 ======== ======== ======== ========
CERTAIN INFORMATION REGARDING NEES AND NARRAGANSETT; INCORPORATION BY REFERENCE Narragansett, a Rhode Island corporation, is a wholly owned subsidiary of NEES. Narragansett provides approximately 330,000 customers with electric service at retail. Its service territory, which includes urban, suburban, and rural areas, covers about 839 square miles or 80% of the area of Rhode Island, and encompasses 26 27 27 cities and towns including the cities of Providence, East Providence, Cranston, and Warwick. The population of the area is about 725,000 (1990 Census) which represents about 72% of the total population of the state. NEES and Narragansett are subject to the informational requirements of the Exchange Act and in accordance therewith file reports and other information with the SEC. Such reports and other information may be inspected and copied at the public reference facilities maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549; 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511; and Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of such material can be obtained from the Public Reference Section of the SEC, 450 Fifth Street, N.W., Washington D.C. 20549 at prescribed rates. The SEC maintains a Web site at http://www.sec.gov containing reports, proxy statements, and other information regarding registrants that file electronically with the SEC, including NEES and Narragansett. Reports, proxy materials, and other information about NEES are also available at the offices of the New York Stock Exchange, 20 Broad Street, New York, New York 10005. In connection with the Offer NEES has filed an Issuer Tender Offer Statement on Schedule 13E-4 with the SEC that includes certain additional information relating to the Offer. NEES's Schedule 13E-4 will not be available at the SEC's regional offices. The following documents, which have heretofore been filed by NEES and Narragansett with the SEC pursuant to the Exchange Act, are incorporated by reference herein and shall be deemed a part hereof: (1) Annual report on Form 10-K for the year ended December 31, 1996, which contains or incorporates by reference financial statements and financial statement schedules of NEES and Narragansett as of December 31, 1996, and for each of the three years in the period ended December 31, 1996, incorporates by reference or includes the related reports of Coopers & Lybrand, independent certified public accountants; (2) Quarterly reports on Form 10-Q for NEES for the quarters ended March 31, 1997 and June 30, 1997; (3) Quarterly reports on Form 10-Q for Narragansett for the quarters ended March 31, 1997 and June 30, 1997; (4) Reports on Form 8-K for NEES for the periods ended April 14, 1997, May 20, 1997, and August 6, 1997; and (5) Reports on Form 8-K for Narragansett for the periods ended July 3, 1997 and August 6, 1997. All reports filed by NEES and Narragansett with the SEC pursuant to these sections subsequent to the date of this Booklet and prior to the Expiration Date (or any extension thereof) shall be incorporated herein by reference and shall be deemed a part hereof on the date of filing of such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Booklet to the extent that a statement contained herein or in any other subsequently filed documents which 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 Booklet. NEES and Narragansett hereby undertake to provide without charge to each person to whom a copy of this Booklet has been delivered, upon the written or oral request of such person, a copy of any or all of the documents referred to above which have been or may be incorporated by reference in this Booklet, other than exhibits to such documents. Written or oral requests for such copies should be directed to the Treasurer, The Narragansett Electric Company, 25 Research Drive, Westborough, Massachusetts 01582, telephone (508) 389-2000. The information relating to NEES and Narragansett contained in this Booklet does not purport to be comprehensive and should be read together with the information contained in the documents incorporated by reference. 27 28 MISCELLANEOUS The Offer is not being made to, nor will NEES accept tenders from, owners of Shares in any jurisdiction in which the Offer or its acceptance would not be in compliance with the laws of such jurisdiction. NEES is not aware of any jurisdiction where the making of the Offer or the tender of Shares would not be in compliance with applicable law. If NEES becomes aware of any jurisdiction where the making of the Offer or the tender of Shares is not in compliance with any applicable law, NEES will make a good faith effort to comply with such law. If, after such good faith effort, NEES cannot comply with such law, the Offer will not be made to (nor will tenders be accepted from or on behalf of) the owners of Shares residing in such jurisdiction. In any jurisdiction in which the securities, blue sky, or other laws require the Offer to be made by a licensed broker or dealer, the Offer will be deemed to be made on NEES's behalf by one or more registered brokers or dealers licensed under the laws of such jurisdiction. NEW ENGLAND ELECTRIC SYSTEM THE NARRAGANSETT ELECTRIC COMPANY The name "New England Electric System" means the trustee or trustees for the time being (as trustee or trustees but not personally) under an agreement and declaration of trust dated January 2, 1926, as amended, which is hereby referred to, and a copy of which as amended has been filed with the Secretary of the Commonwealth of Massachusetts. Any agreement, obligation or liability made, entered into or incurred by or on behalf of New England Electric System binds only its trust estate, and no shareholder, director, trustee, officer or agent thereof assumes or shall be held to any liability therefor. 28 29 The Letter of Transmittal and Proxy and, if applicable, certificates for Shares should be sent or delivered by each tendering or voting Preferred Shareholder of Narragansett or such Preferred Shareholder's broker, dealer, bank, or trust company to the Depositary at one of its addresses set forth below. The Depositary is: IBJ SCHRODER BANK & TRUST COMPANY By Mail: By Hand or Overnight Delivery: P.O. Box 84 One State Street Bowling Green Station New York, New York 10004 New York, New York 10274-0084 Attn: Reorganization Department Attn: Reorganization Department Securities Processing Window SC-1 By Facsimile: To Confirm: (212) 858-2611 (212) 858-2103
Any questions or requests for assistance may be directed to the Information Agent or the Dealer Manager at their respective telephone numbers and addresses listed below. Requests for additional copies of this Booklet, the Letter of Transmittal and Proxy, or other tender offer or proxy materials may be directed to the Information Agent and such copies will be furnished promptly at the companies' expense. Preferred Shareholders may also contact their broker, dealer, commercial bank, trust company, or other nominee for assistance concerning the Offer. The Information Agent: (LOGO) Wall Street Plaza New York, New York 10005 (800) 223-2064 (toll-free) Banks and Brokers call collect: (212) 440-9800 The Dealer Manager: MERRILL LYNCH & CO. World Financial Center 250 Vesey Street New York, New York 10281 (888) ML4-TNDR (toll-free) (888) 654-8637 (toll-free) ATTENTION Preferred Shareholders who have lost certificates, please call Boston EquiServe, The Transfer Agent, at (617) 575-2000 for assistance. EX-99.(A)B-9 9 NARRAGANSETT FORM OF LETTER OF TRANSMITTAL 1 LETTER OF TRANSMITTAL AND PROXY RELATING TO SHARES OF 4.50% SERIES OF PREFERRED STOCK OF THE NARRAGANSETT ELECTRIC COMPANY TENDERED PURSUANT TO THE OFFER TO PURCHASE FOR CASH BY NEW ENGLAND ELECTRIC SYSTEM, DATED NOVEMBER 6, 1997, FOR PURCHASE AT A PURCHASE PRICE OF $ PER SHARE AND/OR VOTED PURSUANT TO THE PROXY STATEMENT, DATED NOVEMBER 6, 1997, OF [LOGO] THE NARRAGANSETT ELECTRIC COMPANY THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., EASTERN STANDARD TIME, ON FRIDAY, DECEMBER 12, 1997, UNLESS THE OFFER IS EXTENDED (THE EXPIRATION DATE). THE PROXY CONTAINED IN THIS DOCUMENT IS IN RESPECT OF THE SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON FRIDAY, DECEMBER 12, 1997, OR ON SUCH DATE TO WHICH THE MEETING IS ADJOURNED OR POSTPONED. To: IBJ Schroder Bank & Trust Company (the Depositary) By First-Class Mail: By Hand or Overnight Delivery: IBJ Schroder Bank & Trust Company IBJ Schroder Bank & Trust Company P.O. Box 8-1 One State Street Bowling Green Station New York, New York 10004 New York, New York 10274 Attn: Reorganization Department Attn: Reorganization Department Securities Processing Window SC-1 By Facsimile: To Conform: (212) 858-2611 (212) 858-2103 ATTENTION THIS LETTER OF TRANSMITTAL AND PROXY IS TO BE USED BY BOTH (1) PREFERRED SHAREHOLDERS WHO ARE TENDERING AND VOTING SHARES PURSUANT TO THE OFFER AND (2) PREFERRED SHAREHOLDERS WHO ARE ONLY VOTING ON THE PROPOSED AMENDMENT AND NOT TENDERING SHARES. ANY PREFERRED SHAREHOLDER WHO HAS ANY QUESTIONS AS TO HOW TO COMPLETE THIS LETTER OF TRANSMITTAL AND PROXY SHOULD CONTACT THE INFORMATION AGENT AT (800) 223-2064 (TOLL FREE) AND FOR BANKS AND BROKERS (212) 440-9918 (CALL COLLECT). 2 All capitalized terms used herein and not defined herein have the meanings ascribed to them in the Offer to Purchase and Proxy Statement. PREFERRED SHAREHOLDERS (INCLUDING PREFERRED SHAREHOLDERS WHO ACQUIRE SHARES SUBSEQUENT TO THE RECORD DATE) WILL NOT BE ABLE TO VALIDLY TENDER THEIR SHARES UNLESS THEY HAVE SUBMITTED A DULY COMPLETED, VALID AND UNREVOKED PROXY INDICATING THEIR VOTE FOR THE PROPOSED AMENDMENT OR INDICATE IN THE ACCOMPANYING PROXY THEIR INTENTION TO VOTE FOR THE PROPOSED AMENDMENT AT THE SPECIAL MEETING. NEW ENGLAND ELECTRIC SYSTEM, A MASSACHUSETTS VOLUNTARY ASSOCIATION (NEES), WILL NOT BE REQUIRED TO ACCEPT FOR PAYMENT OR PAY FOR ANY SHARES TENDERED IF THE PROPOSED AMENDMENT IS NOT APPROVED AND ADOPTED AT THE SPECIAL MEETING. PREFERRED SHAREHOLDERS HAVE THE RIGHT TO VOTE ON THE PROPOSED AMENDMENT REGARDLESS OF WHETHER THEY TENDER THEIR SHARES BY CASTING THEIR VOTE AND SIGNING THE PROXY CONTAINED WITHIN THIS LETTER OF TRANSMITTAL AND PROXY OR BY VOTING IN PERSON AT THE SPECIAL MEETING. IF THE PROPOSED AMENDMENT IS APPROVED AND ADOPTED, THE NARRAGANSETT ELECTRIC COMPANY, A RHODE ISLAND CORPORATION AND A DIRECT UTILITY SUBSIDIARY OF NEES (NARRAGANSETT), WILL MAKE A SPECIAL CASH PAYMENT TO EACH PREFERRED SHAREHOLDER WHO VOTED IN FAVOR OF THE PROPOSED AMENDMENT, PROVIDED THAT THEIR SHARES ARE NOT TENDERED PURSUANT TO THE OFFER. PREFERRED SHAREHOLDERS WHO PURCHASE OR WHOSE PURCHASE SETTLES OR IS REGISTERED AFTER THE CLOSE OF BUSINESS ON NOVEMBER 12, 1997 (THE RECORD DATE) AND WHO WISH TO TENDER IN THE OFFER MUST ARRANGE WITH THEIR SELLER TO RECEIVE A DULY COMPLETED, VALID AND UNREVOKED PROXY (WHICH MAY BE IN THE FORM OF AN IRREVOCABLE ASSIGNMENT OF PROXY AS SET FORTH IN THIS LETTER OF TRANSMITTAL AND PROXY) FROM THE HOLDER ON THE RECORD DATE OF SUCH SHARES. IN ORDER TO FACILITATE RECEIPT OF PROXIES, SHARES SHALL, DURING THE PERIOD WHICH COMMENCES NOVEMBER 10, 1997 (TWO BUSINESS DAYS PRIOR TO THE RECORD DATE) AND WHICH WILL END AT THE CLOSE OF BUSINESS ON THE EXPIRATION DATE, TRADE IN THE OVER-THE-COUNTER MARKET WITH A PROXY PROVIDING THE TRANSFEREE WITH THE RIGHT TO VOTE SUCH ACQUIRED SHARES IN THE PROXY SOLICITATION. NOTE: SIGNATURES MUST BE PROVIDED BELOW. PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY. NOTE: IF SHARES ARE BEING TENDERED, THE REMAINDER OF THIS LETTER OF TRANSMITTAL AND PROXY MUST BE COMPLETED, INCLUDING THE SUBSTITUTE FORM W-9 BELOW. IF SHARES ARE NOT BEING TENDERED, YOU NEED ONLY COMPLETE THE BOXES BELOW TITLED "PROXY" (OR, IF APPLICABLE, "IRREVOCABLE PROXY") AND "SIGNATURES(S) OF REGISTERED HOLDER(S)" AND THE SUBSTITUTE FORM W-9. The name "New England Electric System" means the trustee or trustees for the time being (as trustee or trustees but not personally) under an agreement and declaration of trust dated January 2, 1926, as amended, which is hereby referred to, and a copy of which as amended has been filed with the Secretary of the Commonwealth of Massachusetts. Any agreement, obligation or liability made, entered into or incurred by or on behalf of New England Electric System binds only its trust estate, and no shareholder, director, trustee, officer or agent thereof assumes or shall be held to any liability therefor. 2 3 PLEASE COMPLETE: - -------------------------------------------------------------------------------- PROXY The undersigned hereby appoints John G. Cochrane, Craig L. Eaton, Richard Nadeau and Robert King Wulff, or any of them, as proxies, each with the power to appoint his substitute, and hereby authorizes them to represent and to vote as designated hereunder and in their discretion with respect to any other business properly brought before the Special Meeting, all the shares (Shares) of 4.50% Series of Preferred Stock of The Narragansett Electric Company (Narragansett) which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held on Friday, December 12, 1997, or any adjournment(s) or postponement(s) thereof. NOTE: IF YOU ARE VOTING BUT NOT TENDERING SHARES, DO NOT SEND ANY SHARE CERTIFICATES WITH THIS LETTER OF TRANSMITTAL AND PROXY. THIS LETTER OF TRANSMITTAL AND PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF NARRAGANSETT. The proxy contained herein, when properly executed, will be voted in the manner directed herein by the undersigned shareholder(s). If no direction is made, the proxy will be voted FOR Item 1. INDICATE YOUR VOTE BY AN (X). THE BOARD OF DIRECTORS OF NARRAGANSETT RECOMMENDS VOTING FOR ITEM 1. HOLDERS OF SHARES WHO WISH TO TENDER THEIR SHARES MUST VOTE "FOR" THE PROPOSED AMENDMENT EITHER BY SUBMITTING THIS PROXY OR BY VOTING AT THE SPECIAL MEETING. ITEM 1. To delete in its entirety Subparagraph 10(d) from the Preferred Stock Provisions (as previously amended) of Narragansett, limiting Narragansett's ability to issue unsecured indebtedness. [ ] FOR [ ] AGAINST [ ] ABSTAIN NOTE: IF SHARES ARE BEING VOTED "FOR" THE PROPOSED AMENDMENT, THE SUBSTITUTE FORM W-9 BELOW SHOULD BE COMPLETED TO AVOID BACK-UP WITHHOLDING ON THE SPECIAL CASH PAYMENT. SHARES REPRESENTED BY ALL PROPERLY EXECUTED PROXIES WILL BE VOTED IN ACCORDANCE WITH INSTRUCTIONS APPEARING ON THIS PROXY. IN THE ABSENCE OF SPECIFIC INSTRUCTIONS, PROXIES WILL BE VOTED "FOR" THE PROPOSED AMENDMENT AND OTHERWISE IN ACCORDANCE WITH THE RECOMMENDATIONS OF THE BOARD OF DIRECTORS OF NARRAGANSETT, AND IN THE DISCRETION OF THE PROXY HOLDERS AS TO ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE SPECIAL MEETING. Any holder of Shares held of record on the Record Date in the name of another holder must establish to the satisfaction of Narragansett such holder's entitlement to exercise or transfer this Proxy. This will ordinarily require an assignment by such record holder in blank, or if not in blank, to and from each successive transferee, including the holder, with each signature guaranteed by an Eligible Institution. A form of irrevocable assignment of proxy has been provided herein. Please check box if you plan to attend the Special Meeting. [ ] - -------------------------------------------------------------------------------- 3 4 PLEASE COMPLETE IF APPLICABLE: - -------------------------------------------------------------------------------- DESCRIPTION OF SHARES TENDERED(1)
- --------------------------------------------------------------------------------------------------------------------- NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) (PLEASE USE PRE ADDRESSED LABEL OR FILL IN, IF BLANK, EXACTLY AS NAME(S) APPEAR(S) ON SHARE SHARE CERTIFICATE(S) AND SHARE(S) TENDERED/VOTED CERTIFICATE(S) AND SHARE(S) TENDERED) (ATTACH ADDITIONAL SIGNED LIST IF NECESSARY)(1) - --------------------------------------------------------------------------------------------------------------------- NUMBER OF TOTAL NUMBER SHARES NOT OF SHARES TENDERED BUT REPRESENTED NUMBER AS TO WHICH SHARE CERTIFICATE BY SHARE OF SHARES PROXIES NUMBER(S)(2) CERTIFICATE(S)(2) TENDERED(3) GIVEN ONLY --------------------------------------------------------------------- --------------------------------------------------------------------- --------------------------------------------------------------------- --------------------------------------------------------------------- Total Shares: - ---------------------------------------------------------------------------------------------------------------------
(1) If tendering or voting Share(s), please fill in table exactly as information appears on the Certificate(s). (2) Need not be completed by Preferred Shareholders tendering by book-entry transfer. (3) Unless otherwise indicated, it will be assumed that all Shares represented by any Certificate(s) delivered to the Depositary are being tendered and a proxy is being delivered. See Instruction 4. You must vote "FOR" the Proposed Amendment with respect to any Shares tendered. - -------------------------------------------------------------------------------- NOTE: IF YOU ARE DELIVERING A PROXY BUT NOT TENDERING SHARES, DO NOT SEND ANY SHARE CERTIFICATES. 4 5 PLEASE COMPLETE IF APPLICABLE: - -------------------------------------------------------------------------------- SIGNATURE(S) OF REGISTERED HOLDER(S)* - -------------------------------------------------------------------------------- (SIGNATURE) - -------------------------------------------------------------------------------- (SIGNATURE) Dated: , 1997 -------------------------------------------------------------------- Name(s): ------------------------------------------------------------------------ - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (PLEASE PRINT) Capacity (full title): ---------------------------------------------------------- Address: ------------------------------------------------------------------------ - -------------------------------------------------------------------------------- (INCLUDE ZIP CODE) Daytime Area Code and Telephone No.: -------------------------------------------- * Must be signed by the registered holder(s) exactly as name(s) appear(s) on the stock certificate(s) or on a security position listing or by person(s) authorized to become registered holder(s) by certificates and documents transmitted herewith. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, please set forth full title and see Instruction 5. GUARANTEE OF SIGNATURE(S) (SEE INSTRUCTIONS 1 AND 5) Authorized Signature: ----------------------------------------------------------- Name: --------------------------------------------------------------------------- Name of Firm: ------------------------------------------------------------------- (PLEASE PRINT) Address of Firm: ---------------------------------------------------------------- - -------------------------------------------------------------------------------- (INCLUDE ZIP CODE) Area Code and Telephone No.: ---------------------------------------------------- Dated: , 1997 -------------------------------------------------------------------- - -------------------------------------------------------------------------------- 5 6 IF SELLING SHARES ON OR AFTER NOVEMBER 10, 1997, A RECORD HOLDER MUST COMPLETE THE FOLLOWING IRREVOCABLE PROXY. PLEASE SIGN THIS TO IRREVOCABLY TRANSFER A PREFERRED STOCK PROXY TO A SUBSEQUENT HOLDER OF PREFERRED STOCK WHO WAS NOT A HOLDER OF RECORD ON NOVEMBER 12, 1997. - -------------------------------------------------------------------------------- IRREVOCABLE PROXY * WITH RESPECT TO SHARES OF THE 4.50% SERIES OF PREFERRED STOCK (THE SHARES) OF THE NARRAGANSETT ELECTRIC COMPANY (NARRAGANSETT) The undersigned hereby irrevocably appoints: ------------------------------------ TYPE OR PRINT NAME OF TRANSFEREE as attorney and proxy, with full power of substitution, to vote and otherwise act for and in the name(s) of the undersigned with respect to the Shares indicated below which were held of record by the undersigned on November 12, 1997, in the manner in which the undersigned would be entitled to vote and otherwise act in respect of such Shares on any and all matters. This proxy shall be effective whether or not the Shares indicated below are tendered in the Offer. This instrument supersedes and revokes any and all previous appointments of proxies heretofore made by the undersigned with respect to the Shares indicated below as to any and all matters. THIS PROXY IS IRREVOCABLE AND IS COUPLED WITH AN INTEREST. All authority conferred or agreed to be conferred herein shall survive the death or incapacity of the undersigned, and any obligation of the undersigned hereunder shall be binding upon the heirs, executors, administrators, legal and personal representatives, successors in interest and assigned of the undersigned. The undersigned understands that tenders of Shares pursuant to any of the procedures described in the Offer to Purchase and Proxy Statement and in this Letter of Transmittal and Proxy will constitute a binding agreement between the undersigned and Narragansett upon the terms and subject to the conditions of the Offer. DESCRIPTION OF PREFERRED STOCK
CERTIFICATE NUMBER(S) AGGREGATE NUMBER (ATTACH LIST IF NECESSARY) OF SHARES - -------------------------- ---------------- 1. ------------------------ -------------------------- 2. ------------------------ -------------------------- 3. ------------------------ -------------------------- Total --------------------------
- --------------- * This irrevocable proxy must be signed on the next page to be effective. - -------------------------------------------------------------------------------- 6 7 - -------------------------------------------------------------------------------- IRREVOCABLE PROXY SIGNATURE(S) OF RECORD OR AUTHORIZED SIGNATORY* - -------------------------------------------------------------------------------- (SIGNATURE) - -------------------------------------------------------------------------------- (PLEASE PRINT) Dated: , 1997 -------------------------------------------------------------------- Tax Identification or Social Security No(s) ------------------------------------- - -------------------------------------------------------------------------------- (SIGNATURE) - -------------------------------------------------------------------------------- (PLEASE PRINT) Dated: , 1997 -------------------------------------------------------------------- Tax Identification or Social Security No(s) ------------------------------------- * Must be signed by the registered holder(s) exactly as name(s) appear(s) on the Record Date on the stock certificate(s) or on a security position listing or by person(s) authorized to become registered holder(s) by certificates and documents transmitted herewith. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation, agent or other person acting in a fiduciary or representative capacity, please provide the following information and see Instruction 5. GUARANTEE OF SIGNATURE(S) (SEE INSTRUCTIONS 1 AND 5) Authorized Signature: ----------------------------------------------------------- Name: --------------------------------------------------------------------------- (PLEASE PRINT) Capacity (Full Title): ---------------------------------------------------------- Name of Firm: ------------------------------------------------------------------- (PLEASE PRINT) Address of Firm: ---------------------------------------------------------------- - -------------------------------------------------------------------------------- (INCLUDE ZIP CODE) Area Code and Telephone No.: ---------------------------------------------------- Dated: , 1997 ------------------------------------------------------------------- - -------------------------------------------------------------------------------- 7 8 NOTE: IF SHARES ARE BEING TENDERED, THE REMAINDER OF THIS LETTER OF TRANSMITTAL AND PROXY MUST BE COMPLETED, INCLUDING THE SUBSTITUTE FORM W-9 BELOW OR A FORM W-8, AS APPLICABLE. DELIVERY OF THIS LETTER OF TRANSMITTAL AND PROXY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS TO A FACSIMILE NUMBER OTHER THAN THE ONE LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. YOU MUST SIGN THIS LETTER OF TRANSMITTAL AND PROXY IN THE APPROPRIATE SPACE THEREFOR PROVIDED ABOVE AND, IF YOU ARE TENDERING ANY SHARES OR VOTING "FOR" THE PROPOSED AMENDMENT, COMPLETE THE SUBSTITUTE FORM W-9 SET FORTH BELOW OR A FORM W-8, AS APPLICABLE. SEE INSTRUCTION 8 AND "IMPORTANT TAX INFORMATION" BELOW. DO NOT SEND ANY CERTIFICATES TO NEES, NARRAGANSETT, MERRILL LYNCH & CO., OR GEORGESON & COMPANY, INC. THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL AND PROXY SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL AND PROXY IS COMPLETED. This Letter of Transmittal and Proxy is to be used if (a) Certificates are to be forwarded herewith, (b) delivery of Shares is to be made by book-entry transfer pursuant to the procedures set forth under the heading Terms of the Offer -- Procedure for Tendering Shares in the Offer to Purchase and Proxy Statement (as defined below) or (c) Shares are being voted in connection with the Offer. Preferred Shareholders who wish to tender Shares but cannot deliver their Shares and all other documents required hereby to the Depositary on or prior to the Expiration Date must tender their Shares pursuant to the guaranteed delivery procedure set forth under the heading Terms of the Offer -- Procedure for Tendering Shares -- Guaranteed Delivery Procedure in the Offer to Purchase and Proxy Statement. See Instruction 2. DELIVERY OF DOCUMENTS TO NEES, NARRAGANSETT OR A BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE A VALID DELIVERY. PLEASE COMPLETE: - -------------------------------------------------------------------------------- [ ] CHECK HERE IF TENDERED SHARES ARE ENCLOSED HEREWITH. A HOLDER TENDERING SHARES PURSUANT TO THIS LETTER OF TRANSMITTAL AND PROXY MUST CHECK ONE OF THE FOLLOWING BOXES: [ ] A duly completed, valid and unrevoked proxy indicating a vote "FOR" the Proposed Amendment is included herein. [ ] A vote "FOR" the Proposed Amendment will be cast at the Special Meeting. - -------------------------------------------------------------------------------- 8 9 (BOXES BELOW FOR USE BY ELIGIBLE INSTITUTIONS ONLY) - --------------------------------------------------------------------------------------------- [ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER TO THE DEPOSITARY'S ACCOUNT AT ONE OF THE BOOK-ENTRY TRANSFER FACILITIES AND COMPLETE THE FOLLOWING: Name of tendering institution: ----------------------------------------------------------- (PLEASE PRINT) Check applicable box: [ ] DTC [ ] PDTC Account No. ------------------------------------------------------------------------------ Transaction Code No. --------------------------------------------------------------------- - --------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------- [ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY AND PROXY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING: Name(s) of tendering Preferred Shareholder(s): ------------------------------------------- ----------------------------------------------------------------------------------------- (PLEASE PRINT) Date of execution of Notice of Guaranteed Delivery and Proxy: ---------------------------- Name of institution that guaranteed delivery: -------------------------------------------- If delivery is by book-entry transfer: Name of tendering institution: ----------------------------------------------------------- Account No. at [ ] DTC or [ ] PDTC -------------------------------------------------------- (CHECK ONE) Transaction Code No. --------------------------------------------------------------------- - --------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------- A HOLDER ELECTING TO TENDER SHARES PURSUANT TO A NOTICE OF GUARANTEED DELIVERY AND PROXY MUST CHECK ONE OF THE FOLLOWING BOXES: [ ] A duly completed, valid and unrevoked proxy indicating a vote "FOR" the Proposed Amendment was included with the Notice of Guaranteed Delivery and Proxy previously sent to the Depositary. [ ] A duly completed, valid and unrevoked proxy indicating a vote "FOR" the Proposed Amendment is being delivered pursuant to a Notice of Guaranteed Delivery and Proxy previously sent to the Depositary. [ ] A vote "FOR" the Proposed Amendment will be cast at the Special Meeting.
- -------------------------------------------------------------------------------- 9 10 NOTE: SIGNATURES MUST BE PROVIDED ABOVE PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY Ladies and Gentlemen: The above signed hereby tenders to NEES the shares in the amount set forth in the box above labeled "Description of Shares Tendered" pursuant to NEES' offer to purchase any and all of the outstanding shares of the 4.50% Series of Preferred Stock (the Shares) of Narragansett, shown above as to which this Letter of Transmittal and Proxy is applicable at the purchase price per Share shown above (the Purchase Price), net to the seller in cash, upon the terms and subject to the conditions set forth in the Offer to Purchase and Proxy Statement, dated November 6, 1997 (the Booklet), receipt of which is hereby acknowledged, and in this Letter of Transmittal and Proxy (which together, constitute the Offer). PREFERRED SHAREHOLDERS WHO WISH TO TENDER THEIR SHARES PURSUANT TO THE OFFER MUST VOTE IN FAVOR OF THE PROPOSED AMENDMENT TO NARRAGANSETT'S PREFERRED STOCK PROVISIONS AS PREVIOUSLY AMENDED ON MARCH 23, 1993 (THE PROVISIONS), AS SET FORTH IN THE BOOKLET (THE PROPOSED AMENDMENT). THE OFFER IS CONDITIONED UPON THE PROPOSED AMENDMENT BEING APPROVED AND ADOPTED AT THE SPECIAL MEETING (AS DEFINED IN THE BOOKLET). See Proposed Amendment and Proxy Solicitation, Terms of the Offer -- Extension of Tender Period; Termination; Amendments and Terms of the Offer -- Certain Conditions of the Offer in the Booklet. Subject to, and effective upon, acceptance for payment of and payment for the Shares tendered herewith in accordance with the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of any such extension or amendment), the above signed hereby sells, assigns and transfers to, or upon the order of, NEES all right, title and interest in and to all the Shares that are being tendered hereby and hereby constitutes and appoints IBJ Schroder Bank & Trust Company (the Depositary) the true and lawful agent and attorney-in-fact of the above signed with respect to such Shares, with full power of substitution (such power of attorney being an irrevocable power coupled with an interest), to (a) deliver certificates for such Shares, or transfer ownership of such Shares on the account books maintained by any of the Book-Entry Transfer Facilities, together, in any such case, with all accompanying evidences of transfer and authenticity, to or upon the order of NEES, (b) present such Shares for registration and transfer on the books of Narragansett and (c) receive all benefits and otherwise exercise all rights of beneficial ownership of such Shares, all in accordance with the terms of the Offer. The above signed hereby represents and warrants that the above signed has full power and authority to tender, sell, assign and transfer the Shares tendered hereby and that, when and to the extent the same are accepted for payment by NEES, NEES will acquire good, marketable and unencumbered title thereto, free and clear of all liens, restrictions, charges, encumbrances, conditional sales agreements or other obligations relating to the sale or transfer thereof, and the same will not be subject to any adverse claims. The above signed will, upon request, execute and deliver any additional documents deemed by the Depositary or NEES to be necessary or desirable to complete the sale, assignment and transfer of the Shares tendered hereby. All authority herein conferred or agreed to be conferred shall not be affected by, and shall survive, the death or incapacity of the above signed, and any obligations of the above signed hereunder shall be binding upon the heirs, personal representatives, successors and assigns of the above signed. Except as stated in the Offer, this tender is irrevocable. The above signed understands that tenders of Shares pursuant to any one of the procedures described under the heading Terms of the Offer -- Procedure for Tendering Shares in the Booklet and in the instructions hereto will constitute the above signed's acceptance of the terms and conditions of the Offer, including the above signed's representation and warranty that (a) the above signed has a net long position in the Shares being tendered within the meaning of Rule 14e-4 promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act), and (b) the tender of such Shares complies with Rule 14e-4. NEES' acceptance for payment of Shares tendered pursuant to the Offer will constitute a binding agreement between the above signed and NEES upon the terms and subject to the conditions of the Offer. 10 11 The above signed recognizes that, under certain circumstances set forth in the Booklet, NEES may terminate or amend the Offer or may not be required to purchase any of the Shares tendered hereby. In either event, the above signed understands that certificate(s) for any Shares not tendered or not purchased will be returned to the above signed. Unless otherwise indicated in the box below under the heading "Special Payment Instructions," please issue the check for the Purchase Price of any Shares purchased, and/or return any Shares not tendered or not purchased, in the name(s) of the above signed (and, in the case of Shares tendered by book-entry transfer, by credit to the account at the Book-Entry Transfer Facility designated above). Unless otherwise indicated in the box below under the heading "Special Delivery Instructions," please mail the check for the Purchase Price of any Shares purchased and/or any certificates for Shares not tendered or not purchased (and accompanying documents, as appropriate) to the above signed at the address shown below. In the event that both "Special Payment Instructions" and "Special Delivery Instructions" are completed, please issue the check for the Purchase Price of any Shares purchased and/or return any Shares not tendered or not purchased in the name(s) of, and mail said check and/or any certificates to, the person(s) so indicated. The above signed recognizes that NEES has no obligation, pursuant to the "Special Payment Instructions," to transfer any Shares from the name of the registered holder(s) thereof if NEES does not accept for payment any of the Shares so tendered. 11 12 PLEASE COMPLETE IF APPLICABLE: - -------------------------------------------------------------------------------- SPECIAL PAYMENT INSTRUCTIONS SEE INSTRUCTIONS 4, 6, AND 7 To be completed ONLY if the check for the Purchase Price of Shares purchased and/or certificates for Shares not tendered or not purchased are to be issued in the name of someone other than the above signed. Issue: [ ] Check [ ] Certificate(s) to: Name ------------------------------------------------------------------- (PLEASE PRINT) Address ---------------------------------------------------------------- ----------------------------------------------------------------------- (INCLUDE ZIP CODE) ----------------------------------------------------------------------- (TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER)* * SEE SUBSTITUTE FORM W-9 BELOW. Credit Shares delivered by book-entry transfer and not purchased to the Book-Entry Transfer Facility Account set forth below: [ ] DTC [ ] PDTC Account No.: ----------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SPECIAL DELIVERY INSTRUCTIONS SEE INSTRUCTIONS 4, 6, AND 7 To be completed ONLY if the check for the Purchase Price of Shares purchased and/or certificates for Shares not tendered or not purchased are to be mailed to someone other than the above signed or to the above signed at an address other than that shown below the above signed's signature(s). Mail: [ ] Check [ ] Certificate(s) to: Name ------------------------------------------------------------------- (PLEASE PRINT) Address ---------------------------------------------------------------- ----------------------------------------------------------------------- (INCLUDE ZIP CODE) - -------------------------------------------------------------------------------- [ ] CHECK HERE IF ANY OF THE CERTIFICATES REPRESENTING SHARES THAT YOU OWN AND WISH TO TENDER HAVE BEEN LOST, DESTROYED OR STOLEN. (SEE INSTRUCTION 12.) Number of Shares represented by lost, destroyed or stolen certificates: -------------------------------------- 12 13 SOLICITED TENDERS (SEE INSTRUCTION 10) As provided in the Booklet and Instruction 10 to the Letter of Transmittal and Proxy, NEES will pay to any Soliciting Dealer, as defined in Instruction 10, a solicitation fee of $.75 per Share for any Shares tendered, accepted for payment and paid pursuant to the Offer and for any Shares not tendered but voted in favor of the Proposed Amendment (except that for transactions for beneficial owners equal to or exceeding 2,500 Shares, NEES will pay a solicitation fee of $.50 per Share). Solicitation fees payable in transactions for beneficial owners of 2,500 or more Shares shall be paid 80% to the Dealer Manager and 20% to the Soliciting Dealers (which may be the Dealer Manager). However, Soliciting Dealers will not be entitled to a solicitation fee for Shares beneficially owned by such Soliciting Dealer. The undersigned represents that the Soliciting Dealer which solicited and obtained this tender is: Name of Firm: ------------------------------------------------------------------- (PLEASE PRINT) Name of Individual Broker or Financial Consultant: ------------------------------ Telephone Number of Broker or Financial Consultant: ----------------------------- Identification Number (if known): ----------------------------------------------- Address: ------------------------------------------------------------------------ - -------------------------------------------------------------------------------- (INCLUDE ZIP CODE) The following to be completed ONLY if customer's Shares held in nominee name are tendered. (ATTACH ADDITIONAL LIST IF NECESSARY.) NAME OF BENEFICIAL OWNER NUMBER OF SHARES TENDERED - --------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------
The acceptance of compensation by such Soliciting Dealer will constitute a representation by it that (a) it has complied with the applicable requirements of the Exchange Act and the applicable rules and regulations thereunder, in connection with such solicitation; (b) it is entitled to such compensation for such solicitation under the terms and conditions of the Offer (unless such solicitation fee is directed to another Soliciting Dealer); (c) in soliciting tenders of Shares, it has used no soliciting materials other than those furnished by NEES; and (d) if it is a foreign broker or dealer not eligible for membership in the National Association of Securities Dealers, Inc. (the NASD), it has agreed to conform to the NASD's Rules of Fair Practice in making the solicitations. The payment of compensation to any Soliciting Dealer is dependent on such Soliciting Dealer returning a Notice of Solicited Tenders to the Depositary. (IF SHARES ARE BEING TENDERED AND/OR VOTED, PLEASE ALSO COMPLETE SUBSTITUTE FORM W-9 BELOW OR A FORM W-8, AS APPLICABLE) SIGN HERE: ---------------------------------------------------------------------- - -------------------------------------------------------------------------------- (SIGNATURE(S) OF REGISTERED HOLDER(S)) 13 14 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER 1. GUARANTEE OF SIGNATURES. Except as otherwise provided below, all signatures on this Letter of Transmittal and Proxy must be guaranteed by a firm that is a member of a registered national securities exchange or the NASD, or by a commercial bank or trust company having an office or correspondent in the United States which is a participant in an approved Signature Guarantee Medallion Program (an Eligible Institution). Signatures on this Letter of Transmittal and Proxy need not be guaranteed (a) if this Letter of Transmittal and Proxy is signed by the registered holder(s) of the Shares (which term, for purposes of this document, shall include any participant in one of the Book-Entry Transfer Facilities whose name appears on a security position listing as the owner of Shares) tendered herewith and such holder(s) has not completed the box above under the heading "Special Payment Instructions" or the box above under the heading "Special Delivery Instructions" on this Letter of Transmittal and Proxy, (b) if such Shares are tendered for the account of an Eligible Institution or (c) if this Letter of Transmittal and Proxy is being used solely for the purpose of voting Shares which are not being tendered pursuant to the Offer. See Instruction 5. 2. DELIVERY OF LETTER OF TRANSMITTAL AND PROXY AND SHARES. This Letter of Transmittal and Proxy is to be used if (a) certificates are to be forwarded herewith, (b) delivery of Shares is to be made by book-entry transfer pursuant to the procedures set forth under the heading Terms of the Offer -- Procedure for Tendering Shares in the Booklet or (c) Shares are being voted in connection with the Offer. Certificates for all physically delivered Shares, or a confirmation of a book-entry transfer into the Depositary's account at the Book-Entry Transfer Facilities of Shares delivered electronically, as well as a properly completed and duly executed Letter of Transmittal and Proxy (or facsimile thereof) and any other documents required by this Letter of Transmittal and Proxy, must be received by the Depositary at one of its addresses set forth on the front page of this Letter of Transmittal and Proxy on or prior to the Expiration Date with respect to all Shares. Preferred Shareholders who wish to tender their Shares yet who cannot deliver their Shares and all other required documents to the Depositary on or prior to the Expiration Date must tender their Shares pursuant to the guaranteed delivery procedure set forth under the heading Terms of the Offer -- Procedure for Tendering Shares in the Booklet. Pursuant to such procedure: (i) such tender must be made by or through an Eligible Institution, (ii) a properly completed and duly executed Notice of Guaranteed Delivery and Proxy in the form provided by NEES (with any required signature guarantees) must be received by the Depositary on or prior to the applicable Expiration Date and (iii) the certificates for all physically delivered Shares, or a confirmation of a book-entry transfer into the Depositary's account at one of the Book-Entry Transfer Facilities of Shares delivered electronically, as well as a properly completed and duly executed Letter of Transmittal and Proxy (or facsimile thereof) and any other documents required by this Letter of Transmittal and Proxy must be received by the Depositary within three New York Stock Exchange (NYSE) trading days after the date of execution of such Notice of Guaranteed Delivery and Proxy, all as provided under the heading Terms of the Offer -- Procedure for Tendering Shares in the Booklet. A NYSE trading day is any day on which the NYSE is open for business. THE METHOD OF DELIVERY OF SHARES AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING PREFERRED SHAREHOLDER. IF CERTIFICATES FOR SHARES ARE SENT BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. No alternative, conditional or contingent tenders will be accepted. See Terms of the Offer -- Number of Shares; Purchase Price; Expiration Date; Dividends in the Booklet. By executing this Letter of Transmittal and Proxy (or facsimile thereof), the tendering Preferred Shareholder waives any right to receive any notice of the acceptance for payment of the Shares. 3. VOTING. PREFERRED SHAREHOLDERS (INCLUDING PREFERRED SHAREHOLDERS WHO ACQUIRE SHARES SUBSEQUENT TO THE RECORD DATE) WHO WISH TO TENDER THEIR SHARES PURSUANT TO THE OFFER MUST VOTE IN FAVOR OF THE PROPOSED AMENDMENT TO NARRAGANSETT'S PROVISIONS, AS SET FORTH IN THE BOOKLET. THE OFFER IS CONDITIONED UPON THE PROPOSED AMENDMENT BEING APPROVED AND 14 15 ADOPTED AT THE SPECIAL MEETING. In addition, Preferred Shareholders have the right to vote on the Proposed Amendment regardless of whether they tender their Shares by casting their vote and duly executing the Proxy included in this Letter of Transmittal and Proxy or by voting in person at the Special Meeting. By executing a Notice of Guaranteed Delivery and Proxy, a Preferred Shareholder is deemed to have tendered the Shares described in such Notice of Guaranteed Delivery and Proxy and to have voted such Shares in accordance with the proxy contained therein. If no vote is indicated on an otherwise properly executed proxy contained within this Letter of Transmittal and Proxy (or within a Notice of Guaranteed Delivery and Proxy), then all Shares in respect of such proxy will be voted in favor of the Proposed Amendment. See Proposed Amendment and Proxy Solicitation in the Booklet. The Offer is being sent to all persons in whose name Shares are registered on the books of Narragansett on November 6, 1997 as well as to all persons in whose name Shares are registered on November 12, 1997, which is the Record Date. Preferred Shareholders who purchase or whose purchase is registered after the Record Date and who wish to tender in the Offer must arrange with their seller to receive a proxy from the holder of record on the Record Date of such Shares. Any holder of Shares held of record on the Record Date in the name of another holder must establish to the satisfaction of Narragansett such holder's entitlement to exercise or transfer such Proxy. This will ordinarily require an assignment by such record holder in blank, or if not in blank, to and from each successive transferee, including the holder, with each signature guaranteed by an Eligible Institution. See Instruction 5. In order to facilitate receipt of proxies, Shares shall, during the period which commences November 10, 1997 and which will end at the close of business on the Expiration Date, trade in the over-the-counter market with a proxy providing the transferee with the right to vote such acquired shares in the Proxy Solicitation. No record date is fixed for determining which persons are permitted to tender Shares. However, only the holders of record, or holders who acquire an assignment of proxy from such holders, are permitted to vote for the Proposed Amendment and thereby validly tender Shares pursuant to the Offer. Any person who is the beneficial owner but not the record holder of Shares must arrange for the record transfer of such Shares prior to tendering or direct the record holder to tender on behalf of the beneficial holder. 4. PARTIAL TENDERS. NOT APPLICABLE TO SHAREHOLDERS WHO TENDER BY BOOK- ENTRY TRANSFER. If fewer than all the Shares represented by any certificate delivered to the Depositary are to be tendered, fill in the number of Shares that are to be tendered in the box above under the heading "Description of Shares Tendered." In such case, a new certificate for the remainder of the Shares represented by the old certificate will be sent to the person(s) signing this Letter of Transmittal and Proxy, unless otherwise provided in the box above under the heading "Special Payment Instructions" or "Special Delivery Instructions," as promptly as practicable following the expiration or termination of the Offer. All Shares represented by certificates delivered to the Depositary will be deemed to have been tendered unless otherwise indicated. 5. SIGNATURES ON LETTER OF TRANSMITTAL AND PROXY AND NOTICE OF GUARANTEED DELIVERY AND PROXY; STOCK POWERS AND ENDORSEMENTS. If either this Letter of Transmittal and Proxy or the Notice of Guaranteed Delivery and Proxy (together, the Tender and Proxy Documents) is signed by the registered holder(s) of the Shares tendered hereby, the signature(s) must correspond with the name(s) as written on the face of the certificates without alteration, enlargement or any change whatsoever. If any of the Shares tendered or voted under either Tender and Proxy Document is held of record by two or more persons, all such persons must sign such Tender and Proxy Document. If any of the Shares tendered or voted under either Tender and Proxy Document are registered in different names or different certificates, it will be necessary to complete, sign and submit as many separate Tender and Proxy Documents as there are different registrations of certificates. If either Tender and Proxy Document is signed by the registered holder(s) of the Shares tendered hereby, no endorsements of certificates or separate stock powers are required unless payment of the Purchase Price is to be made to, or Shares not tendered or not purchased are to be registered in the name of, any person other than the registered holder(s). Signatures on any such certificates or stock powers must be guaranteed by an Eligible Institution. See Instruction 1. 15 16 If this Letter of Transmittal and Proxy is signed by a person other than the registered holder(s) of the Shares tendered hereby, certificates must be endorsed or accompanied by appropriate stock powers, in either case, signed exactly as the name(s) of the registered holder(s) appear(s) on the certificates for such Shares. Signature(s) on any such certificates or stock powers must be guaranteed by an Eligible Institution. See Instruction 1. If either Tender and Proxy Document or any certificate or stock power is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, such person should so indicate when signing, and proper evidence satisfactory to NEES of the authority of such person so to act must be submitted. 6. STOCK TRANSFER TAXES. Except as set forth in this Instruction 6, NEES will pay or cause to be paid any stock transfer taxes with respect to the sale and transfer of any Shares to it or its order pursuant to the Offer. If, however, payment of the Purchase Price is to be made to, or Shares not tendered or not purchased are to be registered in the name of, any person other than the registered holder(s), or if tendered Shares are registered in the name of any person other than the person(s) signing this Letter of Transmittal and Proxy, the amount of any stock transfer taxes (whether imposed on the registered holder(s), such other person or otherwise) payable on account of the transfer to such person will be deducted from the Purchase Price unless satisfactory evidence of the payment of such taxes, or exemption therefrom, is submitted. Each Preferred Shareholder will be responsible for paying any income or gross receipts taxes imposed by any jurisdiction by reason of the Special Cash Payment (as defined in the Booklet) and/or the sale of the Shares in the Offer. See Terms of the Offer -- Acceptance of Shares for Payment and Payment of Purchase Price and Dividends and Certain U.S. Federal Income Tax Considerations in the Booklet. EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY TO AFFIX TRANSFER TAX STAMPS TO THE CERTIFICATES REPRESENTING SHARES TENDERED HEREBY. 7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If the check for the Purchase Price of any Shares purchased is to be issued in the name of, any Shares not tendered or not purchased are to be returned to, and/or the check for the Special Cash Payment is to be issued in the name of, a person other than the person(s) signing this Letter of Transmittal and Proxy or if the check and/or any certificate for Shares not tendered or not purchased are to be mailed to someone other than the person(s) signing this Letter of Transmittal and Proxy or to an address other than that shown in the box above under the heading "Description of Shares Tendered," then the "Special Payment Instructions" and/or "Special Delivery Instructions" on this Letter of Transmittal and Proxy should be completed. Preferred Shareholders tendering Shares by book-entry transfer will have any Shares not accepted for payment returned by crediting the account maintained by such Preferred Shareholder at the Book-Entry Transfer Facility from which such transfer was made. 8. SUBSTITUTE FORM W-9 AND FORM W-8. A tendering and/or voting Preferred Shareholder is required to provide the Depositary with either a correct Taxpayer Identification Number (TIN) on Substitute Form W-9, which is provided under "Important Tax Information" below, or a properly completed Form W-8 unless exempt therefrom. Failure to provide the information on either Substitute Form W-9 or Form W-8 may subject the tendering and/or voting Preferred Shareholder to 31% federal income tax backup withholding on the payment of the Purchase Price for the Shares or on the Special Cash Payment. The tendering and/or voting Preferred Shareholder may write "Applied For" in Part I of Substitute Form W-9 and sign the "Certificate of Awaiting Taxpayer Identification Number" of Substitute Form W-9 if the Preferred Shareholder has not been issued a TIN and has applied for a number or intends to apply for a number in the near future. If "Applied For" is written in Part I of Substitute Form W-9 and the "Certificate of Awaiting Taxpayer Identification Number" of Substitute Form W-9 is signed and the Depositary is not provided with a TIN by the time of payment, the Depositary will withhold 31% on all payments of the Purchase Price for the Shares or the Special Cash Payment thereafter until a TIN is provided to the Depositary. 16 17 9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Any questions or requests for assistance may be directed to the Information Agent or the Dealer Manager at their respective telephone numbers and addresses listed below. Requests for additional copies of the Booklet, this Letter of Transmittal and Proxy, or other tender offer materials may be directed to the Information Agent or the Dealer Manager and such copies will be furnished promptly at NEES' expense. Preferred Shareholders may also contact their local broker, dealer, commercial bank or trust company for assistance concerning the Offer. 10. SOLICITED TENDERS. Upon the terms an subject to the conditions of the Offer and this Instructing, NEES will pay a solicitation fee of $.75 per Share for any Shares tendered, accepted for payment and paid pursuant to the Offer and for any Shares not tendered but voted in favor of the Proposed Amendment of which at least eighty percent (80%) shall be paid to the Dealer Manager and twenty percent (20%) to the Soliciting Dealer (which may be the Dealer Manager)). With respect to fees payable pursuant to this paragraph involving transactions for beneficial owners whose ownership is less than 2,500 Shares, any fees payable hereunder shall be paid in full to the Dealer Manager unless a Soliciting Dealer is designated (as described below), in which case such fee shall be payable in full to such designated Soliciting Dealer (which designated Soliciting Dealer may be the Dealer Manager). The Letters of Transmittal and Proxy must include the name of an entity which obtained the tender or proxy and which is either, (a) a broker or dealer in securities, including the Dealer Manager in its capacity as a broker or dealers, which is a member of any national securities exchange or of the National Association of Securities Dealers, Inc. (NASD), (b) a foreign broker or dealer not eligible for membership in the NASD which agrees to conform to the NASD's Rules of Fair Practice in soliciting tenders outside the United States to the same extent as though it were an NASD member, or (c) a bank or trust company (each of which is referred to herein as a Soliciting Dealer). No solicitation fee shall be payable to a Soliciting Dealer with respect to the tender of Shares or delivery of a proxy unless the Letter of Transmittal and Proxy accompanying such tender or delivery of a proxy designates such Soliciting Dealer. No solicitation fee shall be payable to a Soliciting Dealer in respect of Shares registered in the name of such Soliciting Dealer unless such Shares are held by such Soliciting Dealer as nominee and such Shares are being tendered or delivered for the benefit of one or more beneficial owners identified on the Letter of Transmittal or on the Notice of Solicited Tenders. No solicitation fee shall be payable to a Soliciting Dealer if such Soliciting Dealer is required for any reason to transfer the amount of such fee to a depositing holder (other than itself). No solicitation fee shall be paid to a Soliciting Dealer with respect to Shares tendered or delivered for such Soliciting Dealer's own account. Soliciting Dealers will not be entitled to a solicitation fee for Shares beneficially owned by such Soliciting Dealer. No broker, dealer, bank, trust company or fiduciary shall be deemed to be the agent of NEES, the Power Company, the Depositary, the Information Agent or the Dealer Manager for purposes of the Offer. Soliciting Dealers will include any of the organizations described in clauses (a), (b) and (c) above even when the activities of such organizations in connection with the Offer consist solely of forwarding to clients materials relating to the Offer, including the Letter of Transmittal and tendering Shares or delivering as directed by beneficial owners thereof. No Soliciting Dealer is required to make any recommendation to holders of Shares as to whether to tender or refrain from tendering in the Offer. No assumption is made, in making payment to any Soliciting Dealer, that its activities in connection with the Offer included any activities other than those described above, and for all purposes noted in all materials relating to the Offer, the term "solicit" shall be deemed to mean no more than processing shares tendered or forwarding to customers materials regarding the Offer. 17 18 11. IRREGULARITIES. All questions as to the form of documents and the validity, eligibility (including time of receipt) and acceptance of any tender of Shares will be determined by NEES, in its sole discretion, and its determination shall be final and binding. NEES reserves the absolute right to reject any and all tenders of Shares that it determines are not in proper form or the acceptance for payment of or payment for Shares that may, in the opinion of NEES' counsel, be unlawful. NEES also reserves the absolute right to waive any of the conditions to the Offer or any defect or irregularity in any tender of Shares and NEES' interpretation of the terms and conditions of the Offer (including these instructions) shall be final and binding. Unless waived, any defects or irregularities in connection with tenders must be cured within such time as NEES shall determine. None of NEES, the Dealer Manager, the Depositary, the Information Agent or any other person shall be under any duty to give notice of any defect or irregularity in tenders nor shall any of them incur any liability for failure to give any such notice. Tenders will not be deemed to have been made until all defects and irregularities have been cured or waived. 12. LOST, DESTROYED OR STOLEN CERTIFICATES. If any certificate representing Shares has been lost, destroyed or stolen, the Preferred Shareholder should promptly notify the Depositary by checking the box above immediately following the "Special Payment Instructions/Special Delivery Instructions" and indicating the number of Shares lost, destroyed or stolen. The Preferred Shareholder will then be instructed as to the procedures that must be taken in order to replace the certificate. The tender of Shares pursuant to this Letter of Transmittal and Proxy will not be valid unless on or prior to the Expiration Date: (a) such procedures have been completed and a replacement certificate for the Shares has been delivered to the Depositary or (b) a Notice of Guaranteed Delivery and Proxy has been delivered to the Depositary. See Instruction 2. IMPORTANT: THIS LETTER OF TRANSMITTAL AND PROXY (OR A FACSIMILE COPY HEREOF), DULY EXECUTED, TOGETHER WITH, IF APPLICABLE, CERTIFICATES OR CONFIRMATION OF A BOOK-ENTRY TRANSFER, AND ALL OTHER REQUIRED DOCUMENTS MUST BE RECEIVED BY THE DEPOSITARY, OR, IF APPLICABLE, THE NOTICE OF GUARANTEED DELIVERY AND PROXY MUST BE RECEIVED BY THE DEPOSITARY, ON OR PRIOR TO THE EXPIRATION DATE. 18 19 IMPORTANT TAX INFORMATION Under Federal income tax law, a Preferred Shareholder whose tendered Shares are accepted for payment, or who will receive a Special Cash Payment as a result of voting in favor of the Proposed Amendment, is required to provide the Depositary (as payer) with either such Preferred Shareholder's correct TIN on Substitute Form W-9 below or a properly completed Form W-8. If such Preferred Shareholder is an individual, the TIN is such Preferred Shareholder's social security number. For businesses and other entities, the number is the Federal employer identification number. If the Depositary is not provided with the correct TIN or properly completed Form W-8, the Preferred Shareholder may be subject to a $50 penalty imposed by the Internal Revenue Service. In addition, (a) payments that are made to such Preferred Shareholder with respect to Shares purchased pursuant to the Offer or (b) Special Cash Payments made to a Preferred Shareholder with respect to Shares voted pursuant to the proxy solicitation may be subject to backup withholding. The Form W-8 can be obtained from the Depositary. See the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" below for additional instructions. If Federal income tax backup withholding applies, the Depositary is required to withhold 31% of any payments made to the Preferred Shareholder. Backup withholding is not an additional tax. Rather, the Federal income tax liability of persons subject to backup withholding will be reduced by the amount of the tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained. PURPOSE OF SUBSTITUTE FORM W-9 AND FORM W-8 To avoid backup withholding on payments that are made to a Preferred Shareholder with respect to Shares purchased pursuant to the Offer or on Special Cash Payments, the Preferred Shareholder is required to notify the Depositary of his or her correct TIN by completing the Substitute Form W-9 below certifying that the TIN provided on Substitute Form W-9 is correct and that (a) the Preferred Shareholder has not been notified by the Internal Revenue Service that he or she is subject to Federal income tax backup withholding as a result of failure to report all interest or dividends or (b) the Internal Revenue Service has notified the Preferred Shareholder that he or she is no longer subject to Federal income tax backup withholding. Foreign Preferred Shareholders must submit a properly completed Form W-8 in order to avoid the applicable backup withholding; provided, however, that backup withholding will not apply to foreign Preferred Shareholders subject to 30% (or lower treaty rate) withholding on gross payments received pursuant to the Offer or on the Special Cash Payments. WHAT NUMBER TO GIVE THE DEPOSITARY The Preferred Shareholder is required to give the Depositary the social security number or employer identification number of the registered owner of the Shares. If the Shares are in more than one name or are not in the name of the actual owner, consult the "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" below for additional guidance on which number to report. 19 20 SEE "GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER OF SUBSTITUTE FORM W-9" FOR ADDITIONAL INSTRUCTIONS. SUBSTITUTE FORM W-9 - ------------------------------------------------------------------------------------------------ PAYER'S NAME: IBJ SCHRODER BANK & TRUST COMPANY, AS DEPOSITARY - ------------------------------------------------------------------------------------------------ SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN IN THE FORM W-9 BOX AT RIGHT AND CERTIFY BY SIGNING AND -------------------------- DATING BELOW. ---------------------------------------- Social Security Number PAYER'S REQUEST FOR or Employer Identification TAXPAYER IDENTIFICATION NAME (Please Print) Number NUMBER (TIN) (If Awaiting TIN write "Applied for") ---------------------------------------- -------------------------- DEPARTMENT OF THE TREASURY ADDRESS INTERNAL REVENUE SERVICE PART II -- For Payees NOT subject to backup ---------------------------------------- withholding, see the CITY STATE ZIP CODE "Guidelines for Cer- tification of Taxpayer Identification Number on Substitute Form W-9" and complete as instructed therein - ------------------------------------------------------------------------------------------------
PART III -- CERTIFICATION: -- Under penalties of perjury, I certify that: (1) The number shown on this form is my correct taxpayer identification number (or I am waiting for a number to be issued to me), and (2) I am not subject to backup withholding either because: (a) I am exempt from backup withholding, or (b) I have not been notified by the Internal Revenue Service (IRS) that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding. SIGNATURE DATE , 1997 --------------------------- ------------------------ CERTIFICATION INSTRUCTIONS -- You must cross out item (2) above if you have been notified by the IRS that you are currently subject to backup withholding because of underreporting interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding you received another notification from the IRS that you are no longer subject to backup withholding do not cross out item (2). Also see instructions in the enclosed Guidelines. - -------------------------------------------------------------------------------- YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU WRITE "APPLIED FOR" IN PART I OF SUBSTITUTE FORM W-9. - -------------------------------------------------------------------------------- CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (a) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (b) I intend to mail or deliver such an application in the near future. I understand that if I do not provide a taxpayer identification number within sixty (60) days, 31% of all reportable payments made to me thereafter will be withheld until I provide a number. ----------------------------------- -----------------------------, 1997 SIGNATURE DATE - -------------------------------------------------------------------------------- NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU. PLEASE REVIEW THE "GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9" FOR ADDITIONAL DETAILS. 20 21 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 SECTION REFERENCES ARE TO THE INTERNAL REVENUE CODE. PURPOSE OF FORM. A person who is required to file an information return with the IRS must obtain your correct taxpayer identification number (TIN) to report income paid to you, real estate transactions, mortgage interest you paid, the acquisition or abandonment of secured property, or contributions you made to an IRA. Use Form W-9 to furnish your correct TIN to the requester (the person asking you to furnish your TIN) and, when applicable, (1) to certify that the TIN you are furnishing is correct (or that you are waiting for a number to be issued), (2) to certify that you are not subject to backup withholding, and (3) to claim exemption from backup withholding if you are an exempt payee. Furnishing your correct TIN and making the appropriate certifications will prevent certain payments from being subject to backup withholding. NOTE: IF A REQUESTER GIVES YOU A FORM OTHER THAN W-9 TO REQUEST YOUR TIN, YOU MUST USE THE REQUESTER'S FORM. HOW TO OBTAIN A TIN. If you do not have a TIN, apply for one immediately. To apply, get Form SS-5, Application for a Social Security Card (for Individuals), from your local office of the Social Security Administration, or Form SS-4, Application for Employer Identification Number (for businesses and all other entities), from your local IRS office. To complete Form W-9 if you do not have a TIN, write "Applied for" in the space for the TIN in Part 1, sign and date the form, and give it to the requester. Generally, you will than have 60 days to obtain a TIN and furnish it to the requester. If the requester does not receive your TIN within 60 days, backup withholding, if applicable, will begin and continue until you furnish your TIN to the requester. For reportable interest or dividend payments, the payor must exercise one of the following options concerning backup withholding during this 60-day period. Under option (1), a payor must backup withhold on any withdrawals you make from your account after 7 business days after the requester receives this form back from you. Under option (2), the payor must backup withhold on any reportable interest or dividend payments made to your account, regardless of whether you make any withdrawals. The backup withholding under option (2) must begin no later than 7 business days after the requester receives this form back. Under option (2), the payor is required to refund the amounts withheld if your certified TIN is received within the 60-day period and you were not subject to backup withholding during that period. NOTE: WRITING "APPLIED FOR" ON THE FORM MEANS THAT YOU HAVE ALREADY APPLIED FOR A TIN OR THAT YOU INTEND TO APPLY FOR ONE IN THE NEAR FUTURE. As soon as you receive your TIN, complete another Form W-9, include your TIN, sign and date the form, and give it to the requester. WHAT IS BACKUP WITHHOLDING? -- Persons making certain payments to you must withhold and pay to the IRS 31% of such payments under certain conditions. This is called "backup withholding." Payments that could be subject to backup withholding include interest, dividends, broker and barter exchange transactions, rents, royalties, nonemployee compensation, and certain payments from fishing boat operators, but do not include real estate transactions. If you give the requester your correct TIN, make the appropriate certifications, and report all your taxable interest and dividends on your tax return, your payments will not be subject to backup withholding. Payments you receive will be subject to backup withholding if: (1) You do not furnish your TIN to the requester, or (2) The IRS notifies the requester that you furnished an incorrect TIN, or (3) You are notified by the IRS that you are subject to withholding because you failed to report all your interest and dividends on your tax return (for reportable interest and dividends only), or (4) You do not certify to the requester that you are not subject to backup withholding under 3 above, (for reportable interest and dividend accounts opened after 1983 only), or (5) You do not certify your TIN. Except as explained in 5 above, other reportable payments are subject to backup withholding only if 1 or 2 above applies. Certain payees and payments are exempt from backup withholding and information reporting. See Payees and Payments Exempt From Backup Withholding, below, and Exempt Payees and Payments under Signing the Certification, below if you are an exempt payee. PAYEES AND PAYMENTS EXEMPT FROM BACKUP WITHHOLDING. The following is a list of payees exempt from backup withholding and for which no information reporting is required. For interest and dividends, all listed payees are exempt except as listed in item (9). For broker transactions, payees listed in items (1) through (13) and a person registered under the Investment Advisers Act of 1940 who regularly acts as a broker are exempt. Payments subject to reporting under sections 6041 and 6041A are generally exempt from backup withholding only if made to payees described in items (1) through (7), except a corporation that provides medical and health care services or bills and collects payments for such services is not exempt from backup withholding or information reporting. Only payees described in items (2) through (6) are 21 22 exempt from backup withholding for barter exchange transactions and patronage dividends. (1) A corporation. (2) An organization exempt from tax under section 501(a), an IRA, or a custodial account under section 402(b)(7). (3) The United States or any of its agencies or instrumentalities. (4) A state, the District of Columbia, a possession of the United States, or any of their political subdivisions or instrumentalities. (5) A foreign government or any of its political subdivisions, agencies, or instrumentalities. (6) An international organization or any of its agencies or instrumentalities. (7) A foreign central bank of issue. (8) A dealer in securities or commodities required to register in the United States or a possession of the United States. (9) A futures commission merchant registered with the Commodity Futures Trading Commission. (10) A real estate investment trust. (11) An entity registered at all times during the tax year under the Investment Company Act of 1940. (12) A common trust fund operated by a bank under section 584(a). (13) A financial institution. (14) A middleman known in the investment community as a nominee or listed in the most recent publication of the American Society of Corporation Secretaries, Inc., Nominee List. (15) A trust exempt from tax under section 664 or described in section 4947. Payments of dividend and patronage dividends generally not subject to backup withholding include the following: - Payments to nonresident aliens subject to withholding under section 1441. - Payments to partnerships not engaged in a trade or business in the United States and that have at least one nonresident partner. - Payments of patronage dividends not paid in money. - Payments made by certain foreign organizations. - Section 404(k) payments made by an ESOP. Payments of interest generally not subject to backup withholding include the following: - Payments of interest on obligations issued by individuals. NOTE: YOU MAY BE SUBJECT TO BACKUP WITHHOLDING IF THIS INTEREST IS $600 OR MORE AND IS PAID IN THE COURSE OF THE PAYER'S TRADE OR BUSINESS AND YOU HAVE NOT PROVIDED YOUR CORRECT TIN TO THE PAYER. - Payments of tax-exempt interest (including exempt-interest dividends under section 852). - Payments described in section 6049(b)(5) to nonresident aliens. - Payments on tax-free covenant bonds under section 1451. - Payments made by certain foreign organizations. - Mortgage interest paid to you. Other types of payments generally not subject to backup withholding include: - Wages. - Distributions from a pension, annuity, profit-sharing or stock bonus plan, or an IRA. - Distributions from an owner-employee plan. - Certain surrenders of life insurance contracts. - Gambling winnings, if withholding is required under section 3402(q). However, if withholding is not required under section 3402(q), backup withholding applies if the payee fails to furnish a TIN. - Real estate transactions reportable under section 6045. Payments that are not subject to information reporting are also not subject to backup withholding. For details, see sections 6041, 6041A, 6042, 6044, 6045, 6049, 6050A, and 6050N, and the regulations under those sections. PENALTIES FAILURE TO FURNISH TIN. If you fail to furnish your correct TIN to a requester, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. If you make a false statement with no reasonable basis that results in no backup withholding, you are subject to a $500 penalty. CRIMINAL PENALTY FOR FALSIFYING INFORMATION. Willfully falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. MISUSE OF TINS. If the requester discloses or uses TINs in violation of Federal law, the requester may be subject to civil and criminal penalties. SPECIFIC INSTRUCTIONS WHAT NAME AND NUMBER TO GIVE THE REQUESTER 22 23 NAME -- If you are an individual, you must generally provide the name shown on your social security card. However, if you have changed your last name, for instance, due to marriage, without informing the Social Security Administration of the name change, please enter your first name, the last name shown on your social security card, and your new last name. NUMBER -- If you are a sole proprietor, you must furnish your individual name and either your SSN or EIN. You may also enter your business name or "doing business as" name on the business name line. Enter your name(s) as shown on your social security card and/or as it was used to apply for your EIN on Form SS-4. WHAT NAME AND NUMBER TO GIVE THE REQUESTER SIGNING THE "PART III -- CERTIFICATION" ON THE SUBSTITUTE FORM W-9 (1) INTEREST, DIVIDEND, AND BARTER EXCHANGE ACCOUNTS OPENED BEFORE 1984 AND BROKER ACCOUNTS CONSIDERED ACTIVE DURING 1983 -- You are required to furnish your correct TIN, but you are not required to sign the certification. (2) INTEREST, DIVIDEND, BROKER, AND BARTER EXCHANGE ACCOUNTS OPENED AFTER 1983 AND BROKER ACCOUNTS CONSIDERED INACTIVE DURING 1983 -- You must sign the certification or backup withholding will apply. If you are subject to backup withholding and you are merely providing your correct TIN to the requester, you must cross out item 2 in the certification before signing the form. (3) REAL ESTATE TRANSACTIONS. You must sign the certification. You may cross out item 2 of the certification. (4) OTHER PAYMENTS. You are required to furnish your correct TIN, but you are not required to sign the certification unless you have been notified that you have previously given an incorrect TIN. Other payments include payments made in the course of the requester's trade or business for rents, royalties, goods (other than bills for merchandise), medical and health care services (including payments to corporations), payments to a nonemployee for services (including attorney and accounting fees), and payments to certain fishing boat crew members. (5) MORTGAGE INTEREST PAID BY YOU, ACQUISITION OR ABANDONMENT OF SECURED PROPERTY, OR IRA CONTRIBUTIONS. You are required to furnish your correct TIN, but you are not required to sign the certification. (6) EXEMPT PAYEES AND PAYMENTS. If you are exempt from backup withholding, you should complete this form to avoid possible erroneous backup withholding. Enter your correct TIN in Part I, write "EXEMPT" in the block in Part II, and sign and date the form. If you are a nonresident alien or foreign entity not subject to backup withholding, give the requester a complete Form W-8, Certificate of Foreign Status. (7) TIN "APPLIED FOR." Follow the instructions under How To Obtain a TIN, on page 1, and sign and date this form. SIGNATURE: For a joint account, only the person whose TIN is shown in Part 1 should sign. PRIVACY ACT NOTICE: Section 6109 requires you to furnish your correct TIN to persons who must file information returns with the IRS to report interest, dividends, and certain other income paid to you, mortgage interest you paid, the acquisition or abandonment of secured property, or contributions you made to an IRA. The IRS uses the numbers for identification purposes and to help verify the accuracy of your tax return. You must provide your TIN whether or not you are required to file a tax return. Payers must generally withhold 31% of taxable interest, dividends, and certain other payments to a payee who does not furnish a TIN to a payor. Certain penalties may also apply. 23 24 WHAT NAME AND NUMBER TO GIVE THE REQUESTER
- ------------------------------------------------------- For this type of account: Give name and SSN of: - ------------------------------------------------------- 1. Individual The individual 2. Two or more The actual owner of individuals (joint the account or, if account) combined funds, the first individual on the account(1) 3. Custodian account of a The minor(2) minor (Uniform Gift to Minors Act) 4. a. The usual revocable The grantor-trustee(1) savings trust (grantor is also trustee) b. So-called trust The actual owner(1) account that is not a legal or valid trust under state law 5. Sole proprietorship The owner(3) - ------------------------------------------------------- - ------------------------------------------------------- For this type of account: Give name and SSN of: - ------------------------------------------------------- 6. A valid trust, estate, Legal entity(4) or pension trust 7. Corporate The corporation 8. Association, club, The organization religious, charitable, educational, or other tax-exempt organization 9. Partnership The partnership 10. A broker or registered The broker or nominee nominee 11. Account with the The public entity. Department of Agriculture in the name of a public entity (such as a state or local government, school district, or prison) that receives agricultural program payments. - -------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish. (2) Circle the minor's name and furnish the minor's SSN. (3) You must show your individual name, but you may also enter your business or "doing business as" name. You may use either your SSN or EIN. (4) List first and circle the name of the legal trust, estate, or pension trust. (Do not furnish the TIN of the personal representative or trustee unless the legal entity itself is not designated in the account title.) NOTE: If no name is circled when more than one name is listed, the number will be considered to be that of the first name listed. 24 25 Any questions or requests for assistance or additional copies of the Booklet, this Letter of Transmittal and Proxy, the Notice of Guaranteed Delivery and Proxy or other materials may be directed to the Information Agent at the address and telephone number set forth below. THE INFORMATION AGENT: [GEORGESON & COMPANY LOGO] WALL STREET PLAZA NEW YORK, NEW YORK 10005 (800) 223-2064 (CALL TOLL-FREE) BANKS AND BROKERS CALL COLLECT: (212) 440-9918 Preferred Shareholders may contact the Dealer Manager at its address and telephone number set forth below with any questions regarding the terms of the Offer and solicitation of proxies. In addition, Preferred Shareholders may also contact their broker, dealer, commercial bank, trust company or other nominee for assistance concerning the Offer and solicitation of proxies. THE DEALER MANAGER: MERRILL LYNCH & CO. WORLD FINANCIAL CENTER 250 VESEY STREET NEW YORK, NEW YORK 10281 (888) ML4-TNDR (TOLL-FREE) (888) 654-8637 (TOLL-FREE) EX-99.(A)H 10 FORM OF NOTICE & ORDER PERMITTING PROXY SOLICIT. 1 Exhibit H New England Electric System, New England Power Company, The Narragansett Electric Company, and Massachusetts Electric Company Notice of Proposal to Amend Corporate Documents and Acquire Preferred Shares pursuant to Cash Tender Offer; Order Authorizing Proxy Solicitation New England Electric System (NEES), a registered holding company, and its utility subsidiaries: New England Power Company, a Massachusetts corporation (the Power Company), Massachusetts Electric Company, a Massachusetts corporation (Mass. Electric), and The Narragansett Electric Company, a Rhode Island corporation (Narragansett) (the Power Company, Mass. Electric, and Narragansett sometimes hereinafter collectively, the Subsidiaries), have filed an application-declaration under sections 6(a), 9(a), 10, and 12 of the 1935 Act and rules 43, 44, 45, 62, and 65 thereunder. The Power Company's equity consists of 6,449,896 shares of common stock, $100 par value, 75,020 shares of 6% Cumulative Preferred Stock, $100 par value, and 321,640 shares of Dividend Series Preferred Stock, $100 par value. The Dividend Series Preferred Stock is issued in four series as follows:
Series Shares Authorized ------ ----------------- 4.56% 100,000 4.60% 80,140 4.64% 41,500 6.08% 100,000
There is also authorized a class of Preferred Stock - Cumulative, $25 par value, of which there are no series currently outstanding. All of the common stock is owned by NEES; all of the preferred stock is owned by the public and traded in over-the-counter markets. The common stock and 6% preferred share general voting rights. The Power Company's Articles of Organization and By-laws (the Power Company Provisions) currently provide that, without the consent of the holders of a majority of the outstanding Dividend Series Preferred Stock and Preferred Stock Cumulative (voting as a single class), the Power Company shall not issue or assume any evidence of unsecured indebtedness (except for redemption of outstanding shares of all series of said stock), if the total amount thereof (exclusive of certain unsecured indebtedness) immediately after such issue would exceed 20% of total secured indebtedness, capital, premium, and retained earnings, of which 20% not more than one-half shall be short-term unsecured indebtedness. Mass. Electric's equity consists of 2,398,111 shares of common stock, $25 par value, 600,000 shares of Preferred Stock - Cumulative, $25 par value, and 350,000 shares of Dividend Series Preferred Stock, $100 par value. The preferred stock is issued in four series as follows:
Series Shares Authorized ------ ----------------- Preferred Stock - Cumulative 6.84% 600,000 Dividend Series 4.44% 75,000 4.76% 75,000 6.99% 200,000
2 All of the common stock is owned by NEES. All of the preferred stock is owned by the public and is traded in over-the-counter markets. Mass. Electric's Articles of Organization and By-laws (Mass. Electric Provisions) currently provide that, without a vote of a majority of the outstanding Dividend Series Preferred Stock and Preferred Stock - Cumulative (voting as a single class), Mass. Electric will not issue or assume any unsecured indebtedness (except for redemption of outstanding shares of all series of preferred stock), if the total amount of such indebtedness (exclusive of certain unsecured indebtedness) immediately after such issue would exceed 20% of Total Capitalization, or if, immediately after such issue, the total amount of such short-term unsecured indebtedness (exclusive of certain short-term unsecured indebtedness) issued or assumed by the Company after September 30, 1998, would exceed 10% of Total Capitalization. Narragansett's equity consists of 1,132,487 shares of common stock, $50 par value, and 730,000 shares of Cumulative Preferred Stock, $50 par value. The preferred stock is issued in three series as follows:
Series Shares Authorized ------ ----------------- 4.50% 180,000 4.64% 150,000 6.95% 400,000
All of the common stock is owned by NEES. All of the preferred stock is owned by the public and is traded in over-the-counter markets. Narragansett's Preferred Stock Provisions adopted at special meetings of the common stockholders and directors (the Narragansett Provisions), provide that, without a vote of a majority of the outstanding preferred stock (voting as a single class), Narragansett will not issue or assume any unsecured indebtedness (except for redemption of outstanding shares of all series of preferred stock) if the total amount of such indebtedness (exclusive of certain unsecured indebtedness) immediately after such issue would exceed 10% of all secured indebtedness and capital and surplus of the Company. Each Subsidiary proposes to solicit proxies (a Proxy Solicitation) from the holders of its outstanding shares of Preferred Stock of each Series and Common Stock for use at a special meeting of its stockholders to be held on or about December 12, 1997 (Special Meeting) to consider a proposed amendment to its Provisions that would eliminate the Subsidiary's Restriction Provision (the Proposed Amendment). The Power Company is not asking holders of the 6% Cumulative Preferred for a proxy; they may, however, participate in the Offer described below. Adoption of the Power Company Proposed Amendment will require the affirmative vote of the holders of more than 2/3 of the outstanding shares of each of the Power Company's (1) common stock and 6% Cumulative Preferred voting together as a single class and (ii) Dividend Series Preferred Stock, all series voting together as a single class. Adoption of the Mass. Electric Proposed Amendment will require the affirmative vote of the holders of more than 2/3 of the outstanding shares of each of Mass. Electric's (i) common stock voting as a class and (ii) Dividend Series Preferred Stock and Preferred Stock - Cumulative, all series voting together as a class. In calculating such vote, each share of Dividend Series Preferred Stock shall be counted as one and each share of Preferred Stock Cumulative shall be counted as one-quarter. Adoption of the Narragansett Proposed Amendment will require the affirmative vote of the holders of more than 2/3 of the outstanding shares of Narragansett's Preferred Stock voting as a single class, the approval of 75% of 3 the Preferred Shares present or represented at the meeting, and the approval of a majority of the Narragansett Common voting as a class. NEES will vote its shares of Common Stock in favor of each of the Proposed Amendments. The Subsidiaries have engaged Georgeson & Company, Inc. to act as information agent in connection with the Proxy Solicitations for a fee plus reimbursement of reasonable out-of-pocket expenses. If a Proposed Amendment is adopted, the Power Company, Narragansett, and Mass. Electric will each make a special cash payment of one percent of par per share (a Special Cash Payment) to each Preferred Stockholder of any Series (other than the 6% Cumulative Preferred stock of the Power Company), any of whose shares of Preferred Stock (each a Share) are properly voted at the Special Meeting (in person by ballot or by proxy) in favor of such Proposed Amendment, provided that such Shares have not been tendered pursuant to the Offer described below. The Power Company, Narragansett, and Mass. Electric will disburse Special Cash Payments out of their general funds, promptly after adoption of a Proposed Amendment. Concurrently with the commencement of the Proxy Solicitation for a Subsidiary, subject to the terms and conditions stated in the relevant offering documents, NEES proposes to make an offer (the Offer) to the holders of that Subsidiary's preferred stock of each series to acquire any and all shares at the cash purchase prices to be specified in the Offer (subject to potential increase or decrease pursuant to the terms of the Offer) together with any unpaid dividends accrued through the payment date (each such purchase price and, when applicable, accrued dividend, collectively, a Purchase Price). NEES anticipates that the Offer for each Series of Preferred Stock will be scheduled to expire at 5:00 P.M. (Eastern Standard time) on the date of the Special Meeting, i.e., on or about December 12, 1997 (the Expiration Date). The Offer consists of separate offers for each of the five Series of the Power Company Preferred Stock, the three Series of the Narragansett Preferred Stock and the four Series of the Mass. Electric Preferred Stock, with the offer for any one Series being independent of the offer for any other Series. The applicable Purchase Price and the other terms and conditions of the Offer apply equally to all preferred stockholders of the respective series. The Offer is not conditioned upon any minimum number of Shares of the applicable Series being tendered, but is conditioned, among other things, on the Proposed Amendment being adopted at the Special Meeting. To tender Shares in accordance with the terms of the offering documents, the tendering preferred stockholder must either (1) send to IBJ Schroder Bank & Trust Company, in its capacity as depositary for the Offer (Depositary), a properly completed and duly executed Letter of Transmittal and Proxy, together with any required signature guarantees and any other documents required by the Letter of Transmittal and Proxy, and (either (a) tender certificates for the Shares to the Depositary at one of its addresses specified in the offering documents, or (b) delivery such Shares pursuant to the procedures for book-entry transfer described in the offering documents (confirmation of such delivery must be received by the Depositary), in each case by the Expiration Date); or (2) comply with a guaranteed delivery procedure specified in the offering documents. Tenders of Shares made pursuant to the Offer may be withdrawn at any time prior to the Expiration Date. Thereafter, such tenders are irrevocable, subject to certain exceptions identified in the offering documents. NEES' obligation to proceed with the Offers and to accept for payment and to pay for any Shares tendered is subject to various conditions enumerated in the offering documents, including, among other conditions, that the Proposed Amendments be adopted and that the Commission issue an order under the 1935 Act authorizing the proposed transactions. At any time or from time to time, NEES may extend the Expiration Date applicable to any Series by giving notice of such extension to the Depositary, without extending the Expiration Date for any other Series. During any such 4 extension, all Shares of the applicable Series previously tendered will remain subject to the Offer, and may be withdrawn at any time prior to the Expiration Date as extended. Conversely, NEES may elect in its sole discretion to terminate one or more Offers prior to the scheduled Expiration Date and not accept for payment and pay for any Shares tendered, subject to applicable provisions of Rule 13e-4 under the Exchange Act requiring NEES either to pay the consideration offered or to return the Shares tendered promptly after the termination or withdrawal of the Offer(s), upon the occurrence of any of the conditions to closing enumerated in the offering documents, by giving notice of such termination to the Depositary and making a public announcement thereof. Subject to compliance with applicable law, NEES further reserves the right in the offering documents, in its sole discretion, to amend the Offers in any respect by making a public announcement thereof. If NEES materially changes the terms of the Offers or the information concerning the Offers, or if it waives a material condition of an Offer, NEES will extend the Expiration Date to the extent required by the applicable provisions of Rule 13e-4 under the Exchange Act. Those provisions require that the minimum period during which an issuer tender offer must remain open following material changes in the terms of the offer or information concerning the offer (other than a change in price, a change in percentage of securities sought, or a change in the dealer's soliciting fee) will depend on the facts and circumstances, including the relative materiality of such terms or information. If an Offer is scheduled to expire at any time earlier than the expiration of a period ending on the tenth business day from, and including, the date that NEES notifies preferred stockholders that it will (a) decrease the number of Shares of any series of preferred being sought, (b) increase or decrease the consideration being offered in said offer, or (c) increase or decrease soliciting dealer's fees, the Expiration Date will be extended until the expiration of such period of ten business days. Shares validly tendered to the Depositary pursuant to an Offer and not withdrawn in accordance with the procedures set forth in the offering documents will be held by NEES until the Expiration Date (or returned in the event the Offer is terminated). Subject to the terms and conditions of the Offers, as promptly as practicable after the Expiration Date, NEES will accept for payment (and thereby purchase) and pay for Shares validly tendered and not withdrawn. NEES will pay for Shares that it has purchased pursuant to the Offer by depositing the applicable Purchase Price with the Depositary, which will act as agent for the tendering stockholders for the purpose of receiving payment from NEES and transmitting payment to tendering stockholders. NEES will pay all stock transfer taxes, if any, payable on account of its acquisition of Shares pursuant to the Offer, except in certain circumstances where special payment or delivery procedures are utilized in conformance with the applicable Letters of Transmittal. With respect to Shares validly tendered and accepted for payment by NEES, each tendering preferred stockholder will be entitled to receive as consideration from NEES only the applicable Purchase Price (which NEES anticipates will reflect a premium over the current market price at the commencement of the relevant offers). Any such holder will not be entitled to receive with respect to such tendered Shares additional consideration in the form of the Special Cash Payment. As noted above, subject to the terms and conditions of an Offer, Shares validly tendered and not withdrawn will be accepted for payment and paid for by NEES as promptly as practicable after the Expiration Date. If a Proposed Amendment is not adopted at the Special Meeting, NEES may elect, but is not obligated, to waive such condition, subject to applicable law. In that case, as promptly as practicable after NEES' waiver thereof and purchase of any Shares validly tendered pursuant to the Offer, the Subsidiaries anticipate that said Subsidiaries would call another special meeting and solicit proxies therefrom for the same purpose as in the instant proceeding, i.e., to secure the requisite affirmative vote of stockholders to amend the Provisions to eliminate the restriction on unsecured indebtedness. At that meeting, NEES would vote any 5 Shares acquired by it pursuant to the Offer or otherwise (as well as all of its shares of Common Stock) to eliminate the restriction on unsecured indebtedness. If the Proposed Amendment is adopted at that meeting, and in any event within one year from the Expiration Date (including any potential extension thereto pursuant to the Offer), NEES will promptly after such meeting or at the expiration of such one-year period, as applicable, either sell the Shares to the issuing Subsidiary at the Purchase Price plus expenses paid therefor pursuant to the Offer or donate the Shares to the issuing Subsidiary as a capital contribution, and the issuing Subsidiary will thereupon retire and cancel such Shares. Merrill Lynch, Pierce, Fenner & Smith Incorporated will act as dealer manager for NEES in connection with the Offers. NEES proposes to agree to pay the dealer manager a fee of .5% of par per share for each shares tendered, accepted for payment, and paid for pursuant to the Offer, and to reimburse the dealer managers for their reasonable out-of-pocket expenses, including attorneys' fees. The Subsidiaries have agreed to pay the dealer manager a fee of .5% of par for each share that is not tendered but which votes in favor of the Proposed Amendment. NEES has agreed to reimburse the dealer manager for its reasonable out-of-pocket expenses, including attorneys' fees. In addition, NEES proposes to pay soliciting brokers and dealers a separate fee for any Shares tendered, accepted for payment, and paid for pursuant to the Offer. In October 1996, the NEES Companies announced their intention to divest their generation business. (The separate sale of the oil and gas properties by the Power Company's affiliate, New England Energy Incorporated (NEEI), is necessary in connection therewith.) This decision was due to a combination of factors relating to the restructuring of the electric utility industry. On August 5, 1997, the NEES Companies reached an agreement to sell the non-nuclear generation business to U.S. Generating Company for approximately $1.65 billion, subject to various adjustments. In order to facilitate this transition to a competitive electric industry, the Power Company may need -- prior to the completion of the sale of its generating plants -- to buy out existing contracts with independent power producers, or to pay the difference between monies owed its affiliate, New England Energy Incorporated (NEEI) and the proceeds from the sale of NEEI's remaining oil and gas properties. The exact dollar amount of these obligations is not yet determinable, but they may be significant. Given the changing nature of the company, putting in place long-term financial instruments to provide the necessary moneys may not be a cost-effective procedure. Therefore, the Power Company believes it must increase its flexibility in meeting its cash needs. The Power Company will probably substantially reduce its capitalization and retire its outstanding General and Refunding Mortgage bonds through call or defeasance. The Power Company anticipates issuing its new long-term debt in the form of debentures, which are unsecured. Absent the Proposed Amendment, these debentures would not be permitted by the Provisions without prior approval by the preferred shareholders. If the Proposed Amendment is adopted, the Power Company will have increased flexibility (i) to choose among different types of debt financing and (ii) to finance projects using the most cost effective means. The availability and flexibility of unsecured debt is necessary, in the estimation of NEES and the Power Company, to take full advantage of changing conditions in securities and financial markets. Although Mass. Electric will not be divesting itself of significant assets as is the Power Company, it believes that the prudent use of unsecured debt is important to the effective financial management of its business. Unsecured debt provides flexibility in meeting temporary fluctuations in cash requirements, can be used when unfavorable conditions prevail in the market for long-term capital, acts as a bridge between issues of permanent capital, and may provide more flexibility in terms and cost than secured debt. If the Proposed Amendment is adopted, Mass. Electric will have increased flexibility (i) to choose among different types of debt financing and (ii) to finance projects using the most cost effective means. The availability and flexibility of unsecured debt is necessary to take full advantage of changing conditions in securities and financial markets. 6 Although Narragansett's participation in the divestiture of System generation will not have an impact on it of the magnitude of the Power Company's, Narragansett believes that the prudent use of unsecured debt is important to the effective financial management of its business. Unsecured debt provides flexibility in meeting temporary fluctuations in cash requirements, can be used when unfavorable conditions prevail in the market for long-term capital, acts as a bridge between issues of permanent capital, and may provide more flexibility in terms and cost than secured debt. If the Proposed Amendment is adopted, Narragansett will have increased flexibility (i) to choose among different types of debt financing and (ii) to finance projects using the most cost effective means. The availability and flexibility of unsecured debt is necessary to take full advantage of changing conditions in securities markets. NEES and the Subsidiaries believe that the purchase of the Shares at this time represents an attractive economic opportunity that will benefit NEES, its shareholders, and its Subsidiaries. In addition, the Offer gives Preferred Shareholders the opportunity to sell their Shares at a price which NEES believes to be a premium to the market price on the date of the announcement of the Offer and without the usual transaction costs associated with a sale. NEES and the Subsidiaries further believe that the terms of purchase for the outstanding shares of the Preferred Stock pursuant to the Offer will benefit NEES's investors and the System's utility customers by (1) contributing to the elimination of the provisions concerning unsecured indebtedness (with the attendant benefits described above), and (2) acquiring and retiring of outstanding shares of the preferred stock and their potential replacement with comparatively less expensive financing alternatives. As noted, the Subsidiaries propose to submit the Proposed Amendment for consideration and action at special meetings of stockholders scheduled to take place on or about December 12, 1997 and, in connection therewith, to solicit proxies from the holders of their capital stock. The Subsidiaries request that the effectiveness of the application-declaration with respect to the solicitation of proxies for voting by their stockholders on the Proposed Amendments be permitted to become effective forthwith, pursuant to Rule 62(d). It appearing to the Commission that the application-declaration regarding the proposed solicitation of proxies should be permitted to become effective forthwith, pursuant to Rule 62(d): IT IS ORDERED, that the application-declaration regarding the proposed solicitation of proxies be, and it hereby is, permitted to become effective forthwith pursuant to Rule 62 and subject to the terms and conditions prescribed in Rule 24 under the 1935 Act. For the Commission, by the Division of Investment Management, pursuant to delegated authority. EX-99.(B)1-A 11 NE ELECTRIC SYSTEM BALANCE SHEET 1 1-A NEW ENGLAND ELECTRIC SYSTEM (Parent Company Only) Balance Sheet At June 30, 1997 (Unaudited)
ASSETS ------ (In Thousands) Investments: Common stocks of subsidiaries, at equity $1,647,286 Notes of subsidiaries 42,310 Other investments 3,886 ---------- Total investments 1,693,482 ========== Current assets: Cash 12 Temporary cash investments - subsidiary company 7,100 Accounts receivable from subsidiaries 527 Interest and dividends receivable of subsidiaries 48,140 Other current assets 48 ---------- Total current assets 55,827 ---------- Deferred federal income taxes 2,978 ---------- $1,752,287 ========== CAPITALIZATION AND LIABILITIES ------------------------------ Common share equity: Common shares, par value $1 per share: Authorized - 150,000,000 shares $ 64,969 Issued - 64,969,652 shares 736,567 Paid-in capital Retained earnings (including $643,084,000 of undistributed subsidiary earnings) 904,826 ---------- Total common share equity $1,706,362 ========== Current liabilities: Accounts payable (including $2,000 to subsidiaries) 2,489 Other accrued expenses 1,538 Dividends payable 34,403 ---------- Total current liabilities 38,403 ---------- Other reserves and deferred credits 7,495 ---------- $1,752,287 ==========
EX-99.(B)1-B 12 NE ELECTRIC SYSTEM STATEMENT OF INCOME 1 1-B NEW ENGLAND ELECTRIC SYSTEM (Parent Company Only) Statement of Income Twelve Months Ended June 30, 1997 (Unaudited)
(In Thousands) Equity in earnings of subsidiaries $ 212,844 Interest income - subsidiaries 754 --------- Total income from subsidiaries 213,598 Other income 104 --------- Total income 213,702 Corporate and fiscal expenses (includes $1,764,000 for cost of services billed by an affiliated company) 7,065 Federal income tax benefit (434) --------- Income before interest 207,071 Interest 305 --------- Net income $ 206,766 ========= Statement of Retained Earnings Retained earnings at beginning of period $ 851,389 Net income 206,766 Dividends declared on common shares (153,329) --------- Retained earnings at end of period $ 904,826 =========
EX-99.(B)2-A 13 NE ELECTRIC CONSOLIDATED BALANCE SHEET 6/30/97 1 2-A NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES Consolidated Balance Sheet At June 30, 1997 (Actual and Pro Forma) (Unaudited)
ASSETS Actual Adjustments Pro Forma ------ ---------- ----------- ----------- (In Thousands) Utility plant, at original cost $5,783,877 $5,783,877 Less accumulated provisions for depreciation and amortization 1,921,852 1,921,852 ---------- ---------- ---------- 3,862,025 3,862,025 Construction work in progress 50,178 50,178 ---------- ---------- ---------- Net utility plant 3,912,203 3,912,203 ---------- ---------- ---------- Oil and gas properties, at full cost 1,291,288 1,291,288 Less accumulated provision for amortization 1,114,345 1,114,345 ---------- ---------- ---------- Net oil and gas properties 176,943 176,943 ---------- ---------- ---------- Investments: Nuclear power companies, at equity 49,464 49,464 Other subsidiaries, at equity 43,213 43,213 Other investments 103,101 103,101 ---------- ---------- ---------- Total investments 195,778 195,778 ---------- ---------- ---------- Current assets: Cash 3,955 3,955 Accounts receivable, less reserves of $20,793,000 229,588 229,588 Unbilled revenues 63,100 63,100 Fuel, materials, and supplies, at average cost 80,362 80,362 Prepaid and other current assets 78,209 78,209 ---------- ---------- ---------- Total current assets 455,214 455,214 ---------- ---------- ---------- Deferred charges and other assets 403,566 403,566 ---------- ---------- ---------- $5,143,704 $5,143,704 ========== ========== ========== CAPITALIZATION AND LIABILITIES ------------------------------ Capitalization: Common share equity: Common shares, par value $1 per share: Authorized - 150,000,000 shares Outstanding - 64,969,652 shares $ 64,970 64,970 Paid-in capital 736,773 $ (206) 736,567 Retained earnings 904,825 (3,646) 901,179 Treasury stock - 149,238 shares (5,185) (5,185) Unrealized gain on securities, net 2,684 2,864 ---------- ---------- ---------- Total common share equity 1,704,067 (3,852) 1,700,215 Minority interests in consolidated subsidiaries 46,195 46,195 Cumulative preferred stock of subsidiaries 126,166 (126,166) -- Long-term debt 1,484,542 1,484,542 ---------- ---------- ---------- Total capitalization 3,360,970 (130,018) 3,230,952 ---------- ---------- ---------- Current liabilities: Long-term debt due within one year 104,710 104,710 Short-term debt 170,825 130,018 300,843 Accounts payable 127,793 127,793 Accrued taxes 25,357 25,357 Accrued interest 24,632 24,632 Dividends payable 37,350 37,350 Other current liabilities 132,434 132,434 ---------- ---------- ---------- Total current liabilities 623,101 130,018 753,119 ---------- ---------- ---------- Deferred federal and state income taxes 724,712 724,712 Unamortized investment tax credits 90,728 90,728 Other reserves and deferred credits 344,193 344,193 ---------- ---------- ---------- $5,143,704 $ 0 $5,143,704 ========== ========== ==========
2 NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES The pro forma adjustments to show the estimated effect of the proposed transactions on the foregoing Consolidated Balance Sheet at June 30, 1997 are as follows: Debit - Cumulative Preferred Stock of Subsidiaries $126,166,000 Debit - Paid-in Capital $ 206,400 Credit - Retained Earnings $ 3,646,148 Credit - Short-Term Debt $130,018,548
To reflect the proposed issue of $37,854,748 of short-term debt, the proceeds of which are to be used for the retirement of $39,666,000 of preferred stock of New England Power Company, Massachusetts Electric Company, and The Narragansett Electric Company, subsidiaries of New England Electric System, net of outstanding premium on capital stock and net loss on retirement. EX-99.(B)2-B 14 NE ELECTRIC CONSOLIDATED BALANCE SHEET - 12 MOS. 1 NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES Statement of Consolidated Income Twelve Months Ended June 30, 1997 (Actual and Pro Forma) (Unaudited)
Actual Adjustments Pro Forma ----------- ----------- ----------- (In Thousands) Operating revenue $ 2,429,139 $ 2,429,139 ----------- ------- ----------- Operating expenses: Fuel for generation 373,324 373,324 Purchased electric energy 530,530 530,530 Other operation 524,489 524,489 Maintenance 131,403 131,403 Depreciation and amortization 240,618 240,618 Taxes, other than income taxes 145,063 145,063 Income taxes 138,137 $(2,844) 135,293 ----------- ------- ----------- Total operating expenses 2,083,564 (2,844) 2,080,720 ----------- ------- ----------- Operating income 345,575 2,844 348,419 Other income: Equity in income of generating companies 9,978 9,978 Other income (expense), net (12,435) (12,435) ----------- ------- ----------- Operating and other income 343,118 2,844 345,962 ----------- ------- ----------- Interest: Interest on long-term debt 109,638 109,638 Other interest 16,562 7,801 24,363 Allowance for borrowed funds used during construction (2,328) (2,328) ----------- ------- ----------- Total interest 123,872 7,801 131,673 ----------- ------- ----------- Income after interest 219,246 (4,957) 214,289 Preferred dividends and net loss on reacquisition of preferred stock 5,964 (3,686) 2,278 Minority interests 6,791 6,791 ----------- ------- ----------- Net income $ 206,491 $(1,271) $ 205,220 =========== ======= =========== Average common shares 64,949,413 64,949,413 Net income per average common share $3.18 $3.16 Dividends declared per share $2.36 $2.36
Statement of Consolidated Retained Earnings Twelve Months Ended June 30, 1997 (Actual and Pro Forma) (Unaudited)
Actual Adjustments Pro Forma ----------- ----------- ----------- (In Thousands) Retained earnings at beginning of period $ 850,939 $ 850,939 Net income 206,491 $(1,271) 205,220 Dividends declared on common shares (153,055) (153,055) Premium on redemption of preferred stock 450 450 ----------- ------- ----------- Retained earnings at end of period $ 904,825 $(1,271) $ 903,554 =========== ======= ===========
2 NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES The pro forma adjustments to show the estimated effect of the proposed transactions as applied to the foregoing Consolidated Statement of Income and Consolidated Statement of Retained Earnings for the twelve months ended June 30, 1997 are as follows: Increase - Other Interest $7,801,113 To reflect interest on $130,018,548 of short-term debt, calculated at an annual rate of 6.00 percent. Decrease - Income taxes $2,843,499 To reflect the income tax effects as a result of the above adjustment, as well as the tax impacts of a $342,000 preferred dividends tax deduction no longer applicable as a result of the pro forma adjustments. Decrease - Preferred dividends and net gain on reacquisition of preferred stock $3,686,176 To reflect twelve-months effect on dividends by the retirement of $126,166,000 of preferred stock of New England Power Company, Massachusetts Electric Company, and The Narragansett Electric Company, subsidiaries of New England Electric System, of $7,332,324, net of $3,646,148 net loss on such retirement. EX-99.(B)3-A 15 NE POWER BALANCE SHEET 1 NEW ENGLAND POWER COMPANY Balance Sheet At June 30, 1997 (Actual and Pro Forma) (Unaudited) ASSETS ------
Actual Adjustments Pro Forma ------ ----------- --------- (In Thousands) Utility plant, at original cost $3,033,643 $3,033,643 Less accumulated provisions for depreciation and amortization 1,157,488 1,157,488 ---------- ---------- ---------- 1,876,155 1,876,155 Construction work in progress 25,142 25,142 ---------- ---------- ---------- Net utility plant 1,901,297 1,901,297 ---------- ---------- ---------- Investments: Nuclear power companies, at equity 49,464 49,464 Non-utility property and other investments 30,783 30,783 ---------- ---------- ---------- Total investments 80,247 80,247 ---------- ---------- ---------- Current assets: Cash 738 738 Accounts receivable: Affiliated companies 219,936 219,936 Accrued NEEI revenues 16,888 16,888 Others 26,984 26,984 Fuel, materials, and supplies, at average cost 64,817 64,817 Prepaid and other current assets 23,059 23,059 ---------- ---------- ---------- Total current assets 352,422 352,422 ---------- ---------- ---------- Deferred charges and other assets 294,456 294,456 ---------- ---------- ---------- $2,628,422 $2,628,422 ========== ========== ========== CAPITALIZATION AND LIABILITIES ------------------------------ Capitalization: Common stock, par value $20 per share, authorized and outstanding 6,449,896 shares $ 128,998 $ 128,998 Premiums on capital stocks 86,779 $ (141) 86,638 Other paid-in capital 289,818 1,952 291,770 Retained earnings 392,534 392,534 ---------- ---------- ---------- Total common equity 898,129 1,811 899,940 Cumulative preferred stock, par value $100 per share 39,666 (39,666) - Long-term debt 647,613 647,613 ---------- ---------- ---------- Total capitalization 1,585,408 (37,855) 1,547,553 ---------- ---------- ---------- Current liabilities: Long-term debt due in one year 53,000 53,000 Short-term debt (including ($5,700,000 to affiliates) 132,925 37,855 170,780 Accounts payable (including $22,331,000 to affiliates) 124,953 124,953 Accrued liabilities: Taxes 1,719 1,719 Interest 8,760 8,760 Other accrued expenses 12,991 12,991 Dividends payable 35,474 35,474 ---------- ---------- ---------- Total current liabilities 369,822 37,855 407,677 ---------- ---------- ---------- Deferred federal and state income taxes 378,083 378,083 Unamortized investment tax credits 54,475 54,475 Other reserves and deffered credits 240,634 240,634 ---------- ---------- ---------- $2,628,422 $ 0 $2,628,422 ========== ========== ==========
2 NEW ENGLAND POWER COMPANY The pro forma adjustments to show the estimated effect of the proposed transactions on the foregoing Balance Sheet at June 30, 1997 are as follows: Debit - Preferred Stock $39,666,000 Debit - Premium on Capital Stock $ 141,050 Credit - Other Paid-in-Capital $ 1,952,302 Credit - Short-Term Debt $37,854,748
To reflect the proposed issue of $37,854,748 of short-term debt, the proceeds of which are to be used for the retirement of $39,660,000 of preferred stock, net of outstanding premium on capital stock and net gain on retirement. EX-99.(B)3-B 16 NE POWER STATEMENT OF INCOME - 12 MOS. 1 NEW ENGLAND POWER COMPANY Statement of Income Twelve Months Ended June 30, 1997 (Actual and Pro Forma) (Unaudited)
Actual Adjustments Pro Forma ---------- ----------- ---------- (In Thousands) Operating revenue, principally from affiliates $1,658,945 $1,658,945 ---------- ------- ---------- Operating expenses: Fuel for generation 381,343 381,343 Purchased electric energy 530,026 530,026 Other operation 227,397 227,397 Maintenance 82,652 82,652 Depreciation and amortization 94,584 94,584 Taxes, other than income taxes 67,490 67,490 Income taxes 85,917 $ (828) 85,089 ---------- ------- ---------- Total operating expenses 1,469,409 (828) 1,468,581 ---------- ------- ---------- Operating income 189,536 828 190,364 Other income: Equity in income of nuclear power companies 4,962 4,962 Other income (expense), net (2,673) (2,673) ---------- ------- ---------- Operating and other income 191,825 828 192,653 ---------- ------- ---------- Interest: Interest on long-term debt 43,474 43,474 Other interest 7,124 2,271 9,395 Allowance for borrowed funds used during construction -- credit (975) (975) ---------- ------- ---------- Total interest 49,623 2,271 51,894 ---------- ------- ---------- Net income $ 142,202 $(1,443) $ 140,759 ========== ======= ==========
Statement of Retained Earnings Twelve Months ended June 30, 1997 (Actual and Pro Forma) (Unaudited)
Actual Adjustments Pro Forma ---------- ----------- ---------- (In Thousands) Retained earnings at beginning of period $ 386,242 $ 386,242 Net income 142,202 $(1,443) 140,759 Dividends declared on cumulative preferred stock (2,075) 2,075 -- Dividends declared on common stock (133,835) (133,835) ---------- ------- ---------- Retained earnings at end of period $ 392,534 $ 632 $ 393,166 ========== ======= ==========
2 NEW ENGLAND POWER COMPANY The pro forma adjustments to show the estimated effect of the proposed transactions as applied to the foregoing Statement of Income and Statement of Retained Earnings for the twelve months ended June 30, 1997 are as follows: Increase - Other Interest $2,271,285 To reflect interest on $37,854,748 of short-term debt, calculated at an annual rate of 6.00 percent. Decrease - Income taxes $827,911 To reflect the income tax effects as a result of the above adjustment, as well as the tax impacts of a $180,000 preferred dividends tax deduction no longer applicable as a result of the pro forma adjustments. Decrease - Dividends declared on cumulative preferred stock $2,075,324 To reflect twelve-months effect of the retirement of $39,666,000 of preferred stock. EX-99.(B)4-A 17 MASS ELECTRIC BALANCE SHEET 1 MASSACHUSETTS ELECTRIC COMPANY Balance Sheet At June 30, 1997 (Actual and Pro Forma) (Unaudited)
ASSETS Actual Adjustments Pro Forma ------ ---------- ----------- ---------- Utility plant, at original cost $1,536,422 $1,536,422 Less accumulated provisions for depreciation 446,458 446,458 ---------- -------- ---------- 1,089,964 1,089,964 Construction work in progress 17,608 17,608 ---------- -------- ---------- Net utility plant 1,107,572 1,107,572 ---------- -------- ---------- Current assets: Cash 1,163 1,163 Accounts receivable: From sales of electric energy 145,463 145,463 Other (including $2,323,000 from affiliates) 3,076 3,076 Less reserves for doubtful accounts 14,539 14,539 ---------- -------- ---------- 134,000 134,000 Unbilled revenues 46,284 46,284 Materials and supplies, at average cost 9,031 9,031 Prepaid and other current assets 26,471 26,471 ---------- -------- ---------- Total current assets 216,949 216,949 ---------- -------- ---------- Deferred charges and other assets 51,047 51,047 ---------- -------- ---------- $1,375,568 $1,375,568 ========== ======== ========== CAPITALIZATION AND LIABILITIES ------------------------------ Capitalization: Common stock, par value $25 per share, authorized and outstanding 2,398,111 shares $ 59,953 $ 59,953 Premiums on capital stocks 45,862 $ 105 45,967 Other paid-in capital 155,310 155,310 Retained earnings 171,581 (4,088) 167,493 ---------- -------- ---------- Total common equity 432,706 (3,983) 428,723 Cumulative preferred stock 50,000 (50,000) -- Long-term debt 333,415 333,415 ---------- -------- ---------- Total capitalization 816,121 (53,983) 762,138 ---------- -------- ---------- Current liabilities: Long-term debt due in one year 25,000 25,000 Short-term debt (including $5,700,000 to affiliates) 30,125 53,983 84,108 Accounts payable (including $164,905,000 to affiliates) 174,802 174,802 Accrued liabilities: Taxes 5,323 5,323 Interest 9,154 9,154 Other accrued expenses 75,004 75,004 Customer deposits 4,413 4,413 Dividends payable 5,575 5,575 ---------- -------- ---------- Total current liabilities 329,396 53,983 383,379 ---------- -------- ---------- Deferred federal and state income taxes 170,592 170,592 Unamortized investment tax credits 16,015 16,015 Other reserves and deferred credits 43,444 43,444 ---------- -------- ---------- $1,375,568 $ 0 $1,375,568 ========== ======== ==========
2 MASSACHUSETTS ELECTRIC COMPANY The pro forma adjustments to show the estimated effect of the proposed transactions on the foregoing Balance Sheet at June 30, 1997 are as follows: Debit - Preferred Stock $50,000,000 Credit - Discount on Capital Stock $104,650 Debit - Retained Earnings $4,088,150 Credit - Short-Term Debt $53,983,500
To reflect the proposed issue of $53,983,500 of short-term debt, the proceeds of which are to be used for the retirement of $50,000,000 of preferred stock, net of outstanding discount on capital stock and net loss on retirement. EX-99.(B)4-B 18 MASS ELECTRIC STATEMENT OF INCOME - 12 MOS. 1 MASSACHUSETTS ELECTRIC COMPANY Statement of Income Twelve Months Ended June 30, 1997 (Actual and Pro Forma) (Unaudited)
Actual Adjustments Pro Forma ------ ----------- --------- (In Thousands) Operating revenue $1,564,299 $1,564,299 ---------- ------- ---------- Operating expenses: Purchased electric energy, principally from New England Power Company, an affiliate 1,131,008 1,131,008 Other operation 210,141 210,141 Maintenance 32,109 32,109 Depreciation 48,358 48,358 Taxes, other than income taxes 30,990 30,990 Income taxes 30,264 $(1,271) 28,993 ---------- ------- ---------- Total operating expenses 1,482,870 (1,271) 1,481,599 ---------- ------- ---------- Operating income 81,429 1,271 82,700 Other income (expense), net (1,243) (1,243) ---------- ------- ---------- Operating and other income 80,186 1,271 81,457 ---------- ------- ---------- Interest: Interest on long-term debt 27,715 27,715 Other interest 7,238 3,239 10,477 Allowance for borrowed funds used during construction - credit (492) (492) ---------- ------- ---------- Total interest 34,461 3,239 37,700 ---------- ------- ---------- Net income $ 45,725 $(1,968) $ 43,757 ========== ======= ==========
Statement of Retained Earnings Twelve Months Ended June 30, 1997 (Actual and Pro Forma) (Unaudited)
Actual Adjustments Pro Forma ------ ----------- --------- (In Thousands) Retained earnings at beginning of period $154,150 $154,150 Net income 45,725 $(1,968) 43,757 Dividends declared on cumulative preferred stock (3,114) 3,114 - Dividends declared on common stock (25,180) (25,180) Premium on redemption of preferred stock (4,088) (4,088) -------- ------- -------- Retained earnings at end of period $171,581 $(2,942) $168,639 ======== ======= ========
2 MASSACHUSETTS ELECTRIC COMPANY The pro forma adjustments to show the estimated effect of the proposed transactions as applied to the foregoing Statement of Income and Statement of Retained Earnings for the twelve months ended June 30, 1997 are as follows: Increase - Other Interest $3,239,010 To reflect interest on $53,983,500 of short-term debt, calculated at an annual rate of 6.00 percent. Decrease - Income taxes $1,270,502 To reflect the income tax effects as a result of the above adjustment. Decrease - Dividends declared on cumulative preferred stock $3,114,000 To reflect twelve-months effect of the retirement of $50,000,000 of preferred stock Decrease - Premium on redemption of preferred stock $4,088,000 To reflect the net loss on retirement of $50,000,000 of preferred stock. EX-99.(B)5-A 19 NARRAGANSETT BALANCE SHEET 1 THE NARRAGANSETT ELECTRIC COMPANY Balance Sheet At June 30, 1997 (Unaudited)
ASSETS Actual Adjustments Pro Forma ------ ------ ----------- --------- (In Thousands) Utility plant, at original cost $750,188 $750,188 Less accumulated provisions for depreciation 193,273 193,273 -------- -------- -------- 556,915 556,915 Construction work in progress 6,836 6,836 -------- -------- -------- Net utility plant 563,751 563,751 -------- -------- -------- Current assets: Cash 1,385 1,385 Accounts receivable: From sales of electric energy 50,351 50,351 Other (including $1,296,000 from affiliates) 2,684 2,684 Less reserves for doubtful accounts 5,884 5,884 -------- -------- -------- 47,151 47,151 Unbilled revenues 16,200 16,200 Fuel, materials and supplies, at average cost 4,208 4,208 Prepaid and other current assets 16,551 16,551 -------- -------- -------- Total current assets 85,495 85,495 -------- -------- -------- Deferred charges and other assets 54,672 54,672 -------- -------- -------- $703,918 $703,918 ======== ======== ======== CAPITALIZATION AND LIABILITIES -------------------------------- Capitalization: Common stock, par value $50 per share, authorized and outstanding 1,132,487 shares $ 56,624 $ (170) $ 56,624 Premiums on preferred stocks 170 -- Other paid-in capital 80,000 80,000 Retained earnings 122,624 (1,510) 121,114 -------- -------- -------- Total common equity 259,418 (1,680) 257,738 Cumulative preferred stock 36,500 (36,500) -- Long-term debt 173,574 173,574 -------- -------- -------- Total capitalization 469,492 (38,180) 431,312 -------- -------- -------- Current liabilities: Long-term debt due in one year 12,500 12,500 Short-term debt (including $5,725,000 to affiliates) 24,900 38,180 63,080 Accounts payable (including $47,929,000 to affiliates) 51,729 51,729 Accrued liabilities: Taxes 4,788 4,788 Interest 4,919 4,919 Other accrued expenses 18,521 18,521 Customer deposits 5,783 5,783 Dividends payable 6,198 6,198 -------- -------- -------- Total current liabilities 129,338 38,180 167,518 -------- -------- -------- Deferred federal income taxes 81,191 81,191 Unamortized investment tax credits 7,270 7,270 Other reserves and deferred credits 16,627 16,627 -------- -------- -------- $703,918 $ 0 $703,918 ======== ======== ========
2 THE NARRAGANSETT ELECTRIC COMPANY The pro forma adjustments to show the estimated effect of the proposed transactions on the foregoing Balance Sheet at June 30, 1997 are as follows: Debit - Preferred Stock $36,500,000 Debit - Premium on Capital Stock $170,000 Debit - Retained Earnings $1,510,300 Credit - Short-Term Debt $38,180,300 To reflect the proposed issue of $38,180,300 of short-term debt, the proceeds of which are to be used for the retirement of $36,500,000 of preferred stock, net of outstanding discount on capital stock and net loss on retirement. EX-99.(B)5-B 20 NARRAGANSETT STATEMENT OF INCOME - 12 MOS. 1 THE NARRAGANSETT ELECTRIC COMPANY Statement of Income Twelve Months Ended June 30, 1997 (Actual and Pro Forma) (Unaudited)
Actual Adjustments Pro Forma -------- ----------- --------- (In Thousands) Operating revenue $511,190 $511,190 -------- -------- -------- Operating expenses: Fuel for generation and purchased electric energy (principally from New England Power Company, an affiliate) 304,036 304,036 Other operation 71,669 71,669 Maintenance 11,802 11,802 Depreciation 25,245 25,245 Taxes, other than federal income taxes 37,950 37,950 Federal income taxes 14,286 $ (745) 13,541 -------- -------- -------- Total operating expenses 464,988 (745) 464,243 -------- -------- -------- Operating income 46,202 745 46,947 Other income: Other income (expense), net (681) (681) -------- -------- -------- Operating and other income 45,521 745 46,266 -------- -------- -------- Interest: Interest on long-term debt 17,104 17,104 Other interest 2,193 2,291 4,484 Allowance for borrowed funds used during construction - credit (101) (101) -------- -------- -------- Total interest 19,196 $ 2,291 $ 21,487 -------- -------- -------- Net income $ 26,325 $ (1,546) $ 24,779 ======== ======== ========
Statement of Retained Earnings Twelve Months Ended June 30, 1997 (Actual and Pro Forma) (Unaudited)
Actual Adjustments Pro Forma -------- ----------- --------- (In Thousands) Retained earnings at beginning of period $111,183 $111,183 Net income 26,325 $ (1,546) 24,779 Dividends declared on cumulative preferred stock (2,143) 2,143 -- Dividends declared on common stock (12,741) (12,741) Premium on redemption of preferred stock (1,510) (1,510) -------- -------- -------- Retained earnings at end of period $122,624 $ (913) $121,711 ======== ======== ========
2 THE NARRAGANSETT ELECTRIC COMPANY The pro forma adjustments to show the estimated effect of the proposed transactions as applied to the foregoing Statement of Income and Statement of Retained Earnings for the twelve months ended June 30, 1997 are as follows: Increase - Interest on Short-Term Debt $2,290,818 To reflect interest on $38,180,300 of short-term debt, calculated at an annual rate of 6.00 percent. Decrease - Income taxes $745,086 To reflect the income tax effects as a result of the above adjustment, as well as the tax impacts of a $162,000 preferred dividends tax deduction no longer applicable as a result of the pro forma adjustments. Decrease - Dividends declared on cumulative preferred stock $2,143,000 To reflect twelve-months effect of the retirement of $36,500,000 of preferred stock Decrease - Premium on redemption of preferred stock $1,510,300 To reflect the net loss on retirement of $50,000,000 of preferred stock. EX-27.1 21 NE ELECTRIC SYSTEM FINANCIAL DATA SCHEDULE
OPUR1 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AND RELATED STATEMENTS OF INCOME, RETAINED EARNINGS AND CASH FLOWS OF NEW ENGLAND ELECTRIC SYSTEM (PARENT COMPANY), AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000071297 NEW ENGLAND ELECTRIC SYSTEM (PARENT COMPANY) 1,000 12-MOS DEC-31-1997 JUN-30-1997 PER-BOOK 0 1,693,482 55,827 2,978 0 1,752,287 64,969 736,567 904,826 1,706,362 0 0 0 0 0 0 0 0 0 0 45,925 1,752,287 0 (434) 7,065 6,631 (6,631) 213,702 207,071 305 206,766 0 206,766 153,329 0 173,514 0 0
EX-27.2 22 NE ELECTRIC SYSTEM FINANCIAL DATA SCHEDULE WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
OPUR1 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AND RELATED CONSOLIDATED STATEMENTS OF INCOME, RETAINED EARNINGS AND CASH FLOWS OF NEW ENGLAND ELECTRIC SYSTEM, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. NEW ENGLAND ELECTRIC SYSTEM - CONSOLIDATED 1 NEES CONSOLIDATED 1,000 12-MOS 12-MOS DEC-31-1997 DEC-31-1997 JUN-30-1997 JUN-30-1997 PER-BOOK PRO-FORMA 3,912,203 3,912,203 372,721 372,721 455,214 455,214 403,566 403,566 0 0 5,143,704 5,143,704 64,970 64,970 736,773 736,567 904,825 901,179 1,704,067 1,700,215 0 0 126,166 0 1,484,542 1,484,542 0 0 0 0 170,825 300,843 104,710 104,710 0 0 0 0 0 0 1,553,394 1,553,394 5,143,704 5,143,704 2,429,139 2,429,139 138,137 135,293 1,945,427 1,945,427 2,083,564 2,080,720 345,575 348,419 (2,457) (2,457) 343,118 345,962 123,872 131,673 206,491 205,220 7,332 0 206,491 205,220 153,055 153,055 109,638 109,638 518,544 517,872 3.18 3.16 3.18 3.16 Total deferred charges include other assets. Preferred stock reflects preferred stock of subsidiaries. Preferred stock dividends reflect preferred stock dividends of subsidiaries. Total common stockholders equity is reflected net of treasury stock at cost and unrealized gain on securities.
EX-27.3 23 NE POWER FINANCIAL DATA SCHEDULE
OPUR1 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AND RELATED STATEMENTS OF INCOME, RETAINED EARNINGS AND CASH FLOWS OF NEW ENGLAND POWER COMPANY, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 2 NEW ENGLAND POWER COMPANY 1,000 12-MOS 12-MOS DEC-31-1997 DEC-31-1997 JUN-30-1997 JUN-30-1997 PER-BOOK PRO-FORMA 1,901,297 1,901,297 80,247 80,247 352,422 352,422 294,456 294,456 0 0 2,628,422 2,628,422 128,998 128,998 376,597 378,408 392,534 392,534 898,129 899,940 0 0 39,666 0 647,613 647,613 5,700 5,700 0 0 127,225 165,080 53,000 53,000 0 0 0 0 0 0 857,089 857,089 2,628,422 2,628,422 1,658,945 1,658,945 85,917 85,089 1,383,492 1,383,492 1,469,409 1,468,581 189,536 190,364 2,289 2,289 191,825 192,653 49,623 51,894 142,202 140,759 2,075 0 140,127 140,759 133,835 133,835 43,474 43,474 250,484 249,104 0 0 0 0 Total deferred charges include other assets. Per share data is not relevant because the Company's common stock is wholly-owned by New England Electric System.
EX-27.4 24 MASSACHUSETTS ELECTRIC FINANCIAL DATA SCHEDULE
OPUR1 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AND RELATED STATEMENTS OF INCOME, RETAINED EARNINGS AND CASH FLOWS OF MASSACHUSETTS ELECTRIC COMPANY AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3 MASSACHUSETTS ELECTRIC COMPANY 1,000 12-MOS 12-MOS DEC-31-1997 DEC-31-1997 JUN-30-1997 JUN-30-1997 PER-BOOK PRO-FORMA 1,107,572 1,107,572 0 0 216,949 216,949 51,047 51,047 0 0 1,375,568 1,375,568 59,953 59,953 201,172 201,277 171,581 167,493 432,706 428,723 0 0 50,000 0 333,415 333,415 5,700 5,700 0 0 24,425 78,408 25,000 25,000 0 0 0 0 0 0 504,322 504,322 1,375,568 1,375,568 1,564,299 1,564,299 30,264 28,993 1,452,606 1,452,606 1,482,870 1,481,599 81,429 82,700 (1,243) (1,243) 80,186 81,457 34,461 37,700 45,725 43,757 3,114 0 42,611 43,757 25,180 25,180 27,715 27,715 129,530 127,562 0 0 0 0 Total deferred charges include other assets. Per share date is not relevant because the Company's common stock is wholly-owned by New England Electric system.
EX-27.5 25 NARRAGANSETT ELECTRIC FINANCIAL DATA SCHEDULE
OPUR1 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AND RELATED STATEMENTS OF INCOME, RETAINED EARNINGS AND CASH FLOWS OF THE NARRAGANSETT ELECTRIC COMPANY, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 4 THE NARRAGANSETT ELECTRIC COMPANY 1,000 12-MOS 12-MOS DEC-31-1997 DEC-31-1997 JUN-30-1997 JUN-30-1997 PER-BOOK PRO-FORMA 563,751 563,751 0 0 85,495 85,495 54,672 54,672 0 0 703,918 703,918 56,624 56,624 80,170 80,000 122,624 121,114 259,418 257,738 0 0 36,500 0 173,574 173,574 5,725 5,725 0 0 19,175 57,355 12,500 12,500 0 0 0 0 0 0 197,026 197,026 703,918 703,918 511,190 511,190 14,286 13,541 450,702 450,702 464,988 464,243 46,202 46,947 (681) (681) 45,521 46,266 19,196 21,487 26,325 24,779 2,143 0 24,182 24,779 12,741 12,741 17,104 17,104 69,021 67,629 0 0 0 0 Total deferred sharges include other assets. Per share data is not relevant because the Company's common stock is wholly-owned by New England Electric System.
-----END PRIVACY-ENHANCED MESSAGE-----