As Filed with the Securities and Exchange Commission on June 26, 1997
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
VALLEY RESOURCES, INC.
(Exact name of Registrant as specified in its charter)
RHODE ISLAND 05-0384723
(State of incorporation) (I.R.S. Employer
Identification No.)
1595 MENDON ROAD, CUMBERLAND, RHODE ISLAND 02864, (401) 334-1188
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
ALFRED P. DEGEN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
VALLEY RESOURCES, INC.
1595 MENDON ROAD
CUMBERLAND, RHODE ISLAND 02864
(401) 334-1188
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
COPIES TO:
CHRISTINE M. MARX, ESQ. JOHN L. GILLIS, JR., ESQ.
EDWARDS & ANGELL ARMSTRONG, TEASDALE, SCHLAFLY & DAVIS
150 JOHN F. KENNEDY PARKWAY ONE METROPOLITAN SQUARE
SHORT HILLS, NEW JERSEY 07078 ST. LOUIS, MISSOURI 63102
(201) 376-7700 (314) 621-5070
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If the Registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this Form, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] ____________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _________________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<PAGE>
<TABLE>
CALCULATION OF REGISTRATION FEE
<CAPTION>
PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS AGGREGATE OFFERING REGISTRATION
OF SECURITIES BEING REGISTERED PRICE# FEE
<S> <C> <C>
Common Stock, $1.00 par
value* .................................... $ 8,056,812 $2,685.60
_ % Debentures, due 2027...................... $ 7,000,000 $2,333.33
Total ................................... $15,056,812 $5,018.93
</TABLE>
#Estimated for purposes of calculation of registration fee.
*Also includes rights to purchase Cumulative Participating Junior Preferred
Stock.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
RED HERRING LANGUAGE
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
Subject to Completion
Preliminary Prospectus Dated June 26, 1997
VALLEY RESOURCES, INC.
620,000 SHARES OF COMMON STOCK
$7,000,000 % DEBENTURES DUE 2027
The Corporation's Common Stock ("Common Stock") is listed on the American
Stock Exchange. On June 25, 1997, the reported last sale price of the Common
Stock on the American Stock Exchange was $11.25. See "Price Range of Common
Stock and Dividends."
Interest on the Debentures is payable semiannually on the first day of
March and September, commencing March 1, 1998.
The __% Debentures due 2027 (the "Debentures") will be issued in the form
of one global security (the "Global Security") registered in the name of the
nominee of The Depository Trust Company (the "Depository"), and such nominee
will be the sole holder of the Debentures. An owner of an interest in the
Debentures ("Beneficial Owner") will not be entitled to the delivery of a
definitive security except in limited circumstances. A Beneficial Owner's
interest in the Global Security will be recorded on and transfers will be
effected only through records maintained by the Depository and its participants.
See "Description of Debentures."
At the option of any deceased Beneficial Owner's representative, the
Debentures are redeemable at 100% of their principal amount, plus accrued
interest, at any time, subject to the maximum principal amounts of $25,000 per
deceased Beneficial Owner and $210,000 in the aggregate for all deceased
Beneficial Owners during the initial period ending September 1, 1998 and during
each twelve month period thereafter, within 60 days after presentment to the
Depository of a satisfactory request for redemption. Otherwise, neither the
Corporation nor a Beneficial Owner can require redemption of the Debentures
until September 1, 2002, although the Corporation may, but is not required to,
redeem interests in the Debentures tendered in excess of the above limitations.
On or after September 1, 2002, interests in the Debentures will be redeemable,
in whole or in part, at the option of the Corporation at declining premiums. The
Debentures will be unsecured obligations of the Corporation payable out of the
Corporation's general operating funds, and no mandatory sinking fund will exist
to provide for the repayment of the indebtedness represented by the Debentures.
See "Description of Debentures."
Prior to this offering, there has been no public market for the Debentures,
and no assurance can be given that one will develop.
THE SECURITIES OFFERED HEREBY INVOLVE A DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 6 OF THIS PROSPECTUS.
___________________________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
__________________________________
<PAGE>
<TABLE>
___________________________________________________________________________________________________
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) CORPORATION(2)
<S> <C> <C> <C>
Per Share..................................... $ $ $
Total Common Stock (3) .................. $ $ $
___________________________________________________________________________________________________
Per Debenture ................................ $ $ $
Total Debentures ........................ $ $ $
___________________________________________________________________________________________________
Total Offering (3) ...................... $ $ $
___________________________________________________________________________________________________
</TABLE>
(1) The Corporation has agreed to indemnify the Underwriters against certain
civil liabilities, including liabilities under the Securities Act of 1933.
See "Underwriting."
(2) Before deduction of expenses payable by the Corporation estimated a
$115,000.
(3) The Corporation has granted to the Underwriters an option (the "Over-
Allotment Option"), exercisable for a period of 30 days after the date of
this Prospectus, to purchase up to 93,000 additional shares of Common Stock
upon the same terms and conditions set forth above, solely to cover
over-allotments, if any. If the Over-Allotment Option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Corporation will be $_____________, $_______________ and
$_______________, respectively. See "Underwriting."
The Common Stock and Debentures are offered, subject to prior sale, when,
as and if issued by the Corporation and accepted by the Underwriters, and
subject to approval of certain legal matters by their counsel. The Underwriters
reserve the right to withdraw, cancel or modify such offer and to reject orders
in whole or in part. It is expected that delivery of the Common Stock and
Debentures will be made in St. Louis, Missouri, on or about 1997. The Debentures
will bear interest from the date of delivery of the Global Security to the
Underwriters, which is expected to be on or about ___________ 1997.
EDWARD D. JONES & CO., L.P. FIRST ALBANY CORPORATION
The date of this Prospectus is ________________.
<PAGE>
Map of Valley Resources, Inc.
A map of New England and upstate New York with an overlay of areas served
by the nonutility subsidiaries appears here.
A map of Rhode Island highlighting the Utilities' service area appears
here.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK AND
DEBENTURES. SUCH TRANSACTIONS MAY INCLUDE STABILIZING THE PURCHASE OF COMMON
STOCK AND DEBENTURES TO COVER SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF
PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
AVAILABLE INFORMATION
Valley Resources, Inc. (the "Corporation") has filed with the Securities
and Exchange Commission (the "Commission") a Registration Statement on Form S-2
with respect to the securities offered hereby (herein, together with all
amendments and exhibits, referred to as the "Registration Statement") under the
Securities Act of 1933, as amended (the "Act"). This Prospectus does not contain
all of the information set forth in such Registration Statement, certain parts
of which are omitted in accordance with the Rules and Regulations of the
Commission. For further information pertaining to these securities and the
Corporation, reference is made to the Registration Statement.
The Corporation is subject to the informational requirements of the
Securities Exchange Act of 1934 (the "Exchange Act") and, in accordance
therewith, files reports, proxy statements and other information with the
Commission. Reports, proxy statements and other information filed by the
Corporation can be inspected and copied at the public reference facilities of
the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, DC 20549, as well as at the following Regional Offices: 7 World
Trade Center, New York, NY 10048; and Citicorp Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, IL 60661. Copies can be obtained by mail at
prescribed rates. Requests should be directed to the Commission's Public
Reference Section, Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC
20549. Such material also can be inspected at the offices of the American Stock
Exchange, 86 Trinity Place, New York, NY 10006. In addition, certain of such
materials are also available electronically by means of the Commission's home
page on the Internet at http://www.sec.gov.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents, which have heretofore been filed by the
Corporation with the Commission pursuant to the Exchange Act, are incorporated
by reference into this Prospectus and shall be deemed to be a part hereof as of
their respective dates:
1. The annual report of the Corporation on Form 10-K for the fiscal year
ended August 31, 1996.
2. The quarterly reports of the Corporation on Form 10-Q for the fiscal
quarters ended November 30, 1996 and February 28, 1997.
Any statement contained in any document incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Registration
Statement to the extent that a statement contained herein or in any subsequently
filed document which also is incorporated by reference herein modifies or
supersedes such statement. Except as so modified or superseded, such statement
shall not be deemed to constitute a part of this Registration Statement.
Any person, including any beneficial owner, receiving a copy of this
Prospectus may obtain, without charge, upon written or oral request, a copy of
any of the documents incorporated by reference herein, except for the exhibits
to such documents. Written requests should be mailed to Kenneth W. Hogan, Senior
Vice President, Chief Financial Officer and Secretary, Valley Resources, Inc.,
1595 Mendon Road, Cumberland, Rhode Island 02864. Telephone requests may be
directed to (401) 334-1188.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the detailed
information appearing elsewhere in this Prospectus or incorporated herein by
reference and, except as otherwise noted, assumes that the Underwriters'
Over-Allotment Option will not be exercised.
The Corporation Valley Resources, Inc. is a Rhode Island holding company
organized in 1979, whose principal office is located
at 1595 Mendon Road, Cumberland, Rhode Island 02864.
(Telephone number 401-334-1188). The Corporation has five
active wholly-owned subsidiaries: Valley Gas Company, Bristol
& Warren Gas Company, Valley Appliance and Merchandising
Company, Valley Propane, Inc. and Morris Merchants, Inc. The
Corporation also has an 80% interest in Alternate Energy
Corporation. See "Valley Resources, Inc."
The Offering Common Stock:
Shares of Common Stock offered................. 620,000
Shares of Common Stock outstanding after the
offering...................................... 4,885,606*
Latest 52-week Range of Sales Prices (through
June 15, 1997)................................ $13 - $11
Indicated annual dividend rate per share of
Common Stock.................................. $0.74
American Stock Exchange Symbol................. VR
Dividend Reinvestment Plan (the "Plan")........ Available by
separate
prospectus
Debentures:
Debentures offered.. $7,000,000 in aggregate principal amount.
Maturity............ September 1, 2027.
Interest............ ____% payable semi-annually on each
September 1 and March 1, commencing
March 1, 1998.
Beneficial Owner's
Redemption Privi-
lege............... At the option of any Deceased Beneficial
Owner's representative, the interests in
the Debentures are redeemable at 100% of
the principal amount, plus accrued
interest, at any time, subject to the
maximum principal amount of $25,000 per
deceased Beneficial Owner and $210,000
in the aggregate for all deceased
Beneficial Owners, during the initial
period ending September 1, 1998 and for
each twelve month period thereafter.
See "Description of Debentures."
Corporation's Re-
demption Privi-
lege............... In whole or in part, beginning Septem-
ber 1, 2002, at a premium of 104%
declining by 1% per year for the next
four years, plus accrued interest. See
"Description of Debentures."
Use of Proceeds...... To reduce short-term debt of utility
operations, to make loans to nonutility
subsidiaries to repay short-term debt,
and for working capital requirements.
See "Use of Proceeds."
____________
* Based on the number of shares of Common Stock outstanding as of February 28,
1997
4
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following table sets forth certain summary financial information of the
Corporation and the ratio of earnings to fixed charges as of February 28, 1997
and 1996 and for the six months then ended and as of and for each of the five
fiscal years ended August 31, 1996. The summary financial information is
qualified by reference to the consolidated financial statements and other
information and data set forth elsewhere in the Prospectus.
<TABLE>
<CAPTION>
For the
Six Months
Ended For the fiscal
February 28 Year Ended August 31
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
(Unaudited)
(In thousands except for per share amounts and ratios)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Income:
Operating Revenues................. $47,272 $44,345 $80,360 $74,870 $83,553 $77,286 $67,144
Operating Income................... $ 3,992 $ 4,462 $ 6,850 $ 5,744 $ 6,501 $ 6,084 $ 4,899
Net Income......................... $ 2,488 $ 3,079 $ 3,998 $ 2,555 $ 3,826 $ 3,727 $ 3,115
Net Income Applicable to Common
Stock........................... $ 2,488 $ 3,079 $ 3,998 $ 2,555 $ 3,826 $ 3,727 $ 3,115
Earnings per average Common
Share Outstanding............... $ 0.58 $ 0.72 $ 0.94 $ 0.61 $ 0.91 $ 0.89 $ 0.74
Dividends per Common Share......... $ 0.365 $ 0.360 $ 0.725 $ 0.71 $ 0.69 $ 0.66 $ 0.63
Average Number of Common
Shares Outstanding................. 4,262 4,251 4,259 4,223 4,206 4,203 4,201
Ratio of Earnings to Fixed Charges
Actual............................. 3.0 3.5 2.5 1.9 2.6 2.8 2.8
Pro Forma(1)....................... 3.1 2.6
</TABLE>
<TABLE>
<CAPTION>
February 28, 1997
Actual Pro Forma(2)
------ ------------
(In thousands)
<S> <C> <C> <C> <C>
CAPITALIZATION:
Long-term Debt (including current maturities)........... $ 23,699 45.8% $ 30,699 47.0%
Common Equity........................................... 27,991 54.2% 34,912 53.0%
Total Capitalization ................................... $ 51,690 100.0% $ 65,353 100.0%
---------- ----- ---------- -----
Short-Term Debt......................................... $ 20,700 $ 7,387
========== ==========
</TABLE>
(1)The ratio of earnings to fixed charges represents the number of times that
fixed charges are covered by earnings. Earnings for the calculation consists
of net income before income taxes and fixed charges. Fixed charges consist of
interest expense and amortization of debt expense.
(2) Adjusted to reflect the sale of the Common Stock (at an assumed price of
$11 5/16 per share) and the issuance of the Debentures (at an assumed
interest rate of 8.3%) offered hereby and the application of the estimated
net proceeds of $13,313,100 therefrom.
5
<PAGE>
RISK FACTORS
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Act and Section 21E of the Exchange Act. Actual results could
differ materially from those projected in the forward-looking statements as a
result of the risk factors set forth below and elsewhere in this Prospectus. In
addition to the other information contained and incorporated by reference in
this Prospectus, the following factors should be carefully considered in
evaluating the Corporation and its business before purchasing the securities
offered hereby.
Factors Affecting the Gas Utility Industry
- ------------------------------------------
The natural gas industry is subject to numerous regulations and
uncertainties, many of which affect the utility operations of the Corporation in
varying degrees. Industry issues which have affected or may affect the
Corporation from time to time include the following: fluctuations in demand
attributable to weather; new business and operational requirements for gas
supply resulting from changes in federal regulation of interstate pipelines;
competition with other gas sources for commercial and industrial customers;
competition with alternative sources of energy; uncertainty in achieving an
adequate return on invested capital due to inflation; difficulty in obtaining
rate increases from regulatory authorities in adequate amounts and on a timely
basis; attrition in earnings produced by the combination of increasing expenses
and the costs of new capital which may exceed allowed rates of return; the
availability of pipeline transportation capacity necessary to secure supplies of
gas; volatility in the price of natural gas; increases in construction and
operating costs; environmental regulations; and uncertainty in the projected
rate of growth of customers' energy requirements.
Sales of natural gas for heating are sensitive to fluctuations in
temperatures. Rates in the industry are set at levels assuming normal
temperatures. In an abnormally warm year, revenues from sales of gas to heating
customers will be adversely affected. The service areas of the Corporation's
utilities have experienced warmer than normal weather in two of the last five
years.
Factors Affecting the Corporation's Non-Utility Operations
- ----------------------------------------------------------
The Corporation's nonutility operations are subject to market competition
and the ability to meet and maintain competitive pricing. Morris Merchants has
exclusive rights to represent certain manufacturers in New England and upstate
New York; however, there is no assurance that these rights will continue.
Absence of Public Market for Debentures
- ---------------------------------------
There is no public trading market for the Debentures and the Corporation
does not intend to apply for listing of the Debentures on any national
securities exchange or for quotation of the Debentures on any automated dealer
quotation system. The Corporation has been advised by the Underwriters that they
presently intend to make a market in the Debentures after the consummation of
the offering contemplated hereby, although they are under no obligation to do so
and may discontinue any market-making activities at any time without any notice.
No assurance can be given as to the liquidity of the trading market for the
Debentures or that an active public market for the Debentures will develop. If
an active public trading market for the Debentures does not develop, the market
price and liquidity of the Debentures may be adversely affected. If the
Debentures are traded, they may trade at a discount from their initial offering
price, depending on prevailing interest rates, the market for similar
securities, the performance of the Corporation and certain other factors.
Reliance of Corporation on Dividends and Other Payments from Subsidiaries;
- --------------------------------------------------------------------------------
Dividend Restrictions Imposed on Subsidiaries
- ---------------------------------------------
The Corporation is a holding company, the principal assets of which are
shares of the capital stock of its subsidiaries. As a holding company without
independent means of generating revenues, the Corporation depends on dividends
and other permitted payments from its subsidiaries to fund its obligations and
meet its cash needs, including its payment obligations under the Debentures and
the payment of dividends. Valley Gas Company ("Valley Gas") has
6
<PAGE>
outstanding indebtedness which may increase and any of the subsidiaries could
issue preferred stock in the future which would have a preference over its
common stock as to dividends. Valley Gas is not in default in payment of
interest or principal on its outstanding indebtedness. Under the terms of its
outstanding indebtedness, Valley Gas is subject to restrictions on the payment
of dividends on its common stock. Under the most restrictive of these
provisions, approximately $1,721,400 of Valley Gas' retained earnings at
February 28, 1997 was available for common stock dividends. There are no
restrictions as to the payment of dividends by the other subsidiary companies.
Reduced Probability of Change of Control or Acquisition of Corporation Due to
- -----------------------------------------------------------------------------
Existence of Anti-Takeover Provisions
- -------------------------------------
The Corporation's Articles of Incorporation and By-Laws contain certain
provisions that reduce the probability of any change of control or acquisition
of the Corporation. These provisions include, but are not limited to, the
division of the Board of Directors into three classes with one class being
elected each year for a term of three years, the ability of the Board of
Directors to issue preferred stock in one or more series with such rights,
obligations and preferences as the Board of Directors may determine without any
further vote or action by the stockholders, and certain super-majority voting
requirements for certain business combinations or for certain amendments of the
Articles of Incorporation and By-laws. In addition, each share of Common Stock
includes one preferred stock purchase Right which entitles the holder to
purchase one one-hundredth of a share of Cumulative Participating Junior
Preferred Stock, par value $100, upon the occurrence of certain events in excess
of a stipulated percentage of ownership. See "Description of Common Stock."
VALLEY RESOURCES, INC.
Valley Resources, Inc. (the "Corporation"), a Rhode Island corporation
organized in 1979, is a holding company whose principal subsidiary operations
are natural gas distribution. The Corporation's principal executive offices are
located at 1595 Mendon Road, Cumberland, Rhode Island 02864, and its telephone
number is 401-334-1188. As a holding company, the Corporation's principal asset
is the common stock of its subsidiaries.
The Corporation has five active wholly-owned subsidiaries: Valley Gas and
Bristol & Warren Gas Company ("Bristol & Warren") (Valley Gas and Bristol &
Warren collectively, the "Utilities") --regulated natural gas distribution
companies which accounted for 76% and 80% of the Corporation's revenues and net
income, respectively, in fiscal 1996; Valley Appliance and Merchandising Company
("VAMCO")--a merchandising appliance rental, sales and service company; Valley
Propane, Inc. ("Valley Propane")--a wholesale and retail propane company; Morris
Merchants, Inc., d/b/a the Walter F. Morris Company ("Morris Merchants")--a
manufacturer's representative of franchised lines in the plumbing and heating
contractor supply and other energy related businesses. The Corporation also has
an 80% interest in, and the obligation to acquire the remaining 20% interest of,
Alternate Energy Corporation ("AEC"), which sells, installs and designs natural
gas conversion systems and facilities.
USE OF PROCEEDS
The net proceeds to the Corporation from the sale of the securities offered
hereby are expected to be approximately $13,313,000, after deducting the
underwriting commissions and other expenses of the offering. The Corporation
intends to contribute $6,663,100 of the net proceeds of the offering described
herein to the Utilities as a capital contribution, subject to the approval of
the Rhode Island Division of Public Utilities, and the remainder will be used to
make loans to its other subsidiaries to repay short-term debt and for working
capital requirements. The Utilities intend to use all of the capital
contribution to retire a portion of their outstanding short-term debt, which was
incurred principally for construction purposes. Utility construction
expenditures for fiscal 1996 aggregated approximately $4,396,000 and are
estimated at $4,233,400 for the year ending August 31, 1997. Additions to
utility plant consist primarily of the construction of new mains and services
and the installation of new meters in the service area. As of May 31, 1997,
short-term bank notes aggregated $12,100,000. The interest rate on these
borrowings ranged from 5.60% to 5.71% with maturities not exceeding 31 days.
Pending such applications, the net proceeds may be held in temporary cash
investments.
7
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Corporation as of
February 28, 1997 and the pro forma capitalization which reflects the issuance
of the Common Stock and Debentures offered hereby and the application of the
proceeds therefrom. See "Use of Proceeds."
<TABLE>
<CAPTION>
Actual Pro Forma(1)
------ ------------
(in thousands)
<S> <C> <C>
Long Term Debt:
8% First Mortgage Bonds, due 2022..................................... $ 20,155 $ 20,155
Note Payable.......................................................... 1,405 1,405
9% Note Payable, due 1999............................................. 2,139 2,139
Debentures offered hereby............................................. - 7,000
-------- ---------
Total ............................................................. 23,699 30,699
Common Equity:
Common Stock.......................................................... 4,280 4,900
Paid in Capital....................................................... 18,170 24,213
Retained Earnings..................................................... 8,683 8,683
Less Accounts Receivable - Employee Stock Ownership Plan.............. (3,142) (3,142)
-------- ---------
Total.............................................................. 27,991 34,654
-------- ---------
Total Capitalization...................................................... $ 51,690 $ 65,353
======== =========
Short-Term Debt........................................................... $ 20,700 $ 7,387
======== =========
</TABLE>
(1) As adjusted for the estimated net proceeds from the sale of 620,000 shares
of Common Stock (at an assumed price of $11-5/16 per share) being offered
hereby and the issuance of the Debentures (at an assumed interest rate of
8.3%) offered hereby and the application of the estimated net proceeds of
$13,313,100 therefrom.
8
<PAGE>
SELECTED FINANCIAL DATA
The following tables set forth selected financial data of the Corporation.
The following data should be read in conjunction with the consolidated financial
statements and the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
February 28 August 31
----------- ---------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
(unaudited)
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Utility plant - net................... $ 49,876 $48,679 $49,442 $47,411 $44,207 $42,313 $38,838
Leased property - net................. 2,638 1,732 2,945 2,014 2,436 2,395 3,343
Nonutility plant - net................ 3,657 3,550 3,568 3,547 3,519 3,334 2,180
Current assets........................ 27,843 23,163 19,307 18,409 18,358 20,727 20,908
Other assets.......................... 21,848 21,267 21,427 20,957 22,549 12,026 10,594
-------- ------- ------- ------- ------- ------- -------
Total.................................... $105,862 $98,391 $96,689 $92,338 $91,069 $80,795 $75,863
======== ======= ======= ======= ======= ======= =======
Capitalization and liabilities
Capitalization
Common equity....................... $27,991 $27,602 $27,092 $25,993 $26,036 $24,943 $24,018
Long-term debt
(less current maturities)......... 23,199 25,991 23,256 24,616 27,035 27,580 15,795
-------- ------- ------- ------- ------- ------- -------
Total........................... 51,190 53,593 50,348 50,609 53,071 52,523 39,813
-------- ------- ------- ------- ------- ------- -------
Revolving credit arrangement......... 2,300 -0- 2,200 -0- -0- -0- -0-
Obligations under capital leases..... 1,760 1,107 2,134 1,255 1,747 1,847 1,790
Current liabilities.................. 31,068 26,299 24,005 23,932 18,530 18,982 26,922
Other liabilities.................... 19,544 17,392 18,002 16,542 17,721 7,443 7,338
-------- ------- ------- ------- ------- ------- -------
Total........................... $105,862 $98,391 $96,689 $92,338 $91,069 $80,795 $75,863
======== ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
For the six months
ended February 28 For the year ended August 31
----------------- ----------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
(unaudited)
(in thousands except for share and per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenues....................... $47,272 $44,345 $80,360 $74,870 $83,553 $77,286 $67,144
------- ------- ------- ------- ------- ------- -------
Operating expenses:
Cost of gas sold..................... 20,578 17,798 31,951 30,229 38,234 33,410 28,963
Cost of sales - nonutility........... 7,720 7,277 13,689 13,190 12,784 12,715 11,893
Other operation and maintenance...... 10,081 9,784 19,379 18,288 17,784 17,300 15,107
Depreciation......................... 1,555 1,462 2,956 2,685 2,474 2,304 1,770
Taxes - other than Federal income... 2,224 2,153 4,091 4,002 4,463 4,073 3,557
- Federal income.............. 1,122 1,409 1,444 732 1,313 1,400 955
------- ------- ------- ------- ------- ------- -------
Total......................... 43,280 39,883 73,510 69,126 77,052 71,202 62,245
------- ------- ------- ------- ------- ------- -------
Operating income......................... 3,992 4,462 6,850 5,744 6,501 6,084 4,899
Other income - net of tax................ 158 271 460 115 227 253 267
Total interest charges................... 1,662 1,654 3,312 3,304 2,902 2,610 2,051
-------- -------- -------- ------- -------- -------- --------
Net income............................... $ 2,488 $ 3,079 $ 3,998 $ 2,555 $ 3,826 $ 3,727 $ 3,115
======== ======== ======== ======= ======== ======== ========
Shares outstanding - average............. 4,261,672 4,250,996 4,258,877 4,222,662 4,205,760 4,203,398 4,201,105
Shares outstanding - period-end.......... 4,280,028 4,267,884 4,280,028 4,260,797 4,213,043 4,213,043 4,213,043
Earnings per share....................... $0.58 $0.72 $0.94 $0.61 $0.91 $0.89 $0.74
Dividends declared per share............. $0.365 $0.36 $0.725 $0.71 $0.69 $0.66 $0.63
</TABLE>
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
OVERVIEW
- --------
The discussion and analysis that follows reflect the operations of the
Corporation and its six active subsidiaries: Valley Gas and Bristol & Warren,
both regulated natural gas distribution companies; VAMCO, a merchandising,
appliance rental, and service company; Valley Propane, a propane sales and
service company; Morris Merchants, a representative distributor of franchised
lines; and AEC, which sells, installs and designs natural gas conversion systems
and facilities.
Operating results are derived from two major classifications - utility and
nonutility. Utility earnings are generated from the operations of the regulated
natural gas distribution companies and include the distribution and sale of
natural gas to firm and seasonal customers. Nonutility revenues are a
consolidation of the revenues of VAMCO, Valley Propane, Morris Merchants and
AEC.
The distribution and sale of natural gas to customers on a year-round basis
for heating, water heating, cooking and processing are the source of firm
utility revenues. Firm customers can be residential, commercial or industrial.
The revenues from firm sales customers are determined by regulated tariff
schedules and through Rhode Island Public Utilities Commission ("RIPUC")
approved commodity charge factors. These factors include the Purchased Gas Price
Adjustment ("PGPA"), which requires the Utilities to collect from or return to
customers changes in gas costs from those included in the regulated tariffs, and
provides for an adjustment to collect post-retirement benefits.
Seasonal and dual-fuel sales (see "Business") are made when excess gas
supplies are available and gas prices are competitive with alternative fuel
markets. These sales are generally made in non-winter months and can be
interrupted by the Utilities at any time. Margins from seasonal sales and
margins above $1 per thousand cubic feet ("Mcf") of gas sold to dual fuel
customers are returned to firm sales customers through a reduction in the PGPA.
Prior to November 1995, Bristol & Warren retained all margins on seasonal sales.
The Utilities also provide transportation through their distribution systems for
customer-purchased natural gas received by the Utilities on an off-peak basis.
Morris Merchants and VAMCO generate nonutility revenues through the
wholesale and retail sales of plumbing and heating supplies and appliances.
Additionally, VAMCO generates revenues from appliance rentals and a service
contract repair program.
All of the Corporation's propane operations are conducted through Valley
Propane, which sells propane at retail and provides service to propane customers
in Rhode Island and southeastern Massachusetts.
AEC, acquired in May 1996, generates revenues through the conversion of
vehicles and stationary engines to natural gas and through the design and
installation of natural gas fueling facilities. The Corporation owns an 80%
interest in AEC and has the obligation to acquire the remaining 20% of the
company currently held by the management of AEC. The operations of AEC did not
materially impact the operations of the Corporation in fiscal 1996 or for the
first six months of fiscal 1997.
Seasonality
- -----------
The bulk of firm distribution and sales are made during the months of
November through March. As a result, the highest levels of earnings and cash
flow are generated in the quarters ending in February and May. The bulk of the
capital expenditure programs are undertaken during the months of May through
October, causing cash flow to be at its lowest during the quarters ending in
November and August.
10
<PAGE>
Short-term borrowing requirements vary according to the seasonal nature of
sales and expense activities of the Utilities, creating greater need for
short-term borrowings during periods when internally generated funds are not
sufficient to cover all capital and operating requirements, particularly in the
summer and fall. Short-term borrowings utilized for construction expenditures
generally are replaced by permanent financing when it becomes economical and
practical to do so and where appropriate to maintain an acceptable relationship
between borrowed and equity resources.
RESULTS OF OPERATIONS
- ---------------------
For the six months ended February 28, 1997 versus 1996
For the six months ended February 28, 1997, utility gas revenues were
$36,123,400, an increase of 6.4% over the same period in fiscal 1996. A decrease
in base revenues generated from firm customers was offset by increased
collections through the PGPA and seasonal revenues. Base revenues generated from
the regulated tariffs declined 4.2% as a result of decreased natural gas sales.
PGPA revenues increased $2,971,300 over the prior year's six month period.
Seasonal revenues in the six months ended February 28, 1997 increased by
27.4% over the same period in fiscal 1996 but the volume of seasonal gas sales
increased only 4.7%. Sales to seasonal customers are dependent upon the
availability of natural gas and the price of alternate fuels. Margins earned
from seasonal sales are returned to firm customers through the PGPA and do not
impact the profitability of the Utilities.
Gas sold to firm customers decreased 5% to 4,617,900 Mcf for the six months
ended February 28, 1997 from the prior year period. The decrease in gas sales
was the result of warmer weather which was partially offset by an increase in
the number of customers. Weather, as measured by degree days, was 3.8% warmer in
the six months ended February 28, 1997 than the prior year six month period. At
February 28, 1997 there were 62,603 utility customers versus 62,149 at February
29, 1996.
Nonutility revenues for the six months ended February 28, 1997 totaled
$11,148,900, an increase of 7.4% over the fiscal 1996 period. The increase in
nonutility revenues was the result of increases in retail and wholesale
merchandise sales, revenues generated from propane operations and the addition
of revenues generated by AEC. Conversions from electric heating, sales in the
commercial markets and increases in the wholesale operation contributed to the
increased revenues. Propane revenues increased despite a drop in volume
resulting from the warmer weather due to price increases in the cost of propane
being passed along to customers.
Operating expenses for the 1997 six month period were impacted by increases
in the cost of gas sold and nonutility cost of sales. The cost of gas sold
increased 15.7% when compared to the same period last year. Increases in the
purchase price of natural gas was the primary contributor to the increase in
cost of gas sold. The average cost of gas distributed to firm customers was
$4.43 per Mcf for the six months ended February 28, 1997 compared to $3.63 per
Mcf in the prior year period. Nonutility cost of sales in the 1997 period
increased 6.1% over the prior year period due to the increase in nonutility
revenues.
The decrease in other income of $112,900 for the 1997 six month period as
compared to the same period in 1996 resulted from the decline in off-system
sales. The decrease in other income was offset by increased interest income.
Interest expense remained flat for the 1997 six month period as compared to
the same period in 1996. Increased short-term borrowings were offset by a
reduction in interest accrued on deferred fuel costs and lower borrowing rates.
The PGPA requires a reconciliation of actual gas costs and the amount collected
through the PGPA clause. This reconciliation results in either a deferred fuel
cost liability (amounts owed to customers) or a deferred fuel cost receivable
(amounts owed by customers to the Utilities). If there is a liability to
customers, interest expense is accrued by the Utilities; if there is a
receivable, interest income is recorded. For most of the first six months of
fiscal 1997, the deferred fuel cost was a receivable from the customer, compared
to a liability of the Utilities in fiscal 1996. This situation resulted from the
rapid, unanticipated rise in natural gas prices this year.
11
<PAGE>
Fiscal 1996 versus Fiscal 1995
Utility gas revenues in fiscal 1996 totaled $60,773,500, an increase of
8.5% over fiscal 1995. Revenues from sales to firm customers increased 9.8% over
the prior fiscal year as a result of increased gas sales and rate relief.
Offsetting the increase in revenues was a decrease of $2,654,800 in gas costs
recovered through the PGPA. The PGPA does not impact operating income as it
effectuates a dollar for dollar recovery of gas costs.
In fiscal 1996, gas sold to firm customers increased 12.0% over fiscal 1995
and totaled 8,255,500 Mcf. The primary contributor to the increase in gas sales
was the weather which was 17.0% colder than the prior year during the critical
heating period, December through February.
In October 1995, Valley Gas and Bristol & Warren were authorized by the
RIPUC to consolidate their rate structures and to increase their tariffs to
collect an additional $1,100,000 in revenues. The new tariffs collect an
increased share of revenues through the customer charge, thus reducing
sensitivity of utility revenues to weather. Approximately $825,000 of this
revenue increase is reflected in fiscal 1996 revenues.
Sales to seasonal customers in fiscal 1996 decreased 21.2% as compared to
fiscal 1995. Seasonal sales are dependent on the availability of gas and the
price of competing fuels. The colder winter period resulted in less gas
available for sales to this market. Since profits on seasonal sales are returned
to firm sales customers through the PGPA, seasonal sales have no impact on
operating income.
Transportation revenues declined by $124,800, or 24.6%, in fiscal 1996 as
compared to fiscal 1995. The reduction in transportation revenues was the result
of a decrease in gas delivered to Valley Gas on behalf of customers.
Nonutility revenues totaled $19,586,600, an increase of 3.9% over fiscal
1995. Revenues from retail merchandising operations, inclusive of rental and
service program revenues, increased 12.6% over the prior fiscal year. The focus
on the commercial and industrial markets led to an increase in retail
merchandising revenues and related gross profit, even though a lower profit
margin percentage is earned on these sales. The service contract and rental
program revenues increased due to new customers and price increases. The
wholesale operations have faced gross profit margin declines because of pricing
competition among manufacturers and consolidation of wholesale outlets within
their market. Wholesale merchandise revenues declined slightly in fiscal 1996.
The revenues generated from the propane company are included in nonutility
revenues. Propane revenues increased 17.5% in fiscal 1996 over the prior fiscal
year. The increase was due to a 12.3% increase in gallons of propane sold and an
increase in the retail price of propane. Colder weather and sales to the
construction heating market accounted for the increase in sales.
Cost of gas sold includes the cost of natural gas, underground storage gas,
liquefied natural gas and liquid propane gas to serve utility sales customers.
The average cost per Mcf of natural gas distributed for utility operations in
fiscal 1996 and fiscal 1995 was $3.84 and $3.21, respectively. Cold weather in
November and December required the use of storage gas before the peak winter
period which caused increased demands for natural gas supply during the winter
period and resulted in increased natural gas prices. Changes in gas costs of the
utility operations are passed through to firm sales customers in the
calculations of the PGPA. Therefore, increases and decreases in gas costs do not
impact the profit margins of the utility operations.
The cost of sales for nonutility operations in fiscal 1996 increased 3.8%
over the prior fiscal year. The increase was the result of increased retail
sales and increased gallons sold of propane. The average cost of propane
distributed was $0.48 per gallon in fiscal 1996 versus $0.44 per gallon in
fiscal 1995.
Other operation expenses increased 5.7% in fiscal 1996 over fiscal 1995 due
to wages and increased costs associated with the operation of the peak shaving
facilities. An increase in uncollectible expenses also contributed to the
increase.
12
<PAGE>
Maintenance expense in fiscal 1996 was $1,672,000, an increase of 8.9% over
the prior year. Maintenance expense increased due to costs related to the record
snowfall experienced during the winter period and computer maintenance.
Operation and maintenance expenses are impacted by general inflation and wages.
Taxes - other than Federal income increased 2.2% to $4,090,800 in fiscal
1996. Gross receipts taxes on increased utility revenues were responsible for
the increase. The effective Federal income tax rates for the years ended August
31, 1996 and 1995 were 28% and 24%, respectively.
Other income - net of tax totaled $459,900 in fiscal 1996 and $115,000 in
fiscal 1995. The increase in fiscal 1996 was a result of off-system natural gas
sales and investment income. Off-system natural gas sales are natural gas sales
to customers outside the franchise area at market clearing prices. The
opportunities for off-system sales are dependent upon market demand and the
ability of other gas suppliers to meet their delivery requirements. Management
believes it is unlikely that conditions will exist for this level of off-system
sales in subsequent years.
Fiscal 1996 interest expense was $3,311,700, an increase of 0.2% over the
prior fiscal year. Interest expense was impacted by an increase in short-term
debt only partially offset by a reduction in the deferred fuel cost liability
and the related interest accrual.
Fiscal 1995 versus Fiscal 1994
Fiscal 1995 utility gas revenues totaled $56,012,900, a 14.3% decrease from
fiscal 1994. Firm revenues in fiscal 1995 decreased 16.1% from fiscal 1994 due
to a $6,457,700 reduction in gas costs recovered through the PGPA and decreased
gas sales.
Gas sales to firm customers were 7,368,700 Mcf in fiscal 1995, a decrease
of 6.7% from the prior year. The primary contributor to the sales decrease was
warmer weather. Weather, as measured by degree days, in fiscal 1995 was 8.2%
warmer than normal and 9.9% warmer than fiscal 1994. Weather during the critical
heating period of December through February was 15.5% warmer than the prior
year. In fiscal 1995, sales to seasonal customers increased 23.3% over the prior
fiscal year. The warm weather made gas supplies available at competitive prices
which was the primary reason for the sales increase. The profits from these
sales for Valley Gas are returned to firm customers through the PGPA. Bristol &
Warren's margin accrued to the benefit of stockholders in fiscal 1995 and 1994.
Sales to dual fuel customers in fiscal 1995 increased by 24,600 Mcf over the
prior fiscal year. Revenues from the transportation of customer-owned natural
gas increased $134,800 in fiscal 1995.
Nonutility revenues in fiscal 1995 were $18,857,200, an increase of 3.4%
over fiscal 1994. VAMCO focused its retail merchandising attention on the
commercial and industrial equipment market in response to the effects of the
sluggish economy on the residential market. This led to increased retail sales
of equipment to this market and an improvement in the gross margin of the retail
operations. The rental and service contract programs continued to impact
earnings positively. Wholesale operations experienced slight improvements in
sales levels and gross margins as they continued their focus on higher margin
lines. However, profitability decreased in the wholesale business due to
expenses incurred from changes in management and the implementation of a
computerized reporting system to improve communications between the customers
and the sales force.
As stated earlier, propane operations also are included in nonutility
revenues. Propane revenues in fiscal 1995 decreased by 4.8% as a result of a
10.0% decrease in gallons sold, offset by increases in the wholesale price of
propane. The warm weather was the major contributor to the decreased propane
volume sold. Price competition continued to be a critical factor in the ability
to expand these operations.
The Utilities distribute natural gas, underground storage gas, liquefied
natural gas and a limited amount of liquid propane gas to meet customer demands;
the cost of these fuels is included in the cost of gas sold. The average cost
per Mcf of gas distributed in fiscal 1995 was $3.21 versus $4.01 in fiscal 1994.
The decrease in the cost per Mcf was the result of lower demand for natural gas
as a result of the warmer weather. All changes in gas costs are passed through
to firm customers through the workings of the PGPA.
13
<PAGE>
Cost of sales - nonutility includes the cost of sales for the retail
merchandising operation, the wholesale merchandising operation and the propane
operation. Cost of merchandising goods sold increased 3.4% in fiscal 1995 over
fiscal 1994 which was directly attributable to the increase in merchandise
sales. The average cost of propane for the retail propane operations, included
in cost of sales, was $0.44 per gallon in fiscal 1995 versus $0.40 per gallon in
fiscal 1994.
Operations expenses in fiscal 1995 increased 2.7% over fiscal 1994. Planned
wage and benefit increases and an increase in uncollectible expenses accounted
for a majority of this increases. A decreased use of peak shaving facilities and
improved cost controls slightly offset these increases.
Maintenance expense in fiscal 1995 was $1,535,200, an increase of 3.4% over
fiscal 1994. Expenses related to the distribution system were responsible for
the increase. Operation and maintenance expenses were impacted by wages and
general inflation.
Taxes - other than Federal income were $4,002,100 in fiscal 1995, a
decrease of $461,300 from the prior year. A reduction in gross receipts taxes as
a result of decreased revenues and the lowering of the gross receipts tax rate
for manufacturing customers were responsible for the decrease. The effective
Federal income tax rates for the years ended August 31, 1995 and 1994 were 24%
and 27%, respectively.
Fiscal 1995 other income - net of tax decreased $112,400 from the prior
year. A decrease in funds available for overnight investments and interest
earned on those investments were responsible for the decrease in other income.
Interest expense in fiscal 1995 totaled $3,304,600, an increase of 13.8%
over fiscal 1994. Increased short-term borrowing rates were responsible for the
increase in interest expense.
Liquidity And Capital Resources
- -------------------------------
The sale of natural gas, propane and merchandise and revenues collected
through rental and service contract programs generate cash flows to meet the
cash requirements of the Corporation. Operations, external financings and
investments are also used to meet corporate cash needs. Short-term financings
under existing lines of credit are available to meet daily cash needs. Long-term
and intermediate financings, and when appropriate, equity issues are used to
refinance short-term debt when deemed appropriate by management.
The cash position of the Corporation is impacted by the requirement to
inventory supplemental gas supplies and the timing of inventory acquisitions to
meet the peak winter demand of the Utilities. Supplemental gas inventories are
filled in the summer period for use during the winter period which has a
negative impact on cash flows.
Effective November 1995, the Utilities, as authorized by the RIPUC,
consolidated their rate structures and increased their rate tariffs to collect
an additional $1,100,000 in revenues. Approximately $825,000 of this rate
increase positively impacted liquidity in fiscal 1996. Colder weather and its
positive influence on revenues similarly impacted cash flow.
During fiscal 1996, actual gas costs were greater than expected, which
resulted in the Utilities' under-recovery of gas costs through the PGPA; this
caused the liability to customers at the end of fiscal 1995 to become a
receivable from customers in fiscal 1996, negatively impacting liquidity. This
under-recovery will be collected from customers through an increase in the PGPA
in fiscal 1997, which should have a positive impact on fiscal 1997 cash flows.
Interest costs and the timing of Federal and state tax payments also impact
liquidity.
Cash flows were negatively impacted for the first six months of fiscal 1997
by increases in the cost of natural gas and propane. Sales were less than
anticipated due to warmer than normal winter weather which also negatively
impacted liquidity. Additionally, the warmer weather resulted in the holding of
supplemental fuel inventories which were anticipated to be sold.
14
<PAGE>
Valley Gas entered into a revolving credit arrangement to fund the
redemption of the Valley Gas 8% First Mortgage Bonds as they are redeemed by the
current holders. During fiscal 1996, $2,200,000 of funds were borrowed under
this arrangement, at a financing rate of less than 8%, which favorably impacted
liquidity.
Funding requirements are met through short-term borrowings under existing
lines of credit. At February 28, 1997, the Corporation had $8,300,000 of
available borrowings under its lines of credit. These lines are reviewed
annually by the lending banks, and management believes they will be renewed or
replaced. Management believes the available financings are sufficient to meet
cash requirements for the foreseeable future.
A lawsuit has been filed against Valley Gas and other parties by Blackstone
Valley Electric Company ("Blackstone") seeking contribution towards a judgment
against Blackstone's share of total clean-up costs of approximately $6,000,000
at the Mendon Road site in Attleboro, Massachusetts. The expenses relate to a
site to which oxide waste was transported in the 1930's prior to the
incorporation of Valley Gas. Management is of the opinion the Corporation will
prevail as a result of the indemnification provisions included in the agreement
entered into when Valley Gas acquired the utility assets from Blackstone.
Management cannot determine the future cash flow impact, if any, of this claim
and related legal fees. In a recent decision of the U.S. Court of Appeals for
the First Circuit, Blackstone's appeal of the judgment against it was sustained
and the case was remanded for further proceedings, including a referral of the
case to the EPA to determine if the substance in question (FFC) is hazardous.
Valley Gas received a letter of responsibility from the Rhode Island
Department of Environmental Management ("DEM") with respect to releases from
manufactured coal waste on its property that is the site of the former Tidewater
plant in Pawtucket, Rhode Island. Valley Gas and Blackstone have submitted a
site investigation report to DEM relating to certain releases on the site.
Management cannot determine the future cash flow impact, if any, of this claim
and related expenses. Management takes the position that it is indemnified by
Blackstone for any such expenses. Valley Gas intends to seek recovery from
Blackstone and any insurance carriers deemed to be at risk during the relevant
period. Remediation of sites such as the former Tidewater plant is governed by a
regulatory framework which now permits more flexibility in methods of
remediation and in property reuse.
Valley Gas received a letter of responsibility from DEM with respect to
releases from manufactured coal waste on its property that is the site of the
former Hamlet Avenue plant in Woonsocket, Rhode Island. Valley Gas and
Blackstone have submitted a site investigation work plan to address certain
releases at the site. Management cannot determine the future cash flow impact,
if any, of this claim and related expenses. Management takes the position that
it is indemnified by Blackstone for any such expenses. Valley Gas intends to
seek recovery from Blackstone and any insurance carriers deemed to be at risk
during the relevant period. Remediation of this site is also governed by a
regulatory framework that permits more flexibility in methods of remediation and
in property reuse.
The Corporation's net cash from operating activities in fiscal 1996 was
$3,669,000 versus $6,728,000 in fiscal 1995 and $8,342,900 in fiscal 1994. Cash
from operations was impacted by the deferred fuel cost account which used funds
of $3,977,800 in fiscal 1996 and provided funds in fiscal 1995 and 1994. Cash
from investing activities in the amount of $5,058,100 in fiscal 1996, $5,929,300
in fiscal 1995 and $4,604,700 in fiscal 1994 was used primarily for capital
expenditures. Financing activities in fiscal 1996 provided cash of $1,441,200
primarily from the issuance of the revolving credit arrangement and the issuance
of short-term debt offset by the use of funds for the payment of dividends and
the redemption of a portion of the 8% First Mortgage Bonds. Financing activities
used cash of $931,400 in fiscal 1995 and $4,090,800 in fiscal 1994.
Cash flows from operating activities were negatively impacted for the six
months ended February 28, 1997 as a result of increased cost of natural gas and
propane and lower sales as a result of the warmer than normal weather. Cash
flows for the comparable six-months ended February 29, 1996 were positively
impacted by increased sales and decreased cost of natural gas. Cash from
investing activities were $2,099,000 for the six months ended February 28, 1997
versus $2,745,000 in the prior year six-month period. Financing activities
provided cash of $4,254,000 for the six months ended February 28, 1997 primarily
as a result of increased short-term borrowings compared to cash provided of
$1,304,000 in the prior six-month period as a result of borrowings under a
revolving credit arrangement to fund redemptions of the 8% First Mortgage Bonds.
15
<PAGE>
Capital expenditures are primarily for the expansion and improvement of the
gas utility plant and for the purchase of rental and propane equipment. In
fiscal 1996, capital expenditures were $5,008,700 versus $5,915,900 in fiscal
1995 and $4,553,400 in fiscal 1994. Fiscal 1997 capital expenditures are
estimated to be $4,942,500 and will be primarily for the expansion and
improvements of gas utility property. It is anticipated that such expenditures
will be financed through funds from operations and short-term borrowings.
BUSINESS
The Corporation is a holding company organized in 1979 and incorporated in
the State of Rhode Island. The Corporation has five wholly-owned active
subsidiaries: Valley Gas and Bristol & Warren --regulated natural gas
distribution companies; VAMCO --a merchandising and appliance rental company;
Valley Propane--a wholesale and retail propane company; and Morris Merchants--a
wholesale distributor of franchised lines in plumbing and heating contractor
supply and other energy-related business. The Corporation also has an 80%
interest in AEC which sells, installs and designs natural gas conversion systems
and facilities.
Bristol & Warren, acquired by the Corporation on April 1, 1992, was
incorporated in the State of Rhode Island in 1953 to distribute natural gas to
customers in Bristol and Warren, Rhode Island.
In May 1996, the Corporation acquired its 80% interest in AEC. AEC was
incorporated in the State of Rhode Island in April 1992 to design and install
equipment for the conversion of vehicular and stationary engines to natural gas.
The Corporation has the obligation to acquire the remaining 20% interest in AEC
over the next five fiscal years. Such 20% interest is currently held by AEC
management.
Effective September 1995, all propane sales and service, some of which had
formerly been conducted by the Corporation's now inactive subsidiary, The New
England Gas Company, were combined into a single operation under the name Valley
Propane.
Strategy
- --------
The Corporation considers itself an integrated diversified energy company.
It plans to continue its diversification efforts, primarily through internal
growth of existing subsidiaries. Existing businesses continue to focus on the
expansion of their activities to acquire additional market share. If attractive
opportunities become available, diversification efforts will include the
acquisition of new businesses.
Utility Operations
- ------------------
Gas Sales and Transportation
The Corporation's utility operations are conducted through the Utilities,
which had an average of 61,540 customers during the twelve months ended February
28, 1997, of which approximately 91% were residential and 9% were commercial and
industrial.
The Utilities provide natural gas service to residential, commercial and
industrial customers and transportation services to industrial customers. Valley
Gas' service territory is approximately 92 square miles located in the
Blackstone Valley region in northeastern Rhode Island with a population of
approximately 250,000. Bristol & Warren's service territory is approximately 15
square miles in eastern Rhode Island with a population of approximately 35,000.
Effective November 1995, the Utilities operate under a single rate structure.
16
<PAGE>
The following table shows the distribution of gas sold during the years
since fiscal 1992 in millions of cubic feet ("MMcf"):
<TABLE>
<CAPTION>
For the Fiscal Year Ended August 31, (1)
------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Residential 4,612 4,078 4,517 4,439 3,965
Commercial 2,252 1,953 2,078 1,978 1,680
Industrial-firm 1,391 1,338 1,299 1,185 1,152
Industrial-seasonal 1,047 1,298 996 818 1,010
----- ----- ----- ----- -----
TOTAL 9,302 8,667 8,890 8,420 7,807
===== ===== ===== ===== =====
(1) The operations of Bristol & Warren are included since April 1992.
</TABLE>
Firm customers of the Utilities use gas for cooking, heating, water
heating, drying and commercial/industrial processing. Certain industrial
customers use additional gas in the summer months, when it is available at lower
prices. These customers are subject to having their service interrupted at the
discretion of the Utilities with very little notice. This use is classified as
seasonal use. As discussed further below, the margin on seasonal use is passed
through the PGPA to lower the cost of gas to all categories of firm customers.
Bristol & Warren retained the margin on seasonal sales prior to November 1995.
The primary source of utility revenues is firm use customers under tariffs
which are designed to recover a base cost of gas, administrative and operating
expenses and provide sufficient return to cover interest and profit. The
Utilities also service dual fuel, interruptible and transportation customers
under rates approved by the RIPUC. Additionally, Valley Gas services
cogeneration customers under separate contract rates that were individually
approved by the RIPUC.
The Utilities' tariffs include a PGPA which allows an adjustment of rates
charged to customers in order to recover all changes in gas costs from
stipulated base gas costs. The PGPA provides for an annual reconciliation of
total gas costs billed with the actual cost of gas incurred. Any excess or
deficiency in amounts collected as compared to costs incurred is deferred and
either reduces the PGPA or is billed to customers over subsequent periods. The
PGPA does not impact operating income as it effectuates a dollar for dollar
recovery of gas costs. All margins from interruptible customers are returned to
firm customers through the workings of the PGPA.
Utility revenues include a surcharge on firm gas consumption to collect a
portion of the costs to fund postretirement medical and life insurance benefits
above the pay-as-you-go costs included in base tariffs. The surcharge was
authorized by the RIPUC in a generic rate proceeding and is being phased in over
a ten-year period which commenced September 1, 1993. Effective November 1995,
the current year funding of postretirement medical and life insurance benefits
is included in base tariffs. In September 1996, the RIPUC authorized the funding
shortages from the first two years of the phase-in to be recovered through a
surcharge over the next three fiscal years.
The prices of alternative sources of energy impact the interruptible and
dual fuel markets. The Utilities serve these customers in the nonpeak periods of
the year or when competitively priced gas supplies are available. These
customers are subject to service discontinuance on short notice as system firm
requirements may demand. Prices for these customers are based on the price of
the customers' alternative fuel. In order to mitigate the volatility of earnings
from interruptible and dual fuel sales, the Utilities roll into the PGPA the
margin earned on these interruptible sales and all margins in excess of $1 Mcf
of gas sold to dual fuel customers. This margin credit reduces rates to firm
customers. This means of margin treatment alleviates the negative impact that
swings in sales can have on earnings in the highly competitive industrial
interruptible market.
The Utilities business is seasonal. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Seasonality."
Rates and Regulation
- --------------------
The Utilities are subject to regulation by the RIPUC with respect to rates,
adequacy of service, issuance of securities, accounting and other matters.
17
<PAGE>
On January 19, 1995, Valley Gas and Bristol & Warren filed revised tariffs
with the RIPUC to consolidate their rate structures and to increase their
combined annual revenues. On October 18, 1995, the RIPUC authorized the
consolidated rate structure and allowed the Utilities to adjust their tariffs to
annually collect $1,100,000 or 2.0%. These rates became effective November 21,
1995.
On April 29, 1997, the Utilities were authorized to offer transportation
rates to large commercial and industrial customers and to redesign the rates for
other firm customer classes. The revenue-neutral rate redesign became effective
June 1, 1997.
Gas Supply and Storage
Tennessee Gas Pipeline Company is the major natural gas transporter for
Valley Gas under long-term contracts. Bristol & Warren's principal gas
transporters are Algonquin Gas Transmission Company and Texas Eastern
Transmission Corporation. The Utilities purchase natural gas from several
suppliers on a long-term firm basis, as well as on the spot market whenever
available.
Year-Round Wellhead Firm Supply - Valley Gas is a charter member of the
Mansfield Consortium, which consists of five local distribution companies joined
together to use their combined market power to secure favorable terms for
long-term gas supply. In addition, Valley Gas is an investor in Boundary Gas,
Inc. and a customer of Alberta Northeast, LTD, both of which were founded by
groups of gas distribution companies in the Northeast to import natural gas from
Canada.
Valley Gas and Bristol & Warren together have 24,402 dekatherms per day
("Dth/day") of year-round firm supply under long-term contracts with four
domestic and two Canadian suppliers. Of these contracts, 22,335 of the
contracted Dth/day will expire in the next five years; 7,035 Dth/day are due to
expire November 1, 1999 and 15,300 Dth/day are due to expire on June 30, 2002.
All of the Utilities' gas supply contracts are spot-indexed based. The Utilities
have flexible take requirements, with only 1,973 dekatherms categorized as
"baseload" supply which must be taken every day, and that contract expires in
1999.
Winter-Only Firm Supply - The Utilities are well-positioned with respect to
winter-only firm supply in that their actual and prospective long-term contracts
are with major participants in this market, and contract prices are at
competitively favorable terms.
Liquefied Natural Gas ("LNG") - Valley Gas is entitled to 5,300 Dth/day of
firm supply from Distrigas, which re-vaporizes LNG at its Everett, Massachusetts
facility for delivery during the winter months to Valley Gas by Tennessee Gas
Pipeline or to Bristol & Warren via Algonquin Gas Transmission. As an option,
Valley Gas may take this gas in its liquefied state for transportation by truck
to and storage at Valley Gas' on-site LNG tank. A further option allows Valley
Gas to increase its maximum daily quantity from 5,300 to 7,950 dekatherms. There
are no minimum takes, and the contract runs through October 31, 2005.
Maritimes & Northeast Pipeline - Subject to approval by the Federal Energy
Regulatory Commission and subsequent construction of the proposed Maritimes &
Northeast Pipeline from Sable Island, Canada into a Massachusetts interconnect
with Tennessee Gas Pipeline, Valley Gas will be entitled to firm winter delivery
of 5,000 Dth/day to its city gate, with an option to increase its maximum daily
quantity to 7,500 dekatherms. There are no minimum takes. This 10-year contract
is scheduled to go into effect November 1, 1999.
Pawtucket Power Co-Generation Plant - Valley Gas is entitled under
long-term contract to utilize up to 540 dekatherms per hour, with a maximum
annual quantity of 333,000 dekatherms, of natural gas used by Pawtucket Power in
its generation of electricity and steam. This firm gas supply originates in
Alberta, Canada.
Underground Storage - The Utilities have 1,543,958 dekatherms of
underground storage capacity with CNG Transmission and National Fuel Gas Supply
Corporation, with a total maximum daily withdrawal quantity of 20,589
dekatherms. Underground storage gas is injected during the non-winter months by
the Utilities into fields located in Pennsylvania and New York, for subsequent
withdrawal during the winter when customer demand is greatest.
Interstate Pipeline Capacity - The Utilities utilize firm pipeline capacity
for two basic purposes: 1) daily transportation of firm and spot market gas
supply throughout the year from the Gulf Coast to their city gates, and 2)
winter-only transportation of underground storage gas to their city gates.
18
<PAGE>
Gas Supply Pipeline Capacity - Total year-round firm capacity is 24,902
Dth/day. Of this total, 86% expires by December 1, 2002.
Storage Pipeline Capacity - The Utilities' storage-related pipeline
capacity totals 11,349 Dth/day. About 37% of this capacity expires November 1,
2000, and the remainder extends from 2003 through 2012.
On-Site LNG and Propane Storage - In addition to the gas delivered by the
interstate pipeline, the Utilities have on-site storage facilities for liquid
propane gas ("LPG"), with Valley Gas having about 857,000 gallons and Bristol &
Warren having about 117,000 gallons of LPG storage. Valley Gas also has on-site
storage facilities for 968,320 gallons (about 85,000 dekatherms) of LNG. Both
LPG and LNG are vaporized into the Utilities distribution systems during periods
of peak demand, and utilized as backup in the event of failure of an upstream
pipeline to deliver needed gas supplies.
Competition and Marketing
- -------------------------
The primary competition faced by the Utilities is from other energy
sources, primarily heating oil. The principal considerations affecting a
customer's selection among competing energy sources include price, equipment
cost, reliability, ease of delivery and service. In addition, the type of
equipment already installed in businesses and residences significantly affects
the customer's choice of energy. However, where previously installed equipment
is not an issue, households in recent years have consistently preferred the
installation of gas heat. For example, Valley Gas' statistics indicate that
approximately 90% of the new homes built on or near Valley Gas' service mains in
recent years have selected gas as their energy source.
The Utilities are pursuing new markets believed to have the potential to
provide both growth and/or lessen sales sensitivity to weather: industrial
processing, cogeneration, natural gas vehicles and conversions from oil or
electricity to gas.
In recent utility rate decisions, the RIPUC approved rates which will
retain and attract industrial customers. Additionally, the Utilities have two
rates which promote economic development in its service territory. These rates
provide incentives for companies that add industrial processing load, make a
substantial investment in new natural gas equipment and hire additional
employees.
The cogeneration market is addressed through sales contacts with customers
who have applications suitable to use waste heat through the cogeneration
process. There are established rate tariffs to specifically address the
requirements of the cogeneration market. In addition, Valley Gas has a 50
kilowatt demonstration facility at its Cumberland location which provides
electricity for computer facilities and hot water requirements.
Valley Gas has a compressed natural gas ("CNG ") fueling station at its
Cumberland, Rhode Island headquarters. The use of natural gas in vehicles is
promoted through conversions of its own fleet and the CNG rate approved by the
RIPUC.
The Utilities' residential marketing department seeks to increase
conversions from oil to natural gas through installations of conversion burners
and conversions to natural gas of housing developments that initially chose
alternate energy sources. Additional efforts are made to convert homes with
inactive natural gas service and to replace electric heating systems with
natural gas systems.
The distribution company unbundling process will add competition from a new
source-- natural gas suppliers. The Utilities have received approval from the
RIPUC for transportation rates which allow large commercial and industrial
customers the choice to purchase gas from the Utilities or from natural gas
marketers; gas purchased by users within the Utilities' territories is
transported to the users by the Utilities. Since the Utilities' profits are
derived from distribution of natural gas and not natural gas sales, this process
should not significantly impact the profitability of the Utilities.
Gas Distribution System
- -----------------------
Valley Gas' distribution system consists of approximately 900 miles of gas
mains and service lines. Bristol & Warren's gas distribution system consists of
approximately 100 miles of gas mains and service lines. The aggregate maximum
daily quantity of gas that may be distributed through the Utilities from their
own facilities and under existing supply and transportation contracts is
approximately 100 MMcf, and the maximum daily gas sendouts for all
19
<PAGE>
sales customers of the Utilities during the last five fiscal years were 71 MMcf
in 1996, 66 MMcf in 1995, 77 MMcf in 1994, 69 MMcf in 1993, and 67 MMcf in 1992.
Gas Marketing
- -------------
The Corporation is positioning itself to participate in the deregulated
energy markets by entering into a marketing alliance with Total/Louis Dreyfus
Energy Services, L.L.C. to market natural gas and petroleum-based products. The
marketing alliance will provide the Corporation the opportunity to supply energy
needs to customers without franchise territory barriers. The Utilities also
filed to unbundle their firm commercial and industrial tariffs with the RIPUC in
September 1996. Effective June 1, 1997, the Utilities were authorized to offer
transportation rates to large commercial and industrial customers and redesign
the rates for other customers.
Appliance Contract Sales and Rentals
- ------------------------------------
The Corporation conducts appliance sales, service contract sales and
appliance rentals through its subsidiaries VAMCO and Morris Merchants. VAMCO's
revenues are generated through retail appliance sales, service contract sales
and through the rental of gas-fired appliances. The merchandising subsidiaries
are in competitive businesses with competition based on many factors, including
price, quality of product and service.
Morris Merchants has contracts for the distribution of certain lines that
it wholesales. At this time the Corporation has no reason to believe it will
lose any of its existing lines.
Propane Operations
- ------------------
The propane operations are conducted through Valley Propane, which sells,
at retail, liquid propane gas to residential and commercial customers in Rhode
Island and nearby Massachusetts. At February 28, 1997, Valley Propane had 2,699
customers. Valley Propane also supplies propane to holding customers of the
Utilities; these customers are serviced by Valley Propane until the Utilities
can connect mains and service lines. Valley Propane is also impacted by weather,
as a large percentage of its customers use propane as a primary source of heat.
Valley Propane increases and decreases the selling price of its gas depending
upon supply and competition.
Natural Gas Conversions
- -----------------------
The Corporation conducts natural gas conversions through AEC. AEC generates
its revenues through the engineering and installation of compressed natural gas
refueling stations, the conversion of gasoline and diesel-powered vehicles to
natural gas and through the implementation of its patented process to co-fire
natural gas and diesel fuel in engines, primarily generators.
The Corporation owns an 80% interest in AEC and has the obligation over the
next five fiscal years to acquire the remaining 20%, which is currently held by
the management of AEC.
Environmental Proceedings
- -------------------------
For information regarding the Corporation's potential environmental
liabilities, see "Management's Discussion and Analysis of the Results of
Operations and Financial Condition - Liquidity and Capital Resources."
20
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Common Stock is traded on the American Stock Exchange ("AMEX") under
the symbol "VR." The following table sets forth for the periods indicated the
high and low sale prices of the Common Stock as reported by AMEX and the cash
dividends paid per share in such periods.
The Corporation has paid cash dividends on its Common Stock each year since
1964. While it is the intention of the Board of Directors to continue to declare
dividends on a quarterly basis, the frequency and amount of future dividends
will depend upon the Corporation's earnings, financial requirements and other
relevant factors, including limitations imposed by the indenture for the
Debentures. See "Description of Common Stock." There were 2,824 record holders
of the Corporation's Common Stock as of April 15, 1997.
<TABLE>
<CAPTION>
Market Price
Cash ------------
Dividend High Low
-------- ---- ---
<S> <C> <C> <C>
Fiscal 1995
First Quarter $ .175 $ 13.25 $ 12.00
Second Quarter .175 12.63 10.75
Third Quarter .18 11.38 10.50
Fourth Quarter .18 11.50 10.38
Fiscal 1996
First Quarter $ .18 $ 11.50 $ 10.25
Second Quarter .18 11.38 10.50
Third Quarter .1825 11.88 10.88
Fourth Quarter .1825 12.63 11.88
Fiscal 1997
First Quarter $ .1825 $13.00 $11.75
Second Quarter .1825 12.00 11.00
Third Quarter (through June 15, 1997) .185 12.50 11.00
</TABLE>
DESCRIPTION OF COMMON STOCK
The following description relating to the Common Stock is summarized from,
and subject to the provisions of, the Articles of Incorporation and the Bylaws
of the Corporation, as amended.
General
- -------
The Corporation is authorized to issue 20,000,000 shares of Common Stock,
$1 par value, of which 4,280,028 were issued and outstanding at May 31, 1997.
The Corporation is also authorized to issue 500,000 shares of Preferred Stock,
$100 par value, none of which is issued and outstanding. As of May 31, 1997,
41,125 shares of Common Stock were reserved for issuance under the Corporation's
dividend reinvestment plan.
Dividend Rights
- ---------------
Dividends are payable on the Common Stock when and as declared by the Board
of Directors out of funds legally available therefor. Under Rhode Island law,
dividends may be paid out of unreserved and unrestricted retained earnings.
Inasmuch as the Corporation is structured as a holding company, the funds
required to enable the Corporation to pay dividends on its Common Stock are
derived from the dividends paid by its subsidiaries on their common stock, all
21
<PAGE>
of which is held by the Corporation, except for 20% of AEC. See "Risk
Factors--Reliance of Corporation on Dividends and Other Payments from
Subsidiaries; Dividend Restrictions Imposed on Subsidiaries."
Voting Rights
- -------------
Each share of Common Stock is entitled to one vote on all matters submitted
to stockholders.
Directors. The Articles of Incorporation and Bylaws of the Corporation
provide that the Board of Directors (presently numbering nine) shall be divided
into three classes with each class to be as nearly equal in number as shall be
possible, and that one class shall be elected each year for a term of three
years. The Corporation's Bylaws provide that the affirmative vote of a majority
of the outstanding shares of Common Stock is required to elect directors.
Directors may be removed by stockholders from office at any time, but only for
cause, by the affirmative vote of the holders of not less than 80% of the
outstanding shares of Common Stock; however the 80% vote is not required when
such action is recommended by a two-thirds vote of directors then in office.
Certain Business Combinations. The Corporation's Articles of Incorporation
provide that any "Business Combinations" involving a "Related Person" must be
approved by the holders of 80% of the outstanding shares of its capital stock,
provided that majority approval shall apply if (a) the proposed transaction has
been approved by two-thirds of the Corporation's "Continuing Directors" or
(b)(1) the consideration to be received by the holders of the Corporation's
capital stock is at least equal to the highest of (i) the highest per share
price paid by the Related Person for any shares acquired within two years of the
first public announcement of the proposed transaction (the "Announcement Date")
or in the transaction in which it became a Related Person, (ii) the fair market
value (as defined in the Articles of Incorporation) per share of the capital
stock on the Announcement Date or the date on which the Related Person become a
Related Person, or (iii) in the case of the Corporation's Preferred Stock, an
amount equal to the highest preferential amount per share in the event of any
liquidation, dissolution or winding up of the Corporation, (2) the consideration
to be received by the Corporation's shareholders is in the same form as that
previously paid by the Related Person for its shares, and (3) a proxy statement
containing a fairness opinion of an investment banking firm and the position of
the Continuing Directors on the proposed transaction shall have been mailed to
all of the Corporation's shareholders to solicit their approval of the proposed
transaction. A "Business Combination" is defined to include mergers,
consolidations, leases, sales and exchanges of assets and similar transactions
involving the Corporation and its subsidiaries which amount to 20% or more of
the fair market value of the consolidated assets of the Corporation, including
any securities issued by a subsidiary, between the Corporation (or a subsidiary)
and a Related Person. The definition also includes certain other transactions
(including reclassifications and recapitalizations) which would have the effect
of, directly or indirectly, increasing the Related Persons' proportionate share
of capital stock in the Corporation and complete or partial liquidations or
dissolutions proposed by a Related Person. A "Related Person" is defined to
include a person, entity or affiliated group of persons or entities that
beneficially owns 15% or more of the capital stock of the Corporation. A
"Continuing Director" is defined as a director (a) unaffiliated with any Related
Person who was a member of the Board immediately prior to the time the Related
Person became a Related Person or (b) who was designated as a Continuing
Director by a majority of the then Continuing Directors.
Amendments to Articles and Bylaws. The Articles of Incorporation and Bylaws
of the Corporation provide for amendment of the foregoing provisions of the
Articles or the Bylaws by 80% and two-thirds, respectively, of the outstanding
shares entitled to vote unless the proposed amendment has been approved by
two-thirds of the Board of Directors, in which case majority approval by
stockholders as required by applicable law is necessary. The Board of Directors
may amend the Bylaws subject, however, to the rights, preferences and privileges
to which the holder of any class of stock shall be entitled.
The general purpose of the foregoing provisions is to make more difficult
and deter efforts by another party to gain control of the Corporation on a
non-negotiated basis. It is possible that such provisions might also deter
non-negotiated tender offers at a premium over market price which might be, or
might be viewed by stockholders as being, beneficial. In addition, to the extent
such non-negotiated takeover attempts are deterred, the positions held by
management are made more secure.
22
<PAGE>
Liquidation Rights
- ------------------
Shares of Preferred Stock, if any are issued in the future and then
outstanding, will be preferred over Common Stock in the event of liquidation of
the Corporation at the redemption price for such preferred shares in effect at
the time of such liquidation, and in involuntary liquidation at prices not to
exceed $100 par value per share, plus accrued dividends. In addition, in the
event of liquidation of any of the Corporation's subsidiaries, all securities of
the subsidiaries, other than common stock, including shares of preferred stock
then issued and outstanding, would receive payment in full before any amounts
would be available for distribution to the Corporation as the holder of the
common stock of the subsidiaries. Subject to the foregoing, holders of the
Common Stock will share ratably in assets available for distribution after
payment in full of all obligations of the Corporation in the event of its
liquidation.
Rights
- ------
Each share of Common Stock of the Corporation includes one preferred stock
purchase Right which entitles the holder to purchase one one-hundredth of a
share of Cumulative Participating Junior Preferred Stock, par value $100, at a
price of $35 per one one-hundredth of a share subject to adjustment. The Rights
are not currently exercisable and trade automatically with the Common Stock. The
Rights will generally become exercisable, and separate certificates representing
the Rights will be distributed, upon occurrence of the acquisition or the
commencement of a tender or an exchange offer by any person or group to acquire
10% or more of the issued and outstanding shares of Common Stock.
The Rights should not interfere with any merger or business combination
approved by the Board of Directors because, prior to the Rights becoming
exercisable, the Rights may be redeemed by the Corporation at $0.01 per Right.
The Rights have no dilutive effect and do not affect reported earnings per
share.
Dividend Reinvestment Plan
- --------------------------
The Corporation offers holders of the Common Stock an opportunity through
the Plan to reinvest their dividends automatically in shares of the Common Stock
at a price equal to 95% of the average of the reported closing price of the
Common Stock on the three trading days preceding the dividend payment date. The
Plan also permits holders of Common Stock to make cash investments for the
purchase of shares of Common Stock on the open market, without any discount.
Such shares are offered only by means of a separate Prospectus available from
the Corporation upon request.
Transfer Agent & Registrar
- --------------------------
The transfer agent and registrar of the Common Stock is The Bank of New
York, New York, New York.
DESCRIPTION OF DEBENTURES
General
- -------
The Debentures are to be issued under an Indenture dated as of September 1,
1997 (the "Indenture"), by and between the Corporation and Mellon Bank, N.A., as
Trustee. A copy of the Indenture has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The terms of the
Debentures include those stated in the Indenture and those made a part of the
Indenture by reference to the Trust Indenture Act of 1939 (the "Trust Indenture
Act") as in effect on the date of the Indenture. Potential investors are
referred to the Indenture and the Trust Indenture Act for a statement of such
terms. The following statements relating to the Debentures and certain
provisions of the Indenture are summaries, do not purport to be complete, and
are subject to and are qualified in their entirety by reference to the
provisions of the Indenture. Unless otherwise stated, capitalized terms defined
in the Indenture have the same meanings when used herein.
23
<PAGE>
The Corporation does not intend to list the Debentures on a national
securities exchange. There is presently no trading market for the Debentures,
and there can be no assurance that such a market will develop or, if developed,
that it will be maintained. See "Risk Factors--Absence of Public Market for
Debentures."
Book-Entry Only System
- ----------------------
The Debentures will be issued in the aggregate initial principal amount of
$7,000,000 and will be represented by one certificate (the "Global Security") to
be registered in the name of the nominee of The Depository Trust Company ("DTC")
or any successor depository (the "Depository"). The Depository will maintain the
Debentures in denominations of $1,000 and integral multiples thereof through its
book-entry facilities. In accordance with its normal procedures, the Depository
will record the interests of each Depository participating firm (e.g., brokerage
firm) ("Participant") in the Debentures, whether held for its own account or as
a nominee for another person.
So long as the nominee of the Depository is the registered owner of the
Debentures, such nominee will be considered the sole owner or holder of the
Debentures for all purposes under the Indenture and any applicable laws, except
as noted below. A Beneficial Owner, as hereinafter defined, of interests in the
Debentures will not be entitled to receive a physical certificate representing
such ownership interest and will not be considered an owner or holder of the
Debentures under the Indenture, except as otherwise provided below. A Beneficial
Owner is the person who has the right to sell, transfer or otherwise dispose of
an interest in the Debentures and the right to receive the proceeds therefrom,
as well as interest, principal and premium (if any) payable in respect thereof.
A Beneficial Owner's interest in the Debentures will be recorded, in integral
multiples of $1,000, on the records of the Participant that maintains such
Beneficial Owner's account for such purpose. In turn, the Participant's interest
in such Debentures will be recorded, in integral multiples of $1,000, on the
records of the Depository. Therefore, the Beneficial Owner must rely on the
foregoing arrangements to evidence its interest in the Debentures. Beneficial
ownership of the Debentures may be transferred only by compliance with the
procedures of a Beneficial Owner's Participant (e.g., brokerage firm) and the
Depository.
All rights of ownership must be exercised through the Depository and the
book-entry system, except that a Beneficial Owner is entitled to exercise
directly its rights under Section 316(b) of the Trust Indenture Act with respect
to the payment of interest and principal on the Debentures. Notices that are to
be given to registered owners by the Corporation or the Trustee will be given
only to the Depository. It is expected that the Depository will forward the
notices to the Participants by its usual procedures, so that such Participants
may forward such notices to the Beneficial Owners. Neither the Corporation nor
the Trustee will have any responsibility or obligation to assure that any
notices are forwarded by the Depository to the Participants or by any
Participants to the Beneficial Owners.
DTC has advised the Corporation and the Underwriters as follows: DTC is a
limited-purpose trust company organized under the Banking Law of the State of
New York, a member of the Federal Reserve System, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities of Participants and facilitates the clearance and settlement of
securities transactions among Participants in such securities transactions
through electronic book-entry changes in accounts of Participants, thereby
eliminating the need for physical movement of securities certificates.
Participants include securities brokers and dealers (including the
Underwriters), banks, trust companies, clearing corporations and certain other
organizations, some of whom (and/or their representatives) own DTC. Access to
DTC's book-entry system is also available to others, such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly. Persons who are
not Participants may beneficially own securities held by DTC only through
Participants.
Interest and Payment
- --------------------
The Debentures will mature on September 1, 2027. The Debentures will bear
interest from the date of issuance at the rate per annum stated on the cover
page hereof, calculated on the basis of a 360-day year of twelve 30-day months,
payable semi-annually on March 1 and September 1 of each year, commencing March
1, 1998 to the Persons in whose names the Debentures are registered at the close
of business on the 15th day of the month prior to such Interest Payment Date. If
any payment date would otherwise be a day that is a Legal Holiday, the payment
will be postponed
24
<PAGE>
to the next day that is not a Legal Holiday, and no interest on such payment
shall accrue for the period from and after such otherwise scheduled payment date
for the purposes of the payment to be made on such next succeeding day.
So long as the nominee of the Depository is the registered owner of the
Debentures, payments of interest, principal and premium (if any) in respect of
the Debentures will be made to the Depository. The Depository will be
responsible for crediting the amount of such payments to the accounts of the
Participants entitled thereto, in accordance with the Depository's normal
procedures. Each Participant will be responsible for disbursing such payments to
the Beneficial Owners of the interests in Debentures that it represents. Neither
the Corporation nor the Trustee will have any responsibility or liability for
any aspect of the records relating to, notices to, or payments made on account
of, beneficial ownership interests in the Debentures; maintaining, supervising
or reviewing any records relating to such beneficial ownership interests; the
selection of any Beneficial Owner to receive payment in the event of a partial
redemption of the Global Security; or consents given or other action taken on
behalf of any Beneficial Owner.
Redemption at the Option of the Corporation
- -------------------------------------------
The Debentures will be redeemable at any time on or after September 1,
2002, as a whole or in part, at the election of the Corporation, at a Redemption
Price equal to the percentage of the principal amount set forth below if
redeemed during the twelve-month period beginning September 1 of the year
indicated:
<TABLE>
<CAPTION>
Year Redemption Price %
---- ------------------
<S> <C>
2002 104%
2003 103%
2004 102%
2005 101%
2006 to maturity 100%
</TABLE>
In each case, interest accrued to the Redemption Date shall also be paid.
If less than all the Debentures are redeemed, the particular Debentures to be
redeemed will be selected by the Trustee by lot.
Notice of redemption will be mailed at least 30 days before the Redemption
Date to each holder of Debentures to be redeemed at the holder's registered
address.
On and after the Redemption Date, interest will cease to accrue on
Debentures or portions thereof called for redemption, unless the Corporation
shall default in the payment of the Redemption Price.
Limited Right of Redemption Upon Death of Beneficial Owner
- ----------------------------------------------------------
Unless the Debentures have been declared due and payable prior to their
maturity by reason of an Event of Default, the Representative (as hereinafter
defined) of a deceased Beneficial Owner has the right to request redemption of
all or part of his interest at par, expressed in integral multiples of $1,000
principal amount, in the Debentures for payment prior to maturity, and the
Corporation will redeem the same subject to the limitations that the Corporation
will not be obligated to redeem during the period from the original issuance of
the Debentures through and including September 1, 1998 (the "Initial Period"),
and during any twelve-month period which ends on and includes each September 1
thereafter (each such twelve-month period being hereinafter referred to as a
"Subsequent Period"), (i) any interest in the Debentures which exceeds an
aggregate principal amount of $25,000 or (ii) interests in the Debentures in an
aggregate principal amount exceeding $210,000. A request for redemption may be
presented to the Trustee by the Representative of a deceased Beneficial Owner at
any time and in any principal amount. Representatives of deceased Beneficial
Owners must make arrangements with the Participant through whom such interest is
owned in order that timely presentation of redemption requests can be made by
the Participant and, in turn, by the Depository to the Trustee. If the
Corporation, although not obligated to do so, chooses to redeem interests of a
deceased Beneficial Owner in the Debentures in the Initial Period or in any
Subsequent Period in excess of the $25,000 limitation, such redemption, to the
extent that it exceeds the $25,000 limitation for any deceased Beneficial Owner,
shall not be
25
<PAGE>
included in the computation of the $210,000 aggregate limitation for such
Initial Period or such Subsequent Period, as the case may be, or for any
succeeding Subsequent Period.
Subject to the $25,000 and the $210,000 limitations, the Corporation will,
upon the death of any Beneficial Owner, redeem the interest of the Beneficial
Owner in the Debentures within 60 days following receipt by the Trustee of a
Redemption Request (as hereinafter defined) from such Beneficial Owner's
personal representative, or surviving joint tenant(s), tenant(s) by the entirety
or tenant(s) in common, or other persons entitled to effect such a Redemption
Request (each, a "Representative"). If Redemption Requests exceed the aggregate
principal amount of interests in Debentures required to be redeemed during the
Initial Period or any Subsequent Period, then such excess Redemption Requests
will be applied to successive Subsequent Periods, regardless of the number of
Subsequent Periods required to redeem such interests.
A request for redemption of an interest in the Debentures may be made by
delivering a request to the Depository, in the case of a Participant which is
the Beneficial Owner of such interest, or to the Participant through whom the
Beneficial Owner owns such interest, in form satisfactory to the Participant,
together with evidence of the death of the Beneficial Owner and evidence of the
authority of the Representative satisfactory to the Participant and Trustee. A
Representative of a deceased Beneficial Owner may make the request for
redemption and shall submit such other evidence of the right to such redemption
as the Participant or Trustee shall require. The request shall specify the
principal amount of interest in the Debentures to be redeemed. A request for
redemption in form satisfactory to the Participant and accompanied by the
documents relevant to the request as above provided, together with a
certification by the Participant that it holds the interest on behalf of the
deceased Beneficial Owner with respect to whom the request for redemption is
being made (a "Redemption Request"), shall be provided to the Depository by a
Participant, and the Depository will forward the request to the Trustee.
Redemption Requests shall be in form satisfactory to the Trustee.
The price to be paid by the Corporation for an interest in the Debentures
to be redeemed pursuant to a request on behalf of a deceased Beneficial Owner is
one hundred percent (100%) of the principal amount thereof plus accrued but
unpaid interest to the date of payment. Subject to arrangements with the
Depository, payment for interests in the Debentures which are to be redeemed
shall be made to the Depository upon presentation of Debentures to the Trustee
for redemption in the aggregate principal amount specified in the Redemption
Requests submitted to the Trustee by the Depository which are to be fulfilled in
connection with such payment. Any acquisition of Debentures by the Corporation
or its Subsidiaries other than by redemption at the option of any Representative
of a deceased Beneficial Owner shall not be included in the computation of
either the $25,000 or the $210,000 limitation for the Initial Period or for any
Subsequent Period.
Interests in the Debentures held in tenancy by the entirety, joint tenancy
or by tenants in common will be deemed to be held by a single Beneficial Owner
and the death of a tenant in common, tenant by the entirety or joint tenant will
be deemed the death of a Beneficial Owner. The death of a person who, during
such person's lifetime, was entitled to substantially all of the rights of a
Beneficial Owner of an interest in the Debentures will be deemed the death of
the Beneficial Owner, regardless of the recordation of such interest on the
records of the Participant, if such rights can be established to the
satisfaction of the Participant and the Trustee. Such interest shall be deemed
to exist in typical cases of nominee ownership, ownership under the Uniform
Gifts to Minors Act or the Uniform Transfers to Minors Act, community property
or other joint ownership arrangements between a husband and wife (including
individual retirement accounts or Keogh plans maintained solely by or for the
decedent or by or for the decedent and his or her spouse), and trust and certain
other arrangements where one person has substantially all of the rights of a
Beneficial Owner during such person's lifetime.
In the case of a Redemption Request which is presented on behalf of a
deceased Beneficial Owner and which has not been fulfilled at the time the
Corporation gives notice of its election to redeem the Debentures, the interests
in the Debentures which are subject of such Redemption Request shall not be
eligible for redemption pursuant to the Corporation's option to redeem but shall
remain subject to fulfillment pursuant to such Redemption Request.
26
<PAGE>
Subject to the provisions of the immediately preceding paragraph, any
Redemption Request may be withdrawn upon delivery of a written request for such
withdrawal given to the Trustee by the Depository prior to payment for
redemption of the interest in the Debentures by reason of the death of a
Beneficial Owner.
The Corporation is legally obligated to redeem Debentures and interests of
Beneficial Owners therein properly presented for redemption pursuant to a
Redemption Request in accordance with and subject to the terms, conditions and
limitations of the Indenture, as summarized above. The Corporation's redemption
obligation is not cumulative. Nothing in the Indenture prohibits the Corporation
from redeeming, in fulfillment of Redemption Requests made pursuant to the
Indenture, Debentures or interests therein of Beneficial Owners in excess of the
principal amount the Corporation is obligated to redeem, nor does anything in
the Indenture prohibit the Corporation from purchasing any Debentures or
interests therein in the open market. However, the Corporation may not use any
Debentures redeemed or purchased as described in the immediately preceding
sentence as a credit against its redemption obligation.
Because of the limitations of the Corporation's requirement to redeem, no
Beneficial Owner can have any assurance that its interest in the Debentures will
be paid prior to maturity.
Sinking Fund; Non-Convertibility
- --------------------------------
The Debentures are not subject to a sinking fund and are not convertible.
Debentures Unsecured
- --------------------
The Debentures will be unsecured and will rank on a parity with all of the
other unsecured and unsubordinated Indebtedness of the Corporation outstanding
from time to time. Subject only to the restrictive covenants described below
(see "Restrictive Covenants"), the Indenture does not limit the amount of
Indebtedness which the Corporation or its subsidiaries may incur.
Restrictive Covenants
- ---------------------
The Corporation covenants in the Indenture that it will not declare or pay
any dividends or make any other distribution upon its Common Stock (other than
dividends and distributions payable only in shares of Common Stock) and will not
directly or indirectly apply any of the assets of the Corporation to the
redemption, retirement, purchase or other acquisition of any stock of the
Corporation of any class, except purchases or redemptions in compliance with any
mandatory sinking fund or purchase fund or redemption requirement in respect of
any preferred stock of the Corporation, whether now or hereafter authorized or
issued, unless after giving effect to such declaration, payment, distribution or
application of assets the Consolidated Tangible Net Worth of the Corporation
shall be at least equal to $20,000,000 as reflected on the Corporation's latest
available balance sheet. Consolidated Tangible Net Worth is defined in the
Indenture as the shareholders' equity of the Corporation, less intangible assets
other than amounts recoverable from future ratepayers in accordance with RIPUC
rate treatment. At February 28, 1997, after giving effect to the issuance of the
Common Stock and the Debentures, Consolidated Tangible Net Worth of the
Corporation would have been approximately $68,418,400.
Subject to certain exceptions described in the Indenture, the Corporation
also covenants that neither it nor any of its subsidiaries will issue, assume or
guarantee any Indebtedness secured by a Lien (as defined in the Indenture) on
any property or asset at any time owned by it, without effectively securing,
prior to or concurrently with the issuance, assumption or guarantee of any such
Indebtedness, the Debentures equally and ratably (or, at the Corporation's
option, prior to) such Indebtedness.
The Corporation also covenants that neither it nor any of its subsidiaries
will issue, assume or guarantee any Funded Indebtedness (as defined in the
Indenture) on any property or asset at any time owned by it, unless immediately
thereafter, and after giving effect thereto and to the application of the
proceeds thereof, Consolidated Net Utility Fixed Assets shall be at least equal
to Consolidated Funded Indebtedness.
27
<PAGE>
Except as described in the preceding paragraphs, the Indenture does not
afford any protection to holders of Debentures solely on account of the
Corporation's involvement in highly leveraged transactions.
Successor Corporation
- ---------------------
The Corporation covenants in the Indenture that it will not consolidate
with, merge into or transfer or lease all or substantially all of its assets to
another corporation, unless immediately after such transaction no default will
exist, such corporation assumes all the obligations of the Corporation under the
Debentures and the Indenture, and certain other requirements are met.
Events of Default; Notice and Waiver
- ------------------------------------
The following constitute events of default under the Indenture: (a) default
in the payment of principal (or premium, if any) of the Debentures when due; (b)
default in the payment of any interest on the Debentures when due, continued for
30 days; (c) default in the performance of any other agreement of the
Corporation in the Debentures or the Indenture, continued for 60 days after
written notice; (d) acceleration of certain indebtedness of the Corporation or
its Subsidiaries for borrowed money under the terms of any instrument under
which indebtedness of $500,000 or more is issued or secured; and (e) certain
events in bankruptcy, insolvency or reorganization.
The Indenture provides that the Trustee will, within 90 days after the
occurrence of a default, give the holders of Debentures notice of all continuing
defaults (as defined) known to it; but, except in the case of a default in the
payment of the principal or premium, if any, or interest in respect of any of
the Debentures, the Trustee shall be protected in withholding such notice if it
in good faith determines that the withholding of such notice is in the interest
of such holders.
If any event of default shall occur and be continuing, the Trustee or the
holders of at least 25% in principal amount of outstanding Debentures may
declare the Debentures immediately due and payable. Any such acceleration may be
rescinded by the holders of a majority in principal amount of the Debentures
then outstanding, upon the conditions provided in the Indenture.
An existing default and its consequences may be waived by the holders of a
majority in principal amount of the Debentures, upon the conditions provided in
the Indenture, other than an uncured default in payment of principal, premium,
if any, or interest in respect of the Debentures, an uncured failure to make any
redemption payment or an uncured default with respect to a provision which
cannot be modified under the terms of the Indenture without the consent of each
holder affected.
The Indenture includes a covenant that the Corporation will file annually
with the Trustee, within 120 days after the end of each fiscal year, a statement
regarding compliance by the Corporation with the terms thereof and specifying
any defaults by the Corporation of which the signers may have knowledge.
Modification of the Indenture
- -----------------------------
Modifications and amendments of the Indenture which materially affect the
rights of the holders of the Debentures may be made by the Corporation and the
Trustee only with the consent of the holders of not less than a majority in
principal amount of the Debentures then outstanding; provided that no such
modification or amendment may change the stated maturity of any Debenture, or
reduce the principal amount of or redemption premium, if any, or interest rate
on any Debenture or change the interest payment date or otherwise modify the
terms of payment of the principal of or redemption premium, if any, or interest
on the Debentures, or reduce the percentage required for any consent, waiver or
modification, or modify certain other provisions of the Indenture, without the
consent of each holder of any Debenture affected thereby.
28
<PAGE>
Discharge of the Indenture
- --------------------------
The Indenture will be discharged and canceled upon payment of all the
Debentures or upon deposit with the Trustee, within no more than one year prior
to the maturity or the redemption of all the Debentures, of funds or U.S.
Government Obligations sufficient to pay the principal of and premium, if any,
and interest on the Debentures.
UNDERWRITING
The Underwriters named below (the "Underwriters") have severally agreed,
subject to the terms and conditions of the Underwriting Agreement, the form of
which is filed as an exhibit to the Registration Statement, to purchase from the
Corporation the number of shares of Common Stock and the principal amounts of
Debentures set forth opposite their respective names.
<TABLE>
<CAPTION>
Number of Shares Principal Amount
Underwriters of Common Stock of Debentures
------------ --------------- -------------
<S> <C> <C>
Edward D. Jones & Co., L.P.
First Albany Corporation _______ __________
Total 620,000 $7,000,000
======= ==========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the Common Stock and Debentures
are subject to the approval of certain legal matters by counsel and to certain
other conditions. The Underwriters are obligated to take and pay for all of the
shares of Common Stock and Debentures offered hereby if any are taken (other
than shares of Common Stock covered by the over-allotment option described
below).
The Underwriters have advised the Corporation that they propose to offer
the Common Stock and Debentures being purchased by them directly to the public
at the initial public offering prices set forth on the cover page of this
Prospectus and in part to certain securities dealers, which are members of the
National Association of Securities Dealers, Inc., at such prices less a
concession of not more than $_____ per share of Common Stock and not more than
__% of the principal amount of the Debentures. After the initial public
offering, the public offering prices and concessions may be changed by the
Underwriters.
The offering of the Common Stock and Debentures is made for delivery when,
as and if accepted by the Underwriters and subject to prior sale and to
withdrawal, cancellation or modification of the offer without notice. The
Underwriters reserve the right to reject any order for the purchase of Common
Stock or Debentures in whole or in part.
The Corporation has granted to the Underwriters an option for 30 days to
purchase (at the Common Stock Price to Public less the Underwriting Discounts
and Commissions shown on the cover page of this Prospectus) up to 93,000
additional shares of Common Stock. The Underwriters may exercise such option
only to cover over-allotments of shares of Common Stock made in connection with
the sale of the shares offered hereby.
Until the distribution of the Common Stock and Debentures is completed,
rules of the Commission may limit the ability of the Underwriters and certain
selling group members to bid for and purchase the Common Stock and Debentures.
As an exception to these rules, the Underwriters are permitted to engage in
certain transactions that stabilize the price of the Common Stock and
Debentures. Such transactions consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of the Common Stock and Debentures.
If the Underwriters create a short position in the Common Stock or
Debentures in connection with the Offering, i.e., if they sell more Common Stock
or Debentures than are set forth on the cover page of this Prospectus, the
Underwriters may reduce that short position by purchasing Common Stock or
Debentures in the open market.
29
<PAGE>
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.
Neither the Corporation nor either of the Underwriters makes any
representation or prediction as to the direction or magnitude of any effect that
the transactions described above may have on the price of the Common Stock and
Debentures. In addition, neither the Corporation nor either of the Underwriters
makes any representation that the Underwriters will engage in such transactions
or that such transactions, once commenced, will not be discontinued without
notice.
The Corporation has agreed to indemnify the Underwriters and persons who
control the Underwriters against certain liabilities that may be incurred in
connection with the offering contemplated hereby, including liabilities under
the Act or to contribute to payments the Underwriters may be required to make in
respect thereof.
LEGAL MATTERS
The validity of the securities offered hereby has been passed upon for the
Corporation by Edwards & Angell, 150 John F. Kennedy Parkway, Short Hills, New
Jersey 07078-2701.
Certain matters will be passed upon for the Underwriters by Armstrong,
Teasdale, Schlafly & Davis, One Metropolitan Square, St. Louis, Missouri 63102.
EXPERTS
The consolidated financial statements of Valley Resources, Inc. and
subsidiaries at August 31, 1996 and 1995 and for each of the three years in the
period ended August 31, 1996, are included and incorporated by reference in this
Prospectus, have been audited by Grant Thornton, LLP, independent certified
public accountants, as indicated in their report with respect thereto, and are
included and incorporated herein in reliance upon the authority of said firm as
experts in accounting and auditing in giving said report.
30
<PAGE>
VALLEY RESOURCES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants............................32
Consolidated Statements of Earnings for the Six Months Ended February 28,
1997 and 1996 (unaudited) and the Fiscal Years Ended August 31, 1996,
1995 and 1994 (audited)....................................................33
Consolidated Statements of Cash Flows for the Six Months Ended February 28,
1997 and 1996 (unaudited) and the Fiscal Years Ended August 31, 1996,
1995 and 1994 (audited)....................................................34
Consolidated Balance Sheets as of February 28, 1997 (unaudited) and
August 31, 1996 and 1995 (audited).........................................35
Consolidated Statements of Changes in Common Stock Equity for the Six
Months Ended February 28, 1997 (unaudited) and the Fiscal Years Ended
August 31, 1996, 1995 and 1994 (audited)...................................37
Consolidated Statements of Capitalization as of February 28, 1997
(unaudited) and August 31, 1996 and 1995 (audited).........................38
Notes to Consolidated Financial Statements....................................39
31
<PAGE>
Valley Resources, Inc.
Report of
Independent Certified Public Accountants
To the Stockholders of Valley Resources, Inc.
We have audited the accompanying consolidated balance sheets and
consolidated statements of capitalization of Valley Resources, Inc. (a Rhode
Island corporation) and subsidiaries as of August 31, 1996 and 1995 and the
related consolidated statements of earnings, cash flows and changes in common
stock equity for each of the three years in the period ended August 31, 1996.
These consolidated financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Valley Resources, Inc. and subsidiaries as of August 31, 1996 and 1995 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended August 31, 1996, in conformity with generally
accepted accounting principles.
Grant Thornton, LLP
Boston, Massachusetts
September 24, 1996
32
<PAGE>
<TABLE>
Valley Resources, Inc. and Subsidiaries
Consolidated Statements of Earnings
<CAPTION>
For the six months ended For the year ended
February 28, August 31,
------------------------ ---------------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Operating revenues:
Utility gas revenues......................... $36,123,364 $33,961,825 $60,773,519 $56,012,913 $65,323,556
Nonutility revenues.......................... 11,148,942 10,383,606 19,586,615 18,857,277 18,229,362
----------- ----------- ----------- ----------- -----------
Total...................................... 47,272,306 44,345,431 80,360,134 74,870,190 83,552,918
----------- ----------- ----------- ----------- -----------
Operating expenses:
Cost of gas sold............................. 20,577,710 17,797,975 31,951,154 30,229,359 38,233,511
Cost of sales - nonutility................... 7,719,820 7,276,754 13,688,935 13,189,797 12,783,575
Operations................................... 9,254,761 8,981,575 17,706,904 16,752,501 16,299,527
Maintenance.................................. 826,599 803,043 1,671,971 1,535,206 1,485,279
Depreciation (Note A)........................ 1,555,476 1,462,056 2,956,727 2,684,755 2,473,467
Taxes - other than Federal income............ 2,223,897 2,152,617 4,090,751 4,002,076 4,463,406
- Federal income (Notes A and F)....... 1,122,267 1,409,298 1,443,547 731,947 1,313,227
----------- ----------- ----------- ----------- -----------
Total...................................... 43,280,530 39,883,318 73,509,989 69,125,641 77,051,992
----------- ----------- ----------- ----------- -----------
Operating income................................ 3,991,776 4,462,113 6,850,145 5,744,549 6,500,926
Other income - net of tax (Notes A and F)....... 157,916 270,848 459,938 115,032 227,450
----------- ----------- ----------- ----------- -----------
Total income before interest.................... 4,149,692 4,732,961 7,310,083 5,859,581 6,728,376
----------- ----------- ----------- ----------- -----------
Interest charges:
Long-term debt............................... 964,324 948,081 1,927,154 1,947,205 2,037,760
Other........................................ 697,292 705,460 1,384,569 1,357,451 864,590
----------- ----------- ----------- ----------- -----------
Total...................................... 1,661,616 1,653,541 3,311,723 3,304,656 2,902,350
----------- ----------- ----------- ----------- -----------
Net income available for common stock........... $ 2,488,076 $ 3,079,420 $ 3,998,360 $ 2,554,925 $ 3,826,026
============ ============ =========== =========== ===========
Average number of common shares outstanding..... 4,261,672 4,250,996 4,258,877 4,222,662 4,205,760
Earnings per average common share outstanding... $0.58 $0.72 $0.94 $0.61 $0.91
The accompanying Notes are an integral part of these statements.
</TABLE>
33
<PAGE>
<TABLE>
Valley Resources, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<CAPTION>
For the six months ended
February 28, For the year ended August 31,
------------ -----------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Increase (decrease) in cash:
Cash flows from operating activities:
Net income.......................................... $2,488,076 $3,079,420 $3,998,360 $2,554,925 $3,826,026
Adjustments to reconcile net income to net cash:
Depreciation...................................... 1,555,476 1,462,056 2,956,727 2,684,755 2,473,467
Provision for uncollectibles...................... 777,889 671,974 1,459,761 1,274,238 959,404
Deferred Federal income taxes..................... 1,409,855 773,927 922,007 619,918 1,040,691
Amortization of investment tax credits............ -0- -0- (49,452) (50,144) (44,940)
Change in assets and liabilities:
Accounts receivable............................... (7,578,235) (6,269,033) (718,826) (1,612,297) (492,220)
Deferred fuel costs............................... (2,380,694) (1,303,800) (3,977,779) 2,629,056 1,752,484
Unbilled gas costs................................ (1,163,708) (1,380,835) (4,603) (4,617) (5,256)
Fuel and other inventories........................ 1,332,327 1,873,988 (663,964) 502,202 331,499
Prepayments....................................... 708,354 742,579 (249,971) (72,088) (31,177)
Common stock held for dividend reinvestment plan.. (46,322) 248,777 158,876 (271,315) 23,530
Prepaid pensions.................................. (462,373) (312,684) (625,374) (572,320) (784,454)
Accounts payable.................................. 699,973 1,464,435 921,892 (275,189) (323,061)
Security deposits................................. (5,310) (65,663) (65,258) 30,945 47,803
Taxes accrued..................................... 303,533 1,151,236 (317,791) (131,917) 69,422
Other............................................. 392,390 (54,219) (75,564) (578,144) (500,288)
---------- ---------- ---------- ---------- ----------
Total adjustments............................... (4,456,845) (997,262) (329,319) 4,173,083 4,516,904
---------- ---------- ---------- ---------- ----------
Net cash (used) provided by operating activities.... (1,968,769) 2,082,158 3,669,041 6,728,008 8,342,930
---------- ---------- ---------- ---------- ----------
Cash flows from investing activities:
Utility capital expenditures........................ (1,708,160) (2,435,064) (4,396,081) (5,335,159) (3,953,702)
Nonutility capital expenditures..................... (370,768) (297,754) (612,628) (580,772) (599,725)
Other investments................................... (20,272) (12,013) (49,360) (13,400) (51,262)
---------- ---------- ---------- ---------- ----------
Net cash used by investing activities............... (2,099,200) (2,744,831) (5,058,069) (5,929,331) (4,604,689)
---------- ---------- ---------- ---------- ----------
Cash flows from financing activities:
Dividends paid...................................... (1,555,034) (1,527,147) (3,083,369) (2,989,702) (2,900,408)
Common stock transactions........................... (34,279) 56,579 184,615 391,278 (95,418)
Issuance of revolving credit arrangement............ 100,000 2,200,000 2,200,000 -0- -0-
Retirement of long-term debt........................ (57,000) (825,000) (860,000) (1,333,000) (95,000)
Increase (decrease) in notes payable................ 5,800,000 1,400,000 3,000,000 3,000,000 (1,000,000)
---------- ---------- ---------- ---------- ----------
Net cash provided (used) by financing activities.... 4,253,687 1,304,432 1,441,246 (931,424) (4,090,826)
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in cash....................... 185,718 641,759 52,218 (132,747) (352,585)
Cash, beginning....................................... 506,813 454,595 454,595 587,342 939,927
---------- ---------- ---------- ---------- ----------
Cash, ending.......................................... $ 692,531 $ 1,096,354 $ 506,813 $ 454,595 $ 587,342
=========== =========== =========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest ......................................... $ 1,657,523 $ 1,731,663 $ 3,311,577 $ 3,265,612 $ 2,895,752
=========== =========== =========== =========== ===========
Federal income taxes.............................. $ -0- -0- $ 885,000 $ 380,000 $ 637,000
=========== =========== =========== =========== ===========
Supplemental disclosures of noncash activity:
Capital lease obligations incurred.................. $ 200,905 $ 98,756 $1,844,817 $ 300,972 $ 956,973
=========== =========== =========== =========== ===========
The accompanying Notes are an integral part of these statements.
</TABLE>
34
<PAGE>
<TABLE>
Valley Resources, Inc. and Subsidiaries
Consolidated Balance Sheets
<CAPTION>
February 28, August 31,
1997 1996 1995
---- ---- ----
(unaudited)
<S> <C> <C> <C>
Assets:
Utility plant, at cost (Notes A and D) .............................. $ 78,079,856 $ 76,534,841 $ 72,759,666
Less: Accumulated provision for depreciation (Note A) .............. 28,204,219 27,092,766 25,348,673
------------ ------------ ------------
Net utility plant ................................................... 49,875,637 49,442,075 47,410,993
------------ ------------ ------------
Leased property-less accumulated amortization of $3,180,521,
$2,789,155 and $2,088,737 ........................................ 2,638,145 2,944,581 2,013,647
------------ ------------ ------------
Nonutility property-less accumulated provision for depreciation of
$4,001,517, $3,850,692 and $3,434,784 (Note A) ................... 3,657,604 3,567,797 3,546,543
------------ ------------ ------------
Other investments ................................................... 1,530,732 1,510,460 1,461,100
------------ ------------ ------------
Current assets:
Cash ............................................................ 692,531 506,813 454,595
Accounts receivable-less allowance for uncollectibles of $820,938,
$719,721 and $655,951 .......................................... 16,745,826 9,945,481 10,686,414
Deferred fuel costs (Note A) ..................................... 3,207,706 827,012 -0-
Deferred unbilled gas costs (Note A) ............................. 1,602,602 438,894 434,291
Fuel and other inventories (Note A) .............................. 4,716,120 6,048,447 5,384,483
Prepayments ...................................................... 700,948 1,409,302 1,159,331
Common stock held for dividend reinvestment plan (Note B) ........ 177,141 130,819 289,695
------------ ------------ ------------
Total current assets ......................................... 27,842,874 19,306,768 18,408,809
------------ ------------ ------------
Deferred debits:
Recoverable postretirement benefit (Note H) ...................... 577,436 692,922 692,922
Recoverable vacations accrued .................................... 723,311 633,194 846,825
Recoverable deferred Federal income taxes (Note F) ............... 6,182,748 5,969,839 5,713,177
Recoverable transition obligation (Note H) ....................... 1,700,000 1,700,000 1,325,000
Unamortized debt discount and expense ............................ 1,494,127 1,523,092 1,581,023
Prepaid pensions (Note H) ........................................ 6,633,210 6,170,837 5,545,463
Other ............................................................ 3,006,534 3,227,420 3,792,004
------------ ------------ ------------
Total deferred debits ........................................ 20,317,366 19,917,304 19,496,414
------------ ------------ ------------
Total assets ................................................. $105,862,358 $ 96,688,985 $ 92,337,506
============ ============ ============
The accompanying Notes are an integral part of these statements.
</TABLE>
35
<PAGE>
<TABLE>
Valley Resources, Inc. and Subsidiaries
Consolidated Balance Sheets
<CAPTION>
February 28, August 31,
1997 1996 1995
---- ---- ----
(unaudited)
<S> <C> <C> <C>
Capitalization and liabilities:
Capitalization (see Consolidated Statements of Capitalization) $ 51,189,998 $ 50,348,234 $ 50,608,628
------------ ------------ ------------
Revolving credit arrangements (Note F) ....................... 2,300,000 2,200,000 -0-
------------ ------------ ------------
Obligations under capital leases (Note D) .................... 1,759,893 2,133,543 1,254,778
------------ ------------ ------------
Current liabilities:
Current maturities of long-term debt (Note D) ............. 500,000 500,000 500,000
Obligations under capital leases (Note D) ................. 878,252 811,036 758,870
Notes payable (Note C) .................................... 20,700,000 14,900,000 11,900,000
Accounts payable .......................................... 5,943,180 5,243,207 4,321,315
Security deposits ......................................... 1,091,437 1,096,747 1,162,005
Taxes accrued ............................................. 493,558 190,025 507,816
Deferred fuel costs (Note A) .............................. -0- -0- 3,150,767
Accrued interest .......................................... 554,923 551,979 655,045
Other ..................................................... 907,151 712,413 976,138
------------ ------------ ------------
Total current liabilities ............................. 31,068,501 24,005,407 23,931,956
------------ ------------ ------------
Commitments and contingencies (Note H)
Deferred credits:
Unamortized investment tax credit (Note A) ................ 723,688 723,688 773,141
Transition obligation (Note H) ............................ 1,700,000 1,700,000 1,325,000
Unfunded deferred Federal income taxes (Note F) ........... 1,922,773 1,922,773 1,930,375
Postretirement benefit obligation (Note H) ................ 577,436 692,922 692,922
Other ..................................................... 1,832,218 1,700,469 1,729,504
------------ ------------ ------------
Total deferred credits ................................ 6,756,115 6,739,852 6,450,942
------------ ------------ ------------
Deferred Federal income taxes (Notes A and F) ................ 12,787,851 11,261,949 10,091,202
------------ ------------ ------------
Total liabilities ..................................... 54,672,360 46,340,751 41,728,878
------------ ------------ ------------
Total capitalization and liabilities ......................... $105,862,358 $ 96,688,985 $ 92,337,506
============ ============ ============
The accompanying Notes are an integral part of these statements.
</TABLE>
36
<PAGE>
<TABLE>
Valley Resources, Inc. and Subsidiaries
Consolidated Statements of Changes in Common Stock Equity
<CAPTION>
Common Shares Issued Paid in Retained
& Outstanding Capital Earnings
------------- ------- --------
Number Amount
------ ------
<S> <C> <C> <C> <C>
Balance, August 31, 1993 ............. 4,213,043 $ 4,213,043 $17,790,573 $ 6,344,574
Add (deduct):
Net income ........................ 3,826,026
Cash dividends on common stock .... (2,900,408)
Other ............................. (95,418)
--------- ----------- ----------- -----------
Balance, August 31, 1994 ............. 4,213,043 4,213,043 17,695,155 7,270,192
--------- ----------- ----------- -----------
Add (deduct):
Net income ........................ 2,554,925
Cash dividends on common stock .... (2,989,702)
Dividend reinvestment plan (Note B) 47,754 47,754 465,376
Other ............................. (121,852)
--------- ----------- ----------- -----------
Balance, August 31, 1995 ............. 4,260,797 4,260,797 18,038,679 6,835,415
--------- ----------- ----------- -----------
Add (deduct):
Net income ........................... 3,998,360
Cash dividends on common stock .... (3,083,369)
Dividend reinvestment plan (Note B) 19,231 19,231 202,680
Other ............................. (37,296)
--------- ----------- ----------- -----------
Balance, August 31, 1996 ............. 4,280,028 4,280,028 18,204,063 7,750,406
--------- ----------- ----------- -----------
Add (deduct):
Net income ........................ 2,488,076
Cash dividends on common stock .... (1,555,033)
Dividend reinvestment plan
Other ............................. (34,279)
--------- ----------- ----------- -----------
Balance, February 28, 1997 (unaudited) 4,280,028 $ 4,280,028 $18,169,784 $ 8,683,449
========= =========== =========== ===========
The accompanying Notes are an integral part of these statements.
</TABLE>
37
<PAGE>
<TABLE>
Valley Resources, Inc. and Subsidiaries
Consolidated Statements of Capitalization
<CAPTION>
February 28, August 31,
1997 1996 1995
---- ---- ----
(unaudited)
<S> <C> <C> <C>
Common stock equity:
Common stock, $1 par value (Note B)
Authorized 20,000,000 shares
Issued and outstanding 4,280,028, 4,280,028 and
4,260,797 shares....................................................... $ 4,280,028 $ 4,280,028 $ 4,260,797
Paid in capital (Note B)................................................... 18,169,784 18,204,063 18,038,679
Retained earnings (Notes B and E).......................................... 8,683,449 7,750,406 6,835,415
----------- ------------ ------------
31,133,261 30,234,497 29,134,891
Less: Accounts receivable from Valley Gas
Employee Stock Ownership Plan (Note D).................................. 3,142,200 3,142,200 3,142,200
----------- ------------ ------------
Total common stock equity............................................. 27,991,061 27,092,297 25,992,691
----------- ------------ ------------
Long-term debt (Note D):.....................................................
8% First Mortgage Bonds, due 2022......................................... 20,155,000 20,212,000 21,072,000
9% Notes Payable, due 1999................................................ 2,138,937 2,138,937 2,138,937
Note payable.............................................................. 1,405,000 1,405,000 1,905,000
----------- ------------ ------------
Total................................................................. 23,698,937 23,755,937 25,115,937
Less: Current maturities............................................... 500,000 500,000 500,000
----------- ------------ ------------
Total long-term debt......................................................... 23,198,937 23,255,937 24,615,937
----------- ------------ ------------
Total capitalization......................................................... $51,189,998 $50,348,234 $50,608,628
=========== =========== ===========
The accompanying Notes are an integral part of these statements.
</TABLE>
38
<PAGE>
Valley Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Including Notes Applicable to Unaudited Periods)
Note A: Summary of Significant Accounting Policies
Consolidation - The consolidated financial statements include the accounts of
Valley Resources, Inc. and its active wholly-owned subsidiaries (the
"Corporation")--Valley Gas Company ("Valley Gas"), Valley Appliance and
Merchandising Company ("VAMCO"), Valley Propane, Inc. ("Valley Propane"), Morris
Merchants, Inc. ("Morris Merchants") (d/b/a the Walter F. Morris Company), and
Bristol & Warren Gas Company ("Bristol & Warren"). The consolidated financial
statements also include the Corporation's 80% interest in Alternate Energy
Corporation ("AEC"). All significant intercompany transactions have been
eliminated where required.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Regulation - The utility operations of Valley Gas and Bristol & Warren
(collectively the "Utilities") are subject to regulation by the Rhode Island
Public Utilities Commission ("RIPUC"). Accounting policies conform with
generally accepted accounting principles, as applied in the case of regulated
public utilities, and are in accordance with the accounting requirements and
rate making practices of the RIPUC.
Depreciation - Annual provisions for depreciation for the Utilities are
determined on a composite straight-line basis. The composite rate for fiscal
1996 was 2.91% and was 2.72% for fiscal 1995 and fiscal 1994. Depreciation
provisions for other subsidiary companies are provided on the straight-line and
accelerated methods at rates ranging from 2.86% to 34%.
Deferred Fuel Costs - The Utilities' tariffs include a Purchased Gas Price
Adjustment ("PGPA") which allows an adjustment of rates charged to customers in
order to recover all changes in gas costs from stipulated base gas costs. The
PGPA provides for an annual reconciliation of total gas costs billed with the
actual cost of gas incurred. Any excess or deficiency in amounts collected as
compared to costs incurred is deferred and either reduces the PGPA or is billed
to customers over subsequent periods.
Deferred Unbilled Gas Costs - Revenue is recorded on the basis of bills rendered
on a cycle basis throughout the month. Valley Gas defers to the following month
that portion of the base cost of gas delivered but not yet billed under the
cycle billing system.
Accounting for Income Taxes - Income tax regulations allow recognition of
certain transactions for tax purposes in time periods other than the period
during which these transactions will be recognized in the determination of net
income for financial reporting purposes. As required by generally accepted
accounting principles, deferred income taxes are provided to reflect the tax
effect of these timing differences in the proper accounting periods.
In accordance with Financial Accounting Standards Board Statement No. 109
"Accounting for Income Taxes," deferred income taxes are recorded for all book
and tax temporary timing differences.
Investment tax credits relating to the Utilities property have been
deferred and will be amortized to income over the productive lives of the
related assets. Investment tax credits earned by the Corporation's other
subsidiary companies were recognized as a reduction of Federal income tax
expense in the year utilized.
Pension Plans - Valley Gas maintains two non-contributory defined benefit
pension plans covering substantially all of Valley Gas' employees. The plans
provide benefits based on compensation and years of service. Valley Gas' policy
is to fund pension costs that are deductible for Federal income tax purposes
(see Note H). Additionally, Valley Gas maintains a
39
<PAGE>
401(k) plan covering substantially all of Valley Gas' employees. In fiscal 1996,
1995 and 1994, plan expense was $126,100, $122,400 and $112,900, respectively.
Morris Merchants maintains an employee profit sharing plan covering
substantially all of the employees who have completed one year of service.
Contributions to the plan are at the discretion of the Board of Directors. In
fiscal 1996, 1995 and 1994 profit sharing expense was $68,400, $68,400 and
$73,700, respectively.
Bristol & Warren maintains a non-contributory defined contribution pension
plan covering substantially all of its employees. The plan provides benefits
based on hours worked and rate of pay. In fiscal 1996, 1995 and 1994 plan
expense was $23,000, $27,500 and $23,100, respectively.
New Accounting Standard - In March 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 121 "Accounting for
the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of",
which will be effective for the Corporation's fiscal year ending August 31,
1997. This statement requires the Corporation to review long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The Corporation intends to
adopt this statement prospectively. The impact of the standard is not expected
to have a material impact on the Corporation's financial condition or results of
operations.
Inventories - Fuel and other inventories are as follows:
<TABLE>
<CAPTION>
February 28 August 31
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Fuels (at average cost)...................... $2,139,556 $3,622,698 $3,254,439
Merchandise and other (at average cost)...... 1,106,199 1,199,856 1,051,585
Merchandise (at LIFO)........................ 1,470,365 1,225,893 1,078,459
---------- ---------- ----------
$4,716,120 $6,048,447 $5,384,483
========== ========== ==========
</TABLE>
Merchandise (at LIFO), if valued at current cost, would have been greater by
$327,300 in 1996 and $255,400 in 1995.
Note B: Common Stock and Rights
Pursuant to the Corporation's dividend reinvestment plan, stockholders can
reinvest dividends and make limited additional cash investments. Shares issued
through dividend reinvestment can be acquired on the open market or original
issue. In fiscal 1996 and 1995, the Corporation issued 19,231 and 47,754 shares
of common stock, respectively, under provisions of the dividend reinvestment
plan. All shares issued pursuant to the plan in fiscal 1994 were open-market
purchases. At August 31, 1996 and 1995, 10,813 and 26,190 shares, respectively,
were held by the Corporation for issuance to the plan.
On August 31, 1996, except as mentioned above, no shares of common stock of
the Corporation were held by or for the account of the Corporation or were
reserved for officers or employees or for options, warrants or other rights,
except 41,125 shares of common stock reserved subject to sale under the
Corporation's dividend reinvestment plan.
Each share of common stock of the Corporation includes one preferred stock
purchase Right which entitles the holder to purchase one one-hundredth of a
share of Cumulative Participating Junior Preferred Stock, par value $100, at a
price of $35 per one one-hundredth of a share subject to adjustment. The Rights
are not currently exercisable, and trade automatically with the common stock.
The Rights will generally become exercisable and separate certificates
representing the Rights will be distributed, upon occurrence of certain events
in excess of a stipulated percentage of ownership.
The Rights should not interfere with any merger or business combination
approved by the Board of Directors because, prior to the Rights becoming
exercisable, the Rights may be redeemed by the Corporation at $0.01 per Right.
The Rights have no dilutive effect and will not affect reported earnings per
share.
40
<PAGE>
Note C: Short-Term Debt
The Corporation borrows on bank lines of credit at the prevailing interest
rate available at the time of borrowing. The Corporation either pays commitment
fees or maintains compensating balances in connection with these lines of
credit. Commitment fees paid in fiscal 1996, 1995 and 1994 amounted to $114,800,
$94,500, and $64,900, respectively. There are no legal restrictions on
withdrawal of compensating balances.
A detail of short-term borrowings for fiscal 1996, 1995 and 1994 is as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
At year end
Weighted average interest rate 5.7% 5.9% 5.2%
Unused lines of credit ....... $14,100,000 $15,100,000 $14,600,000
For the year ended
Weighted average interest rate 6.0% 6.2% 3.9%
Average borrowings ........... $12,908,300 $11,283,300 $10,991,700
Maximum month-end borrowings . $16,000,000 $16,000,000 $14,900,000
Month of maximum borrowings .. November December January
</TABLE>
Note D: Long-Term Debt
The composition of long-term debt is included in these financial statements
in the separate Consolidated Statements of Capitalization. The aggregate amount
of maturities and sinking fund requirements for each of the five fiscal years
following fiscal 1996 are: 1997, $1,311,000; 1998, $3,901,100; 1999, $2,714,100;
2000, $568,400; and 2001, $135,500, inclusive of capitalized lease obligations.
Valley Gas utility plant and equipment have been pledged as collateral to
secure its long-term debt. In accordance with the redemption provisions of the
Valley Gas 8% First Mortgage Bonds, $860,000 and $1,333,000 of the bonds were
redeemed by holders in fiscal 1996 and fiscal 1995, respectively.
The fair market value of the Corporation's long-term debt is estimated
based on the quoted market prices for the same or similar issues or on the
current rates offered to the Corporation for debt of the same remaining
maturities. Management believes the carrying value of the debt approximates the
fair value at August 31, 1996.
Regulatory treatment allows payments under capital leases to be recorded as
rental expenses. Rental expenses for all leases in fiscal 1996, 1995 and 1994
were $1,437,900, $1,179,800, and $1,235,200, respectively.
Valley Gas entered into an intermediate term financing arrangement with a
bank in November 1995. The terms of the arrangement call for a $6,000,000
revolving line of credit which matures in 1998, with the option to extend the
termination date to November 30, 2000.
The Corporation borrowed funds under a line of credit at rates less than
the prevailing prime rate, which are restricted in their use to being loaned to
Valley Gas' Employee Stock Ownership Plan ("ESOP"). The receivable from the ESOP
has been shown as a reduction of common stock equity. The financing by the ESOP
is secured by the common stock of two unregulated subsidiaries and the
unallocated shares held by the ESOP.
The Corporation's common stock purchased by the ESOP with the borrowed
money is held by the ESOP trustee in a "suspense account." As Valley Gas makes
contributions to the plan, a portion of the common stock is released from the
suspense account and allocated to participating employees. Any dividends on
unallocated shares are used to pay loan interest. ESOP expense in fiscal 1996
was $100,000. There was no ESOP expense recorded in fiscal 1995 and 1994.
41
<PAGE>
Note E: Restriction on Retained Earnings
At August 31, 1996, $1,229,400 of the retained earnings of Valley Gas were
available for the payment of cash dividends to the Corporation under the most
restrictive provisions of Valley Gas' first mortgage bonds. There are no
restrictions as to the payment of dividends for the other subsidiaries.
Note F: Income Taxes
In accordance with Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes" ("SFAS 109"), the Corporation's financial
statements are required, among other things, to record the cumulative deferred
income taxes on all temporary timing differences. As approved by the RIPUC, the
Utilities did not fully record deferred income taxes but, rather, "flowed
through" certain tax benefits to utility customers prior to fiscal 1994. At
August 31, 1996, the Corporation has a liability of $5,969,800 on the
Consolidated Balance Sheets as recoverable deferred income taxes and a
corresponding recoverable deferred charge. The liability represents the tax
effect of timing differences for which deferred income taxes had not been
provided, increased in accordance with SFAS 109 for the tax effect of future
revenue requirements. The Utilities are recovering unfunded deferred taxes from
utility customers over the remaining book life of utility property.
Federal income tax expense has been calculated based on filing a
consolidated corporate tax return and is comprised of the following:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current income tax expense:
Operating expense ............... $ 521,540 $112,029 $ 272,536
Nonoperating expense ............ 147,065 71,230 82,678
---------- -------- ----------
668,605 183,259 355,214
---------- -------- ----------
Deferred income tax expense:
Accelerated depreciation ........ 276,474 194,537 269,823
Pensions ........................ 212,627 194,588 266,715
Deferred fuel costs ............. 293,801 -0- -0-
Uncollectibles .................. (21,840) 2,142 (32,289)
Directors' fees and interest .... (36,453) (8,744) (46,169)
Bond premium .................... (6,240) (6,242) 176,387
Rate case expenses .............. (37,626) 174,290 (43,785)
Capitalization of inventory costs (6,897) (2,079) 45,977
Consulting contracts ............ 64,392 64,389 150,111
Software amortization ........... 140,856 140,856 254,350
Alternative minimum tax ......... 8,617 (180,000) -0-
Other ........................... 34,296 46,181 (429)
---------- -------- ----------
922,007 619,918 1,040,691
---------- -------- ----------
Total ........................... $1,590,612 $803,177 $1,395,905
========== ======== ==========
</TABLE>
The Federal income tax amounts included in the Consolidated Statements of
Earnings differ from the amounts which result from applying the statutory
Federal income tax rate to income from operations before income tax. The
reasons, with related percentage effects, are shown below:
42
<PAGE>
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Statutory Federal rate ........................... 34% 34% 34%
Maintenance costs capitalized for book purposes (3) (4) (4)
Cost of removal ............................... (1) (1) (1)
ESOP dividends ................................ (1) (2) (1)
Prior year over accrual ....................... -0- (2) -0-
Other ......................................... (1) (1) (1)
-- -- --
Total ......................................... 28% 24% 27%
== == ==
</TABLE>
Temporary differences which gave rise to the following deferred tax assets
and liabilities at August 31, 1996 and 1995 are:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Unbilled revenues .................................................. $ 271,504 $ 264,144
Directors' fees and interest ....................................... 215,477 179,024
Other .............................................................. 525,365 505,245
------------ ------------
Total deferred tax assets ....................................... 1,012,346 948,413
------------ ------------
Accelerated depreciation ........................................... (8,446,411) (7,905,673)
Pensions ........................................................... (2,116,771) (1,904,144)
Software amortization .............................................. (536,062) (395,206)
Deferred fuel costs ................................................ (293,801) -0-
Other .............................................................. (881,250) (834,592)
------------ ------------
Total deferred tax liabilities .................................. (12,274,295) (11,039,615)
------------ ------------
Total deferred taxes ............................................... $(11,261,949) $(10,091,202)
============ ============
</TABLE>
The Corporation's nonutility operations are subject to state income taxes.
For fiscal 1996, 1995 and 1994, state income taxes totaled $124,300, $131,800,
and $125,300, respectively.
Note G: Regulatory Matters
In January 1995, the Utilities filed revised tariffs with the RIPUC to
consolidate their rate structure and to increase their combined annual revenues.
On October 18, 1995, the RIPUC authorized the Utilities to adjust their tariffs
to collect $1,100,000 and consolidate their rate structure.
Note H: Commitments and Contingencies
Pension Plans - Valley Gas has two non-contributory defined benefit pension
plans covering substantially all of its employees and a supplemental pension
plan covering certain officers.
Net periodic pension income for fiscal 1996, 1995 and 1994 included the
following components:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Service cost - benefits earned during the period............. $ 534,961 $ 470,907 $ 472,621
Interest cost on projected benefit obligation................ 1,321,504 1,232,168 1,153,139
Actual return on plan assets................................. (3,266,264) (3,448,848) (251,149)
Net amortization and deferral................................ 784,425 1,173,453 (2,159,065)
----------- ----------- -----------
Net periodic pension income.................................. $ (625,374) $ (572,320) $ (784,454)
=========== =========== ===========
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
Plans Funded Status - July 31 1996 1995
- ----------------------------- ---- ----
<S> <C> <C>
Projected benefit obligations:
Vested.......................................................... $15,511,957 $ 15,143,093
Nonvested....................................................... 225,232 140,275
----------- ------------
Accumulated................................................... 15,737,189 15,283,368
Due to recognition of future salary increases................... 3,757,612 3,685,361
----------- ------------
Total......................................................... (19,494,801) (18,968,729)
Plan assets at fair value.......................................... 29,152,063 26,885,983
----------- ------------
Plan assets in excess of projected benefit obligation.............. 9,657,262 7,917,254
Unrecognized transition amount..................................... (824,232) (971,756)
Unrecognized net gains............................................. (2,662,193) (1,400,035)
----------- ------------
Prepaid pension costs.............................................. $ 6,170,837 $ 5,545,463
=========== ============
</TABLE>
Plan assets are invested in common stock, short-term investments and
various other fixed income securities.
The weighted-average discount rate used in determining the projected
benefit obligation were 7 3/4% and 7 1/2%, respectively, as of July 31, 1996 and
1995. The assumed rate of future compensation increases was 5 1/2% per year. The
expected long-term rate of return on assets was 9% for all years presented.
Postretirement Life and Health Benefit Plan - Valley Gas sponsors a
postretirement benefit plan that covers substantially all of its employees. The
plan provides medical, dental and life insurance benefits. The plan is
non-contributory.
In accordance with Statement of Financial Accounting Standards No. 106
"Employers' Accounting for Postretirement Benefits Other Than Pensions" ("SFAS
106"), Valley Gas records the cost for this plan on an accrual basis. As
permitted by SFAS 106, Valley Gas will record the transition obligation over a
twenty-year period. Valley Gas' cost under this plan for fiscal 1996, 1995 and
1994 was $809,500, $815,100 and $841,500, respectively. The regulatory asset
represents the excess of postretirement benefits on the accrual basis over
amounts authorized to be recovered in rates. The RIPUC authorized Valley Gas a
phase-in recovery of the tax deductible portion of these postretirement
benefits, if funded.
Valley Gas has funded a portion of these costs through trusts established
under Section 501(c)(9) of the Internal Revenue Code for the bargaining and
nonbargaining unit plans. Valley Gas is currently funding the amount recovered
through rates.
The following table sets forth the Plans' funded status reconciled with the
amounts recognized in Valley Gas' financial statements at August 31:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees..................................................................... $(2,787,993) $(2,719,221)
Fully eligible active plan participants...................................... (775,563) (849,327)
Other active plan participants............................................... (2,007,935) (2,156,452)
----------- -----------
(5,571,491) (5,725,000)
Plan assets at fair value ...................................................... 951,546 481,494
----------- -----------
Accumulated postretirement benefit obligation in excess of plan assets.......... (4,619,945) (5,243,506)
Unrecognized transition obligation.............................................. 4,722,146 4,999,920
Unrecognized net (gain) from past experience different from that assumed........
and from changes in assumptions ............................................. (795,123) (449,336)
----------- -----------
Accrued postretirement benefit cost............................................. $ (692,922) $ (692,922)
=========== ===========
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
Net periodic postretirement benefit cost consisted of the following: 1996 1995 1994
- ------------------------------------------------------------------- ---- ---- ----
<S> <C> <C> <C>
Service cost - benefits attributable to service during the period......... $156,991 $140,882 $148,014
Interest cost on accumulated postretirement benefit obligation............ 417,117 420,725 424,964
Actual return (loss) on plan assets....................................... 33,712 (10,575) -0-
Net amortization and deferral............................................. 201,640 264,026 268,511
-------- -------- --------
Net periodic postretirement benefit cost.................................. 809,460 815,058 841,489
Regulatory asset.......................................................... -0- 252,365 440,557
-------- -------- --------
Net expense............................................................... $809,460 $562,693 $400,932
======== ======== ========
</TABLE>
For measurement purposes, a 12% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 1995; the rate was assumed
to decrease gradually to 5% by fiscal 2002 and to remain at that level
thereafter. The rates of increase assumed for post-age 65 medical benefits were
slightly lower. The health care cost trend rate assumption has a significant
effect on the amounts reported. To illustrate, increasing the assumed health
care cost trend rates by 1% in each year would increase the accumulated
postretirement benefit obligation at August 31, 1996 by $434,000 and the
aggregate of the service and the interest cost components of net periodic
postretirement benefit cost ("NPPBC") for the year by $58,000. The discount rate
was 7 1/2% for the development of the NPPBC. The assumed rate of future
compensation increases was 5 1/2% per year. The trend rates were set by the
RIPUC.
Long-Term Obligations - The Utilities have contracts which expire at various
dates through the year 2012 for the purchase, delivery and storage of natural
gas and supplemental gas supplies. Certain contracts for the purchase of the
supplemental gas supplies contain minimum purchase obligations which approximate
2% of total system requirements.
FERC Order No. 636 Transition Costs - As a result of FERC Order 636, the
Utilities' interstate pipeline service providers have been required to unbundle
their supply, storage and transportation services. This unbundling has caused
the interstate pipeline companies to incur substantial costs in order to comply
with Order 636. These transition costs include four types: (1) unrecovered gas
costs (gas costs that have been incurred but not yet recovered by the pipelines
when they were providing bundled service to local distribution companies); (2)
gas supply realignment costs (the cost of renegotiating existing gas supply
contracts with producers); (3) stranded costs (unrecovered costs of assets that
cannot be assigned to customers of unbundled services); and (4) new facilities
costs (costs of new facilities required to physically implement Order 636).
Pipelines are expected to be allowed to recover prudently incurred
transition costs from customers primarily through a demand charge, after
approval by FERC. The Utilities' pipeline suppliers began direct billing these
costs in fiscal 1994 as a component of demand charges. The Utilities estimate
their remaining portion of transition costs to be $1,700,000 and have recognized
a liability for these costs as of August 31, 1996. The RIPUC has allowed the
recovery of transition costs through the PGPA. Under the provisions of SFAS 71,
regulatory assets totaling $1,700,000 were recorded for the expected future
recovery of the transition obligations. Actual transition costs to be incurred
depend on various factors, and, therefore, future costs may differ from the
amounts discussed above.
Contingent Liability - A lawsuit has been filed against Valley Gas and other
parties by Blackstone Valley Electric Company ("Blackstone") seeking
contribution towards a judgment against Blackstone's share of total clean-up
costs of approximately $6,000,000 at the Mendon Road site in Attleboro,
Massachusetts. The expenses relate to a site to which oxide waste was
transported in the 1930's prior to the incorporation of Valley Gas. Management
is of the opinion the Corporation will prevail as a result of the
indemnification provisions included in the agreement entered into when Valley
Gas acquired the utility assets from Blackstone. Management cannot determine the
future cash flow impact, if any, of this claim and related legal fees. Legal
fees associated with this claim are expected to be recovered in rates. In a
recent decision of the U.S. Court of Appeals for the First Circuit, Blackstone's
appeal of the judgment against it was sustained and the case was remanded for
further proceedings, including a referral of the case to the EPA to determine if
the substance in question (FFC) is hazardous.
Valley Gas received a letter of responsibility from the Rhode Island
Department of Environmental Management ("DEM") with respect to releases from
manufactured coal waste on its property that is the site of the former Tidewater
plant in Pawtucket, Rhode Island. Valley Gas and Blackstone have submitted a
site investigation report to DEM relating
45
<PAGE>
to certain releases on the site. Management cannot determine the future cash
flow impact, if any, of this claim and related expenses. Management takes the
position that it is indemnified by Blackstone for any such expenses. Valley Gas
intends to seek recovery from Blackstone and any insurance carriers deemed to be
at risk during the relevant period. Remediation of sites such as the former
Tidewater plant is governed by a regulatory framework which now permits more
flexibility in methods of remediation and in property reuse.
Valley Gas received a letter of responsibility from DEM with respect to
releases from manufactured coal waste on its property that is the site of the
former Hamlet Avenue plant in Woonsocket, Rhode Island. Valley Gas and
Blackstone have submitted a site investigation work plan to address certain
releases at the site. Management cannot determine the future cash flow impact,
if any, of this claim and related expenses. Management takes the position that
it is indemnified by Blackstone for any such expenses. Valley Gas intends to
seek recovery from Blackstone and any insurance carriers deemed to be at risk
during the relevant period. Remediation of this site is also governed by a
regulatory framework that permits more flexibility in methods of remediation and
in property reuse.
Note I: Segment Information
In accordance with SFAS 14, the following information is presented relative
to the gas, merchandising and other operations of the Corporation.
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Gas Operations
Operating revenues......................................... $60,773,250 $56,012,913 $65,323,556
Operating income before Federal income taxes............... 7,150,140 5,157,534 6,412,020
Identifiable assets at August 31........................... 84,646,797 83,952,630 83,070,742
Depreciation............................................... 2,364,999 2,131,425 2,060,071
Capital expenditures....................................... 4,396,081 5,335,159 3,953,702
Appliance & Contract Sales & Rentals
Operating revenues......................................... $17,617,481 $17,216,397 $16,506,364
Operating income before Federal income taxes............... 986,920 1,111,530 1,183,132
Identifiable assets at August 31........................... 8,116,782 8,148,961 8,060,902
Depreciation............................................... 512,242 475,456 339,068
Capital expenditures....................................... 531,152 521,345 549,067
Other Operations, including Corporate & Eliminations
Operating revenues......................................... $1,969,403 $1,640,880 $1,722,998
Operating income before Federal income taxes............... 156,632 207,432 219,001
Identifiable assets at August 31........................... 3,925,406 235,915 (62,447)
Depreciation............................................... 79,486 77,874 74,328
Capital expenditures....................................... 81,476 59,427 50,658
Total Corporation
Operating revenues......................................... $80,360,134 $74,870,190 $83,552,918
Operating income before Federal income taxes............... 8,293,692 6,476,496 7,814,153
Federal income tax expense................................. (1,443,547) (731,947) (1,313,227)
Nonoperating income-net.................................... 459,938 115,032 227,450
Interest expense........................................... (3,311,723) (3,304,656) (2,902,350)
Net income................................................. 3,998,360 2,554,925 3,826,026
Identifiable assets at August 31........................... 96,688,985 92,337,506 91,069,197
Depreciation............................................... 2,956,727 2,684,755 2,473,467
Capital expenditures....................................... 5,008,709 5,915,931 4,553,427
</TABLE>
46
<PAGE>
Expenses used to determine operating income before Federal income taxes are
charged directly to each segment or are allocated based on time studies. Assets
allocated to each segment are based on specific identification of such assets as
provided by Corporate records.
Note J: Summarized Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
Three months ended
November February May August
-------- -------- --- ------
(in thousands, except as to earnings (loss) per average share)
<S> <C> <C> <C> <C>
Fiscal 1996
Total operating revenues ........................... $ 14,095 $ 30,250 $ 23,665 $ 12,351
Income (loss) before Federal income taxes .......... $ (1,214) $ 5,817 $ 2,934 $ (1,948)
Net income (loss) .................................. $ (775) $ 3,855 $ 1,995 $ (1,077)
Earnings (loss) per average share .................. $ (.18) $ .90 $ .47 $ (0.25)
Fiscal 1995
Total operating revenues ........................... $ 14,774 $ 26,965 $ 21,438 $ 11,693
Income (loss) before Federal income taxes .......... $ (1,186) $ 3,602 $ 2,242 $ (1,300)
Net income (loss) .................................. $ (735) $ 2,382 $ 1,586 $ (678)
Earnings (loss) per average share.................. $ (.17) $ .56 $ .38 $ (.16)
</TABLE>
Note K: Notes to Unaudited Financial Information
Earnings Per Share - The Corporation computes earnings per average common share
based on the weighted average number of shares outstanding during the period.
Results of Operations - In the opinion of the Corporation, the accompanying
unaudited consolidated condensed financial statements contain all adjustments
(consisting of only normal recurring accruals and matters discussed in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations") necessary to present fairly the financial position as of February
28, 1997 the results of operations for the six-months ended February 28, 1997
and 1996 and Statement of Cash Flows for the six-months ended February 28, 1997
and 1996.
The results of operations for the six-month periods ended February 28, 1997
and 1996 are not necessarily indicative of the results to be expected for the
full year.
47
<PAGE>
No dealer, salesman or any other person has been authorized to give any
information or to make any representations not contained in this Prospectus; any
information or representation not contained herein must not be relied upon as
having been authorized by the Corporation or any Underwriter. This Prospectus
does not constitute an offer to sell, or a solicitation of an offer to buy, any
securities other than the securities covered by this Prospectus; nor does it
constitute an offer to sell, or a solicitation of an offer to buy, any of the
securities covered by this Prospectus by the Corporation or any Underwriter in
any state to any person to whom it is unlawful for the Corporation or any
Underwriter to make such offer or solicitation. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create an
implication that there has been no change in the affairs of the Corporation
since the date hereof.
________________________
TABLE OF CONTENTS
Page
----
Available Information........................ 3
Incorporation of Certain Information by
Reference................................ 3
Prospectus Summary........................... 4
Risk Factors................................. 6
Valley Resources, Inc........................ 7
Use of Proceeds.............................. 7
Capitalization............................... 8
Selected Financial Data...................... 9
Management's Discussion and Analysis of
the Results of Operations and Financial
Condition................................ 10
Business..................................... 16
Price Range of Common Stock and
Dividends................................ 21
Description of Common Stock.................. 21
Description of Debentures.................... 23
Underwriting................................. 29
Legal Matters................................ 30
Experts...................................... 30
Index to Consolidated Financial Statements... 31
VALLEY RESOURCES, INC.
620,000 SHARES
OF
COMMON STOCK
($1 PAR VALUE)
$7,000,000
OF
___% DEBENTURES DUE 2027
____________________________
PROSPECTUS
DATED , 1997
____________________________
EDWARD D. JONES & CO., L.P.
FIRST ALBANY CORPORATION
48
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<CAPTION>
The expenses in connection with the issuance and distribution of the
securities being registered, other than underwriting compensation, are:
<S> <C>
Filing Fee for Registration Statement........................ $ 5,019
Legal Fees and Expenses...................................... 50,000*
Listing Fees................................................. 12,400
Accounting Fees and Expenses................................. 10,000*
Blue Sky Fees Expenses....................................... 1,000*
NASD Filing Fees............................................. 2,006
Printing and Engraving Fees.................................. 20,000*
Transfer Agent's Fees........................................ 5,000*
Trustee's Fees............................................... 5,000*
Miscellaneous................................................ 4,575*
--------
TOTAL........................................................ $115,000
========
_________________
* Estimated.
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 7-1.1-4.1 of the Rhode Island Business Corporation Act permits any
director, officer or other employee of the Registrant or his legal
representative to be indemnified by the Registrant against reasonable costs,
expenses, and counsel fees paid or incurred in connection with any proceeding to
which such director, officer or other employee or his legal representative may
be a party by reason of his being a director, officer or employee, provided that
such director, officer or other employee shall have acted in good faith, in what
he reasonably believed to be in the best interests of the Registrant and, where
criminal liability is charged, had no reasonable cause to believe that his
conduct was unlawful.
The Articles of Incorporation, as amended, of the Registrant also contain a
provision eliminating the liability of a director to the Registrant or its
stockholders for breach of fiduciary duty as a director, other than liability
for (a) breach of the director's duty of loyalty to the corporation or its
shareholders, (b) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (c) unlawful payment of a
dividend or unlawful stock purchase or redemption, or (d) any transaction from
which the director derived an improper personal benefit.
ITEM 16. EXHIBITS.
Number Description
1 Proposed form of Underwriting Agreement (to be filed by amendment).
3(a) Articles of Incorporation, as amended (Exhibit 3 to the Corporation's
Annual Report on Form 10-K for the year ended August 31, 1988 is
hereby incorporated by reference).
3(b) Bylaws of the Corporation (Exhibit 3 to the Corporation's Annual Report
on Form 10-K for the year ended August 31, 1988 is hereby incorporated
by reference).
49
<PAGE>
4(a) Proposed form of Indenture between Valley Resources, Inc. and Mellon
Bank, N.A., Trustee to be dated as of September 1, 1997, including
form of Debenture.
4(b) Indenture of First Mortgage dated as of December 15, 1992 between Valley
Gas Company, Valley Resources, Inc. as guarantor and State Street Bank
and Trust Company, Trustee (Exhibit 4 to the Corporation's Annual
Report on Form 10-K for the year ended August 31, 1993 is hereby
incorporated by reference.)
5 Opinion of Edwards & Angell
10(a) Valley Gas Company Supplemental Retirement Plan (Exhibit 10 to the
Corporation's Annual Report on Form 10-K for the year ended August 31,
1989 is hereby incorporated by reference.)
10(b) Valley Resources, Inc. 1988 Executive Incentive Plan (Exhibit 10 to the
Corporation's Annual Report on Form 10-K for the year ended August 31,
1989 is hereby incorporated by reference.)
10(c) Termination agreement between Valley Resources, Inc. and Kenneth W.
Hogan (Exhibit 10 to the Corporation's Registration Statement on
Form S-2 (File No. 2-99315) is hereby incorporated by reference.)
10(d) Valley Resources, Inc. Directors Retirement Plan. (Exhibit 10 to the
Corporation's Annual Report on Form 10-K for the year ended August 31,
1992 is hereby incorporated by reference.)
10(e) Termination agreement dated June 21, 1995 between Valley Resources, Inc.
and Alfred P. Degen (Exhibit 10 to the Corporation's Annual Report on
Form 10-K for the year ended August 31, 1996 is hereby incorporated by
reference.)
10(f) Termination agreement dated December 31, 1996 between Valley Resources,
Inc. and Charles K. Meunier.
10(g) Firm Storage Service Transportation contract between Valley Gas and
Tennessee Gas Pipeline Company, dated December 15, 1985 (Exhibit 10 to
the Corporation's Annual Report on Form 10-K for the year ended
August 31, 1986 is hereby incorporated by reference.)
10(h) Storage Service Agreement dated July 3, 1985 between Valley Gas Company
and Consolidated Gas Transmission Corporation (Exhibit 10 to the
Corporation's Registration Statement on Form S-2 (File No. 2-99315) is
hereby incorporated by reference.)
10(i) Underground Storage Service Agreement dated October 3, 1984 between
Valley Gas Company and Penn-York Energy Corporation (Exhibit 10 to the
Corporation's Registration Statement on Form S-2 (File No. 2-99315) is
hereby incorporated by reference.)
10(j) Underground Storage Service Agreement dated August 19, 1983 between
Valley Gas Company and Penn-York Energy Corporation (Exhibit 10 to the
Corporation's Annual Report on Form 10-K for the year ended August 31,
1983 is hereby incorporated by reference.
10(k) Service agreement for storage of LNG dated June 30, 1982 between Valley
Gas Company and Algonquin LNG, Inc. (Exhibit 10 to the Corporation's
Annual Report on Form 10-K for the year ended August 31, 1982 is
hereby incorporated by reference.)
10(l) Contract for the purchase of natural gas dated March 1, 1981, between
Valley Gas Company and Tennessee Gas Pipeline Company (Exhibit 10 to
the Corporation's Annual Report on Form 10-K for the year ended
August 31, 1981 is hereby incorporated by reference.)
50
<PAGE>
10(m) Storage Service Transportation contract dated May 15, 1981, between
Valley Gas Company and Tennessee Gas Pipeline Company (Exhibit 10 to
the Corporation's Annual Report on Form 10-K for the year ended
August 31, 1981 is hereby incorporated by reference.)
10(n) Storage Service Transportation contract dated May 26, 1981, between
Valley Gas Company and Tennessee Gas Pipeline Company (Exhibit 10 to
the Corporation's Annual Report on Form 10-K for the year ended
August 31, 1981 is hereby incorporated by reference.)
10(o) Storage Service Agreement dated February 18, 1980, between Valley Gas
Company and Consolidated Gas Supply Corporation (Exhibit 10 to the
Corporation's Annual Report on Form 10-K for the year ended August 31,
1981 is hereby incorporated by reference.)
10(p) Precedent Agreement for Firm Services on Maritimes and Northeast
Pipeline Project Phase II dated September 21, 1996, between Valley Gas
Company and Maritimes and Northeast Pipeline L.L.C.
10(q) Gas Sales Agreement dated June 15, 1992 between Aquila Energy Marketing
Corporation and Valley Gas Company (Exhibit 10 to the Corporation's
Annual Report on Form 10-K for the year ended August 31, 1992 is
incorporated herein by reference.)
10(r) Gas Sales Agreement dated June 8, 1992 between Natural Gas Clearinghouse
and Valley Gas Company (Exhibit 10 to the Corporation's Annual Report
on Form 10-K for the year ended August 31, 1992 is incorporated herein
by reference).
11 Statement re-computation of per share earnings (incorporated by
reference to the Annual Report on Form 10-K for the year ended
August 31, 1996 and the Quarterly Report on Form 10-Q referred to in
(13) below).
12 Statement re-computation in support of earnings to fixed charges.
13 Quarterly Report on Form 10-Q for the quarter ended February 28, 1997.
23(a) Consent of Grant Thornton LLP.
23(b) Consent of Edwards & Angell (included in Exhibit 5.)
24 Power of Attorney of certain officers and directors (See signature
pages).
25 Statement of Eligibility of Trustee (to be filed by amendment).
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 under the Securities Exchange Act of 1934; and, where
interim financial information required to be presented by Article 3 of
Regulation S-X are not set forth in the prospectus, to deliver, or cause to be
delivered to each person to whom the prospectus is sent or given, the latest
quarterly report that is specifically incorporated by reference in the
prospectus to provide such interim financial information.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the registration
51
<PAGE>
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b) (1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to file an application for the
purpose of determining the eligibility of the trustee to act under subsection
(a) of Section 310 of the Trust Indenture Act in accordance with the rules and
regulations prescribed by the Commission under Section 305(b) (2) of the Act.
52
<PAGE>
SIGNATURES
Pursuant to the requirement of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirement for filing on Form S-2 and had duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the town of Cumberland, State of Rhode Island, on the 26th of
June, 1997.
VALLEY RESOURCES, INC.
By: S/Alfred P. Degen
---------------------
Alfred P. Degen
President & Chief Executive Officer
53
<PAGE>
POWER OF ATTORNEY AND SIGNATURES
Each person whose signature appears below constitutes and appoints Alfred
P. Degen and Kenneth W. Hogan his/her true and lawful attorneys-in-fact and
agents, each acting alone, with full powers of substitution and re-substitution,
for him or her and in his or her name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to file the same with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, each acting alone,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in fact and agents, each acting alone, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on June 26, 1997.
Signature Title
--------- -----
S/Alfred P. Degen
- ------------------------
Alfred P. Degen President, Chief Executive Officer & Director
S/K. W. Hogan
- ------------------------
K. W. Hogan Vice President, Chief Financial Officer & Secretary
S/Ernest N. Agresti
- ------------------------
Ernest N. Agresti Director
S/Melvin G. Alperin
- ------------------------
Melvin G. Alperin Director
S/C. Hamilton Davison
- ------------------------
C. Hamilton Davison Director
S/Don A. DeAngelis
- ------------------------
Don A. DeAngelis Director
- ------------------------
James M. Dillon Director
S/Jonathan K. Farnum
- ------------------------
Jonathan K. Farnum Director
S/John F. Guthrie
- ------------------------
John F. Guthrie Director
S/Eleanor M. McMahon
- ------------------------
Eleanor M. McMahon Director
54
Exhibit 4(a)
VALLEY RESOURCES, INC.
and
MELLON BANK, N.A.
Trustee
INDENTURE
Dated as of September 1, 1997
____________________________________________________
$7,000,000
____% Debentures
Due September 1, 2027
<PAGE>
CROSS-REFERENCE TABLE
TIA Indenture
Section Section
310 (a) (1) 8.10
(a) (2) 8.10
(a) (3) 8.12
(a) (4) N.A.
(a) (5) 8.10
(b) 8.08; 8.10; 11.02
(c) N.A.
311 (a) 8.11
(b) 8.11
(c) N.A.
312 (a) 2.05
(b) 11.03
(c) 11.03
313 (a) 8.06
(b) (1) N.A.
(b) (2) 8.06
(c) 8.06; 11.02
(d) 8.06
314 (a) 5.02; 5.08; 11.02
(b) N.A.
(c) (1) 11.04
(c) (2) 11.04
(c) (3) N.A.
(d) N.A.
(e) 11.05
(f) N.A.
315 (a) 8.01(b)
(b) 8.05; 11.02
(c) 8.01(a)
(d) 8.01(c)
(e) 7.11
316 (a) (last sentence) 2.09
(a) (1) (A) 7.05
(a) (1) (B) 7.04
(a) (2) N.A.
(b) 7.07
(c) 7.14
I.
<PAGE>
317 (a) (1) 7.08
(a) (2) 7.09
(b) 2.04
318 (a) 11.01
N.A. means Not Applicable.
NOTE: This Cross-Reference Table shall not, for any
purpose, be deemed to be a part of the Indenture.
II.
<PAGE>
TABLE OF CONTENTS
Article Section Heading Page
1 DEFINITIONS AND INCORPORATION
BY REFERENCE......................... 1
1.01 Definitions.......................... 1
1.02 Other Definitions.................... 5
1.03 Incorporation by Reference of
Trust Indenture Act................ 5
1.04 Rules of Construction................ 5
2 THE DEBENTURES....................... 7
2.01 Form and Dating...................... 7
2.02 Execution and Authentication......... 7
2.03 Registrar and Paying Agent........... 8
2.04 Paying Agent to Hold Money in
Trust.............................. 8
2.05 Debentureholder Lists................ 8
2.06 Transfer and Exchange................ 9
2.07 Replacement Debentures............... 9
2.08 Outstanding Debentures............... 10
2.09 Treasury Debentures.................. 10
2.10 Temporary Debentures................. 10
2.11 Cancellation......................... 11
2.12 Defaulted Interest................... 11
2.13 Persons Deemed Owners................ 11
3 REDEMPTION OF DEBENTURES AT
CORPORATION'S OPTION................. 12
3.01 Redemption Right at
Corporation's Option............... 12
3.02 Notices to Trustee................... 12
3.03 Selection of Debentures to be
Redeemed........................... 12
3.04 Notice of Redemption................. 12
3.05 Effect of Notice of Redemption....... 13
3.06 Deposit of Redemption Price.......... 13
3.07 Debentures Redeemed in Part.......... 13
4 REDEMPTION OF DEBENTURES AT
DEBENTUREHOLDER'S OPTION............. 14
4.01 Redemption Right at Debenture-
holder's Option.................... 14
III.
<PAGE>
5 COVENANTS............................ 14
5.01 Payment of Debentures................ 14
5.02 Reporting............................ 14
5.03 Corporate Existence.................. 15
5.04 Payment of Taxes and Other
Claims............................. 15
5.05 Limitation on Certain Funded
Indebtedness....................... 15
5.06 Limitations on Dividends and
Other Payments on Stock............. 15
5.07 Limitation on Secured Indebtedness.... 16
5.08 Compliance Certificate................ 17
5.09 Default Certificate................... 18
6 SUCCESSORS............................ 18
6.01 When Corporation May Merge, etc....... 18
7 DEFAULTS AND REMEDIES................. 18
7.01 Events of Default..................... 18
7.02 Acceleration.......................... 20
7.03 Other Remedies........................ 21
7.04 Waiver of Past Defaults............... 21
7.05 Control by Majority................... 21
7.06 Limitation on Suits................... 22
7.07 Rights of Holders to Receive
Payment............................. 22
7.08 Collection Suit by Trustee............ 23
7.09 Trustee May File Proofs of
Claim............................... 23
7.10 Priorities............................ 23
7.11 Undertaking for Costs................. 24
7.12 Waiver of Stay or Extension
Laws................................ 24
7.13 Restoration of Rights and
Remedies............................ 24
7.14 Record Date for Vote of
Debentureholders.................... 24
8 TRUSTEE............................... 25
8.01 Duties of Trustee..................... 25
8.02 Rights of Trustee..................... 26
8.03 Individual Rights of Trustee.......... 26
8.04 Trustee's Disclaimer.................. 26
8.05 Notice of Defaults.................... 27
8.06 Reports by Trustee to Holders......... 27
IV.
<PAGE>
8.07 Compensation and Indemnity............ 27
8.08 Replacement of Trustee................ 28
8.09 Successor Trustee by Merger, etc...... 29
8.10 Eligibility; Disqualification......... 29
8.11 Preferential Collection of
Claims Against Corporation.......... 29
8.12 Appointment of Co-Trustee............. 29
9 DISCHARGE OF INDENTURE................ 31
9.01 Termination of Corporation's
Obligations......................... 31
9.02 Application of Trust Money............ 32
9.03 Repayment to Corporation.............. 32
10 AMENDMENTS, SUPPLEMENTS AND
WAIVERS............................. 32
10.01 Without Consent of Holders............ 32
10.02 With Consent of Holders............... 33
10.03 Compliance with Trust Indenture
Act................................. 33
10.04 Revocation and Effect of
Consents............................ 33
10.05 Notation on or Exchange of
Debentures.......................... 34
10.06 Trustee Protected..................... 34
11 MISCELLANEOUS......................... 34
11.01 Trust Indenture Act Controls.......... 34
11.02 Notices............................... 34
11.03 Communication by Holders with
Other Holders....................... 35
11.04 Certificate and Opinion as to
Conditions Precedent................ 35
11.05 Statements Required in Certifi-
cate or Opinion..................... 35
11.06 Rules by Trustee and Agent............ 36
11.07 Legal Holidays........................ 36
11.08 No Recourse Against Others............ 36
11.09 Duplicate Originals................... 36
11.10 Governing Law......................... 37
11.11 Table of Contents, Headings, etc...... 37
SIGNATURES................................................................ 37
EXHIBIT A -- FORM OF GLOBAL SECURITY...................................... A-38
EXHIBIT B -- FORM OF DEBENTURE............................................ B-48
V.
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INDENTURE dated as of September 1, 1997, between VALLEY RESOURCES, INC., a
Rhode Island corporation ("Corporation"), and Mellon Bank, N.A., a
corporation organized and existing under the laws in the State of _____________
("Trustee").
Each party agrees as follows for the benefit of the other party and for the
equal and ratable benefit of the Holders of the Corporation's ____% Debentures
Due September 1, 2027 ("Debentures"):
ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.01. Definitions.
"Affiliate" means any person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Corporation.
"Agent" means any Registrar, Paying Agent or coregistrar or agent for
service of notices and demands. See Section 2.03.
"Board of Directors" means the Board of Directors of the Corporation or any
authorized committee of the Board.
"Board Resolution" means a copy of a resolution certified by the Corporate
Secretary of the Corporation to have been duly adopted by the Board of Directors
and to be in full force and effect.
"Capital Stock" means any and all shares, interests, participations or
other equivalents (however designated) of corporate stock.
"Common Stock" means the common stock, $1.00 par value per share, of the
Corporation as the same exists at the date of this Indenture or as such stock
shall be constituted from time to time.
"Consolidated", when used in connection with any accounting terms, means
the Corporation and its Subsidiaries, the financial statements of which are
consolidated in accordance with generally accepted accounting principles.
"Consolidated Funded Indebtedness" means the outstanding Funded
Indebtedness of the Corporation and its Consolidated Subsidiaries (excluding in
all cases Funded Indebtedness owing to the Corporation or Consolidated
Subsidiaries); provided, however, that if the Corporation owns, directly or
indirectly, less than all of the voting stock of a Consolidated Subsidiary, only
that portion of the Funded Indebtedness of such Consolidated Subsidiary equal to
the proportion of its outstanding voting stock owned by the Corporation shall be
included in determining Consolidated Funded Indebtedness.
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"Consolidated Net Utility Fixed Assets" means the aggregate value of
Utility Fixed Assets of the Corporation and its Consolidated Subsidiaries less
accumulated depreciation, determined on a consolidated basis in accordance with
generally accepted accounting principles applied in a manner consistent with the
most recent audited financial statements included in reports delivered to the
Trustee pursuant to Section 5.02; provided, however, that if the Corporation
owns, directly or indirectly, less than all of the outstanding voting stock of a
Consolidated Subsidiary, only that portion of the Utility Fixed Assets of such
Consolidated Subsidiary equal to the proportion of its outstanding voting stock
owned by the Corporation shall be included in determining Consolidated Net
Utility Fixed Assets.
"Consolidated Tangible Net Worth" means an amount equal to the
stockholders' ownership of the Corporation and its Consolidated Subsidiaries
(including capital stock, capital in excess of par value and retained earnings,
but eliminating any unpaid amounts due for sale of stock) less intangible assets
other than amounts recoverable from future rate payers in accordance with Rhode
Island Public Utilities Commission rate treatment, all determined on a
consolidated basis in accordance with generally accepted accounting principles
applied in a manner consistent with the most recent audited financial statements
included in reports delivered to the Trustee pursuant to Section 5.02.
"Corporate Trust Office" means the office of the Trustee located in
__________, at which at any time its corporate trust business shall be
principally administered, which office at the date of execution of this
Indenture is located at _______________.
"Corporation" means the party named as such above until a successor
replaces it pursuant to the applicable provisions of the Indenture and
thereafter means the successor.
"Current Indebtedness" of a Person means, as of the date of determination
thereof, all Indebtedness maturing on demand or not more than one year after the
date as of which such determination is made (excluding any Indebtedness
renewable or extendible at the option of the debtor, absolutely or
conditionally, for a period or periods ending more than one year after the date
of such determination, whether or not theretofore extended or renewed), fixed
sinking fund payments (except to the extent that funds for the payment thereof
shall have been deposited with a trustee for the application thereof) and other
prepayments required to be made with respect to any Indebtedness not more than
one year after such date, and all other items (including taxes accrued as
estimated) which in accordance with generally
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accepted accounting principles would be included as current indebtedness.
"Debenture" means the Debentures described above issued under this
Indenture.
"Default" means any event which is, or after notice or passage of time
would be, an Event of Default.
"Depository" means The Depository Trust Company in the City of New York and
any successor to such Person.
"Exchange Act" means the Securities Exchange Act of 1934, as from time to
time amended.
"Funded Indebtedness" means all Indebtedness other than Current
Indebtedness.
"Global Security" means a security evidencing all of the Debentures issued
to the Depository or its nominee and registered in the name of the Depository or
its nominee.
"Holder" or "Debentureholder" means a person in whose name a Debenture is
registered; provided, however, that for purposes of Sections 7.06 and 7.07
hereof, such terms shall also include the Beneficial Owner (as defined in the
Debentures) of any Debenture.
"Indebtedness" of a Person means (i) all items of indebtedness or liability
which in accordance with generally accepted accounting principles would be
included in determining total liabilities as shown on the liability side of a
balance sheet as at the date as of which indebtedness is to be determined, (ii)
indebtedness upon which the Person whose indebtedness is being determined
customarily pays interest charges and indebtedness secured by any mortgage,
pledge or lien existing on property owned by such Person, whether or not the
indebtedness secured thereby shall have been assumed but, if (a) any such
indebtedness shall not have been assumed or guaranteed by such Person, (b) such
Person customarily does not pay any interest thereon, and (c) such mortgage,
pledge or lien was created by others upon lands over which such Person has an
easement or right of way, such indebtedness shall not be deemed to be
Indebtedness of such Person except to the extent of the larger of the fair value
or cost to such Person of such property (including any improvements thereon)
covered by such mortgage, pledge or lien, and (iii) guaranties, endorsements
(other than for purposes of collection in the ordinary course of business) and
other contingent obligations in respect of, or to purchase or otherwise acquire,
indebtedness of others.
"Indenture" means this Indenture as amended from time to time.
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"Interest Payment Date" means March 1 and September 1 of each year
commencing March 1, 1998 through and including September 1, 2027.
"Lien" means any lien, mortgage, pledge, security interest, charge or other
encumbrance of any kind.
"Officer" means the principal executive officer, principal financial
officer, principal accounting officer, treasurer or President of the
Corporation.
"Officers' Certificate" means a certificate signed by two Officers of the
Corporation. See Sections 11.04 and 11.05.
"Opinion of Counsel" means a written opinion from legal counsel who may be
an employee of or counsel to the Corporation or the Trustee and who is
acceptable to the Trustee. See Sections 11.04 and 11.05.
"Person" means any individual, corporation, partnership, joint venture,
association, jointstock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Principal" of the Debenture means the principal of the Debenture plus the
premium, if any, on the Debenture.
"Qualified Institution" means a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
or a commercial bank or trust company located in the United States.
"Record Date" means April 15 and August 15.
"Redemption Date" when used with respect to any Debenture to be redeemed
means the date fixed for such redemption pursuant to this Indenture.
"Redemption Price" when used with respect to any Debenture to be redeemed
means the price at which it is to be redeemed pursuant to this Indenture and the
Debenture.
"SEC" means the Securities and Exchange Commission.
"Special Record Date" means the date set by the Corporation for
determination of Debentureholders of record for purposes of paying any defaulted
interest.
"Subsidiary" means a corporation at least the majority of whose voting
stock is owned by the Corporation or a Subsidiary.
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"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa77bbbb)
as in effect on the date shown above except as provided in Section 10.03.
"Trustee" means the party named as such above until a successor replaces it
pursuant to the applicable provisions of the Indenture and thereafter means the
successor.
"Trust Officer" means the Chairman of the Board, the President or any other
officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
"United States" means the United States of America.
"U.S. Government Obligations" means securities that are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (ii) obligations of a person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in either case, are
not callable or redeemable at the option of the issuer thereof.
"Utility Fixed Assets" means all physical property owned by the Corporation
and any Consolidated Subsidiaries and used or useful to the Corporation in the
business of furnishing or distributing gas service, the cost of which is charged
and properly chargeable to plant or plant addition account on the books of the
Corporation or such Consolidated Subsidiary in accordance with sound accounting
practices and generally accepted accounting principles. Utility Fixed Assets
need not consist of a specific or complete accession, addition or improvement or
complete new property, but may include construction work in progress or any work
such as is carried in fixed property accounts in accordance with sound
accounting practices and generally accepted accounting principles, whether
capable of complete description and identification or not.
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Section 1.02. Other Definitions.
Term Defined in Section
"Bankruptcy Law" 7.01
"Custodian" 7.01
"Event of Default" 7.01
"Legal Holiday" 11.07
"Paying Agent" 2.03
"Registrar" 2.03
Section 1.03. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Debentures.
"indenture securityholder" means a Debentureholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Corporation.
All other terms used in this Indenture that are defined by the TIA, defined
by TIA reference to another statute or defined by SEC rule under the TIA have
the meanings assigned to them.
Section 1.04. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting
principles;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural
include the singular;
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(5) provisions apply to successive events and transactions; and
(6) "Section" shall refer to a Section of this Indenture.
ARTICLE 2 THE DEBENTURES
Section 2.01. Form and Dating.
The form of the Debentures to be originally issued as a Global Security
shall be substantially in the form of Exhibit A, which is part of this
Indenture. The form of the Debentures to be issued in exchange for a Global
Security shall be substantially in the form of Exhibit B, which is part of this
Indenture. The terms of such Exhibits A and B are hereby incorporated herein by
reference. The Debentures may have notations, legends or endorsements required
by law, stock exchange rule or usage. Each Debenture shall be dated the date of
its authentication.
Section 2.02. Execution and Authentication.
Two Officers shall sign the Debentures for the Corporation by manual or
facsimile signature. The Corporation's seal shall be reproduced on the
Debentures.
If an Officer whose signature is on a Debenture no longer holds that Office
at the time the Debenture is authenticated, the Debenture shall nevertheless be
valid.
A Debenture shall not be valid until authenticated by the manual signature
of the Trustee. The signature shall be conclusive evidence that the Debenture
has been authenticated under this Indenture.
The Trustee shall authenticate Debentures for original issue up to the
aggregate principal amount of $7,000,000 upon a written order of the Corporation
signed by two Officers. The aggregate principal amount of Debentures outstanding
at any time may not exceed that amount except as provided in Section 2.07.
The Trustee may appoint an authenticating agent acceptable to the
Corporation to authenticate Debentures. An authenticating agent may authenticate
Debentures whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with the
Corporation or an Affiliate.
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Section 2.03. Registrar and Paying Agent.
The Corporation shall maintain an office or agency where Debentures may be
presented for registration or transfer or for exchange ("Registrar"), an office
or agency where Debentures may be presented for payment ("Paying Agent") and an
office or agency where notices and demands to or upon the Corporation in respect
of the Debentures and this Indenture may be served. The Registrar shall keep a
register of the Debentures and of their transfer and exchange. The Corporation
may appoint one or more coregistrars and one or more additional paying agents.
The Corporation or any Subsidiary may act as Registrar or Paying Agent. The term
"Paying Agent" includes any additional paying agent.
The Corporation shall notify the Trustee in writing of the name and address
of any Agent not a party to this Indenture. If the Corporation fails to maintain
a Registrar, Paying Agent or agent for service of notices and demands or fails
to give the foregoing notice, the Trustee shall act as such.
The Corporation initially appoints __________ as Registrar, Paying Agent
and agent for service of notices and demands.
Section 2.04. Paying Agent to Hold Money in Trust.
The Corporation shall require each Paying Agent other than the Trustee to
agree in writing that the Paying Agent will hold in trust for the benefit of
Debentureholders or the Trustee all money held by the Paying Agent for the
payment of Principal or interest on the Debentures, and will notify the Trustee
of any Default by the Corporation in making any such payment. While any such
Default continues, the Trustee may require a Paying Agent to pay all money held
by it to the Trustee. The Corporation at any time may require a Paying Agent to
pay all money held by it to the Trustee. Upon payment over to the Trustee, the
Paying Agent shall have no further liability for the money. If the Corporation
(or any Subsidiary) acts as Paying Agent, it shall segregate and hold as a
separate trust fund all money held by it as Paying Agent.
Section 2.05. Debentureholder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Debentureholders. If the Trustee is not the Registrar, the Corporation shall
furnish to the Trustee on or before each Interest Payment Date and at such other
times as the Trustee may request in writing a list of the names and addresses of
Debentureholders in such form and as of such date as the Trustee may reasonably
require.
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Section 2.06. Transfer and Exchange.
When Debentures are presented to the Registrar or a coregistrar with a
request to register the transfer or to exchange them for an equal principal
amount of Debentures of other denominations, the Registrar shall register the
transfer or make the exchange, provided that every Debenture presented or
surrendered for registration of transfer or exchange shall be duly endorsed or
be accompanied by a written instrument of transfer in form satisfactory to the
Registrar duly executed by the Holder thereof or by his attorney duly authorized
in writing. To permit registrations of transfer and exchanges, the Trustee shall
authenticate Debentures at the Registrar's written request (which written
request may be waived by the Trustee so long as the Trustee and Registrar are
one and the same). No service charge shall be made for any registration of
transfer or exchange of Debentures to the Debentureholders, but the Corporation
may require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto, other than exchanges pursuant to
Section 2.10 or 3.07.
A Global Security shall be exchangeable pursuant to this Section for
Debentures registered in the names of Persons other than the Depository or its
nominee only as provided in this paragraph. A Global Security shall be
exchangeable pursuant to this Section if (i) such Depository notifies the
Corporation that it is unwilling or unable to continue as Depository for such
Debentures or at any time ceases to be a clearing agency registered as such
under the Exchange Act, (ii) the Corporation executes and delivers to the
Trustee an Officers' Certificate providing that such Global Security shall be so
exchangeable, or (iii) there shall have occurred and be continuing an Event of
Default. Debentures so issued in exchange for a Global Security shall be of like
tenor, in authorized denominations of $1,000 or integral multiples thereof and
in the aggregate having the same principal amount as the Global Security to be
exchanged, and shall be registered in such names as the Depository shall direct.
Notwithstanding any other provision of this Section, a Global Security may
not be transferred except as a whole by the Depository to a nominee of such
Depository or by a nominee of such Depository to such Depository or another
nominee of such Depository.
Section 2.07. Replacement Debentures.
If the Holder of a Debenture claims that the Debenture has been lost,
destroyed or wrongfully taken, the Corporation shall issue and the Trustee shall
authenticate a replacement Debenture if the Trustee's requirements are met. If
required by the Trustee or the Corporation, an indemnity bond must be obtained
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and be sufficient in the judgment of both to protect the Corporation, the
Trustee, any Agent or any authenticating agent from any loss which any of them
may suffer if a Debenture is replaced. The Corporation and the Trustee may
charge for their expenses in replacing a Debenture.
Every replacement Debenture is an additional obligation of the Corporation.
Section 2.08. Outstanding Debentures.
The Debentures outstanding at any time are all the Debentures authenticated
by the Trustee except for those cancelled by it, those delivered to it for
cancellation, and those described in this Section as not outstanding.
If a Debenture is replaced pursuant to Section 2.07, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Debenture is held by a bona fide purchaser.
If Debentures are considered paid under Section 5.01, they cease to be
outstanding and interest on them ceases to accrue.
Except with the limitations set forth in Section 2.09, a Debenture does not
cease to be outstanding because the Corporation or an Affiliate holds the
Debenture.
Section 2.09. Treasury Debentures.
In determining whether the Holders of the required principal amount of
Debentures have concurred in any direction, waiver or consent, Debentures owned
by the Corporation or an Affiliate shall be disregarded, except for purposes of
determining whether the Trustee shall be protected in relying on any such
direction, waiver or consent. Only Debentures which the Trustee knows are so
owned shall be disregarded.
Section 2.10. Temporary Debentures.
Until definitive Debentures are ready for delivery, the Corporation may
prepare and the Trustee shall authenticate temporary Debentures. Temporary
Debentures shall be substantially in the form of definitive Debentures but may
have variations that the Corporation considers appropriate for temporary
Debentures. Without unreasonable delay, the Corporation shall cause to be issued
and the Trustee shall authenticate definitive Debentures in exchange for
temporary Debentures.
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Section 2.11. Cancellation.
The Corporation at any time may deliver Debentures to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Debentures surrendered to them for registration of transfer, exchange or
payment. The Trustee shall cancel all Debentures surrendered for registration of
transfer, exchange or payment and shall dispose of cancelled Debentures as the
Corporation directs. The Corporation may not issue new Debentures to replace
Debentures that it has paid for or delivered to the Trustee for cancellation.
Section 2.12. Defaulted Interest.
If the Corporation defaults in a payment of interest on the Debentures, it
shall pay the defaulted interest in any lawful manner. It may pay the defaulted
interest, plus any interest payable on the defaulted interest, to the Persons
who are Debentureholders on a subsequent Special Record Date. The Corporation
shall fix the Special Record Date and payment date in a manner satisfactory to
the Trustee. At least 15 days before the Special Record Date, the Corporation
shall mail to Debentureholders a notice that states the Special Record Date, the
payment date and the amount of interest to be paid.
Section 2.13. Persons Deemed Owners.
Prior to due presentment of a Debenture for registration of transfer, the
Corporation, the Trustee and any Agent of the Corporation or the Trustee may
treat the Person in whose name such Debenture is registered as the owner of such
Debenture for the purpose of receiving payment of Principal of and (subject to
Section 2.12) interest, if any, on such Debenture and for all other purposes
whatsoever, whether or not such Debenture be overdue, and neither the
Corporation, the Trustee nor any Agent of the Corporation or the Trustee shall
be affected by notice to the contrary. All such payments so made to any such
Person, or upon such Person's order, shall be valid, and, to the extent of the
sums so paid, effectual to satisfy and discharge the liability for moneys
payable upon any such Debenture.
Except to the extent provided in Sections 7.06 and 7.07 hereof, no holder
of any beneficial interest in any Global Security held on its behalf by a
Depository shall have any rights under this Indenture with respect to such
Global Security, and such Depository may be treated by the Corporation, the
Trustee, and any Agent of the Corporation or the Trustee as the owner of such
Global Security for all purposes whatsoever. Notwithstanding the foregoing,
nothing herein shall impair, as between a Depository and such holders of
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beneficial interests, the operation of customary practices governing the
exercise of the rights of the Depository as Holder of any Debenture.
ARTICLE 3 REDEMPTION OF DEBENTURES AT
CORPORATION'S OPTION
Section 3.01. Redemption Right at Corporation's Option.
The Corporation has the right to redeem the Debentures at its sole option,
in whole or in part, at any time and from time to time on or after September 1,
2002, at the Redemption Prices specified in paragraph 5 of the Debenture,
subject to the terms and conditions set forth in this Article 3. The election of
the Corporation to redeem any Debenture shall be evidenced by a Board
Resolution.
Section 3.02. Notices to Trustee.
If the Corporation wishes to redeem Debentures pursuant to paragraph 5 of
the Debenture, it shall notify the Trustee in writing of the Redemption Date and
the principal amount of Debentures to be redeemed. The Corporation shall give
the notice provided for in this Section not less than 60 days prior to the
Redemption Date or such shorter time as may be satisfactory to the Trustee.
Section 3.03. Selection of Debentures to be Redeemed.
If less than all the Debentures are to be redeemed, the Trustee shall
select the Debentures to be redeemed by lot. The Trustee shall, not less than 45
days before the Redemption Date or such shorter time as may be mutually
satisfactory to the Trustee and the Corporation, inform the Corporation in
writing of those specific Debentures selected for redemption. The Trustee may
select for redemption portions of the principal of Debentures that have
denominations larger than $1,000. Debentures and portions of Debentures that the
Trustee selects shall be in amounts of $1,000 or integral multiples of $1,000.
Provisions of this Indenture that apply to Debentures called for redemption also
apply to portions of Debentures called for redemption.
Section 3.04. Notice of Redemption.
At least 30 days before a Redemption Date, the Corporation shall mail
notice of redemption to each Holder whose Debentures are to be redeemed. A copy
of each such notice shall be mailed to the Trustee.
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The notice shall state:
(1) the Redemption Date;
(2) the Redemption Price;
(3) the name and address of the Paying Agent;
(4) that Debentures called for redemption must be surrendered to
the Paying Agent to collect the Redemption Price;
(5) that interest on Debentures called for redemption ceases to
accrue on and after the Redemption Date (unless the Corporation
shall default in the payment of the Redemption Price); and
(6) if less than all of the Debentures outstanding are to be
redeemed, the identification (and, in the case of partial
redemption, the respective principal amounts) of the
Debentures to be redeemed.
At the Corporation's written request, the Trustee shall give notice of
redemption in the Corporation's name and at the expense of the Corporation.
Section 3.05. Effect of Notice of Redemption.
Once notice of redemption is mailed as provided in Section 3.04, Debentures
called for redemption become due and payable on the Redemption Date at the
Redemption Price, subject, however to the provisions of Section 3.08.
Section 3.06. Deposit of Redemption Price.
On or before the Redemption Date, the Corporation shall deposit with the
Paying Agent cash sufficient to pay the Redemption Price and accrued interest on
all Debentures to be redeemed.
Section 3.07. Debentures Redeemed in Part.
Upon surrender of a Debenture that is redeemed in part, the Trustee shall
authenticate for the Holder a new Debenture equal in principal amount to the
unredeemed portion of the Debenture surrendered.
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ARTICLE 4 REDEMPTION OF DEBENTURES AT
DEBENTUREHOLDER'S OPTION
Section 4.01. Redemption Right at Debentureholder's Option.
Representatives of deceased Debentureholders and, in the case of a Global
Security, representatives of deceased beneficial owners of such Global Security,
have certain optional redemption rights all as set forth in the forms of
Debenture attached hereto as Exhibits A and B.
ARTICLE 5 COVENANTS
Section 5.01. Payment of Debentures.
The Corporation shall pay the Principal of and interest on the Debentures
on the dates and in the manner provided in the Debentures. Principal and
interest shall be considered paid on the date due if the Trustee or any Paying
Agent holds on that date money sufficient to pay all Principal and interest then
due, provided that if Debentures are to be redeemed, notice of such redemption
has been duly given pursuant to this Indenture or provision therefor
satisfactory to the Trustee has been made.
The Corporation shall pay interest on overdue principal at the rate borne
by the Debentures; it shall pay interest on overdue installments of interest at
the same rate to the extent lawful.
Section 5.02. Reporting.
The Corporation shall file with the Trustee within 15 days after it files
them with the SEC copies of the annual reports and of the information,
documents, and other reports (or copies of such portions of any of the foregoing
as the SEC may by rules and regulations prescribe) which the Corporation is
required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange
Act. The Corporation also shall comply with the other provisions of TIA Section
314(a).
Section 5.03. Corporate Existence.
Subject to Article 6, the Corporation will do or cause to be done all
things necessary to preserve and keep in full force and effect its corporate
existence and the rights (articles and statutory) of the Corporation; provided,
however, that the Corporation shall not be required to preserve any such right
if the Board of Directors shall determine that the preservation thereof is no
longer desirable in the conduct of the business of the Corporation taken as a
whole and that the loss thereof is
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not, and will not be, adverse in any material respect to the Holders.
Section 5.04. Payment of Taxes and Other Claims.
The Corporation will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (i) all material taxes, assessments and
governmental charges levied or imposed upon it or any Subsidiary or upon the
income, profits or property of the Corporation or any Subsidiary and (ii) all
material lawful claims for labor, materials and supplies which, if unpaid, might
by law become a lien upon the property of the Corporation or any of its
Subsidiaries; provided, however, that the Corporation shall not be required to
pay or discharge or cause to be paid or discharged any such tax, assessment,
charge or claim whose amount, applicability or validity is being contested in
good faith by appropriate proceedings.
Section 5.05. Limitation on Certain Funded Indebtedness.
Neither the Corporation nor a Subsidiary will create, issue, incur,
guarantee or assume any Funded Indebtedness which ranks prior to or on a parity
with the Debentures in right of payment unless immediately thereafter, and after
giving effect thereto and to the application of the proceeds thereof,
Consolidated Net Utility Fixed Assets shall be at least equal to Consolidated
Funded Indebtedness.
Section 5.06. Limitations on Dividends and Other
Payments on Stock.
The Corporation will not declare or pay any dividends or make any
distributions upon any Common Stock of the Corporation (other than dividends and
distributions payable only in shares of Common Stock of the Corporation) and
will not directly or indirectly apply any of the assets of the Corporation to
the redemption, retirement, purchase or other acquisition of any stock of the
Corporation of any class, except purchases or redemptions in compliance with any
mandatory sinking fund or purchase fund or redemption requirement in respect of
any preferred stock of the Corporation, whether now or hereafter authorized or
issued, unless after giving effect to such declaration, payment, distribution or
application of assets the Consolidated Tangible Net Worth of the Corporation
shall be at least equal to $20,000,000 as reflected on the Corporation's latest
available balance sheet, which in no event shall be as of a date more than three
months prior to the date of declaration of a dividend or application of assets.
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Section 5.07. Limitation on Secured Indebtedness
Neither the Corporation nor a Subsidiary will issue, assume or guarantee
any Indebtedness secured by a Lien on any property or asset at any time owned by
it, without effectively securing, prior to or concurrently with the issuance,
assumption or guarantee of any such Indebtedness, the Debentures equally and
ratably with (or, at the Corporation's option, in a prior position to) such
Indebtedness. The foregoing described restriction does not apply to or prevent
the creation of:
(i) existing Liens on property or Indebtedness of a corporation which is
merged with or into or consolidated with the Corporation or a
Subsidiary provided that the Liens do not apply to any property
theretofore owned by the Corporation;
(ii) any Lien existing on the effective date of this Indenture, and, if the
Corporation purchases in fee real property and acquires or constructs
improvements thereon to be used by the Corporation as office space, a
Lien on such real property and improvements to secure Indebtedness
incurred for the purchase of such real property and improvements, so
long as such Lien is limited to such real property and improvements
and such Indebtedness does not exceed 75% of the purchase price
thereof;
(iii) Liens on moneys or U.S. Government Obligations deposited with the
Trustee pursuant to the provisions of the Indenture summarized under
Article 9 below;
(iv) Liens (which term for purposes of theis Subsection (iv) shall include
conditional sale agreements or other title retention agreements and
leases in the nature of title retention agreements) upon motor
vehicles or office equipment acquired by the Corporation or a
Subsidiary after the effective date of this Indenture, under credit
terms customarily extended to purchasers by the manufacturers or other
sellers, provided that no such Lien shall extend to or cover any
property of the Corporation or any Subsidiary, as the case may be,
other than the property then being acquired;
(v) Liens for the sole purpose of extending, renewing or replacing, in
whole or in part, Liens securing Indebtedness of the type referred to
in the foregoing Subsections (i) through (iv) above, provided,
however, that the principal amount of the Indebtedness so secured at
the time of such extension, renewal or replacement shall not be
increased and that such
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extension, renewal or replacement shall be limited to all or part of
the property or Indebtedness which secured the Lien so extended,
renewed or replaced (plus improvements on such property):
(vi) Liens for taxes or assessments or other governmental charges or levies
not yet due and payable;
(vii) Materialmen's, mechanics' workers', repairmen's or other like Liens
arising in the ordinary course of business so long as the obligations
giving rise to such Liens are satisfied in a timely manner;
(viii)Liens created by or existing from any litigation or legal proceeding
which is currently being contested in good faith by appropriate
proceedings, and as to which execution is effectively stayed; or
(ix) Liens to secure Indebtedness having an outstanding principal balance
aggregating not more than $_______________ exclusive of Indebtedness
described in the foregoing Subsections (i) through (viii) above.
The Corporation further covenants that it will not incur any such Lien
unless the instruments and collateral documents equally and ratably securing the
Debentures are approved by the Trustee, and in the opinion of independent
counsel selected by the Trustee, the transaction creating such Lien complies
with the requirements of this Section.
Section 5.08. Compliance Certificate.
The Corporation shall deliver to the Trustee within 120 days after the end
of each fiscal year of the Corporation an Officers' Certificate as to the
Corporation's compliance with all conditions and covenants under the Indenture,
and further stating whether or not the signers know of any Default that occurred
during the fiscal year. If the signers know of any such Default, the Officers'
Certificate shall describe the Default and its status, and the Corporation's
compliance shall be determined without regard to any grace period or notice
requirements under this Indenture. The certificate need not comply with Section
11.05.
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Section 5.09. Default Certificate.
The Corporation shall deliver to the Trustee, within seven (7) days of
obtaining knowledge of the existence of a Default hereunder, or within seven (7)
days of any event of default as described in Section 7.01(4) herein, a
certificate signed by one of its Officers, setting forth the nature of the
Default and the steps taken, if any, to cure such Default.
ARTICLE 6 SUCCESSORS
Section 6.01. When Corporation May Merge, etc.
The Corporation shall not consolidate with or merge into, or transfer or
lease all or substantially all of its assets to, any Person unless:
(1) the Person is a corporation organized and existing under the
laws of the United States, or any State thereof or the District of
Columbia;
(2) the Person assumes by supplemental indenture all the obligations
of the Corporation under the Debentures and this Indenture;
(3) immediately after the transaction no Default exists; and
(4) the Corporation has delivered to the Trustee an Officers'
Certificate and Opinion of Counsel each stating that the transaction
and supplemental indenture comply with this Article.
The surviving transferee or lessee corporation shall be the successor
Corporation and deemed to and be substituted for the Corporation under the
Indenture, and the predecessor Corporation in the case of a transfer or lease
shall be released from all obligations and covenants under the Indenture and the
Debentures.
ARTICLE 7 DEFAULTS AND REMEDIES
Section 7.01. Events of Default.
An "Event of Default" occurs if:
(1) the Corporation defaults in the payment of interest on any
Debenture when the same becomes due and payable and the Default
continues for a period of 30 days;
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(2) the Corporation defaults in the payment of the Principal of any
Debenture when the same becomes due and payable at maturity, upon
redemption or otherwise;
(3) the Corporation fails to comply with any of its other
agreements in the Debentures or this Indenture and the Default
continues for the period and after the notice specified below;
(4) an event of default as defined in any mortgage, indenture or
instrument under which there may be issued, or by which there may be
secured or evidenced, any Indebtedness for money borrowed for which
the Corporation or any Consolidated Subsidiary is responsible or
liable as obligor, guarantor or otherwise or obligations of the
Corporation or any Consolidated Subsidiary as a lessee under leases
required to be capitalized under generally accepted accounting
principles, in an aggregate principal amount of $500,000 or more,
whether such Indebtedness or obligation now exists or shall hereafter
be created, shall happen and shall result in such Indebtedness or
obligation becoming or being declared due and payable prior to the
date on which it would otherwise become due and payable, and such
acceleration shall not be rescinded or annulled, or such Indebtedness
or obligation shall not have been discharged, within a period of 10
days after written notice has been given to the Corporation by the
Trustee or to the Corporation and the Trustee by the Holders of at
least 25% in principal amount of the Debentures then outstanding,
specifying such event of default and requiring the Corporation to
cause such acceleration to be rescinded or annulled or to cause such
Indebtedness or obligation to be discharged and stating that such
notice is a "Notice of Default" hereunder;
(5) the Corporation pursuant to or within the meaning of any
Bankruptcy Law:
(A) commences a voluntary case,
(B) consents to the entry of an order for relief against it in an
involuntary case,
(C) consents to the appointment of a Custodian of it or for all or
substantially all of its property, or
(D) makes a general assignment for the benefit of its creditors; or
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(6) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law, and the order or decree remains unstayed
and in effect for 60 days, that:
(A) is for relief against the Corporation in an involuntary case,
(B) appoints a Custodian of the Corporation for all or substantially
all of its property, or
(C) orders the liquidation of the Corporation.
The term "Bankruptcy Law" means title 11, U.S. Code or any similar Federal
or State law for the relief of debtors. The term "Custodian" means any receiver,
trustee, assignee, liquidator or similar official under any Bankruptcy Law.
A Default under clause (3) is not an Event of Default until (i) the Trustee
or the Holders of at least 25% in principal amount of the Debentures then
outstanding notify the Corporation of the Default, or (ii) the Corporation
provides notice to the Trustee pursuant to the provisions of Section 5.09
hereof, and the Corporation does not cure the Default within 60 days after
receipt of such respective notice. The notice must specify the Default, demand
that it be remedied and state that the notice is a "Notice of Default." The
Trustee shall, if requested to do so by the Holders of 25% in principal amount
of the Debentures, notify the Corporation of the Default pursuant to this
Section.
Subject to the provisions of Sections 8.01 and 8.02, the Trustee shall not
be charged with knowledge of any Event of Default unless written notice thereof
shall have been given to a Trust Officer of the Trustee at the Corporate Trust
Office by the Corporation, the Paying Agent, the Holder of a Debenture or an
agent of such Holder or, in the case of an Event of Default under clause (4), by
the trustee acting under any mortgage, indenture or other instrument under which
the event of default shall have occurred or by the holder or the agent of any
holder of such Indebtedness.
Section 7.02. Acceleration.
If an Event of Default occurs and is continuing, the Trustee, by notice to
the Corporation, or the Holders of at least 25% in principal amount of the
Debentures then outstanding, by notice to the Corporation and the Trustee, may
declare the Principal of, and accrued interest on, all the Debentures to be due
and payable. Upon such declaration the Principal and interest shall be due and
payable immediately.
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The Holders of a majority in principal amount of the Debentures then
outstanding, by notice to the Trustee, may rescind an acceleration of all the
Debentures and its consequences if (i) all existing Events of Default have been
cured or waived except nonpayment of the Principal and interest that has become
due solely because of the acceleration and (ii) if the rescission would not
conflict with any judgment or decree of a court of competent jurisdiction. No
such rescission shall affect any subsequent default or impair any right
consequent thereon.
Section 7.03. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may pursue any
available remedy to collect the payment of principal or interest on the
Debentures or to enforce the performance of any provision of the Debentures or
this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of
the Debentures or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Debentureholder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in such Event of Default. All remedies
are cumulative to the extent permitted by law.
Section 7.04. Waiver of Past Defaults.
The Holders of a majority in principal amount of the Debentures, by notice
to the Trustee, on behalf of all Debentureholders, may waive a past Default and
its consequences, except a Default in the payment of the Principal of or
interest on any Debenture, an uncured failure to make any redemption payment or
an uncured Default with respect to a provision which cannot be modified under
the terms of this Indenture without the consent of each Holder affected.
Section 7.05. Control by Majority.
The Holders of a majority in principal amount of the Debentures then
outstanding may direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee or exercising any trust or power
conferred on it. However, the Trustee may refuse to follow any direction that
conflicts with law or this Indenture, is unduly prejudicial to the rights of
other Debentureholders, or would involve the Trustee in personal liability;
provided, that the Trustee may take any other action deemed proper by the
Trustee which is not
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inconsistent with such direction. However, the Trustee is under no duty or
obligation to exercise its discretion in determining whether such directions may
conflict with law or this Indenture, or are unduly prejudicial to the rights of
Debentureholders.
Section 7.06. Limitation on Suits.
A Debentureholder may pursue a remedy with respect to this Indenture or the
Debentures only if:
(1) the Holder gives to the Trustee written notice of a continuing Event
of Default;
(2) the Holders of at least 25% in principal amount of the Debentures then
outstanding make a written request to the Trustee to pursue the
remedy;
(3) such Holder or Holders offer to the Trustee indemnity satisfactory to
the Trustee against any loss, liability or expense;
(4) the Trustee does not comply with the request by Debentureholders
pursuant to Section 7.06(2) above, within 60 days after receipt of the
request and the offer of indemnity; and
(5) during such 60day period the Holders of a majority in principal amount
of the Debentures then outstanding do not give the Trustee a direction
inconsistent with the request.
A Debentureholder may not use this Indenture to prejudice the rights of
another Debentureholder or to obtain a preference or priority over another
Debentureholder.
Section 7.07. Rights of Holders to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Debenture to receive payment of Principal and interest on the
Debenture, on or after the respective due dates expressed in the Debenture, or
to bring suit for the enforcement of any such payment on or after such
respective dates, is absolute and unconditional and shall not be impaired or
affected without the consent of the Holder.
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Section 7.08. Collection Suit by Trustee.
If an Event of Default in payment of interest or Principal specified in
Section 7.01(1) or (2) occurs and is continuing, the Trustee may recover
judgment in its own name and as trustee of an express trust against the
Corporation for the whole amount of unpaid Principal and accrued interest
remaining unpaid.
Section 7.09. Trustee May File Proofs of Claim.
The Trustee may file such proofs of claim and other papers or documents as
may be necessary or advisable in order to have the claims of the Trustee
(including any claim for the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel) and the Debentureholders
allowed in any judicial proceedings relative to the Corporation upon the
Debentures, its creditors or its property, and shall be entitled and empowered
to collect and receive any monies or other property payable or deliverable on
any such claims and to distribute the same, and any Custodian in any such
judicial proceeding is hereby authorized by each Debentureholder to make such
payments to the Trustee, and in the event that the Trustee shall consent to the
making of such payments directly to the Debentureholders, to pay to the Trustee
any amount due to it for the reasonable compensation, expenses and disbursements
and advances of the Trustee, its agents and counsel, and any other amounts due
the Trustee under Section 8.07.
Section 7.10. Priorities.
If the Trustee collects any money pursuant to this Article, it shall pay
out the money in the following order:
First: to the Trustee for amounts due under Section 8.07;
Second: to Debentureholders for amounts due and unpaid on the
Debentures for Principal and interest, ratably, without preference or
priority of any kind, according to the amounts due and payable on the
Debentures for Principal and interest, respectively; and
Third: to the Corporation.
The Trustee may fix a record date and payment date for any payment to
Debentureholders pursuant to this Article.
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Section 7.11. Undertaking for Costs.
Subject to the provisions of Section 8.02 hereof, in any suit for the
enforcement of any right or remedy under this Indenture or in any suit against
the Trustee for any action taken or omitted by it as Trustee, a court in its
discretion may require the filing by any party litigant in the suit of an
undertaking to pay the costs of the suit, and the court in its discretion may
assess reasonable costs, including reasonable attorneys' fees, against any party
litigant in the suit, having due regard to the merits and good faith of the
claims or defenses made by the party litigant. This Section does not apply to a
suit by the Trustee, a suit by a Holder pursuant to Section 7.07 or a suit by
Holders of more than 10% in principal amount of the Debentures.
Section 7.12. Waiver of Stay or Extension Laws.
The Corporation covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay or extension law wherever enacted,
now or at any time hereafter in force, which may affect the covenants or the
performance of the Indenture; and the Corporation (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and execution of any power herein granted to the Trustee, but will suffer
and permit the execution of every such power as though no such law had been
enacted.
Section 7.13. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to enforce any
right or remedy under the Indenture and such proceeding has been discontinued or
abandoned for any reason, or has been determined adversely to the Trustee or to
such Holder, then and in every such case the Corporation, the Trustee and the
Holders shall, subject to any determination in such proceeding, be restored
severally and respectively to their former positions hereunder, and thereafter
all rights and remedies of the Trustee and the Holders shall continue as though
no such proceeding had been instituted.
Section 7.14. Record Date for Vote of Debentureholders.
The Corporation may set a record date for purposes of determining the
identity of Debentureholders entitled to vote or consent to any action by vote
or consent authorized or permitted by Sections 7.04 and 7.05 of this Indenture.
Such record date shall be the later of 30 days prior to the first solicitation
of such consent or the date of the most recent list of Holders
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furnished to the Trustee pursuant to Section 2.05 of this Indenture prior to
such solicitation.
ARTICLE 8 TRUSTEE
Section 8.01. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise
as a prudent man would exercise or use under the circumstances in the
conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(1) The Trustee need perform only those duties that are specifically
set forth in this Indenture and no others.
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates
or opinions furnished to the Trustee and conforming to the
requirements of this Indenture. However, the Trustee shall
examine the certificates and opinions to determine whether or not
they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own negligent
action, its own gross negligent failure to act or its own willful
misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b) of this
Section.
(2) The Trustee shall not be liable for any error of judgment made in
good faith by a Trust Officer, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts; and
(3) The Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 7.05.
(d) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b) and (c) of this
Section.
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(e) The Trustee may refuse to perform any duty or exercise any right
or power unless it receives indemnity satisfactory to it against
any loss, liability or expense.
(f) The Trustee shall not be liable for interest on any money
received by it except as otherwise agreed with the Corporation.
Money held in trust by the Trustee need not be segregated from
other funds except to the extent required by law.
Section 8.02. Rights of Trustee.
Except as otherwise provided in Section 8.01:
(a) The Trustee may rely on any document believed by it to be genuine
and to have been signed or presented by the proper person. The
Trustee need not investigate any fact or matter stated in the
document.
(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opinion of Counsel. The Trustee
shall not be liable for any action it takes or omits to take in
good faith in reliance on the Officers' Certificate or Opinion of
Counsel.
(c) The Trustee may act through agents and shall not be responsible
for the misconduct or negligence of any agent appointed with due
care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it believes to be authorized or
within its rights or powers.
Section 8.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the owner or
pledgee of Debentures and may otherwise deal with the Corporation or an
Affiliate with the same rights it would have if it were not Trustee. Any Agent
may do the same with like rights. However, the Trustee is subject to Sections
8.10 and 8.11.
Section 8.04. Trustee's Disclaimer.
The Trustee makes no representation as to the validity or adequacy of this
Indenture or the Debentures, it shall not be accountable for the Corporation's
use of the proceeds from the
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Debentures, and it shall not be responsible for any statement in the Debentures
other than its authentication.
Section 8.05. Notice of Defaults.
If a Default occurs and is continuing and if it is known to the Trustee,
the Trustee shall mail to Debentureholders, in the manner and to the extent
provided in TIA Section 313(c), a notice of the Default within 90 days after it
occurs. Except in the case of a Default in payment of the principal of or
interest on any Debenture, the Trustee may withhold the notice if and so long as
the Board of Directors, the Executive Committee or a committee of its Trust
Officers in good faith determines that withholding the notice is in the
interests of Debentureholders.
Section 8.06. Reports by Trustee to Holders.
On or before each ________ beginning with the ________ following the date
of this Indenture, the Trustee shall mail to each Debentureholder a brief
report, dated as of such reporting date, with respect to any of the events
listed in TIA Section 313(a) which may have occurred within the previous 12
months, but if no such event has occurred within such period no such report need
be mailed. The Trustee also shall comply with TIA Section 313(b)(2).
A copy of each report required in this Section shall be mailed to such
Debentureholders as required by TIA Section 313(c) and shall, at the time of its
mailing to such Debentureholders, be filed with the Corporation, the SEC and
each stock exchange on which the Debentures are listed. The Corporation shall
notify the Trustee when the Debentures are listed on any stock exchange. Section
8.07. Compensation and Indemnity.
The Corporation shall pay to the Trustee from time to time reasonable
compensation for its services. The Trustee's compensation shall not be limited
by any law on compensation of a trustee of an express trust. If an Event of
Default should occur, the Trustee shall be entitled to reasonable additional
compensation for all additional or extraordinary services rendered and expenses
(including counsel fees) incurred in connection with said Event of Default.
The Corporation shall indemnify the Trustee against any loss or liability
incurred by it. The Trustee shall notify the Corporation promptly of any claim
for which it may seek indemnity. The Corporation shall defend the claim and the
Trustee shall cooperate in the defense. The Trustee may have separate counsel,
and the Corporation shall pay the reasonable fees and expenses of such counsel.
The Corporation need not pay for any settlement made without its consent.
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The Corporation need not reimburse any expense or indemnify against any
loss or liability incurred by the Trustee through negligence or bad faith.
To secure the Corporation's payment obligations in this Section, the
Trustee shall have a lien prior to the Debentures on all money or property held
or collected by the Trustee.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 7.01(5) or (6) occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
Section 8.08. Replacement of Trustee.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section.
The Trustee may resign by so notifying the Corporation. The Holders of a
majority in principal amount of the Debentures may remove the Trustee by so
notifying the Trustee and the Corporation. The Corporation may remove the
Trustee if:
(1) the Trustee fails to comply with Section 8.10;
(2) the Trustee is adjudged a bankrupt or an insolvent;
(3) a receiver or public officer takes charge of the Trustee or its
property;
(4) the Trustee becomes incapable of acting; or
(5) the Trustee fails to comply with TIA Section 310(b) after an Event
of Default.
If the Trustee resigns or is removed or if a vacancy exists in the office
of Trustee for any reason, the Corporation shall promptly appoint a successor
Trustee. Within one year after the successor Trustee assumes office, the Holders
of a majority in principal amount of the Debentures may appoint a successor
Trustee to replace the successor Trustee appointed by the Corporation.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Corporation or
the Holders of at least 10% in principal amount of the Debentures then
outstanding may petition
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any court of competent jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 8.10, any Debentureholder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its appointment
to the retiring Trustee and to the Corporation. Thereupon the resignation or
removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture. The successor Trustee shall mail a notice of its succession to
Debentureholders. The retiring Trustee shall promptly transfer all property held
by it as Trustee to the successor Trustee, subject to the lien provided for in
Section 8.07.
Section 8.09. Successor Trustee by Merger, etc.
If the Trustee consolidates, merges or converts into, or transfers all or
substantially all of its corporate trust business to, another corporation, the
resulting, surviving or transferee corporation without any further act shall be
the successor Trustee.
Section 8.10. Eligibility; Disqualification.
This Indenture shall always have a Trustee who satisfies the requirements
of TIA Section 310(a)(1). The Trustee shall always have a combined capital and
surplus of at least $15,000,000 as set forth in its most recent published annual
report of condition. Neither the Corporation nor any Affiliate shall serve as
Trustee upon the Debentures or pursuant to this Indenture. The Trustee is
subject to TIA Section 310(b).
Section 8.11. Preferential Collection of Claims
Against Corporation.
The Trustee is subject to TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed is subject to TIA Section 311(a) to the extent indicated.
Section 8.12. Appointment of CoTrustee.
It is the purpose of this Indenture that there shall be no violation of any
law of any jurisdiction denying or restricting
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the right of banking corporations or associations to transact business as
trustee in such jurisdiction. It is recognized that in case of litigation under
this Indenture, and in particular in case of the enforcement of an Event of
Default, or in case the Trustee deems that by reason of any present or future
law of any jurisdiction it may not exercise any of the powers, rights or
remedies herein granted to the Trustee in trust, as herein granted, or take any
other action which may be desirable or necessary in connection therewith, it may
be necessary that an additional individual or institution be appointed as a
separate or CoTrustee.
At any time or times, for the purpose of meeting the legal requirements of
any jurisdiction, the Trustee and the Corporation may appoint an additional
individual or institution as a separate or CoTrustee, in which event each and
every remedy, power, right, claim, demand, cause of action, immunity, estate,
title, interest and lien expressed or intended by this Indenture, to be
exercised by or vested in or conveyed to the Trustee with respect thereto shall
be exercisable by and vest in such separate or CoTrustee but only to the extent
necessary to enable such separate or CoTrustee to exercise such powers, rights
and remedies, and every covenant and obligation necessary to the exercise
thereof by such separate or CoTrustee shall run to and be enforceable by either
of them. If the Corporation does not join in such appointment within 15 days
after receipt by it of a request so to do, or in case an Event of Default has
occurred and is continuing, the Trustee alone shall have power to make such
appointment.
Should any deed, conveyance or instrument in writing from the Corporation
be required by the separate or CoTrustee so appointed by the Trustee for more
fully and certainly vesting in and confirming to it such properties, rights,
powers, trusts, duties and obligations, including particularly the right to be
paid its fees for services rendered, any and all such deeds, conveyances and
instruments in writing shall, on request, be executed, acknowledged and
delivered by the Corporation. In case any separate or CoTrustee, or a successor
to either, shall die, become incapable of acting, resign or be removed, all the
estates, properties, rights, powers, trusts, duties and obligations of such
separate or CoTrustee, so far as permitted by law, shall vest in and be
exercised by the Trustee until the appointment of a new Trustee or successor to
such separate or CoTrustee.
The rights, powers, duties and obligations hereby conferred or imposed upon
the Trustee in respect of this Indenture shall be conferred or imposed upon and
exercised or performed by the Trustee or by the Trustee and such separate or
CoTrustee jointly, as shall be provided in the instrument appointing such
separate or CoTrustee, except to the extent that under any law of any
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jurisdiction in which any particular act is to be performed, the Trustee shall
be incompetent or unqualified to perform such act, in which event such rights,
powers, duties and obligations shall be exercised and performed by such separate
or CoTrustee.
ARTICLE 9 DISCHARGE OF INDENTURE
Section 9.01. Termination of Corporation's Obligations.
The Corporation may at any time terminate all of its obligations under this
Indenture if:
(1) the Corporation provides written notice to the Trustee of the
Corporation's intent to terminate its obligation under this Indenture;
(2) the Debentures mature within one year of the Corporation's written
notice of its intent to terminate or all of the Debentures are to be
called for redemption within one year of the Corporation's written
notice of its intent to terminate under arrangements satisfactory to
the Trustee for giving the notice of redemption; and
(3) the Corporation irrevocably deposits in trust with the Trustee money
or U.S. Government Obligations sufficient to pay Principal and
interest on the Debentures at maturity or on redemption, as the case
may be. The Corporation may make the deposit only during the oneyear
period referred to in paragraph (2) above.
However, the Corporation's obligations in Sections 2.03, 2.04, 2.05, 2.06,
2.07, 5.01, 8.07, 8.08 and 9.03 shall survive until the Debentures are no longer
outstanding. Thereafter, the Corporation's obligations in Sections 8.07 and 9.03
shall survive.
After a deposit the Trustee upon request shall acknowledge in writing the
discharge of the Corporation's obligations under this Indenture except for those
surviving obligations specified above.
In order to have money available on a payment date to pay Principal or
interest on the Debentures, the U.S. Government Obligations shall be payable as
to principal or interest on or before such payment date in such amounts as will
provide the necessary money. The U.S. Government Obligations shall not be
callable at the issuer's option.
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<PAGE>
Section 9.02. Application of Trust Money.
The Trustee shall hold in trust money or U.S. Government Obligations
deposited with it pursuant to Section 9.01. It shall apply the deposited money
and the money from the U.S. Government Obligations through the Paying Agent and
in accordance with this Indenture to the payment of Principal and interest on
the Debentures.
Section 9.03. Repayment to Corporation.
The Trustee and the Paying Agent shall promptly pay to the Corporation upon
request any excess money or securities held by the Trustee as a result of the
Corporation's making payments to the Trustee and Paying Agent in excess of that
required under the provisions of this Indenture. The obligation of the Trustee
and the Paying Agent to pay such excess money or securities to the Corporation
shall survive the payment and/or cancellation of all of the Debentures until all
such excess funds or securities have been so paid.
The Trustee and the Paying Agent shall pay to the Corporation annually as
of ________ of each year any money held by them for the payment of Principal or
interest that remains unclaimed for two years. After payment to the Corporation,
Debentureholders entitled to the money must look to the Corporation for payment
as general creditors unless an applicable abandoned property law designates
another person.
ARTICLE 10 AMENDMENTS, SUPPLEMENTS AND WAIVERS
Section 10.01. Without Consent of Holders.
The Corporation and the Trustee may amend or supplement this Indenture or
the Debentures without notice to or consent of any Debentureholder:
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to comply with Section 6.01;
(3) to provide for uncertificated Debentures in addition to or in place of
certificated Debentures; or
(4) to make any change that does not materially adversely affect the
rights of any Debentureholder.
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<PAGE>
Section 10.02. With Consent of Holders.
The Corporation and the Trustee may amend or supplement this Indenture or
the Debentures with the written consent of the Holders of at least a majority in
principal amount of the Debentures then outstanding. Without the consent of each
Debentureholder affected, however, an amendment under this Section may not:
(1) reduce the amount of Debentures whose Holders must consent to an
amendment or waiver;
(2) reduce the rate of or change the time for payment of interest on any
Debenture;
(3) reduce the Principal of or change the maturity of any Debenture;
(4) waive a Default in the payment of the Principal of or interest on any
Debenture;
(5) make any Debenture payable in money other than that stated in the
Debenture; or
(6) modify the provisions of Sections 7.04, 7.07 and 10.02 (second
sentence).
After an amendment or supplement under this Section becomes effective, the
Corporation shall mail to Debentureholders a notice briefly describing the
amendment.
Section 10.03. Compliance with Trust Indenture Act.
Every amendment to or supplement of this Indenture or the Debentures shall
be set forth in a supplemental indenture that complies with the TIA as then in
effect.
Section 10.04. Revocation and Effect of Consents.
Until an amendment, supplement or waiver becomes effective, a consent to it
by a Holder of a Debenture is a continuing consent by the Holder and every
subsequent Holder of a Debenture or portion of a Debenture that evidences the
same debt as the consenting Holder's Debenture, even if notation of the consent
is not made on any Debenture. However, any such Holder or subsequent Holder may
revoke the consent as to his Debenture or portion of a Debenture if the Trustee
receives the notice of revocation before the date the amendment, supplement or
waiver becomes effective.
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<PAGE>
Section 10.05. Notation on or Exchange of Debentures.
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Debenture thereafter authenticated. The Corporation
in exchange for all Debentures may issue and the Trustee shall authenticate new
Debentures that reflect the amendment, supplement or waiver.
Section 10.06. Trustee Protected.
The Trustee need not sign any supplemental indenture that adversely affects
its rights.
ARTICLE 11 MISCELLANEOUS
Section 11.01. Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies, or conflicts with the
duties imposed by operation of TIA Section 318(c), the imposed duties shall
control.
Section 11.02. Notices.
Any notice or communication by the Corporation or the Trustee to the other
is duly given if in writing and when delivered in person or mailed by firstclass
mail addressed as follows:
if to the Corporation:
VALLEY RESOURCES, INC.
1595 Mendon Road
Cumberland, RI 02864
Attention: Chief Financial Officer
if to the Trustee:
The Corporation or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication to a Debentureholder shall be mailed by
firstclass mail to his address shown on the register kept by the Registrar.
Failure to mail a notice or communication to a Debentureholder or any defect in
it shall not affect its sufficiency with respect to other Debentureholders.
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<PAGE>
If a notice or communication is mailed in the manner provided above within
the time prescribed, it is duly given, whether or not the addressee receives it.
If the Corporation mails a notice or communication to Debentureholders, it
shall mail a copy to the Trustee and each Agent at the same time.
All notices or communications shall be in writing, except as set forth
below.
In case by reason of the suspension of regular mail service, or by reason
of any other cause, it shall be impossible to mail any notice required by this
Indenture, then such method of notification as shall be made with the approval
of the Trustee shall constitute a sufficient mailing of such notice.
Section 11.03. Communication by Holders with Other Holders.
Debentureholders may communicate pursuant to TIA Section 312(b) with other
Debentureholders with respect to their rights under this Indenture or the
Debentures. The Corporation, the Trustee, the Registrar and anyone else shall
have the protection of TIA Section 312(c).
Section 11.04. Certificate and Opinion as to Conditions
Precedent.
Upon any request or application by the Corporation to the Trustee to take
any action under this Indenture, the Corporation shall furnish to the Trustee:
(1) an Officers' Certificate stating that, in the opinion of the signers,
all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with; and
(2) an Opinion of Counsel addressed to the Trustee and upon which the
Trustee may rely, stating that, in the opinion of such counsel, all
such conditions precedent have been complied with.
Section 11.05. Statements Required in Certificate or Opinion.
Each Officers' Certificate or Opinion of Counsel with respect to compliance
with a condition or covenant provided for in this Indenture shall include:
35
<PAGE>
(1) a statement that the persons making such Officers' Certificate or
Opinion of Counsel have read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
Officers' Certificate or Opinion of Counsel are based;
(3) a statement that, in the opinion of each such person, he has made such
examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition
has been complied with; and
(4) a statement as to whether or not, in the opinion of such persons, such
condition or covenant has been complied with.
Section 11.06. Rules by Trustee and Agent.
The Trustee may make reasonable rules for action by, or a meeting of,
Debentureholders. The Registrar or Paying Agent may make reasonable rules and
set reasonable requirements for its functions.
Section 11.07. Legal Holidays.
A "Legal Holiday" is a Saturday, a Sunday, or a day on which banking
institutions in _________, are not required to be open. If a payment date is a
Legal Holiday at a place of payment, payment may be made at that place on the
next succeeding day that is not a Legal Holiday, and no interest shall accrue
for the intervening period.
Section 11.08. No Recourse Against Others.
No liability under the Debentures shall inure to any director, officer,
employee or stockholder, as such, of the Corporation and each Debentureholder,
by accepting the Debenture, waives and releases all such liability.
Section 11.09. Duplicate Originals.
The parties may sign any number of copies of this Indenture. One signed
copy is enough to prove this Indenture.
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<PAGE>
Section 11.10. Governing Law.
The laws of the State of Rhode Island shall govern this Indenture and the
Debentures.
Section 11.11. Table of Contents, Headings, etc.
The table of contents, crossreference sheet and headings of the Articles
and Sections of this Indenture have been inserted for convenience of reference
only, are not to be considered a part hereof, and shall in no way modify or
restrict any of the terms or provisions hereof.
SIGNATURES
Dated: ______________, 1997 VALLEY RESOURCES, INC.
("Corporation")
(SEAL) By: _________________________
Its: President and Chief
Executive Officer
Attest: _________________________
Its: Corporate Secretary
Dated: ______________, 1997 _____________________________
("Trustee")
(SEAL) By: _________________________
Its: Trust Officer
Attest: _________________________
37
<PAGE>
FORM OF GLOBAL SECURITY
EXHIBIT A
THIS DEBENTURE IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR NOMINEE
OF A DEPOSITORY. THIS GLOBAL SECURITY IS EXCHANGEABLE FOR DEBENTURES REGISTERED
IN THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE ONLY IN LIMITED
CIRCUMSTANCES HEREINAFTER DESCRIBED AND MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE
BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE
DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY.
Unless this certificate is presented by an authorized representative of The
Depository Trust Company, a New York corporation ("DTC"), to Valley Resources,
Inc., a Rhode Island corporation, or its agent for registration of transfer,
exchange, or payment, and any certificate issued is registered in the name of
Cede & Co. or in such other name as is requested by an authorized representative
of DTC (and any payment is made to Cede & Co. or to such other entity as is
requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE, OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch
as the registered owner hereof, Cede & Co., has an interest herein.
VALLEY RESOURCES, INC.
_____% Debenture Due September 1, 2027
$7,000,000
No._______________________ CUSIP No. ______________
VALLEY RESOURCES, INC., a Rhode Island corporation, for value received,
hereby promises to pay to CEDE & CO., or registered assigns, the principal sum
of SEVEN MILLION DOLLARS on _______, 2027, and to pay interest on said principal
sum at the rate of ____% per annum calculated on the basis of a 360day year of
twelve 30day months.
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<PAGE>
1. Interest.
VALLEY RESOURCES, INC. ("Corporation"), a Rhode Island corporation,
promises to pay interest on the principal amount of this Debenture at the rate
per annum shown above. The Corporation will pay interest semi-annually on March
1 and September 1 of each year (each such date being an "Interest Payment
Date"), commencing March 1, 1998. Interest on the Debentures will accrue from
the most recent date to which interest has been paid, or, if no interest has
been paid previously, from the date of original issuance of this Debenture;
provided that, if there is no existing default in the payment of interest, and
if this Debenture is authenticated between a "Record Date" (as hereinafter
defined) and the next succeeding Interest Payment Date, interest shall accrue
from the next Interest Payment Date. The term "Record Date" as used herein shall
mean the April 15 or August 15, as the case may be, immediately preceding each
Interest Payment Date.
2. Method of Payment.
The Corporation will pay interest on the Debentures (except defaulted
interest) to the Paying Agent who will then pay such interest to the Persons who
are registered Holders of Debentures at the close of business on the Record Date
next preceding the Interest Payment Date. The Corporation shall pay appropriate
amounts to the Paying Agent in immediately available funds at least one (1)
business day preceding the Interest Payment Date. The Paying Agent will pay
interest to such Holders on the next Interest Payment Date even though
Debentures are canceled after the Record Date but on or before the Interest
Payment Date. Holders must surrender Debentures to the Paying Agent to collect
Principal payments; except that, with respect to a Global Security, the
Depository need not surrender the Global Security to collect payments of
Principal other than the final payment of Principal of such Global Security,
provided that the Depository makes appropriate endorsement on such Global
Security of such prepayments on the Table of Prepayments. The Paying Agent will
pay Principal and interest in money of the United States that at the time of
payment is legal tender for payment of public and private debts. However, except
as set forth in the last sentence of this paragraph: (i) the Paying Agent may
pay Principal and interest by check payable in such money; and (ii) the Paying
Agent may mail an interest check to a Holder's registered address. Any Holder of
at least $1,000,000 aggregate principal amount of Debentures shall have the
right to receive payment of Principal of and interest on the Debentures by wire
transfer of funds, provided that such Debentureholder requests such form of
payment, accompanied by appropriate wire transfer instructions, by written
notice to the Trustee and the Paying Agent given not later than the Record Date
immediately preceding such payment.
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<PAGE>
3. Paying Agent and Registrar.
Initially, _________, [address], will act as Paying Agent and Registrar.
The Corporation may change any Paying Agent, Registrar or CoRegistrar without
notice. The Corporation or any of its Subsidiaries may act in any such capacity.
4. Indenture.
The Corporation issued the Debentures under an Indenture dated as of
September 1, 1997 ("Indenture"), between the Corporation and the Trustee. The
terms of the Debentures include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C.
Sections 77aaa77bbbb) (the "Act") as in effect on the date of the Indenture. The
Debentures are subject to all such terms, and Debentureholders are referred to
the Indenture and the Act for a statement of such terms. Capitalized terms used
but not otherwise defined herein shall have the same meanings such terms are
given in the Indenture. The Debentures are unsecured general obligations of the
Corporation limited to $7,000,000 in aggregate principal amount.
5. Redemption at Corporation's Option.
The Corporation may, at its option, at any time on or after September 1,
2002, redeem all the Debentures or some of them from time to time at the
following Redemption Prices (expressed in percentages of principal amount of the
Debentures) plus unpaid accrued interest to the Redemption Date.
<TABLE>
<CAPTION>
If redeemed during the 12month period beginning September 1:
Year Percentage
<S> <C>
2002 104%
2003 103
2004 102
2005 101
2006 until maturity 100
</TABLE>
Notice of redemption at the Corporation's option will be mailed at least 30
days before the Redemption Date to each Holder of Debentures to be redeemed at
his registered address as set forth in the register. Debentures in denominations
larger than $1,000 may be redeemed in part but only in integral multiples of
$1,000. On and after the Redemption Date (if there is no default in the payment
of the Redemption Price by the Corporation), interest ceases to accrue on
Debentures or portions thereof called for redemption.
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<PAGE>
6. Redemption at Beneficial Owner's Option.
For purposes hereof, a "Beneficial Owner" means the Person who has the
right to sell, transfer or otherwise dispose of an interest in this Debenture
and the right to receive the proceeds therefrom, as well as the interest and
Principal payable to the Holder hereof. In general, a determination of
beneficial ownership in this Debenture will be subject to the rules, regulations
and procedures governing the Depository and institutions that have accounts with
the Depository or a nominee thereof ("Participants"). Participants may hold
interests in this Debenture as Beneficial Owners for their own accounts, or as
nominees for other persons.
Unless the Debentures have been declared due and payable prior to their
maturity by reason of an Event of Default, the Representative (as hereinafter
defined) of a deceased Beneficial Owner has the right to request redemption of
all or part of his interest, expressed in integral multiples of $1,000 principal
amount, in this Debenture for payment prior to its maturity, and the Corporation
will redeem the same subject to the limitations that the Corporation will not be
obligated to redeem, during the period from the original issuance of the
Debentures through and including September 1, 1998 (the "Initial Period"), and
during any twelvemonth period which ends on and includes each September 1
thereafter (each such twelve-month period being hereinafter referred to as a
"Subsequent Period"), (i) on behalf of a deceased Beneficial Owner any interest
in this Debenture which exceeds an aggregate principal amount of $25,000 or (ii)
interests in this Debenture in an aggregate principal amount exceeding $210,000.
In the case of interests in this Debenture owned by a deceased Beneficial Owner,
a request for redemption may be presented to the Trustee at any time and in any
principal amount. If the Corporation, although not obligated to do so, chooses
to redeem interests of any deceased Beneficial Owner in this Debenture in the
Initial Period or any Subsequent Period in excess of the $25,000 limitation,
such redemption, to the extent that it exceeds the $25,000 limitation for any
deceased Beneficial Owner, shall not be included in the computation of the
$210,000 limitation for such Initial Period or such Subsequent Period, as the
case may be, or for any succeeding Subsequent Period.
Subject to the $25,000 and $210,000 limitations, the Corporation will, upon
the death of any Beneficial Owner, redeem the interest of such Beneficial Owner
in this Debenture within 60 days following receipt by the Trustee of a
Redemption Request (as herein defined) from such Beneficial Owner's personal
representative, or surviving joint tenant(s), tenant(s) by the entirety or
tenant(s) in common, or other Persons entitled hereunder to effect such a
Redemption Request (each, a "Representative"). If Redemption Requests exceed the
aggregate principal amount of interests in Debentures required to be
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<PAGE>
redeemed during the Initial Period or during any Subsequent Period, then such
excess Redemption Requests will be applied to successive Subsequent Periods,
regardless of the number of Subsequent Periods required to redeem such
interests.
A request for redemption of an interest in this Debenture may be made by
delivering a request to the Depository, in the case of a Participant which is
the Beneficial Owner of such interest, or to the Participant through whom the
Beneficial Owner owns such interest, in form satisfactory to the Participant,
together with evidence of the death of the Beneficial Owner and evidence of the
authority of the Representative satisfactory to the Participant and Trustee. A
Representative of a deceased Beneficial Owner may make the request for
redemption and shall submit such other evidence of the right to such redemption
as the Participant or Trustee shall require. The request shall specify the
principal amount of the interest in this Debenture to be redeemed. A request for
redemption in the form satisfactory to the Participant and accompanied by the
documents relevant to the request as above provided, together with a
certification by the Participant that it holds the interest on behalf of the
deceased Beneficial Owner with respect to whom the request for redemption is
being made (a "Redemption Request"), shall be provided to the Depository by a
Participant and the Depository will forward the request to the Trustee.
Redemption Requests shall be in form satisfactory to the Trustee.
The price to be paid by the Corporation for interests in the Debentures to
be redeemed pursuant to a Redemption Request from a deceased Beneficial Owner's
Representative is 100% of the principal amount thereof plus accrued but unpaid
interest to the date of payment. Subject to arrangements with the Depository,
payment for interests in the Debentures which are to be redeemed shall be made
to the Depository upon presentation of Debentures to the Trustee for redemption
in the aggregate principal amount specified in the Redemption Requests submitted
to the Trustee by the Depository which are to be fulfilled in connection with
such payment. Any acquisition of Debentures by the Corporation or its
Subsidiaries other than by redemption at the option of any Representative of a
deceased Beneficial Owner pursuant to this paragraph 6 shall not be included in
the computation of either the $25,000 or the $210,000 limitation for the Initial
Period or for any Subsequent Period.
For purposes of this paragraph 6, an interest in a Debenture held in
tenancy by the entirety, joint tenancy or by tenants in common will be deemed to
be held by a single Beneficial Owner and the death of a tenant by the entirety,
joint tenant or tenant in common will be deemed the death of a Beneficial Owner.
The death of a person, who, during his lifetime, was entitled to substantially
all of the rights of a Beneficial Owner of an interest in this Debenture will be
deemed the death of the Beneficial Owner, regardless of the recordation of such
interest on the records of the Participant, if such rights can be
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<PAGE>
established to the satisfaction of the Participant and the Trustee. Such
interests shall be deemed to exist in typical cases of street name or nominee
ownership, ownership under the Uniform Gifts to Minors Act or the Uniform
Transfers to Minors Act, community property or other joint ownership
arrangements between a husband and wife (including individual retirement
accounts or Keogh [H.R. 10] plans maintained solely by or for the decedent or by
or for the decedent and his spouse), and trust and certain other arrangements
where one Person has substantially all of the rights of a Beneficial Owner
during his lifetime. Beneficial interests shall include the power to sell,
transfer or otherwise dispose of an interest in this Debenture and the right to
receive the proceeds therefrom, as well as interest and Principal payable with
respect thereto.
In the case of any Redemption Request which is presented pursuant to this
paragraph 6 and which has not been fulfilled at the time the Corporation gives
notice of its election to redeem Debentures pursuant to paragraph 5, such
interest or portion thereof shall not be subject to redemption pursuant to
paragraph 5 but shall remain subject to redemption pursuant to this
paragraph 6.
Subject to the provisions of the immediately preceding sentence, any
Redemption Request may be withdrawn by the Person(s) presenting the same upon
delivery of a written request for such withdrawal given by the Depository to the
Trustee prior to the issuance of a check in payment of such Redemption Request.
7. Denominations, Transfer, Exchange.
The Debentures are in registered form without coupons in denominations of
$1,000 and integral multiples thereof. The transfer of Debentures shall be
registered and Debentures may be exchanged as provided in the Indenture. The
Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Indenture. The Registrar need not exchange or register
the transfer of any Debenture or portion of a Debenture selected for redemption.
Also, it need not exchange or register the transfer of any Debentures during
that period of time subsequent to any Record Date and prior to the next
succeeding Interest Payment Date.
8. Persons Deemed Owners.
The registered Holder of a Debenture may be treated as its owner for all
purposes.
9. Amendments, Supplements and Waivers.
Subject to certain exceptions, the Indenture or the Debentures may be
amended or supplemented, and any existing
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<PAGE>
Default may be waived, with the consent of Holders of a majority in principal
amount of the Debentures then outstanding. Without the consent of any
Debentureholder, the Indenture or the Debentures may be amended or supplemented,
among other reasons, to cure any ambiguity, defect or inconsistency, to provide
for assumption of Corporation obligations to Debentureholders or to make any
change that does not materially adversely affect the rights of any
Debentureholder.
10. Defaults and Remedies.
An Event of Default is: default for 30 days in payment of interest on the
Debentures; default in payment of Principal of the Debentures; failure by the
Corporation for 60 days after notice to it to comply with any of its other
agreements in the Indenture or the Debentures; default in the payment of
Indebtedness having an outstanding principal balance of $500,000 or more under
certain circumstances; and certain events of bankruptcy or insolvency. If an
Event of Default occurs and is continuing, the Trustee or the Holders of at
least 25% in principal amount of the Debentures may declare all the Debentures
to be due and payable immediately. Debentureholders may not enforce the
Indenture or the Debentures except as provided in the Indenture. The Trustee may
require indemnity satisfactory to it before it enforces the Indenture or the
Debentures. Subject to certain limitations, Holders of a majority in principal
amount of the Debentures may direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from Debentureholders notice of any continuing
Default (except a default in payment of principal or interest) if it determines
that withholding notice is in their interests. The Corporation must furnish an
annual Officers' Certificate to the Trustee.
The Trustee shall not be charged with knowledge of any Event of Default as
defined in the Indenture, unless written notice thereof shall have been given to
a Trust Officer of the Trustee at the Corporate Trust Office by the Corporation,
the Paying Agent, the Holder of a Debenture or an agent of such Holder.
11. Trustee Dealings with Corporation.
_____________, the Trustee under the Indenture, in its individual or any
other capacity, may make loans to, accept deposits from, and perform services
for the Corporation or its Affiliates, and may otherwise deal with the
Corporation or its Affiliates, as if it were not Trustee, subject to any
limitations imposed by the Act.
12. No Recourse Against Others.
A director, officer, employee or stockholder, as such, of the Corporation
shall not have any liability for any obligations of the Corporation under the
Debentures or the Indenture or for any claim based on, in respect of or by
reason of such
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<PAGE>
obligations or their creation. Each Debentureholder by accepting a Debenture
waives and releases all such liability. The waiver and release are part of the
consideration for the issue of the Debentures.
13. Authentication.
This Debenture shall not be valid until authenticated by the manual
signature of the Trustee or an authenticating agent.
14. Abbreviations.
Customary abbreviations may be used in the name of a Debentureholder or an
assignee, such as TEN COM ( = tenants in common), TEN ENT ( = tenants by the
entireties), JT TEN ( = joint tenants with right of survivorship and not as
tenants in common), CUST ( = Custodian), and U/G/M/A ( = Uniform Gifts to Minors
Act).
Dated:
Authenticated:
_______________, VALLEY RESOURCES, INC.
as Trustee
By:___________________________ By:___________________________
Its: Authorized Signer Its: President
By:___________________________
Its: Corporate Secretary
(SEAL)
_________________________
The Corporation will furnish to any Debentureholder upon written request and
without charge a copy of the Indenture, which has in it the text of this
Debenture in larger type. Requests may be made to: Chief Financial Officer,
Valley Resources, Inc., 1595 Mendon Road, Cumberland, RI 02864.
_________________________
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<PAGE>
TABLE OF PREPAYMENTS
Upon all partial payments of principal of the within Debenture, this
Debenture shall be surrendered to the Trustee for issuance of a new Debenture
unless the registered Holder hereof shall make appropriate endorsements on the
table below indicating the amount of principal so prepaid, prior to any transfer
to this Debenture. Any purchaser or transferee of this Debenture shall verify
with the Trustee the principal balance outstanding prior to the purchase or
transfer hereof.
Principal Remaining Unpaid
Date Amount Paid Principal Balance Signature
- --------------------------------------------------------------------------------
A-46
<PAGE>
ASSIGNMENT FORM
I/We assign and transfer this Debenture to
[__________________]
(Insert assignee's social
security or tax I.D. number)
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
(Print or type name, address and zip code of assignee)
and irrevocably appoint _________________________________________
________________________________________ agent to transfer this
Debenture on the books of the Corporation. The agent may
substitute another to act for him.
Date: _____________________ Signature: _________________________
(Sign exactly as your
name appears on this
Debenture)
Signature Guarantee
_________________________
349\023\5522\059.EXH
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<PAGE>
FORM OF DEBENTURE
EXHIBIT B
(Face of Debenture)
VALLEY RESOURCES, INC.
_____% Debenture Due 2027
No. ______________________ $_________________________
VALLEY RESOURCES, INC., a Rhode Island corporation, for value received,
hereby promises to pay to ________________________, or registered assigns, the
principal sum of_______________________ DOLLARS on September 1, 2027, and to pay
interest on said principal sum at the rate of _____% per annum calculated on the
basis of a 360 day year of twelve 30day months.
Interest Payment Dates: March 1 and September 1
Record Dates: April 15 and August 15
Dated:
Authenticated:
_____________, VALLEY RESOURCES, INC.
as Trustee
By:__________________________ By:___________________________
Its: Authorized Signer Its: President
By:___________________________
Its: Corporate Secretary
(SEAL)
B-48
<PAGE>
(Back of Debenture)
VALLEY RESOURCES, INC.
_____% Debenture Due September 1, 2027
1. Interest.
VALLEY RESOURCES, INC. ("Corporation"), a Rhode Island corporation,
promises to pay interest on the principal amount of this Debenture at the rate
per annum shown above. The Corporation will pay interest semi-annually on March
1 and September 1 of each year (each such date being an "Interest Payment
Date"), commencing March 1, 1998. Interest on the Debentures will accrue from
the most recent date to which interest has been paid, or, if no interest has
been paid previously, from the date of original issuance of this Debenture;
provided that, if there is no existing default in the payment of interest, and
if this Debenture is authenticated between a Record Date referred to on the face
hereof and the next succeeding Interest Payment Date, interest shall accrue from
the next Interest Payment Date.
2. Method of Payment.
The Corporation will pay interest on the Debentures (except defaulted
interest) to the Paying Agent who will then pay such interest to the Persons who
are registered Holders of Debentures at the close of business on the Record Date
next preceding the Interest Payment Date. The Corporation shall pay appropriate
amounts to the Paying Agent in immediately available funds at least one (1)
business day preceding the Interest Payment Date. The Paying Agent will pay
interest to such Holders on the next Interest Payment Date even though
Debentures are canceled after the Record Date but on or before the Interest
Payment Date. Holders must surrender Debentures to the Paying Agent to collect
Principal payments. The Paying Agent will pay Principal and interest in money of
the United States that at the time of payment is legal tender for payment of
public and private debts. However, except as set forth in the last sentence of
this paragraph: (i) the Paying Agent may pay Principal and interest by check
payable in such money; and (ii) the Paying Agent may mail an interest check to a
Holder's registered address. Any Holder of at least $1,000,000 aggregate
principal amount of Debentures shall have the right to receive payment of
Principal of and interest on the Debentures by wire transfer of funds, provided
that such Debentureholder requests such form of payment, accompanied by
appropriate wire transfer instructions, by written notice to the Trustee and the
Paying Agent given not later than the Record Date immediately preceding such
payment.
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3. Paying Agent and Registrar.
Initially, ___________, [address], will act as Paying Agent and Registrar.
The Corporation may change any Paying Agent, Registrar or CoRegistrar without
notice. The Corporation or any of its Subsidiaries may act in any such capacity.
4. Indenture.
The Corporation issued the Debentures under an Indenture dated as of
September 1, 1997 ("Indenture"), between the Corporation and the Trustee. The
terms of the Debentures include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C.
Sections 77aaa77bbbb) (the "Act") as in effect on the date of the Indenture. The
Debentures are subject to all such terms, and Debentureholders are referred to
the Indenture and the Act for a statement of such terms. Capitalized terms used
but not otherwise defined herein shall have the same meanings such terms are
given in the Indenture. The Debentures are unsecured general obligations of the
Corporation limited to $7,000,000 in aggregate principal amount.
5. Redemption at Corporation's Option.
The Corporation may, at its option, at any time on or after September 1,
2002, redeem all the Debentures or some of them from time to time at the
following Redemption Prices (expressed in percentages of principal amount of the
Debentures) plus unpaid accrued interest to the Redemption Date.
<TABLE>
If redeemed during the 12month period beginning September 1:
<CAPTION>
Year Percentage
<S> <C>
2002 104%
2003 103
2004 102
2005 101
2006 until maturity 100
</TABLE>
Notice of redemption at the Corporation's option will be mailed at least 30
days before the Redemption Date to each Holder of Debentures to be redeemed at
his registered address as set forth in the register. Debentures in denominations
larger than $1,000 may be redeemed in part but only in integral multiples of
$1,000. On and after the Redemption Date (if there is no default in the payment
of the Redemption Price by the Corporation), interest ceases to accrue on
Debentures or portions thereof called for redemption.
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6. Redemption at Holder's Option.
Unless the Debentures have been declared due and payable prior to their
maturity by reason of an Event of Default, the Representative (as hereinafter
defined) of a deceased Debentureholder has the right to present Debentures for
payment prior to their maturity, and the Corporation will redeem the same
subject to the limitations that the Corporation will not be obligated to redeem,
during the period from the original issuance of the Debentures through and
including September 1, 1998 (the "Initial Period"), and during any twelvemonth
period which ends on and includes each September 1 thereafter (each such
twelve-month period being hereinafter referred to as a "Subsequent Period"), (i)
Debentures presented on behalf of a deceased Debentureholder exceeding an
aggregate principal amount of $25,000 or (ii) Debentures in an aggregate
principal amount exceeding $210,000. In the case of Debentures owned by a
deceased Holder, Debentures may be presented to the Trustee for redemption at
any time and in any principal amount. If the Corporation, although not obligated
to do so, chooses to redeem Debentures of any deceased Debentureholder in any
such period in excess of the $25,000 limitation, such redemption, to the extent
that it exceeds the $25,000 limitation for any deceased Debentureholder, shall
not be included in the computation of the $210,000 limitation for such Initial
Period or such Subsequent Period, as the case may be, or for any succeeding
Subsequent Period.
Subject to the $25,000 and $210,000 limitations, the Corporation will, upon
the death of any Debentureholder, redeem Debentures within 60 days following
receipt by the Trustee of a request therefor from such Debentureholder's
personal representative, or surviving joint tenant(s), tenant(s) by the entirety
or tenant(s) in common, or other Persons entitled hereunder to request such
redemption (each, a "Representative"). If Debentures presented for redemption
exceed the aggregate principal amount of Debentures required to be redeemed
during the Initial Period or during any Subsequent Period, then such excess
Debentures presented for redemption will be applied to successive Subsequent
Periods, regardless of the number of Subsequent Periods required to redeem such
Debentures.
Debentures may be presented for redemption by delivering to the Trustee:
(i) a written request for redemption, in form satisfactory to the Trustee,
signed by the Representative of the deceased Debentureholder, (ii) the
Debenture(s) to be redeemed and (iii) appropriate evidence of death of the
Debentureholder and appropriate evidence of the authority of the Representative
of the deceased Debentureholder. No particular forms of request for redemption
or authority to request redemption are necessary. The price to be paid by the
Corporation for all Debentures presented to it pursuant to the provisions
described in this paragraph 6 is 100% of the principal amount thereof plus
accrued
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but unpaid interest to the date of payment. Any acquisition of Debentures by the
Corporation or its Subsidiaries other than by redemption at the option of any
Representative of a deceased Debentureholder pursuant to this paragraph 6 shall
not be included in the computation of either the $25,000 or the $210,000
limitation for the Initial Period or for any Subsequent Period.
For purposes of this paragraph 6, a Debenture held in tenancy by the
entirety, joint tenancy or by tenants in common will be deemed to be held by a
single Debentureholder and the death of a tenant by the entirety, joint tenant
or tenant in common will be deemed the death of a Debentureholder. The death of
a person, who, during his lifetime, was entitled to substantially all of the
beneficial interests of ownership of a Debenture will be deemed the death of the
Debentureholder, regardless of the registered Debentureholder, if such
beneficial interest can be established to the satisfaction of the Trustee. Such
beneficial interest shall be deemed to exist in typical cases of street name or
nominee ownership, ownership under the Uniform Gifts to Minors Act or the
Uniform Transfers to Minors Act, community property or other joint ownership
arrangements between a husband and wife (including individual retirement
accounts or Keogh [H.R. 10] plans maintained solely by or for the decedent or by
or for the decedent and his spouse), and trust and certain other arrangements
where one person has substantially all of the beneficial ownership interests in
the Debenture during his lifetime. Beneficial interests shall include the power
to sell, transfer or otherwise dispose of a Debenture and the right to receive
the proceeds therefrom, as well as interest and Principal payable with respect
thereto.
In the case of Debentures held by Qualified Institutions on behalf of
beneficial owners, the $25,000 limitation shall apply to each such beneficial
owner and the death of such beneficial owner shall entitle a Qualified
Institution to seek redemption of such Debentures as if the deceased beneficial
owner were the record Debentureholder. Such Qualified Institutions, in their
request for redemption on behalf of such beneficial owners, must submit
evidence, satisfactory to the Trustee, that they hold Debentures on behalf of
such beneficial owners and must certify that the aggregate requests for
redemption tendered by such Qualified Institution on behalf of each such
beneficial owner in the Initial Period or any Subsequent Period does not exceed
$25,000. In addition, any request for redemption made by a Qualified Institution
on behalf of a beneficial owner must be delivered to the Trustee by registered
mail, return receipt requested.
In the case of any Debenture which is presented for redemption in part
only, upon such redemption the Corporation shall execute and the Trustee shall
authenticate and deliver to or on the order of the Holder of such Debenture,
without service charge to the Debentureholder, a new Debenture or Debentures, of
any authorized denomination or denominations as requested by such
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Holder, in aggregate principal amount equal to the unredeemed portion of the
principal of the Debenture so presented.
In the case of any Debenture or portion thereof which is presented for
redemption pursuant to this paragraph 6 and which has not been redeemed at the
time the Corporation gives notice of its election to redeem Debentures pursuant
to paragraph 5, such Debenture or portion thereof shall not be subject to
redemption pursuant to paragraph 5 but shall remain subject to redemption
pursuant to this paragraph 6.
Subject to the provisions of the immediately preceding sentence, any
Debentures presented for redemption at the option of the Representative of a
deceased Debentureholder may be withdrawn by the Person(s) presenting the same
upon delivery of a written request for such withdrawal given to the Trustee
prior to the issuance of a check in payment of such Debentures presented by
reason of the death of a Debentureholder.
7. Denominations, Transfer, Exchange.
The Debentures are in registered form without coupons in denominations of
$1,000 and integral multiples thereof. The transfer of Debentures shall be
registered and Debentures may be exchanged as provided in the Indenture. The
Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Indenture. The Registrar need not exchange or register
the transfer of any Debenture or portion of a Debenture selected for redemption.
Also, it need not exchange or register the transfer of any Debentures during
that period of time subsequent to any Record Date and prior to the next
succeeding Interest Payment Date.
8. Persons Deemed Owners.
The registered Holder of a Debenture may be treated as its owner for all
purposes.
9. Amendments, Supplements and Waivers.
Subject to certain exceptions, the Indenture or the Debentures may be
amended or supplemented, and any existing Default may be waived, with the
consent of Holders of a majority in principal amount of the Debentures then
outstanding. Without the consent of any Debentureholder, the Indenture or the
Debentures may be amended or supplemented, among other reasons, to cure any
ambiguity, defect or inconsistency, to provide for assumption of Corporation
obligations to Debentureholders or to make any change that does not materially
adversely affect the rights of any Debentureholder.
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10. Defaults and Remedies.
An Event of Default is: default for 30 days in payment of interest on the
Debentures; default in payment of Principal of the Debentures; failure by the
Corporation for 60 days after notice to it to comply with any of its other
agreements in the Indenture or the Debentures; default in the payment of
Indebtedness having an outstanding principal balance of $500,000 or more under
certain circumstances; and certain events of bankruptcy or insolvency. If an
Event of Default occurs and is continuing, the Trustee or the Holders of at
least 25% in principal amount of the Debentures may declare all the Debentures
to be due and payable immediately. Debentureholders may not enforce the
Indenture or the Debentures except as provided in the Indenture. The Trustee may
require indemnity satisfactory to it before it enforces the Indenture or the
Debentures. Subject to certain limitations, Holders of a majority in principal
amount of the Debentures may direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from Debentureholders notice of any continuing
Default (except a default in payment of principal or interest) if it determines
that withholding notice is in their interests. The Corporation must furnish an
annual Officers' Certificate to the Trustee.
The Trustee shall not be charged with knowledge of any Event of Default as
defined in the Indenture, unless written notice thereof shall have been given to
a Trust Officer of the Trustee at the Corporate Trust Office by the Corporation,
the Paying Agent, the Holder of a Debenture or an agent of such Holder.
11. Trustee Dealings with Corporation.
____________, the Trustee under the Indenture, in its individual or any
other capacity, may make loans to, accept deposits from, and perform services
for the Corporation or its Affiliates, and may otherwise deal with the
Corporation or its Affiliates, as if it were not Trustee, subject to any
limitations imposed by the Act.
12. No Recourse Against Others.
A director, officer, employee or stockholder, as such, of the Corporation
shall not have any liability for any obligations of the Corporation under the
Debentures or the Indenture or for any claim based on, in respect of or by
reason of such obligations or their creation. Each Debentureholder by accepting
a Debenture waives and releases all such liability. The waiver and release are
part of the consideration for the issue of the Debentures.
13. Authentication.
This Debenture shall not be valid until authenticated by the manual
signature of the Trustee or an authenticating agent.
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14. Abbreviations.
Customary abbreviations may be used in the name of a Debentureholder or an
assignee, such as TEN COM ( = tenants in common), TEN ENT ( = tenants by the
entireties), JT TEN ( = joint tenants with right of survivorship and not as
tenants in common), CUST ( = Custodian), and U/G/M/A ( = Uniform Gifts to Minors
Act).
__________________________
The Corporation will furnish to any Debentureholder upon written request
and without charge a copy of the Indenture, which has in it the text of this
Debenture in larger type. Requests may be made to: Chief Financial Officer,
Valley Resources, Inc., 1595 Mendon Road, Cumberland, Rhode Island 02864.
__________________________
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<PAGE>
ASSIGNMENT FORM
I/We assign and transfer this Debenture to
[__________________]
(Insert assignee's social
security or tax I.D. number)
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
(Print or type name, address and zip code of assignee)
and irrevocably appoint _________________________________________
________________________________________ agent to transfer this
Debenture on the books of the Corporation. The agent may substitute
another to act for him.
Date: ___________________ Signature: ______________________
(Sign exactly as your
name appears on the
other side of this
Debenture)
Signature Guarantee
_________________________
349\023\5522\060.EXH
B-56
Exhibit 5
June 26, 1997
Valley Resources, Inc.
1595 Mendon Road
Cumberland, RI 02864
Ladies and Gentlemen:
We are furnishing this opinion in connection with the filing by Valley
Resources, Inc. (the "Corporation") of a Registration Statement on Form S-2 (the
"Registration Statement") with the Securities and Exchange Commission (the
"Commission") relating to the issuance by the Corporation of up to 713,000
shares of the Corporation's Common Stock, $1.00 par value (the "Shares"), and
$7,000,000 aggregate principal amount of __% Debentures due 2027 (the
"Debentures").
In connection with this opinion, we have examined such corporate records,
certificates and other documents, and reviewed such questions of law, as we have
deemed necessary or appropriate in order to express the opinions contained
herein.
Based upon such examination, it is our opinion that:
1. The Shares, when issued and delivered in the manner and for the
consideration stated in the Prospectus constituting a part of the Registration
Statement (the "Prospectus"), will be legally issued, fully paid and
non-assessable.
2. The Debentures, when issued and delivered in the manner and for the
consideration stated in the Prospectus, will be legally issued and binding
obligations of the Corporation.
We consent to the use of this opinion as an Exhibit to the Registration
Statement and to the use of our name in the Registration Statement and
Prospectus.
Very truly yours,
EDWARDS & ANGELL
By:/s/ Christine M. Marx
---------------------
Partner
Exhibit 10(f)
January 2, 1997
Mr. Charles K. Meunier
Vice President Operations
Valley Resources, Inc.
1595 Mendon Road
Cumberland, RI 02864
Dear Mr. Meunier:
Valley Resources, Inc. (which, together with its subsidiaries, is
hereinafter called "the Company") considers it essential to the best interests
of its stockholders to foster the continuous employment of key management
personnel. In connection, the Board of Directors of the Company (the "Board")
recognizes that, as is the case with many publicly held corporations, the
possibility of a change in control may exist that such possibility, and the
uncertainty and questions which it may raise among management, may result in the
departure or distraction of management personnel to the detriment of the Company
and its stockholders.
The Board has determined that appropriate steps should be taken to
reinforce and encourage the continued attention and dedication of members of the
Company's management, including yourself, to their assigned duties without
distraction in the face of potentially disturbing circumstances arising from the
possibility of a change in control of the Company.
In order to induce you to remain in the employ of the Company and in
consideration of your agreeing to remain in the employ of the Company subject to
the terms and conditions set forth below, this letter agreement sets forth the
severance benefits which the Company agrees will
<PAGE>
be provided to you in the event your employment with the Company is terminated
subsequent to a "change in control of the Company" (as defined in Section 2
hereof) under the circumstances described below.
1. Term of Agreement. This Agreement shall commence on January 1, 1997 and
shall continue in effect through December 31, 1997; provided, however, that
commencing on January 1, 1998 and each January 1 thereafter, the term of this
Agreement shall automatically be extended for one (1) additional year unless,
not later than August 31 of the preceding year, the Company shall have given
notice that it does not wish to extend this Agreement; provided, further, that
notwithstanding any such notice by the Company not to extend, if a change in
control of the Company shall have occurred during the original or extended term
of this Agreement, this Agreement shall continue in effect for a period of
twenty-four (24) months from the occurrence of such change in control.
Notwithstanding the foregoing, the Company may terminate your employment at any
time, whether before or after a change in control, subject to providing such
benefits as shall be hereinafter specified.
2. Change in Control. (i) No benefits shall be payable hereunder unless
there shall have been a change in control of the Company, as set forth below and
your employment by the Company shall thereafter have been terminated in
accordance with Section 3 below. For purposes of this Agreement, a "change in
control of the Company" shall mean a change in control of a nature that would be
required to be reported in response to Item 5(f) of Schedule 14A of Regulation
14A promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), whether or not the Company is then subject to such reporting
requirement; provided that, without limitation, such a change in control shall
be deemed to have occurred if (a)
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any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange
Act), other than a trustee or other fiduciary holding securities under an
employee benefit plan of the Company, is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 20% or more of the combined voting power
of the Company's then outstanding securities; (b) during any period of two (2)
consecutive years (not including any period prior to the execution of this
Agreement), individuals who at the beginning of such period constitute the Board
and any new director whose election by the Board or nomination for election by
the Company's stockholders was approved by a vote of at least two thirds (2/3)
of the directors then still in office who either were directors at the beginning
of the period or whose election or nomination for election was previously so
approved, cease for any reason to constitute a majority thereof; or (c) the
business or businesses of the Company for which your services are principally
performed are disposed of by the Company pursuant to a partial or complete
liquidation of the Company, a sale of assets (including stock of a subsidiary)
of the Company, or otherwise.
(ii) For purposes of this Agreement, a "potential change in control of the
Company" shall be deemed to have occurred if (A) the Company enters into an
agreement, the consummation of which would result in the occurrence of a change
in control of the Company, (B) any person publicly announces (including an
announcement by the Company) an intention to take actions which if consummated
would constitute a change in control of the Company; (C) any person publicly
announces (including an announcement by the Company) that it has become the
beneficial owner, directly or indirectly, of securities of the Company
representing 9.5% or more of the combined voting power of the Company's then
outstanding securities; or (D) the Board adopts a
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resolution to the effect that, for purposes of this Agreement, a potential
change in control of the Company has occurred. You agree that, subject to the
terms and conditions of this Agreement, in the event of a potential change in
control of the Company, you will remain in the employ of the Company for a
period of six (6) months from the occurrence of such potential change in control
of the Company.
3. Termination Following Change in Control. If any of the events described
in Subsection 2(i) hereof constituting a change in control of the Company shall
have occurred, you shall be entitled to the benefits provided in Subsection 4
(iii) hereof upon the subsequent termination of your employment during the term
of this Agreement unless such termination is (A) because of your death,
Retirement or Disability, (B) by the Company for Cause or (C) by you other than
for Good Reason.
(i) Disability; Retirement. If, as a result of your incapacity
due to physical or mental illness, you shall have been absent from the
full-time performance of your duties with the Company for six (6)
consecutive months, your employment may be terminated for
"Disability." Termination of your employment based on "Retirement"
shall mean termination in accordance with the Company's retirement
policy generally applicable to its salaried employees or in accordance
with any retirement arrangement established with your consent with
respect to you.
(ii) Cause. Termination by the Company of your employment for
"Cause" shall mean termination upon (A) the willful and continued
failure by you to substantially perform your duties with the Company
(other than any such failure resulting from your incapacity due to
physical or mental illness or any such actual or anticipated failure
after
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the occurrence of circumstances giving rise to a Notice of Termination
by you for Good Reason) after a written demand for substantial
performance is delivered to you by the Board, which demand
specifically identifies the manner in which the Board believes that
you have not substantially performed your duties, or (B) the willful
engaging by you in conduct which is demonstrably and materially
injurious to the Company, monetarily or otherwise. For purposes of
this Subsection, no act, or failure to act, on your part shall be
deemed "willful" unless done, or omitted to be done, by you not in
good faith and without reasonable belief that your action or omission
was in the best interest of the Company. Notwithstanding the
foregoing, you shall not be deemed to have been terminated for Cause
unless and until there shall have been delivered to you a copy of a
resolution duly adopted by the affirmative vote of not less than
three-quarters (3/4) of the entire membership of the Board at a
meeting of the Board called and held for such purpose (after
reasonable notice to you and an opportunity for you, together with
your counsel, to be heard before the Board), finding that in the good
faith opinion of the Board you were guilty of conduct set forth above
in clauses (A) or (B) of the first sentence of this Subsection and
specifying the particulars thereof in detail.
(iii) Good Reason. You shall be entitled to terminate your
employment for Good Reason. For purposes of this Agreement, "Good
Reason" shall mean, without your express written consent, any of the
following:
(A) the assignment to you of any duties inconsistent with
your status as Vice President of Operations or a substantial
alteration in the nature or
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status of your responsibilities from those in effect immediately
prior to a change in control of the Company;
(B) a reduction by the Company in your annual base salary as
in effect on the date of the occurrence of a change in control of
the Company or as the same may be increased from time to time
except for across-the-board salary reductions similarly affecting
all executives of the Company and all executives of any person in
control of the Company; or the failure of the Company to grant
increases in salary in accordance with the Company's regular
practices;
(C) the relocation of the Company's principal executive
offices to a location more than twenty-five (25) miles from your
present office location or the Company's requiring you to be
based anywhere other than the Company's principal executive
offices except for required travel on the Company's business to
an extent substantially consistent with your present business
travel obligations;
(D) the failure by the Company to continue in effect any
compensation plan in which you participate, or any plan adopted
prior to the change in control of the Company, unless an
equitable arrangement (embodied in an ongoing substitute or
alternative plan) has been made with respect to such plan in
connection with the change in control of the Company, or the
failure by the Company to continue your participation therein on
substantially the same basis, both in terms of the amount of
benefits provided and the level of your participation relative to
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other participants, as existed at the time of the change in
control;
(E) the failure by the Company to continue to provide you
with benefits substantially similar to those enjoyed by you under
any of the Company's pension, life insurance, medical, health and
accident, or disability plans in which you were participating at
the time of a change in control of the Company, the taking of any
action by the Company which would directly or indirectly
materially reduce any of such benefits or deprive you of any
material fringe benefit enjoyed by you at the time of the change
in control of the Company, or the failure by the Company to
provide you with the number of paid vacation days to which you
are entitled on the basis of years of service with the Company in
accordance with the Company's normal vacation policy in effect at
the time of the change in control;
(F) the failure by the Company without your consent to pay
to you any portion of your current compensation or to pay to you
any installment of deferred compensation at the time such
installment is due under any deferred compensation program of the
Company;
(G) the failure of the Company to obtain a satisfactory
agreement from any successor to assume and agree to perform this
Agreement, as contemplated in Section 5 hereof; or
(H) any purported termination of your employment which is
not effected pursuant to a Notice of Termination satisfying the
requirements of
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Subsection (iv) below (and, if applicable, the requirements of
Subsection (ii) above); for purposes of this Agreement, no such
purported termination shall be effective.
In addition to your right to terminate for Good Reason as stated above, and
not in substitution therefor, you shall have the option at your discretion to
terminate your employment at any time within fifteen (15) months after the later
of (a) a change in control of the Company or (b) the expiration of the six (6)
months period during which you agree to remain in the employ of the Company
under paragraph 2(ii) of this Agreement. Such termination shall be conclusively
deemed to be a termination for good Reason, but shall not affect your right to
terminate for Good Reason under any of the provisions of subsection (iii) above.
Your right to terminate your employment pursuant to this Subsection shall
not be affected by your incapacity due to physical or mental illness.
(iv) Notice of Termination. Any purported termination by the Company
or by you shall be communicated by written Notice of Termination to the
other party hereto in accordance with Section 6 hereof. For purposes of
this Agreement, a "Notice of Termination" shall mean a notice which shall
indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of your employment under the
provision so indicated.
(v) Date of Termination, Etc. "Date of Termination" shall mean (A) if
your employment is terminated for Disability, thirty (30) days after Notice
of Termination is given (provided that you have not returned to the
full-time performance of your duties
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during such period) (B) if your employment is terminated pursuant to
Subsection (ii) or (iii) above or for any other reason (other than
Disability), the date specified in the Notice of Termination (which shall
not be less than thirty (30) days, and in the case of a termination
pursuant to Subsection (iii) above shall not be less than thirty (30) nor
more than sixty (60) days, respectively, from the date such Notice of
Termination is given); provided that if within thirty (30) days after any
Notice of Termination is given, the party receiving such Notice of
Termination notifies the other party that a dispute exists concerning the
termination, the Date of Termination shall be the date on which the dispute
is finally determined, either by mutual written agreement of the parties,
by a binding arbitration award, or by a final judgment, order or decree of
a court of competent jurisdiction (which is not appealable or the time for
appeal therefrom having expired and no appeal having been perfected);
provided further that the Date of Termination shall be extended by a notice
of dispute only if such notice is given in good faith and the party giving
such notice pursues the resolution of such dispute with reasonable
diligence. Notwithstanding the pendency of any such dispute, the Company
will continue to pay you your full compensation in effect when the notice
giving rise to the dispute was given (including, but not limited to, base
salary) and continue you as a participant in all compensation, benefit and
insurance plans in which you were participating when the notice giving rise
to the dispute was given, until the dispute is finally resolved in
accordance with this Subsection. Amounts paid under this Subsection are in
addition to all other amounts due under this Agreement and shall not be
offset against or reduce any other amounts due under this Agreement except
as otherwise provided in paragraph (C) of Subsection 4 (iii).
9
<PAGE>
4. Compensation Upon Termination. Following a change in control of the
Company, as defined by Subsection 2(i), upon termination of your employment
you shall be entitled to the following benefits:
(i) If your employment shall be terminated by the Company for
Cause or by you other than for Good Reason, the Company shall pay you
your full base salary through the Date of Termination at the rate in
effect at the time Notice of Termination is given plus any other
amounts to which you are entitled under any compensation plan of the
Company, at the time such payments are due, and the Company shall have
no further obligations to you under this Agreement.
(ii) If your employment shall be terminated by the Company or by
you for Retirement, or by reason of your death or for Disability, your
benefits shall be determined in accordance with the Company's
retirement and insurance program then in effect.
(iii) If your employment by the Company shall be terminated (a)
by the Company other than for Cause, Retirement or Disability or (b)
by you for Good Reason, then you shall be entitled to the benefits
provided below:
(A) The Company shall pay you your full base salary through
the Date of Termination at the rate in effect at the time Notice
of Termination is given, plus any other amounts to which you are
entitled under any compensation plan of the Company, at the times
such payments are due;
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(B) In lieu of any further salary payments to you for
periods subsequent to the Date of Termination, the Company shall
pay as a severance payment to you, not later than the fifth day
following the Date of Termination, a lump sum severance payment
(the "Severance Payment") equal to 1.00 times the base salary
paid to you during the twelve (12) months immediately prior to
the issuance of the Notice of Termination (provided, however,
that in the case of a termination at your option under that
portion of Section 3 (iii) giving you an option to terminate at
your discretion, the severance payment under this paragraph shall
be in an amount equal to your base salary for the twelve (12)
months immediately prior to the issuance of the Notice of
Termination);
(C) For a period after such termination equal to the period
actually used in calculating severance pay due to you under
Section 4(iii)(B), the Company shall provide you with life,
disability, accident and health insurance benefits substantially
similar to those which you are receiving immediately prior to the
Notice of Termination. Benefits otherwise receivable by you
pursuant to this Section 4(iii) (C) shall be reduced to the
extent comparable benefits are actually received by you during
such period following your termination, and any such benefits
actually received by you shall be reported to the Company;
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<PAGE>
(D) In addition to the retirement benefits to which you are
entitled under the Retirement Plan or any successor plan thereto,
the Company shall pay you in one lump sum in cash on the fifth
day following the Date of Termination, a sum equal to the
actuarial equivalent of the excess of (x) the retirement pension
(determined as a straight life annuity commencing at age 65)
which you would have accrued under the terms of the Retirement
Plan (without regard to any amendment to the Retirement Plan made
subsequent to a change in control of the Company and on or prior
to the Date of Termination, which amendment adversely affects in
any manner the computation of retirement benefits thereunder),
determined as if you were fully vested thereunder and had
accumulated (after the Date of Termination) that number of
additional months of service credit thereunder equal to the
number of months for which severance pay shall be due to you
under Section 4 (iii) (B) hereof, at your highest annual rate of
compensation during the twelve (12) months immediately preceding
the Date of Termination (but in no event shall you be deemed to
have accumulated additional months of service credit after your
sixty-fifth (65th) birthday), and (y) the retirement pension
(determined as a straight-life annuity commencing at age 65)
which you had then accrued pursuant to the provisions of the
Retirement Plan. For purposes of clause (x), the term
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<PAGE>
"compensation" shall include amounts payable pursuant to Section
4 (iii) (B) hereof. For purposes of this Subsection, "actuarial
equivalent" shall be determined using the same methods and
assumptions utilized under the Retirement Plan immediately prior
to the change in control of the Company;
(E) In the event that any payment or benefit received or to
be received by you in connection with a change in control of the
Company or the termination of your employment (whether payable
pursuant to the terms of this Agreement or any other plan,
arrangement or agreement with the Company, any person whose
actions result in a change in control of the Company or any
person affiliated with the Company or such person) (the "Total
Payments") would not be deductible (in whole or in part) as a
result of Section 280G of the Internal Revenue Code of 1954 as
amended (the "Code"), the benefits provided under this Section
4(iii) shall be reduced or eliminated in the following order,
viz., first, Subsection D; then, Subsection C; then, Subsection
B; and finally, Subsection A, but only to the extent necessary so
that no portion of the Total Payments is not deductible as a
result of Section 280G of the Code. For purposes of this
limitation (i) no portion of the Total Payments the receipt or
enjoyment of which you shall have effectively waived in writing
prior to the date of payment shall be taken into account,
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<PAGE>
(ii) no portion of the Total Payments shall be taken into account
which, in the opinion of tax counsel selected by the Company's
independent auditors and acceptable to you, does not constitute a
"parachute payment" within the meaning of Section 280G of the
Code, (iii) the Total Payments shall be reduced only to the
extent necessary so that the Total Payments (other than those
referred to in clause (i) or clause (ii) of this paragraph) in
their entirety constitute reasonable compensation for services
actually rendered within the meaning of Section 280G of the Code,
in the opinion of the tax counsel referred to in clause (ii); and
(iv) the value of any non-cash benefit or any deferred payment or
benefit included in the Total Payments shall be determined by the
Company's independent auditors in accordance with the principles
of Sections 280G of the Code;
(F) The Company shall also pay to you all legal fees and
expenses incurred by you as a result of such termination
(including all such fees and expenses, if any, incurred in
contesting or disputing any such right of benefit provided by
this Agreement) except to the extent that the payment of such
fees and expenses would not be, or would cause any other portion
of the Total Payments not to be, deductible by reason of Section
280G of the Code.
(iv) You shall not be required to mitigate the amount of any
payment provided for in this Section 4 by seeking other employment or
otherwise, nor shall
14
<PAGE>
the amount of any payment or benefit provided for in this Section 4 be
reduced by any compensation earned by you as the result of employment
by another employer except as expressly provided herein.
(v) In addition to all other amounts payable to you under this
Section 4, you shall be entitled to receive all benefits payable to
you under the Retirement Plan and any other plan or agreement relating
to retirement benefits.
5. Successors; Binding Agreement. (i) The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. Failure of the Company to obtain such
assumption and agreement prior to the effectiveness of any such succession shall
be a breach of this Agreement and shall entitle you to compensation from the
Company in the same amount and on the same terms as you would be entitled
hereunder if you terminate your employment for Good Reason following a change in
control of the Company, except that for purposes of implementing the foregoing,
the date on which any such succession becomes effective shall be deemed the Date
of Termination. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of law
or otherwise.
(ii) This Agreement shall inure to the benefit of and be enforceable by
your personal or legal representatives, executors, administrators, successors,
assigns, heirs, distributees, devisees and legatees. If you should die while any
amount would still be payable to you hereunder if you
15
<PAGE>
had continued to live, all such amounts, unless otherwise provided herein, shall
be paid in accordance with the terms of this Agreement to your devisees,
legatees, or other designee or if there is no such designee, to your estate.
6. Notice. For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
certified or registered mail, return receipt requested, postage prepaid,
addressed to the respective addresses set forth on the first page of this
Agreement, provided that all notices to the Company shall be directed to the
attention of the Board with a copy to the Secretary of the Company, or to such
other address as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be effective
only upon receipt.
7. Miscellaneous. No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing
and signed by you and such officer as may be specifically designated by the
Board. No waiver by either party hereto at any time of any breach by the other
party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Rhode Island. All references to sections of the
Exchange Act or the Code shall be deemed also to refer to any successor
provisions to such sections.
16
<PAGE>
8. Validity. The invalidity or unenforceability or any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
9. Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
10. Arbitration. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in Providence,
Rhode Island, in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator's award in
any court having jurisdiction; provided, however, that you shall be entitled to
seek specific performance of your right to be paid until the Date of Termination
during the pendency of any dispute or controversy arising under or in connection
with this Agreement.
If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to the Company the enclosed copy of this letter which
will then constitute our agreement on this subject.
Sincerely,
VALLEY RESOURCES, INC.
By s/Alfred P. Degen
------------------------------------------
Name: Alfred P. Degen
Title: President & Chief Executive Officer
Agreed to this 16th day
----
of May, 1997
---
s/Charles K. Meunier
- --------------------
Charles K. Meunier
17
Exhibit 10(p)
PRECEDENT AGREEMENT
FOR FIRM SERVICES ON
MARITIMES & NORTHEAST PIPELINE PROJECT
PHASE II
This PRECEDENT AGREEMENT FOR FIRM SERVICES ("Precedent Agreement") is made
and entered into this 21 day of September, 1996, by and between Maritimes &
Northeast Pipeline, L.L.C., a limited liability company formed under the laws of
the State of Delaware (referred to hereinafter as "Maritimes & Northeast-U.S."),
Maritimes & Northeast Pipeline Management Ltd., a corporation formed under the
Canada Business Corporations Act (referred to hereinafter as "Maritimes &
Northeast-Canada"), and Valley Gas Company, a Rhode-Island corporation (referred
to hereinafter as "Customer"). From time to time herein, Maritimes &
Northeast-U.S. and Maritimes & Northeast-Canada may be referred to jointly and
collectively as "Maritimes & Northeast". Notwithstanding such references,
however, Maritimes & Northeast-U.S. and Maritimes & Northeast-Canada are and
shall remain separate legal entities for tax and other purposes; and to that
end, each of said entities will enter into and maintain its own separate service
agreements with Customer and other customers; and the fact that both entities
are parties to this Precedent Agreement is solely for the purpose of
facilitating and simplifying certain U.S. and Canadian regulatory filings
described below. Maritimes & Northeast and Customer may sometimes be
collectively referred to herein as the "Parties" and singly as a "Party".
WITNESSETH:
WHEREAS, Maritimes & Northeast-U.S. is a limited liability company formed
for the purpose of constructing, owning and operating the below-described Phase
I and Phase II-U.S. Segment of the Pipeline Project, the members of which are
subsidiaries and/or affiliates of PanEnergy Corp., Westcoast Energy, Inc. and
Mobil Corporation; and
WHEREAS, pursuant to a "Canadian Formation Agreement" dated as of January
31, 1996 among PanEnergy Corp., Westcoast Energy, Inc., Mobil Oil Canada
Properties, and Eastern Enterprises, the parties to that agreement have
committed to form a Canadian limited partnership to be called "Maritimes &
Northeast Pipeline, L.P." for the purpose of constructing, owning and operating
the below-described Phase II-Canadian Segment of the Pipeline Project, to which
end said parties have authorized Maritimes & Northeast Pipeline Management Ltd.,
as the General Partner of such to-be-formed Canadian limited partnership, to
enter into this Precedent Agreement for the benefit of such partnership, it
being the intent of such parties that, upon formation of such Canadian limited
partnership, Maritimes & Northeast Pipeline Management Ltd. will assign its
rights and obligations under this Precedent Agreement to such partnership
(following such assignment such partnership shall constitute "Maritimes &
Northeast - Canada" for purposes of this Agreement); and
<PAGE>
WHEREAS, Maritimes & Northeast is developing and proposes to construct and
operate a natural gas pipeline project ("Pipeline Project") extending from
Country Harbour, Nova Scotia, Canada, through the Provinces of Nova Scotia and
New Brunswick to the Canada-United States border, and then through the states of
Maine and New Hampshire into the Commonwealth of Massachusetts for delivery of
natural gas from the Sable Offshore Energy Project for various customers which
execute agreements with them; and
WHEREAS, the Pipeline Project is currently proposed to be constructed in
two (2) phases: Phase I will extend from a point of interconnection with
Tennessee Gas Pipeline Company ("Tennessee') near Dracut, Massachusetts, to a
point of interconnection with Granite State Gas Transmission, Inc. near Wells,
Maine; and Phase II will extend from Wells, Maine to an interconnection with the
Sable Offshore Energy Project gas processing plant in Country Harbour, Nova
Scotia, Canada; and
WHEREAS, Phase I is not contingent on Phase II and Phase II may encompass
or incorporate the facilities currently proposed for Phase I; and
WHEREAS, as a result of an "open season" conducted by Maritimes &
Northeast-U.S. from October 23, 1995 through November 21, 1995, Maritimes &
Northeast-U.S. has entered into certain Precedent Agreements with various
customers for firm transportation service through Phase I of the Pipeline
Project; and Maritimes & Northeast-U.S. has filed an Application for a
Certificate of Public Convenience and Necessity with the Federal Energy
Regulatory Commission ("FERC") pursuant to Section 7(c) of the Natural Gas Act
for authority to "pre-build" Phase I of the Pipeline Project, to be placed in
service as early as November 1, 1997; and
WHEREAS, based upon the results of the recent "Request for Services"
offering of Maritimes & Northeast which ended April 17, 1996, Maritimes &
Northeast now desires to proceed with the development and authorization of Phase
II of the Pipeline Project, subject to the commitment of Customer and other
customers to obtain firm service under the terms of this and other similar
Precedent Agreements for firm service (i) through the Canadian segment of said
Phase II of the Pipeline Project extending from Country Harbour, Nova Scotia,
Canada to a point on the Canadian-U.S. border near St. Stephen, New Brunswick
(the "Phase II Canadian Segment") where it will interconnect with the Phase
II-U.S. Segment described below; (ii) through the U.S. Segment of the Pipeline
Project extending from a point on the Canadian-U.S. border near Woodland, Maine
through an interconnection with Granite State Gas Transmission, Inc. near Wells,
Maine to Dracut, Massachusetts (the "Phase II-U.S. Segment"); and (iii) through
capacity leased by Maritimes & Northeast from Tennessee or constructed by
Maritimes & Northeast between Dracut and Mendon, Massachusetts; and
WHEREAS, Customer desires to obtain firm service from Maritimes &
Northeast-U.S. to be made available from the Phase II-U.S. Segment of the
Pipeline Project, and from Maritimes & Northeast-Canada to be made available
from the Phase II-Canadian Segment of the Pipeline Project.
2
<PAGE>
NOW, THEREFORE, in consideration of the premises and mutual covenants and
agreements herein contained, and intending to be legally bound, Maritimes &
Northeast-U.S., Maritimes & Northeast-Canada and Customer agree to the
following:
1. This Precedent Agreement is subject to the good faith determination by
Maritimes & Northeast not later than August 1, 1996, that Phase II of the
Pipeline Project satisfies the economic criteria of Maritimes & Northeast for
proceeding with Phase II of the Pipeline Project. Maritimes & Northeast shall
give Customer written notice under this Paragraph 1 no later than August 15,
1996, as to whether it will proceed with Phase II of the Pipeline Project as
provided in this Precedent Agreement or will terminate the project; provided,
however, if Maritimes & Northeast extends the time for making such
determination, any such notice will be given within five (5) days after the end
of such extended period. In connection therewith, the Parties recognize that the
April 17, 1996 Request for Services was a starting point for negotiations and
that Maritimes & Northeast received nominations in excess of planned capacity.
As a result, the MDQ provided in Paragraph 5(a) hereof may be adjusted. The
written notice provided for in this Paragraph 1 shall set forth the adjusted
MDQ, if any, and such adjusted MDQ shall be referenced in Appendix A hereto. If
such adjustment results in a reduction in the MDQ contained in Customer's
original request, Customer may cancel this Precedent Agreement due to such
reduction by written notice to Maritimes & Northeast within seven (7) days of
receipt of the Maritimes and Northeast notice under this Paragraph 1.
2. Subject to the terms and conditions of this Precedent Agreement,
Maritimes & Northeast shall proceed with due diligence to obtain from all
governmental and regulatory authorities within the United States and Canada
having valid jurisdiction over the premises such authorizations and/or
exemptions which it determines are necessary, including without limitation,
authorizations from the FERC (i) for Maritimes & Northeast-U.S. to construct,
own and operate (or cause to be constructed and operated) the Phase II-U.S.
Segment of the Pipeline Project and to render the services as contemplated in
this Precedent Agreement and in other similar Precedent Agreements with other
customers, (ii) for Maritimes & Northeast-U.S. to perform its obligations as
contemplated in this Precedent Agreement and in other similar Precedent
Agreements with other customers for the Phase II-U.S. Segment of the Pipeline
Project, and (iii) for Section 3 authorization and a Presidential Permit to
site, construct, operate and maintain pipeline facilities at the U.S.-Canada
International Boundary to interconnect the Phase II-U.S. Segment and the Phase
II-Canadian Segment of the Pipeline Project; and authorizations from the
National Energy Board of Canada ("NEB") (i) for Maritimes & Northeast-Canada to
construct and operate (or cause to be constructed and operated), the Phase
II-Canadian Segment of the Pipeline Project and to render the services as
contemplated in this Precedent Agreement and in other similar Precedent
Agreements with other customers, and (ii) for Maritimes & Northeast-Canada to
perform its obligations as contemplated in this Precedent Agreement and in other
similar Precedent Agreements with other customers for the Phase II-Canadian
Segment of the Pipeline Project. Maritimes & Northeast-U.S. and Maritimes &
Northeast-Canada reserve the right to file and prosecute (or cause to be filed
and prosecuted) any and all applications for such authorizations and/or
exemptions, any supplements and amendments thereto, and, if necessary, any court
review, in such manner as they each deem to be in their best interest. Customer
expressly agrees to
3
<PAGE>
support and cooperate, and to not oppose, obstruct or otherwise interfere with
in any manner whatsoever the efforts of Maritimes & Northeast-U.S. and Maritimes
& Northeast-Canada to obtain all authorizations and/or exemptions and
supplements and amendments thereto necessary for them to construct, own and
operate (or to cause the construction and operation of) Phase II of the Pipeline
Project as contemplated in this Precedent Agreement and to perform their
obligations as contemplated by this Precedent Agreement.
3. Within sixty (60) days after Customer executes this Precedent Agreement,
Customer will advise Maritimes & Northeast in writing of the facilities, by
in-service date, and/or any other authorization or contractual arrangements
necessary for Customer to utilize the services contemplated under this Precedent
Agreement. Subject to the terms and conditions of this Precedent Agreement,
Customer shall proceed in good faith and with due diligence to obtain from all
governmental and regulatory authorities having competent jurisdiction over the
premises all authorizations and/or exemptions necessary for Customer to
construct and operate (or cause to be constructed and operated) any facilities
and to take any other actions necessary to enable Customer to utilize the
services as contemplated in this Precedent Agreement. Customer reserves the
right to file and prosecute applications for such authorizations and/or
exemptions, any supplements or amendments thereto, and, if necessary, any court
review, in such manner as it deems to be in its best interest; provided,
however, Customer shall pursue such authorizations and/or exemptions and any
supplements and amendments thereto in a manner designed to implement Phase II of
the Pipeline Project in a timely manner and in no event shall Customer take any
action that would obstruct, interfere with or delay the receipt by Maritimes &
Northeast of the authorizations and/or exemptions and supplements and amendments
thereto contemplated hereunder or otherwise jeopardize implementation of Phase
II of the Pipeline Project. Maritimes & Northeast agrees to use reasonable
efforts to assist Customer in obtaining all authorizations and/or exemptions and
any supplements and amendments thereto necessary for Customer to effectuate the
services contemplated in this Precedent Agreement. Customer agrees to proceed
with due diligence to construct, or cause to be constructed, any and all
facilities included in Customer's written notice to Maritimes & Northeast
pursuant to the first sentence of this Paragraph 3 of this Precedent Agreement,
subject to the receipt of necessary authorizations and/or exemptions
contemplated in this Paragraph 3 of this Precedent Agreement.
4. Pursuant to the April 17, 1996 Request for Services, Customer requested
Maritimes & Northeast to share the request submitted by Customer with the Sable
Offshore Energy Project producers on a confidential basis as a first step in
arranging for supplies of gas. Customer shall make its own arrangements for such
gas supplies, either directly or by use of a third party agent, by contracting
with one or more suppliers for such supply. Customer shall proceed in good
faith, either directly or by use of a third party agent, with reasonable efforts
to negotiate and enter into supply agreements with one or more third party
suppliers on or before December 1, 1996, on terms and conditions satisfactory to
Customer. In the event Customer is successful in contracting with such
supplier(s) in the manner aforesaid, Customer shall have the right, on a
one-time basis, on or before August 15, 1997, to assign its rights under this
Precedent Agreement and the related service agreement(s) to such supplier(s);
provided, that such supplier(s) meets the qualifications as a shipper under the
FERC Gas Tariff of Maritimes & Northeast-U.S. and the Tariff established by
Maritimes & Northeast-Canada and filed with the
4
<PAGE>
NEB, including the creditworthiness requirements; and provided, further, that
following commencement of service, any subsequent assignment(s) contemplated by
the initial assignee shall be subject to the capacity release requirements and
procedures set forth in such tariffs. In the event Customer is unsuccessful in
contracting with such supplier(s) in the manner aforesaid by December 1, 1996,
Customer may terminate this Precedent Agreement as provided in Paragraph 11
hereof.
5. (a) Customer and Maritimes & Northeast-U.S. and Maritimes & Northeast
Canada, as appropriate, agree to execute within twenty-five (25) days after the
later of the dates that (i) the FERC issues an order authorizing the Phase
II-U.S. Segment of the Pipeline Project, and (ii) the NEB issues an order
authorizing the Phase II-Canadian Segment of the Pipeline Project: (A) a firm
service agreement under the Rate Schedule MN 151, included in the FERC Gas
Tariff of Maritimes & Northeast-U.S. ("U.S. Service Agreement") which shall
provide for the transportation of up to a Maximum Daily Quantity ("MDQ") of
7,000 dekatherms of natural gas on the Phase II-U.S. Segment of the Pipeline
Project; and (B) a firm service agreement under the NEB Gas Tariff of Maritimes
& Northeast-Canada ("Canadian Service Agreement") which shall provide for the
transportation of an equivalent MDQ of natural gas adjusted for final applicable
fuel usage on the Phase II-Canadian Segment of the Pipeline Project. Service
under the U.S. Service Agreement and under the Canadian Service Agreement will
commence as provided under Paragraph 5(b) of this Precedent Agreement. After
service commences under the respective Service Agreement(s), such service will
continue for a primary term of ten (10) years.
(b) Service under the U.S. Service Agreement and under the Canadian
Service Agreement will commence on the date specified in the written notice to
Customer pursuant to Paragraph 5(c) of this Precedent Agreement, which date will
be the later of.- (i) November 1, 1999; (ii) the date all necessary facilities
comprising the Phase II Pipeline Project are completed and such facilities are
available for active gas service; or (iii) the date by which all of the
conditions precedent set forth in Paragraph 8 of this Precedent Agreement have
been satisfied or waived by the Party for whose benefit the condition was
imposed.
(c) Prior to commencement of service pursuant to the U.S. Service
Agreement and pursuant to the Canadian Service Agreement, Maritimes & Northeast
shall notify Customer in writing that all of the conditions precedent set forth
in Paragraph 8 of this Precedent Agreement have been satisfied or waived, and
that service under the U.S. Service Agreement and under the Canadian Service
Agreement will commence on a date certain, which date will not be prior to
November 1, 1999. As of the date for commencement of service under the U.S.
Service Agreement and under the Canadian Service Agreement, Maritimes &
Northeast-U.S. will stand ready to provide firm transportation service for
Customer pursuant to the terms of the U.S. Service Agreement and Maritimes &
Northeast-Canada will stand ready to provide firm service for Customer pursuant
to the terms of the Canadian Service Agreement; and Customer will pay Maritimes
& Northeast-U.S. for all applicable charges associated with the U.S. Service,
Agreement and will pay Maritimes & Northeast-Canada for all applicable charges
associated with the Canadian Service Agreement.
6. Upon execution of this Precedent Agreement and other satisfactory
Precedent
5
<PAGE>
Agreements with other customers, Maritimes & Northeast will undertake the
preliminary design of the necessary Phase II Pipeline Project pipeline
facilities and any other preparatory actions necessary to complete and file the
necessary certificate applications with the FERC for the Phase II-U.S. Segment
facilities and with the NEB for the Phase II-Canadian Segment facilities. Upon
satisfaction of the conditions precedent set forth in Paragraphs 8 (a)(i), 8
(a)(ii), 8 (a)(iv), 8 (a)(vi) and 8 (b)(ii) of this Precedent Agreement, or
waiver of the same by Maritimes & Northeast, Maritimes & Northeast shall proceed
(subject to the continuing commitments of Customer and all other firm
transportation customers committed to Phase II of the Pipeline Project) with due
diligence in the necessary final design of facilities, acquisition of materials,
supplies, properties, rights-of-way and any other necessary preparations to
implement the transportation service contemplated by the U.S. Service Agreement
and the Canadian Service Agreement.
7. Upon satisfaction of the conditions precedent set forth in Paragraphs 8
(a)(i), 8 (a)(iii), 8 (a)(iv), 8 (a)(vi), 8 (b)(i) and 8 (b)(iii) of this
Precedent Agreement, or waiver of the same by Maritimes & Northeast, Maritimes &
Northeast shall proceed (subject to the continuing commitments of Customer and
other firm transportation customers committed to Phase II of the Pipeline
Project) with due diligence to construct the authorized Phase II Pipeline
Project pipeline facilities necessary to implement the firm transportation
service contemplated in the Precedent Agreement on or about November 1, 1999.
Notwithstanding Maritimes & Northeast's due diligence, if Maritimes & Northeast
is unable to commence the transportation service for Customer as contemplated
herein by November 1, 1999, Maritimes & Northeast will continue to proceed with
due diligence to complete arrangements for such transportation service, and
commence the transportation service for Customer at the earliest practicable
date thereafter. Maritimes & Northeast will neither be liable nor will this
Precedent Agreement or the U.S. Service Agreement or the Canadian Service
Agreement be subject to cancellation if Maritimes & Northeast is unable to
complete the construction of such authorized and necessary Phase II Pipeline
Project pipeline facilities and commence the firm transportation service
contemplated herein by November 1, 1999.
8. The commencement of service under the U.S. Service Agreement and under
the Canadian Service Agreement and the rights and obligations of Maritimes &
Northeast-U.S. and Customer under the U.S. Service Agreement and of Maritimes &
Northeast-Canada and Customer under the Canadian Service Agreement are expressly
made subject to satisfaction of the following conditions precedent; provided,
however, that any such condition may be waived by the Party for whose benefit
the condition is imposed:
(a) Conditions Precedent of Maritimes & Northeast:
i) Receipt and acceptance by Maritimes & Northeast-U.S.
by March 1, 1998, of all necessary certificates and other authorizations,
including without limitation authorizations from the FERC for the Phase II-U.S.
Segment and receipt and acceptance by Maritimes & Northeast-Canada by July 1,
1998 of all necessary certificates and other authorizations, including without
limitation authorization from the NEB for the Phase II-Canadian Segment of the
Pipeline Project, authorizations of initial rates as contemplated in Paragraph 9
(b) of this Precedent Agreement, authorizations to construct and operate Phase
II of the Pipeline
6
<PAGE>
Project pipeline facilities and to provide transportation for Customer under the
U.S. Service Agreement and under the Canadian Service Agreement as contemplated
in this Precedent Agreement and for other customers under other Service
Agreements; and
ii) Receipt and acceptance by Maritimes & Northeast by
October 1, 1998, of a financial commitment or commitments from financial
institutions acceptable to each of them to make the capital expenditures
necessary to enable them to construct Phase II of the Pipeline Project to
provide transportation for Customer under the U.S. Service Agreement and under
the Canadian Service Agreement as contemplated in this Precedent Agreement and
under other Service Agreements; and
iii) Receipt by Maritimes & Northeast of all other
necessary governmental authorizations, approvals, permits and exemptions to
construct Phase II of the Pipeline Project and perform the services as
contemplated in this Precedent Agreement and the U.S. Service Agreement and the
Canadian Service Agreement; and
iv) Receipt of an affirmative vote of the Management
Committee of Maritimes & Northeast-U.S. and of Maritimes & Northeast-Canada to
construct the authorized Phase II Pipeline Project pipeline facilities
subsequent to receipt of the authorizations contemplated in Paragraph 8 (a)(i)
of this Precedent Agreement; and
v) Completion by Maritimes & Northeast of construction
of the Phase II Pipeline Project pipeline facilities required to render firm
transportation service for Customer pursuant to the U.S. Service Agreement and
the Canadian Service Agreement with Customer, and Maritimes & Northeast being
ready and able to place such facilities into gas service; and
vi) Receipt by the Sable Island Energy Project producers
of all governmental authorizations and exemptions necessary to construct the
facilities required to deliver gas to the Phase II of the Pipeline Project
facilities at Country Harbour, Nova Scotia, Canada; and vii) Completion by the
Sable Island Energy Project producers of construction of thefacilities required
to deliver gas to the Phase II of the Pipeline Project pipeline facilities at
Country Harbour, Nova Scotia, Canada.
(b) Conditions Precedent of the Customer:
i) Receipt by Customer of the necessary governmental
authorizations, approvals, permits and exemptions to construct the facilities
contained in Customer's Notice under Paragraph 3 of this Precedent Agreement for
the relevant service; and
ii) Completion by Customer of construction of the
facilities contained in Customer's Notice under Paragraph 3 of this Precedent
Agreement for the relevant service; and
iii) Completion by Customer of necessary gas supply
arrangements
7
<PAGE>
pursuant to Paragraph 4 of this Precedent Agreement on terms and conditions
satisfactory to Customer.
9. (a) All governmental permits, certificates, exemptions and other
authorizations required in Paragraph 8 (a) of this Precedent Agreement must be
in form and substance, satisfactory to Maritimes & Northeast,. and with respect
to the FERC and NEB authorizations, must be satisfactory to all Parties,
including mutually satisfactory rate treatment and rate levels. Customer shall
notify Maritimes & Northeast in writing not later than ten (10) days after the
issuance of each of the respective FERC and NEB orders issuing the certificates,
including any orders issued as a preliminary determination on non-environmental
issues, contemplated in Paragraph 2 of this Precedent Agreement, if such
certificate is not satisfactory to Customer. All governmental approvals and
exemptions required by this Precedent Agreement must be duly granted
respectively by the FERC and the NEB, and/or other governmental agency or
authority having valid jurisdiction, and must be final and nonappealable; but
with respect to the authorization from the FERC and the NEB, the Parties may
waive the condition that any such approval or exemption be final and
nonappealable.
(b) In connection with the Phase II Pipeline Project initial rate
design methodology, Customer expressly agrees: (i) with this rate design
methodology; (ii) to support such rate design methodology; and (iii) to pay
Maritimes & Northeast-U.S. and Maritimes & Northeast-Canada, as applicable, the
initial rates as contemplated herein.
10. The Parties expressly agree that the execution of this Precedent
Agreement and the performance of the transportation services contemplated in
this Precedent Agreement are without prejudice to any rights or obligations the
Parties have to each other under separate and distinct agreements.
11. If the conditions precedent set forth in Paragraph 8 (a)(i), 8 (a)(ii)
and 8 (b)(iii) of this Precedent Agreement have not been fully satisfied, or
waived by the Party for whose benefit such condition was imposed, by the
applicable dates specified therein, then, any Party may thereafter terminate
this Precedent Agreement by giving ninety (90) days prior written notice of its
intention to terminate to the non-terminating Party; but if the conditions
precedent are satisfied or waived within said ninety (90) day notice period,
then termination will not be effective. In addition, and notwithstanding other
provisions hereof, Maritimes & Northeast may terminate this Precedent Agreement
at any time upon fifteen (15) days' prior written notice given to Customer if
termination by customers, other than by reason of commencement of service, of
other precedent agreements and service agreements for service from Maritimes &
Northeast renders the Pipeline Project uneconomic, as determined by Maritimes &
Northeast.
12. If this Precedent Agreement is not terminated pursuant to Paragraph 11
hereof, then this Precedent Agreement will terminate by its express terms on the
date of commencement of service under the U.S. Service Agreement and the
Canadian Service Agreement referenced in Paragraph 5 of this Precedent
Agreement, and thereafter the Parties' rights and obligations related to the
transportation transactions contemplated herein shall be determined pursuant to
the terms
8
<PAGE>
and conditions of the U.S. Service Agreement and the Canadian Service Agreement
and the terms and conditions of the FERC and NEB Rate Schedules specified in
Paragraph 5 (a) hereof, as effective from time to time, and the General Terms
and Conditions of the FERC and NEB Gas Tariffs, as effective from time to time.
13. This Precedent Agreement may not be modified or amended unless the
Parties execute written agreements to that effect.
14. Any company which succeeds by purchase, merger, or consolidation of
title to the properties, substantially as an entirety, of Maritimes &
Northeast-U.S., Maritimes & Northeast-Canada or the Customer, will be entitled
to the rights and will be subject to the obligations of its predecessor in title
under this Precedent Agreement. Otherwise, except as provided in Paragraph 4
hereof, assignment of this Precedent Agreement or any of the rights or
obligations hereunder may not be made unless the written consent of the other
Party is first obtained; provided, however, upon formation of the Canadian
limited partnership referred to in the recitals to this Precedent Agreement,
Maritimes & Northeast-Canada may assign its rights and obligations hereunder to
such partnership without any need to obtain the written consent of any other
Party. No Party will be relieved, by virtue of any such assignment, of its
obligations and liabilities hereunder without the express written consent of the
other Party.
15. (a) Any dispute arising out of or relating to this Precedent Agreement,
whether in contract, tort, under statutory law, or otherwise, and including
without limitation any dispute arising from an assertion of the rights of
Maritime & Northeast under Paragraph 9, which can not be resolved after
discussion between the Parties or by voluntary non-binding mediation in
conformity with applicable procedures of the Texas Alternate Dispute Resolution
Procedures Act, Texas Civil Practices and Remedies Code, Title 7, Ch. 154, shall
be submitted to binding arbitration. Either Party may commence such arbitration
proceedings by serving written notice on the other. The notice shall contain the
name of one arbitrator and a statement of the matter in dispute. The Party
receiving such notice shall have fifteen (15) days to respond in writing, naming
a second arbitrator and designating any other matter for arbitration. The two
named arbitrators shall select a third arbitrator. If the two named arbitrators
fail to select a third arbitrator within fifteen (15) days after the second
arbitrator was named, the third arbitrator shall be selected in accordance with
the commercial arbitration rules of the American Arbitration Association. All
arbitrators shall be qualified by education or experience to decide matters
relating to the questions in dispute. In addition, the arbitrators shall have
professional experience in the natural gas industry and shall not be evidently
partial under the standards of section 10(b) of the Federal Arbitration Act, 9
U.S.C. Section 10(b). The third arbitrator shall not have been previously
employed by either Party. The arbitration shall be held at a location to be
mutually agreed to, and failing agreement, in Houston, Texas. At any time after
the naming of the second arbitrator, the Parties may engage in discovery. Each
Party shall be permitted to serve on the other Party requests for production of
documents relevant to any dispute which is the subject of the arbitration and
one set of interrogatories addressing any issues relevant to any dispute which
is the subject of the arbitration, which requests and interrogatories shall be
answered or otherwise responded to within 20 days after service. Each Party
shall also have the right to take four depositions. Additional discovery may be
ordered by a majority of the arbitrators upon application by one or both of the
Parties on a showing of good cause. Any discovery disputes shall be resolved by
the decision of a
9
<PAGE>
majority of the arbitrators.
(b) After presentation of evidence has been concluded, each party shall
submit to the arbitrators a final offer of its proposed resolution of the
dispute. No responses to a final offer may be submitted. The arbitrators shall
approve the final offer of one Party, without modification, and reject that of
the other. In considering the evidence and deciding which final offer to
approve, the arbitrators shall be guided by the criteria described in the
appropriate section of this Precedent Agreement.
(c) The decision of the arbitrators shall be rendered on or before 120
days following the notice of arbitration. The arbitrators' decision shall be
deemed to be part of this Precedent Agreement and incorporated by reference
herein.
(d) If at any time prior to rendition of the decision of the
arbitrators, an arbitrator named by one of the Parties becomes unable or
unwilling to serve, the Party that named that arbitrator shall select a
replacement arbitrator within 10 days after receiving notice of the arbitrator's
inability or unwillingness to serve. If at any time prior to rendition of the
decision of the arbitrators the third arbitrator becomes unable or unwilling to
serve, a replacement arbitrator shall be selected utilizing the same procedures
for selection of the third arbitrator set forth above, except that the 15 day
period for selection of the third arbitrator shall run from the date both named
arbitrators receive notice of the third arbitrator's inability or unwillingness
to serve. The naming or selection of a replacement arbitrator shall have no
effect on the conduct of the proceedings unless the arbitration hearing has
already commenced, in which case the hearing will be recommenced as if no
portion of the hearing had been conducted.
(e) Each Party shall pay its own costs incurred in connection with
arbitration Proceedings, except for the fees and expenses of the third
arbitrator, which shall be equally divided between the Parties. The decision of
the arbitrators shall be final, conclusive and binding on both Parties. Judgment
upon the award rendered by the arbitrators may be entered in any court having
jurisdiction thereof. In the event that it is necessary to enforce such award,
all costs of enforcement, including reasonable attorney's fees (for in-house or
outside counsel) shall be payable by the Party against whom such award is
enforced.
(f) The substantive law chosen in Paragraph 17, as well as applicable
federal law, will apply to the proceedings in arbitration. The Federal
Arbitration Act, 9 U.S.C. Section 1, et seq., shall govern the enforceability of
this paragraph 15, and to the extent not inconsistent with the provisions
hereof, it shall also govern the procedures to apply in arbitration and the
enforcement, vacation, or modification of any award. The Parties stipulate that
this Precedent Agreement evidences a transaction "involving commerce" as that
phrase is used in 9 U.S. C. Section 2.
16. The recitals and representations appearing first above are hereby
incorporated in and made a part of this Precedent Agreement.
17. The Precedent Agreement shall be governed by and construed, interpreted
and performed in accordance with the laws
10
<PAGE>
of the State of Texas, without recourse to any laws governing the conflict of
laws.
18. Except as herein otherwise provided, any notice, request, demand,
statement, or bill provided for in this Precedent Agreement, or any notice which
either Party desires to give to the other, must be in writing and will be
considered duly delivered when mailed by registered or certified mail to the
other Party's Post Office address set forth below:
Maritimes & Northeast-U.S.: Attn:
5400 Westheimer Court
Houston, Texas 77056
Maritimes & Northeast-Canada: Attn:
50 Keil Drive North
Chatham, Ontario N7M 5Ml
Customer: 1595 Mendon Road
Cumberland, RI 02864
or at such other address as either Party designates by written notice. Routine
communications, including monthly statements, will be considered duly delivered
when mailed by either registered, certified, or ordinary mail. For purposes
hereof, any notice required to be given by Customer to Maritimes & Northeast
shall be delivered to each of Maritimes & Northeast-U.S. and Maritimes &
Northeast-Canada.
11
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused this Precedent Agreement
to be duly executed in several counterparts by their duly authorized officers as
of the day and year first above written.
MARITIMES & NORTHEAST PIPELINE, L.L.C.
BY: ______________________________________
TITLE:_____________________________________
M & N Management Company
Managing Member
MARITIMES & NORTHEAST PIPELINE
MANAGE LTD.
BY: _______________________________________
TITLE: ____________________________________
VALLEY GAS COMPANY
BY: _______________________________________
TITLE: ____________________________________
Signature page for Precedent Agreement dated September 21, 1996 between
Maritimes & Northeast Pipeline, L.L.C., Maritimes & Northeast Pipeline
Management Ltd. and Valley Gas Company.
jsg\01752agt-96
12
<PAGE>
APPENDIX A
TO
PRECEDENT AGREEMENT FOR FIRM
OR INTERRUPTIBLE SERVICE
FROM PHASE II OF
MARITIMES & NORTHEAST PIPELINE, L.L.C.
MDQ Contained in Adjusted
Customer's Original Request MDQ
MMBtu MMBtu
_______________________________ _______________________
[This Appendix A may be developed in the event Maritimes & Northeast Pipeline is
required to adjust Customer's MDQ as contemplated in Paragraph 1 of the
Precedent Agreement.]
rgr\maritime\appendxa.pre
13
<TABLE>
Exhibit 12
VALLEY RESOURCES, INC. AND SUBSIDIARIES
COMPUTATION OF THE CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
<CAPTION>
For the six months ended For the year ended
February 28, August 31,
------------ ----------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Net Income...................... $2,488,076 $3,079,420 $3,998,360 $2,554,925 $3,826,026 $3,727,230 $3,114,599
Provisions for income taxes..... 1,164,344 1,523,401 1,541,160 753,033 1,350,965 1,444,936 1,012,043
Fixed Charges................... 1,845,798 1,837,404 3,683,294 3,599,618 3,191,174 2,860,700 2,350,821
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total........................ $5,498,218 $6,440,225 $9,222,814 $6,907,576 $8,368,165 $8,032,866 $6,477,463
========== ========== ========== ========== ========== ========== ==========
Fixed Charges:
Interest on debt................ 1,633,103 1,628,167 3,259,495 3,247,752 2,846,880 2,572,082 2,091,019
Amortization of debt expense.... 28,965 28,965 57,931 57,931 57,931 53,056 57,710
Interest component of rent...... 183,730 180,272 365,868 293,935 286,363 235,562 202,092
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total........................ $1,845,798 $1,837,404 $3,683,294 $3,599,618 $3,191,174 $2,860,700 $2,350,821
========== ========== ========== ========== ========== ========== ==========
Ratio of Earnings to Fixed Charges.. 3.0 3.5 2.5 1.9 2.6 2.8 2.8
Pro Forma:
Actual fixed charges............ $1,845,798 $3,683,294
Pro forma interest on debt to be
sold, assuming a rate of 8.3% 290,500 581,000
Actual interest on debt to be
retired...................... (373,629) (774,498)
---------- ----------
Pro forma fixed charges......... $1,762,669 $3,489,796
========== ==========
Pro forma ratio of earnings to
fixed charges................ 3.1 2.6
</TABLE>
Exhibit 23(a)
Consent of Independent Certified Public Accountants
We have issued our reports dated September 24, 1996, accompanying the
consolidated financial statements and schedule incorporated by reference or
included in the Annual Report of Valley Resources, Inc. and subsidiaries on Form
10-K for the year ended August 31, 1996. We hereby consent to the inclusion and
incorporation by reference of said reports in the Prospectus and Registration
Statement of Valley Resources, Inc. and subsidiaries filed on Form S-2.
S/Grant Thornton LLP
GRANT THORNTON LLP
Boston, Massachusetts
June 26, 1997
