FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________to ____________
Commission File number 1-7924
VALLEY RESOURCES, INC.
(Exact name of Registrant as specified in its charter)
Rhode Island 05-0384723
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1595 Mendon Road 02864
Cumberland, Rhode Island (Zip Code)
(Address of principal executive offices)
(401) 334-1188
(Registrant's telephone number, including area code)
Not Applicable
(Former name,former address and former fiscal year,if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X . No ___.
Indicate the number of shares outstanding of each of the issuer's classes
of Common Stock, as of the latest practicable date.
Outstanding at
Class of Common Stock May 31, 1997
$1 Par Value 4,264,346
<PAGE>
VALLEY RESOURCES, INC.
FORM 10-Q
MAY 31, 1997
Page of
Form 10-Q
---------
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Statements of Income--for
the three and nine months ended May 31, 1997
and 1996..................................................... 3
Consolidated Condensed Balance Sheets--May 31,
1997 and August 31, 1996...................................4 & 5
Consolidated Condensed Statements of Cash Flows--for
the nine months ended May 31, 1997 and 1996.................. 6
Notes to Consolidated Condensed Financial Statements......... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 8
Item 6(a) Exhibits..................................................... 10
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K..............................11
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
VALLEY RESOURCES, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
3 Months Ended 9 Months Ended
May 31, May 31, May 31, May 31,
1997 1996 1997 1996
(in thousands except share and per share numbers)
<S> <C> <C> <C> <C>
Operating Revenues:
Utility Gas Revenues $ 21,289 $ 19,126 $ 57,412 $ 53,088
Nonutility Revenues 4,992 4,539 16,141 14,923
---------- ---------- ---------- ----------
Total 26,281 23,665 73,553 68,011
---------- ---------- ---------- ----------
Operating Expenses:
Cost of Gas Sold 12,568 10,152 33,146 27,950
Cost of Sales - Nonutility 3,414 3,095 11,134 10,372
Operations 4,405 4,488 13,659 13,470
Maintenance 426 430 1,253 1,232
Depreciation and Amortization 778 750 2,333 2,212
Taxes - Other Than Federal Income 1,176 1,121 3,400 3,273
- Federal Income 847 920 1,969 2,330
---------- ---------- ---------- ----------
Total 23,614 20,956 66,894 60,839
---------- ---------- ---------- ----------
Operating Income 2,667 2,709 6,659 7,172
Other Income - Net of Tax 111 61 268 332
---------- ---------- ---------- ----------
Total Income 2,778 2,770 6,927 7,504
---------- ---------- ---------- ----------
Interest Charges:
Long-Term Debt 492 489 1,457 1,438
Other 330 286 1,026 991
---------- ---------- ---------- ----------
Total 822 775 2,483 2,429
---------- ---------- ---------- ----------
Net Income $ 1,956 $ 1,995 $ 4,444 $ 5,075
========== ========== ========== ==========
Average Number of Common
Shares Outstanding 4,264,660 4,262,970 4,262,679 4,255,017
Earnings Per Average Common Share
Outstanding $0.46 $0.47 $1.04 $1.19
Dividends Declared on Common Stock $0.185 $0.1825 $0.55 $0.5425
</TABLE>
The accompanying Notes are an integral part of these statements.
3
<PAGE>
VALLEY RESOURCES, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
<TABLE>
<CAPTION>
(Unaudited)
May 31, Aug. 31,
1997 1996
---- ----
(in thousands)
<S> <C> <C>
ASSETS
Utility Plant - Net $49,987 $49,442
------- -------
Leased Property - Net 2,505 2,945
------- -------
Nonutility Property-Net 3,677 3,568
------- -------
Other Investments 1,577 1,510
------- -------
Current Assets:
Cash 741 507
Accounts Receivable - Net 14,797 9,946
Deferred Fuel Costs -0- 827
Deferred Unbilled Gas Costs 496 439
Fuel and Other Inventories (Note 3) 4,098 6,048
Prepayments 557 1,409
Common Stock held for Dividend Reinvestment-amounting
to 15,682 and 10,813 shares respectively (Note 4) 187 131
------- -------
Total 20,876 19,307
------- -------
Deferred Debits:
Recoverable Postretirement Benefits 520 693
Recoverable Vacations Accrued 795 633
Unamortized Debt Discount and Expense 1,480 1,523
Prepaid Pensions 6,864 6,171
Recoverable Deferred FIT 6,070 5,970
Recoverable Transition Obligation 1,700 1,700
Other 3,209 3,227
------- -------
20,638 19,917
------- -------
Total $99,260 $96,689
======= =======
</TABLE>
The accompanying Notes are an integral part of these statements.
4
<PAGE>
VALLEY RESOURCES, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets (Cont'd)
<TABLE>
<CAPTION>
(Unaudited)
May 31, Aug. 31,
1997 1996
---- ----
(in thousands)
<S> <C> <C>
CAPITALIZATION & LIABILITIES
Capitalization:
Common Stock $ 4,280 $ 4,280
Paid In Capital 18,159 18,204
Retained Earnings 9,851 7,750
Less: Accounts Receivable from ESOP (2,951) (3,142)
-------- --------
Total Common Stock Equity 29,339 27,092
-------- --------
Long-Term Debt (Less Current Maturities):
8% First Mortgage Bonds, Series Due 2022 20,130 20,212
9% Notes Payable, Due 1999 2,139 2,139
Notes Payable 905 905
-------- --------
Total Long-Term Debt 23,174 23,256
-------- --------
Total Capitalization 52,513 50,348
-------- --------
Revolving Under Capital Lease 2,300 2,200
-------- --------
Obligation Under Capital Lease 1,636 2,134
-------- --------
Current Liabilities:
Current Maturities of Long-Term Debt 500 500
Obligation Under Capital Lease 869 811
Notes Payable 12,000 14,900
Accounts Payable 4,799 5,243
Deferred Fuel Costs 1,304 -0-
Security Deposits & Refund Obligations 1,075 1,097
Taxes Accrued 2,246 190
Accrued Interest 939 552
Other 911 712
-------- --------
Total 24,643 24,005
-------- --------
Commitments and Contingencies
Deferred Credits 6,682 6,740
-------- --------
Deferred Federal Income Taxes 11,486 11,262
-------- --------
$ 99,260 $ 96,689
======== ========
</TABLE>
The accompanying Notes are an integral part of these statements.
5
<PAGE>
VALLEY RESOURCES, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
For the 9 Months
Ended
May 31, May 31,
1997 1996
---- ----
(in thousands)
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 4,444 $ 5,075
Adjustments to Reconcile Net Income to Net Cash provided by
Operating Activities:
Depreciation and Amortization 2,333 2,212
Provision for Uncollectibles 1,159 1,087
Deferred Federal Income Taxes 108 434
Change in Assets and Liabilities:
Accounts Receivable (6,011) (3,516)
Deferred Fuel Costs 2,131 (1,858)
Unbilled Gas Costs (57) (49)
Fuel and Other Inventories 1,950 1,668
Other Current Assets 103 319
Accounts Payable, Accrued Expenses and Current Liabilities 1,590 1,966
Other - Net 809 130
------ ------
Net Cash Provided by Operating Activities 8,559 7,468
------ ------
Cash Flows from Investing Activities:
Utility Capital Expenditures (2,457) (3,248)
Nonutility Capital Expenditures (530) (460)
Other Investments (67) (55)
------ ------
Net Cash Used in Investing Activities (3,054) (3,763)
------ ------
Cash Flows from Financing Activities:
Dividends Paid (2,344) (2,305)
Capital Stock Transactions (45) 130
Issuance of Long Term Debt 100 2,200
Retirement of Long-Term Debt (82) (825)
Decrease in Notes Payable (2,900) (2,600)
------ ------
Net Cash Used in Financing Activities (5,271) (3,400)
Net Increase in Cash 234 305
Cash - Beginning 507 455
------- -------
Cash - Ending $ 741 $ 760
======= =======
Supplemental Disclosures of Cash Flow Information
Cash Paid During the Period for:
Interest $ 2,092 $ 2,136
======= =======
Federal Income Taxes $ 386 $ 725
======= =======
Capital Lease Obligations Incurred $ 314 $ 1,804
======= =======
</TABLE>
The accompanying Notes are an integral part of these statements.
6
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 1
- ------
The Corporation computes earnings per average common share based on the
weighted average number of shares outstanding during the period.
Note 2
- ------
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 May 31, 1997 the results of operations for
the three and nine months ended May 31, 1997 and 1996 and Statement of Cash
Flows for the nine months ended May 31, 1997 and 1996.
The results of operations for the three- and nine-month periods ended May
31, 1997 and 1996 are not necessarily indicative of the results to be expected
for the full year.
Note 3
- ------
Inventories - Fuel and Other Inventories:
(in Thousands)
<TABLE>
<CAPTION>
(Unaudited)
May 31, August 31,
1997 1996
---- ----
<S> <C> <C>
Fuels (at average cost) $1,582 $3,623
Merchandise and Other (at average cost) 1,183 1,199
Merchandise (at LIFO) 1,333 1,226
------ ------
$4,098 $6,048
====== ======
</TABLE>
Note 4
- ------
Pursuant to the dividend reinvestment plan, stockholders can reinvest
dividends and make limited additional investments in shares of Common Stock.
Shares issued through dividend reinvestment can be acquired on the open market
or original issue.
7
<PAGE>
PART I - ITEM II
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
For the three months ended May 31, 1997 versus 1996
Utility gas revenues for the three months ended May 31, 1997, the third
fiscal quarter, totaled $21,288,900, an increase of 11.3 percent over the same
period in fiscal 1996. Revenues increased due to higher collections through the
PGPA and increased transportation and seasonal revenue. PGPA revenues increased
as a result of an increase in the PGPA rate charged to firm customers; this
increase resulted from prior period underrecoveries being collected in the
quarter and higher estimated gas costs for fiscal 1997. PGPA revenues do not
impact operating margin. Revenues generated from regulated base tariffs
decreased 3.2 percent when compared to the prior year as a result of decreased
natural gas sales resulting from warmer weather in the quarter when compared to
the same quarter last year.
Gas sales to firm customers during the third fiscal quarter totaled
2,492,200 Mcf, a decrease of 3.0 percent from the prior year third quarter. The
decrease in gas sales is the result of a decline in usage by all firm customer
categories. Weather during the third quarter, as measured by degree days, was
1.6 percent warmer than the same period last year. The weather during the third
fiscal quarter does not have the same impact on gas sales as the second fiscal
quarter, the winter period.
Valley Gas transports natural gas owned by customers if delivered to Valley
Gas's gate station. Transportation revenues for the quarter increased $94,700
over the same period in fiscal 1996 due to increased volumes transported.
Nonutility revenues totaled $4,992,400 for the three months ended May 31,
1997, an increase of 10.0 percent over the third quarter in fiscal 1996. During
the third quarter, except for the propane operations, all the nonutility
subsidiaries generated increased revenues. The retail merchandising operations
are continuing to be positively impacted by the focus on the commercial markets
and electric heating conversions. The Corporation's subsidiary, AEC completed
the installation and upgrade of two natural gas refueling stations, which
contributed to increased third quarter revenues. Propane revenues decreased due
to a decline in volumes of propane sold.
The primary contributor to the increase in operating expenses during the
third fiscal quarter was a 23.7 percent increase in the cost of gas sold. The
average cost of gas distributed to firm customers during the quarter was $3.38
per Mcf for the three months ended May 31, 1997 versus $3.90 per Mcf during the
third quarter of fiscal 1996. Changes in gas costs, both increases and
decreases, are recovered from customers through the PGPA in subsequent periods.
The increase in nonutility sales is responsible for the 10.3 percent
increase in cost of sales. Other operation and maintenance expenses decreased
slightly during the period due to cost controls implemented by the utilities.
Other income increased $49,300 for the quarter compared to last year. The
increase is the result of the receipt of income associated with other
investments.
8
<PAGE>
For the three months ended May 31, 1997, interest expense increased 6.0
percent over the same quarter last year. The increase in interest expense was
the result of increases in short-term borrowings, slightly offset by decreased
PGPA interest.
For the nine months ended May 31, 1997 versus 1996
For the nine months ended May 31, 1997, utility gas revenues were
$57,412,200, an increase of 8.1 percent 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 and transportation revenues.
Base revenues generated from the regulated tariffs declined 3.5 percent as
a result of decreased natural gas sales resulting from warmer than normal
weather. PGPA revenues increased $5,543,700 over the prior year's nine month
period due to an increase in the PGPA rate charged to firm customers.
Seasonal revenues during the nine month period were 18.8 percent higher
than the same period in fiscal 1996 but the volume of seasonal gas sales
increased only 13.4 percent. 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 company.
Valley Gas transports natural gas owned by customers if delivered to Valley
Gas's gate station. Transportation revenues for the nine month period increased
$180,100 over the same period in fiscal 1996 due to increased volumes
transported.
Gas sold to firm customers decreased 4.3 percent to 7,110,200 Mcf for the
nine months ended May 31, 1997. The decrease in gas sales is the result of
warmer weather which was partially offset by an increase in the number of
customers. Weather, as measured by degree days, was 4.6 percent warmer than the
prior year nine month period. At May 31, 1997 there were 62,181 utility
customers versus 61,979 at May 31, 1996.
Nonutility revenues for the nine months ended May 31, 1997 totaled
$16,141,400, an increase of 8.2 percent over fiscal 1996. The increase in
nonutility revenues was the result of increases in retail and wholesale
merchandise sales, revenues generated from propane operations and sales made by
AEC. Conversions from electric heating, sales in the commercial markets and
increases in the wholesale operation contributed to the increased revenues.
Propane revenues for the nine month period increased over the prior year period,
despite weather related decreases in gallons sold, due to price increases in the
cost of propane being passed along to customers.
Operating expenses for the 1997 nine month period were impacted by
increases in the cost of gas sold and nonutility cost of sales. The cost of gas
sold increased when compared to the same period last year as a result of both
the purchase price of natural gas and the increased gas cost related to the PGPA
revenue reconciliation. The average cost of gas distributed to firm customers
was $3.98 per Mcf for the nine months ended May 31, 1997 compared to $3.61 per
Mcf in the prior year period. Nonutility cost of sales increased 7.3 percent
which is directly attributable to the increase in nonutility revenues.
The decrease in other income of $63,600 for the nine month period was the
direct result of the decline in off-system sales. The decrease in other income
was offset by increased interest income and the recognition of income on other
investments.
9
<PAGE>
Interest expense increased 2.3 percent for the nine month period. Interest
on increased short-term borrowings were slightly offset by a reduction in
interest accrued on deferred fuel costs and lower borrowing rates.
Liquidity and Capital Resources
During the third fiscal quarter the liquidity position of the Corporation
improved over the second quarter as a result of the collection of accounts
receivable, the timing of tax payments and the receipt of a natural gas supplier
refund. Management believes the available financing are sufficient to meet cash
requirements for the foreseeable future. The available borrowings under lines of
credit at May 31, 1997, were $17,000,000.
Cash flows were impacted during the third quarter by the receipt of a
natural gas supplier refund in the amount of $1,700,000. This refund was
credited to the PGPA which had a positive impact on liquidity during the
quarter. Sales during the third quarter were less than anticipated due to warmer
than normal weather which impacted liquidity.
On June 26, 1997, Valley Resources, Inc. filed a registration statement
with the Securities and Exchange Commission, to issue, in a public offering,
620,000 shares of common stock and $7,000,000 of debentures due 2027. The net
proceeds to the Corporation are expected to provide approximately $13,313,000,
of cash. The Corporation intends to contribute $6,663,100 of the net proceeds of
the offering 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 and to repay short-term debt and for
working capital requirements.
Construction expenditures increased during the third fiscal quarter, as
planned, due to more favorable weather, thereby adversely effecting liquidity.
The liquidity position of the Corporation will be seasonally affected
during the fourth quarter when gas inventories are replenished for use during
winter months and revenues decline as a result of the lack of heat-sensitive
sales in the utility companies.
Cash expended on the construction program will increase during the fourth
fiscal quarter which also impacts cash flows.
PART I - ITEM 6(a)
Item 6(a) - Exhibits
- --------------------
27. Financial Data Schedule
10
<PAGE>
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
- -----------------------------------------
(a)
10) Loan Agreement between Valley Resources, Inc. and Fleet National Bank
dated June 30, 1997.
(b) The Company did not file a Form 8-K.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VALLEY RESOURCES, INC. AND
SUBSIDIARIES
S/K. W. Hogan
----------------------------------------
K. W. Hogan
Senior Vice President,
Chief Financial Officer
and Secretary
July 11, 1997
11
<PAGE>
Exhibit 10
LOAN AGREEMENT
BY AND BETWEEN
FLEET NATIONAL BANK
AND
VALLEY RESOURCES, INC.
$3,142,200
----------
TERM LOAN TO VALLEY RESOURCES, INC.
-----------------------------------
June 30, 1997
#157045 v3
<PAGE>
TABLE OF CONTENTS
-----------------
Page
ARTICLE I. DEFINITIONS AND ACCOUNTING AND OTHER TERMS................ 1
Section 1.1. Certain Defined Terms.............................. 1
Section 1.2. Accounting Terms................................... 7
Section 1.3. Other Terms........................................ 8
ARTICLE 2 AMOUNT AND TERMS OF THE LOAN.............................. 8
Section 2.1. Loans.............................................. 8
Section 2.2. Interest........................................... 8
Section 2.3. Interest Rate Elections............................ 9
Section 2.4. Interest in Absence of Interest Rate Election...... 9
Section 2.5. Special Cost of Funds Provisions................... 9
Section 2.5.1. Interest Rate Elections..................... 9
Section 2.5.2. Voluntary Prepayment........................ 10
Section 2.5.3. Involuntary Prepayment...................... 10
Section 2.5.4. Prepayment Premium.......................... 10
Section 2.6. Computation of Interest and Fees................... 11
Section 2.7. Origination Fee.................................... 11
Section 2.8. Increase Costs - Capital........................... 11
Section 2.9. Notations.......................................... 11
Section 2.10. Time and Place of Payments......................... 11
Section 2.11. Right of Setoff.................................... 12
Section 2.12. Unconditional Obligations and No Deductions........ 12
Section 2.13. Prepayment and Certain Payments.................... 12
Section 2.13.1. Voluntary Prepayments....................... 12
Section 2.13.2. Mandatory Prepayment........................ 13
Section 2.13.3. Absence of Designation of Payment or Prepayment 13
Section 2.14. Payment of Non-Business Days....................... 13
Section 2.15. Use of Proceeds.................................... 13
Section 2.16. Security........................................... 13
ARTICLE 3 CONDITIONS OF LENDING..................................... 14
Section 3.1. Conditions Precedent to the Loans.................. 14
Section 3.1.1. Financing Documents......................... 14
Section 3.1.2. Trustee's Certificate....................... 14
Section 3.1.3. Secretary's Certificate..................... 14
Section 3.1.4. Opinion of Borrower's Counsel............... 14
Section 3.1.5. Closing Certificates........................ 14
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<PAGE>
Section 3.1.6. Good Standing Certificates.................. 15
Section 3.1.7. Discharge of Indebtedness................... 15
Section 3.1.8. KSOP Document............................... 15
Section 3.1.9. Acquisition Documents....................... 15
Section 3.1.10. Financial Reports........................... 15
Section 3.1.11. Other Documents............................. 15
Section 3.1.12. Counsel Fees................................ 15
ARTICLE 4 REPRESENTATIONS AND WARRANTIES............................ 16
Section 4.1. Organization and Existence......................... 16
Section 4.2. Authorization and Absence of Defaults.............. 16
Section 4.3. Acquisition of Consents............................ 16
Section 4.4. Validity and Enforceability........................ 16
Section 4.5. Financial Information.............................. 16
Section 4.6. No Litigation...................................... 17
Section 4.7. Regulation U....................................... 17
Section 4.8. Absence of Adverse Agreements...................... 18
Section 4.9. Taxes.............................................. 18
Section 4.10. ERISA.............................................. 18
Section 4.11. Validity of KSOP................................... 18
Section 4.12. Authority of the KSOP.............................. 18
Section 4.13. Ownership of Properties............................ 19
Section 4.14. No Investment Company.............................. 19
Section 4.15. Solvency........................................... 19
Section 4.16. Licenses, Registrations, and Compliance with Laws.. 19
Section 4.17. Principal Place of Business; Books and Records..... 19
Section 4.18. Subsidiaries....................................... 19
Section 4.19. Hazardous Waste.................................... 20
Section 4.20. Accuracy of Representations and Warranties......... 20
ARTICLE 5 COVENANTS................................................. 20
Section 5.1. Affirmative Covenants of Borrower Other than Reporting
Requirements....................................... 20
Section 5.1.1. Payment of Taxes............................ 20
Section 5.1.2. Maintenance of Insurance.................... 20
Section 5.1.3. Registration of Securities.................. 20
Section 5.1.4. Compliance with Securities Law Requirements. 21
Section 5.1.5. Preservation of Existance................... 21
Section 5.1.6. Maintenance of Properties................... 21
Section 5.1.7. Compliance with Laws........................ 21
Section 5.1.8. Visitation Rights........................... 21
Section 5.1.9. Recordkeeping............................... 21
Section 5.1.10. Accounting System........................... 21
Section 5.1.11. Other Obligations........................... 22
Section 5.1.12. KSOP Continuation........................... 22
Section 5.1.13. Prevention.................................. 22
Section 5.1.14. Ratio of Adjusted Indebtedness to Consolidated
Tangible Net Worth.......................... 22
#157045 v3
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<PAGE>
Section 5.1.15. Minimum Consolidated Net Income............. 22
Section 5.1.16. Ratio of EBIT to Interest Expense........... 22
Section 5.1.17. Ratio of Funded Indebtedness to Capitalization 22
Section 5.1.18. Ratio of Adjusted Indebtedness to Total
Capitalization.............................. 22
Section 5.2. Negative Covenants of the Borrower................. 22
Section 5.2.1. Liens....................................... 22
Section 5.2.2. Assumptions, Guaranties, Indebtedness of
Other Persons............................... 23
Section 5.2.3. Dissolution................................. 24
Section 5.2.4. Change in Nature of Business................ 24
Section 5.2.5. Sale and Leaseback.......................... 24
Section 5.2.6. Sale of Accounts............................ 24
Section 5.2.7. Indebtedness................................ 24
Section 5.2.8. Other Agreements............................ 25
Section 5.2.9. Dividends, Payments and Distributions....... 25
Section 5.2.10. Sale of Assets.............................. 25
Section 5.2.11. Investments in or to Other Persons.......... 25
Section 5.2.13. Change of Fiscal Year....................... 26
Section 5.2.14. Supordination of Claims..................... 26
Section 5.2.15. Compliance with ERISA....................... 26
Section 5.2.16. Hazardous Waste............................. 26
Section 5.3. Reporting Requirements............................. 26
ARTICLE 6 EVENTS OF DEFAULT......................................... 28
Section 6.1. Events of Default.................................. 28
ARTICLE 7 REMEDIES OF BANK.......................................... 29
ARTICLE 8 MISCELLANEOUS............................................. 30
Section 8.1. Consent to Jurisdiction and Service of Process..... 30
Section 8.2. Rights and Remedies Cumulative..................... 31
Section 8.3. Delay or Omission Not Waiver....................... 31
Section 8.4. Waiver of Stay or Extension Laws................... 31
Section 8.5. Amendments, etc.................................... 31
Section 8.6. Addresses for Notices, etc......................... 31
Section 8.7. Costs, Expenses and Taxes.......................... 32
Section 8.8. Participants, Assignments.......................... 32
Section 8.9. Brokers............................................ 33
Section 8.10. Binding Effect, Assignment......................... 33
Section 8.11. Actual Knowledge................................... 33
Section 8.12. Governing Law...................................... 33
Section 8.13. Severability of Provisions......................... 33
Section 8.14. Headings........................................... 33
Section 8.15. Counterparts....................................... 33
#157045 v3
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<PAGE>
SCHEDULE OF EXHIBITS
--------------------
Exhibit A - Form of Term Note
Exhibit B - Form of Interest Rate Election
Exhibit C - Designation of Authorized Representative
Exhibit D - Compliance Certificate Form
Exhibit E - Form of Opinion of Counsel to Borrower
Exhibit F - Pending Litigation
Exhibit G - Permitted Encumbrances and Capitalized Leases
Exhibit H - Subsidiaries of Borrower
Exhibit I - Form of Request
Exhibit J - Hazardous Waste Disclosure
#157045 v3
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<PAGE>
LOAN AGREEMENT
FLEET NATIONAL BANK, a national banking association organized under the
laws of the United States (the "Bank") and VALLEY RESOURCES, INC., a Rhode
Island corporation ("Borrower") hereby agree as follows:
ARTICLE I.
DEFINITIONS AND ACCOUNTING AND OTHER TERMS
Section 1.1. Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
"Adjusted Indebtedness" means, for any Person, (i) all indebtedness or
other obligations of said Person for Borrowed Money or for the deferred purchase
price of property or services, (ii) all indebtedness or other obligations of any
other Person ("Other Person') for Borrowed Money or for the deferred purchase
price of property or services, the payment or collection of which said Person
has guaranteed (except by reason of endorsement for collection in the ordinary
course of business) or in respect of which said Person is liable, contingently
or otherwise, including without limitation, liable by way of agreement to
purchase or lease, to provide funds for payment, to supply funds to purchase,
sell or lease property or services primarily to assure a creditor of such Other
Person against loss or otherwise to invest in or make a loan to the Other
Person, or otherwise to assure a creditor of such Other Person against loss, and
(iii) all indebtedness or other obligations of any Person for Borrowed Money or
for the deferred purchase price of property or services secured by (or for which
the holder of such indebtedness has an existing right, contingent or otherwise,
to be secured by) any Lien upon or in any property owned by said Person, whether
or not said Person has assumed or become liable for the payment of such
indebtedness or obligations.
"Affiliate" means singly and collectively, any Person (other than a
Subsidiary) which, directly or indirectly, is in control of, is controlled by,
or is under common control with, the Borrower. For purposes of this definition,
a Person shall be deemed to be "controlled by" the Borrower if the Borrower
possesses, directly or indirectly, power either to (i) vote 10% or more of the
securities having ordinary voting power for the election of directors of such
Person or (ii) direct or cause the direction of the management and policies of
such Person whether by contract or otherwise, and the legal representative,
successor or assign of any such Person.
"Agreement" means this Loan Agreement.
"Bank" has the meaning assigned in the first paragraph of this Agreement.
"Borrowed Money" means any obligation to repay money, any Indebtedness
evidenced by notes, bonds, debentures, guaranties or similar obligations
including without limitation the Loan, and any obligation under a conditional
sale or other title retention agreement, the net aggregate rentals under any
Capitalized Lease Obligation or any lease which is the substantial equivalent of
the financing of the property so leased and any reimbursement obligation for any
drawing under a letter of credit.
"Borrower" has the meaning assigned in the first paragraph of this
Agreement.
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"Business Day" means any day on which banks in Providence, Rhode Island are
not authorized or required to close.
"Capital Lease Obligations" means all lease obligations which have been or
should be, in accordance with GAAP capitalized on the books of the lessee.
"Capitalization" means with respect to Borrower and the Subsidiaries the
excess of (A) the sum of capital stock (except treasury stock), capital surplus,
retained earnings and Funded Indebtedness (excluding current portions thereof)
over (B) the sum of (x) those assets which, pursuant to generally accepted
accounting principles, would be considered to be intangibles (including, but not
limited to, goodwill, unamortized debt expense, deferred charges, but excluding
utility recoverable assets).
"Cash Equivalent Investments" means any Investment in (i) direct
obligations of the United States or any agency, authority or instrumentality
thereof, or obligations guaranteed by the United States or any agency, authority
or instrumentality thereof, whether or not supported by the full faith and
credit of, a right to borrow from or the ability to be purchased by the United
States; (ii) commercial paper of the Bank or other commercial paper rated in the
highest grade by a nationally recognized statistical rating agency or which, if
not rated, is issued or guaranteed by any issuer with outstanding long-term debt
rated A or better by any nationally recognized statistical rating agency; (iii)
demand and time deposits with, and certificates of deposit and bankers
acceptances issued by, any office of any Bank or any other bank or trust company
which is organized under the laws of the United States or any state thereof and
has capital, surplus and undivided profits aggregating at least $400,000,000;
(iv) any short-term note which has a rating of MIG-2 or better by Moody's
Investors Service Inc. or a comparable rating from any other nationally
recognized statistical rating agency; (v) any municipal bond or other
governmental obligation (including without limitation any industrial revenue
bond or project note) which is rated A or better by any nationally recognized
statistical rating agency; (vi) any other obligation of any issuer, the
outstanding long-term debt of which is rated A or better by any nationally
recognized statistical rating agency; or (vii) any repurchase agreement with any
financial institution described in clause (iii) above, relating to any of the
foregoing instruments and fully collateralized by such instruments. Each Cash
Equivalent Investment shall have a maturity of less than one year at the time of
purchase; provided that the maturity of any repurchase agreement shall be deemed
to be the repurchase date and not the maturity of the subject security and that
the maturity of any variable or floating rate note subject to prepayment at the
option of the holder shall be the period remaining (including any notice period
remaining) before the holder is entitled to prepayment.
"CFR" means the Code of Federal Regulations, as amended from time to time.
"Closing Date" means the date on which all of the conditions precedent set
forth in Section 3.1 of this Agreement have been satisfied and the Loan is made.
"Code" means the Internal Revenue Code of 1986 as amended from time to
time.
"Commitment" means the Bank's commitments to make the Loans as set forth in
Section 2 up to the maximum outstanding amounts set forth therein.
"Commonly Controlled Entity" means a Person, whether or not incorporated,
which is under common control with the Borrower within the meaning of section
414(b) or (c) of the Code.
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"Consolidated Net Income" means, with respect to any period, Borrower's and
Subsidiaries net income (loss), all determined on a consolidated basis in
accordance with GAAP.
"Consolidated Tangible Net Worth" means the Borrower's and the
Subsidiaries' excess of total assets over total liabilities, total assets and
total liabilities each to be determined in accordance with GAAP, excluding
however, from the determination of total assets (i) all assets which would be
classified as intangible assets under GAAP, including without limitation
goodwill (whether representing the excess of cost over book value of assets
acquired or otherwise), patents, trademarks, trade names, copyrights, franchises
and deferred charges (including, without limitation, unamortized debt discount
and expense, organization costs, and research and development costs, but
excluding recoverable utility assets), (ii) treasury stock, (iii) cash set apart
and held in a sinking or other analogous fund established for the purpose of
redemption or other retirement of capital stock, (iv) to the extent not already
deducted from total assets, reserves for depreciation, depletion, obsolescence
and/or amortization of properties and all other reserves or appropriations of
retained earnings which, in accordance with GAAP, should be established in
connection with the business conducted by the Person whose tangible net worth is
being determined, (v) any upward reevaluation or other write-up in book value of
assets subsequent to the date hereof and (vi) loans and advances to
shareholders, directors, or officers of the Borrower or any of the Subsidiaries.
"Consolidated Total Liabilities" means all Indebtedness of Borrower and
Subsidiaries on a consolidated basis.
"Cost of Funds Rate" means the rate of interest which the Bank is required
to pay (or offering to pay) on the date in question for its borrowings and
obligations (such as $100,000 certificates of deposit) having a term equal to
the applicable Fixed Rate Term, as the Bank, in its sole discretion, may deem
appropriate, but adjusted for reserve requirements and such other requirements
as may be imposed by federal, state and/or local government and regulatory
agencies and for fees assessed by the Bank's Treasury Department, all as
determined in the Bank's sole discretion.
"Current Indebtedness" means all Adjusted Indebtedness maturing or which by
its terms may become due or payable not more than 12 months from the date of its
creation or incurrence and which is not renewable at the option of the Person to
whom the test is applied to a date beyond one year from the date of its creation
or incurrence.
"Debt Service" means the amount needed by the Borrower from time to time to
pay principal, interest, fees and expenses on its Indebtedness, including
Indebtedness to Bank, but excluding Indebtedness to trade creditors which is not
overdue.
"Default" means an event or condition which with the giving of notice or
lapse of time or both would become an Event of Default.
"Dollars" and the sign "$" mean lawful money of the United States of
America.
"EBIT" means, with respect to any period, Consolidated Net Income for such
period plus extraordinary charges (minus extraordinary credits) for such period,
plus the amount of income taxes paid, accrued or deferred, (minus income tax
credits received or accrued) for such period, plus Interest Expense paid or
accrued for such period, minus interest income and dividends earned for such
period, minus undistributed equity in earnings (plus equity in losses), all
determined on a consolidated basis in accordance with GAAP.
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"Effective Prime" means the Prime Rate.
"Employer Securities" has the meaning as assigned in the KSOP Plan.
"ERISA" means the Employment Retirement Income Security Act of 1974 as
amended from time to time.
"Events of Default" has the meaning assigned to that term in Section 6.1 of
this Agreement.
"Exhibit" means, when followed by a letter, the exhibit attached to this
Agreement bearing that letter and by such reference fully incorporated in this
Agreement.
"Financing Documents" means, collectively, this Agreement, the Note, the
Security Documents, and each other agreement, instrument or document now or
hereafter executed in connection herewith or therewith.
"Fixed Rate" means, for any Fixed Rate Term, the Cost of Funds Rate for
such Fixed Rate Term plus three quarter percent (.75%) per annum.
"Fixed Rate Loan" means that portion of the Loans bearing interest at the
Fixed Rate.
"Fixed Rate Term" has the meaning assigned thereto in Section 2.5.1.
"Funded Indebtedness" means all Adjusted Indebtedness maturing or which by
its terms may become due or payable more than one year from the date of its
creation or incurrence and all Adjusted Indebtedness maturing or which by its
terms may become due or payable not more than one year from such date which is
renewable at the option of the Person to whom the test is applied to a date
beyond one year from such date. In computing Funded Indebtedness there shall be
excluded Adjusted Indebtedness, the evidence of which is in the possession of
and owned by the Company, and Adjusted Indebtedness for the payment, prepayment
or redemption of which the requisite moneys have been deposited with the trustee
under the indenture or other instrument pursuant to which such Adjusted
Indebtedness was issued and with respect to which any requisite notice of
redemption or prepayment has been given or provision satisfactory to such
trustee for the giving thereof has been made.
"GAAP" means generally accepted accounting principles in effect from time
to time in the United States of America, as applied in the case of regulated
public utilities.
"Hazardous Waste" means any "hazardous substance" or "hazardous waste" as
defined in the Hazardous Waste Laws, including, without limitation (whether or
not included in the definition contained in the Hazardous Waste Laws), PCB's,
asbestos, radon and other chemicals which would be materially dangerous to the
environment or to human beings.
"Hazardous Waste Laws" means the Hazardous Waste Management Act of 1978,
R.I.G.L. '23-19.1-1 et seq., as amended, the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. Section 9601 et seq., as
amended, and any and all other federal, state or local laws governing the
existence, release, generation, storage or disposal of any hazardous or toxic
materials, and the regulations adopted pursuant thereto.
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"Indebtedness" means, for any Person, (i) all indebtedness or other
obligations of said Person for Borrowed Money or for the deferred purchase price
of property or services, (ii) all indebtedness or other obligations of any other
Person ("Other Person") for Borrowed Money or for the deferred purchase price of
property or services, the payment or collection of which said Person has
guaranteed (except by reason of endorsement for collection in the ordinary
course of business) or in respect of which said Person is liable, contingently
or otherwise, including, without limitation, liable by way of agreement to
purchase or lease, to provide funds for payment, to supply funds to purchase,
sell or lease property or services primarily to assure a creditor of such Other
Person against loss or otherwise to invest in or make a loan to the Other
Person, or otherwise to assure a creditor of such Other Person against loss,
(iii) all indebtedness or other obligations of any Person for Borrowed Money or
for the deferred purchase price of property or services secured by (or for which
the holder of such indebtedness has an existing right, contingent or otherwise,
to be secured by) any Lien upon or in any property owned by said Person, whether
or not said Person has assumed or become liable for the payment of such
indebtedness or obligations, (iv) Capitalized Lease Obligations of said Person
and (v) all other liabilities or obligations of said Person which would, in
accordance with GAAP, be classified as liabilities of such a Person.
"Interest Adjustment Date" means (i) as to any Prime Rate Loan, the
Business Day elected by the Borrower in its applicable Interest Rate Election,
but being not less than thirty (30) Business Days after the receipt by the Bank
before 12:00 o'clock Noon on a Business Day of an Interest Rate Election
changing the interest rate on such Loan to the Prime Rate; and (ii) as to any
Fixed Rate Loan, the last Business Day of the Fixed Rate Term pertaining to such
Fixed Rate Loan.
"Interest Expense" means, with respect to any period, the aggregate amount
needed by Borrower and the Subsidiaries to pay interest, fees, charges and
expenses accrued or incurred during such period, all as reported on Borrower's
consolidated statements of income in accordance with GAAP.
"Interest Rate Election" means Borrower's irrevocable telecopied or
telephonic notice which shall be promptly confirmed by a written notice of
election that Effective Prime or the Fixed Rate shall apply to all of the
principal balance of the Loans then outstanding, which shall, subject to this
Agreement, be effective on the next Interest Adjustment Date, such telecopied,
telephonic or written notice and written confirmation thereof to be in the form
of Exhibit C and to be received by the Bank prior to 12:00 o'clock Noon on a
Business Day and at least one (1) Business Day prior to an Interest Adjustment
Date, each such Interest Rate Election, subject to the terms of this Agreement,
to effect a change in the interest rate on all of the principal balance of the
Loans then outstanding, with respect to which such Interest Rate Election was
made, such change to occur on the Interest Adjustment Date next succeeding
receipt of such telecopied or telephonic Interest Rate Election by the Bank. Any
telecopied or telephonic Interest Rate Election received by the Bank after 12
o'clock Noon on a Business Day shall be deemed, for all purposes of this
Agreement to have been received prior to 12 o'clock Noon on the next succeeding
Business Day.
"Investment" means any investment in any Person whether by means of a
purchase of capital stock, notes, bonds, debentures or other evidences of
Indebtedness and/or by means of a capital or partnership contribution, loan,
deposit, advance or otherwise.
"KSOP" means the Valley Resources, Inc. 401(k) Employee Stock Ownership
Plan effective January 1, 1997 as defined by the KSOP Plan.
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"KSOP Note" means the promissory note of the KSOP payable to the Borrower
of even date herewith in the maximum principal amount of $3,142,200.
"KSOP Plan" means the Valley Resources, Inc. 401(k) Employee Stock
Ownership Plan established by the Borrower as of January 1, 1997 and the Valley
Resources Inc. 401(k) Employee Stock Ownership Agreement Plan Trust Agreement,
by and between the Borrower and the Trustee dated as of January 1, 1997, as such
plan and trust agreement may have been or be amended.
"Lien" means any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other) or other security agreement
or preferential arrangement of any kind or nature whatsoever (including without
limitation any conditional sale or other title retention agreement and any
Capitalized Lease Obligation) having substantially the same economic effect as
any of the foregoing and the filing of any financing statement under the
applicable Uniform Commercial Code or comparable law of any jurisdiction in
respect of any of the foregoing.
"Loans" and "Loan" means at any time the outstanding amount of Indebtedness
under the Loans evidenced by the Note, and if the context so requires, each
advance of funds to the Borrower pursuant to a Request and Interest Rate
Election subject to and in accordance with this Agreement.
"Multiemployer Plan" means a multiemployer Plan as defined in Title IV of
ERISA.
"Note" means the promissory note of the Borrower payable to the order of
the Bank in substantially the form of Exhibit A.
"Officer's Certificate" means a certificate signed by the President or Vice
President and delivered to Bank.
"PBGC" means the Pension Benefit Guarantee Corporation established pursuant
to subtitle A of Title 4 of ERISA.
"Person" means an individual, corporation, limited liability company,
partnership, joint venture, trust, or unincorporated organization, or a
government or any agency or political subdivision thereof.
"Plan" means an employee benefit plan or other plan maintained for
employees of the Borrower or any Commonly Controlled Entity and covered by Title
IV of ERISA.
"PMSI" means purchase money security interest as defined under the Uniform
Commercial Code, as amended from time to time.
"Prime Rate" means the floating rate of interest per annum designated from
time to time by the Bank as being its "prime rate" of interest, such interest
rate to be adjusted on the effective date of any change thereof by the Bank it
being understood that such rate of interest may not be the lowest rate of
interest from time to time charged by the Bank.
"Prime Rate Loan" means that portion of the Loans bearing interest at
Effective Prime.
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"Property" means any real property in which Borrower or any Subsidiary has
an interest.
"Repayment Date" means the earlier to occur of (i) the last Business Day of
July, 2007, or (ii) such date on which any of the obligations of the Borrower to
the Bank under any of the Financing Documents shall have become immediately due
and payable.
"Reportable Event" shall have the meaning assigned to that term in Title IV
of ERISA.
"Request" means a written request for a Loan in the form of Exhibit I,
received by the Bank from Borrower, at the time and on the Business Day
stipulated for an Interest Rate Election in accordance with this Agreement,
specifying the amount of the Loan, the date on which Borrower desires such Loan,
and accompanied by an Interest Rate Election for such Loan.
"Section" means, when followed by a number, the section or subsection of
this Agreement bearing that number.
"Security Documents" means any and all documents, instruments and
agreements now or hereafter providing security for the Loan, including without
limitation the following of even date herewith: (1) that certain Borrower's
stock pledge agreement to Bank of its interest in the shares of Valley Appliance
and Merchandising Company and Valley Propane, Inc.; (2) collateral assignment to
Bank of all interest of Borrower with respect to KSOP stock pledge agreement to
Borrower of all interest in shares of Borrower and (3) Borrower pledge agreement
to Bank of all interest in $3,142,200 promissory note of KSOP payable to the
order of the Borrower; (4) $3,142,200 promissory note of KSOP; and (5) UCC-1
financing statements or similar filings perfecting the above-referenced security
interests, all as executed, delivered to and accepted by Bank on or prior to the
Closing Date, as same may be amended in writing from time to time by Bank,
Borrower and/or a Subsidiary, as the case may be.
"Single Employer Plan" means any Plan which is not a Multiemployer Plan.
"Subsidiary" means any corporation, if any, of which more than 50% of the
outstanding capital stock having ordinary voting power to elect a majority of
the board of directors or other managers of such corporation (irrespective of
whether or not at the time capital stock of any other class or classes of such
corporation shall or might have voting power upon the occurrence of any
contingency) is at the time directly or indirectly owned by Borrower or by
Borrower and/or one or more Subsidiaries or the management of which corporation
is under control of Borrower and/or one or more Subsidiaries, directly or
indirectly, through one or more Persons and any Person which, under GAAP, should
at any time for financial reporting purposes be consolidated with Borrower
and/or any other Subsidiary.
"Total Capitalization" means the sum of Capitalization and Current
Indebtedness.
"Trustee" means NYL Trust Company, a New York corporation, as trustee under
the KSOP Plan, or any successor trustee.
Section 1.2. Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP, and all financial
data submitted pursuant to this Agreement shall be prepared in accordance with
GAAP.
Section 1.3. Other Terms. The words "hereof," "herein" and "hereunder" and
words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to
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any particular provision of this Agreement. All references to time herein shall
be to the local time of Providence, Rhode Island.
ARTICLE 2
AMOUNT AND TERMS OF THE LOAN
Section 2.1. Loans. The Bank agrees, subject to the terms and conditions
contained in this Agreement, to make advances of funds to Borrower from time to
time after receipt by the Bank of, and at the times provided for in, a Request
and an Interest Rate Election from Borrower in accordance with Article 3, infra,
during the period commencing on the Closing Date and ending on the Business Day
immediately preceding the Repayment Date, in an aggregate principal amount equal
to Three Million One Hundred Forty-two Thousand Two Hundred and 00/100 Dollars
($3,142,200.00). The maximum amount of any advance available to Borrower shall
be determined by subtracting from $3,142,200 the aggregate amount of advances
previously made by Bank to Borrower in respect of the Loan. Payments made in
respect of the Loan shall not be considered in determining any remaining amount
available for advances so that Borrower shall not be entitled to reborrow any
amounts paid. The Loan shall be evidenced by the Note (completed and duly
executed by the Borrower in accordance with this Agreement), delivered to the
Bank on the Closing Date in accordance with Article 3, infra, in a maximum
principal amount equal to $3,142,200. The Loan shall be repaid in one hundred
and nineteen consecutive monthly installments of principal, each in the minimum
amount of $12,500 and each due and payable on the last Business Day of each
calendar month commencing July 31, 1997 and a final consecutive monthly
installment of principal due and payable on the last Business Day of July, 2007
in amount equal to the entire outstanding principal balance of the Loan.
IN ALL EVENTS, THE OUTSTANDING PRINCIPAL BALANCE OF THE LOAN, TOGETHER WITH ALL
INTEREST, FEES, CHARGES, COSTS AND EXPENSES ACCRUED THEREON SHALL BE PAID TO
BANK NOT LATER THAN THE REPAYMENT DATE.
The amount of each installment payment hereunder shall be applied first to
interest accrued, the remainder to any fees, charges, costs, or expenses then
due, and the remainder to the then outstanding principal balance of the Loan.
Borrower shall deliver to Bank a certificate or letter in the form of
Exhibit C certifying to Bank the names of all persons ("Authorized
Representatives") who are authorized by and on behalf of Borrower to request
advances under the Loans and make payments on the Loans.
Section 2.2. Interest. Interest shall accrue on the Loan at Effective Prime
or the Fixed Rate, all in accordance with each Interest Rate Election applicable
to the Loan and subject to and in accordance with the terms and conditions of
this Agreement and the Note. The Borrower shall pay such interest in arrears on
the Loan outstanding from time to time after the Closing Date, monthly on the
last Business Day of each calendar month, commencing July 31, 1997, and, on each
Interest Adjustment Date.
Section 2.3. Interest Rate Elections.
2.3.1 Subject to the terms and conditions of this Agreement, the Borrower
shall have the right, exercisable by submission of Interest Rate Elections to be
effective on the applicable Interest Adjustment Date for the Loans to elect
Effective Prime or the Fixed Rate as
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the interest rate on the then-outstanding principal balance of the Loans, but on
not less than the of the then-outstanding principal balance, that is subject to
an Interest Rate Election on such Interest Adjustment Date. The Borrower may
have up to 4 Interest Rate Elections in effect at any one time.
2.3.2 Interest Rate Elections with regard to the Fixed Rate shall be
governed by Section 2.5.
Section 2.4. Interest in Absence of Interest Rate Election. If at any time
all or any portion of the outstanding principal balance of the Loans is not
subject to an Interest Rate Election because an Interest Adjustment Date occurs
and the Bank has not received a timely Interest Rate Election from the Borrower
which is effective in accordance with the terms and conditions of this Agreement
on such Interest Adjustment Date, the interest rate on all or said portion of
said outstanding principal balance which is not subject to an Interest Rate
Election shall thereupon be and remain Effective Prime until occurrence of an
Interest Adjustment Date applicable to said principal balance of the Loans for
which the Bank shall have received a timely Interest Rate Election effective in
accordance with the terms and conditions of this Agreement on such Interest
Adjustment Date and which elects another available interest rate on all or said
portion (as the case may be) of the thenoutstanding principal balance of the
Loans.
Section 2.5. Special Cost of Funds Provisions. The Fixed Rate Loans shall
be subject to and governed by the following terms and conditions:
2.5.1 Interest Rate Elections. The Borrower shall have the right, by
submission of an Interest Rate Elections to the Bank, to elect that the interest
rate payable on all or a minimum $100,000 portion of the then-outstanding
principal balance of the Loans on an Interest Adjustment Date applicable
thereto, shall be the Fixed Rate, as the same shall exist on the date in
question for such term (the "Fixed Rate Term"), for periods of 30, 60 or 90
days, as the Bank shall offer to the Borrower in its sole discretion and the
Borrower shall select; provided, however, that in no event may any Fixed Rate
Term end after the Repayment Date. In its initial Interest Rate Election, the
Borrower shall elect that either Effective Prime or the Fixed Rate offered by
the Bank for a specified Fixed Rate Term shall apply to the Loan being made on
the Closing Date. Thereafter, once Effective Prime become applicable, Effective
Prime must remain in effect for a minimum of 30 days, and once a Fixed Rate
becomes applicable, such Fixed Rate must remain in effect for the applicable
Fixed Rate Term. An Interest Rate Election electing the Fixed Rate shall only
apply to a portion of the Loans outstanding at the time of election in a minimum
principal amount of $100,000. On the last Business Day of any agreed upon Fixed
Rate Term then in effect, or at any time after the expiration of such 30 day
period during which Effective Prime must be in effect, the Borrower may submit
to the Bank a new Interest Rate Election electing the Fixed Rate, at which time
the Bank shall inform the Borrower of the Fixed Rate and the Fixed Rate Term
which the Bank is then prepared to offer the Borrower, and the Borrower shall
immediately elect whether or not to accept same. The Bank shall not be required
to offer the Borrower a Fixed Rate if, at the time in question, the time
remaining until the Repayment Date is less than the greater of 30 days or such
larger Fixed Rate Term which the Bank determines to be available on the day in
question, nor shall the Bank be required to offer the Borrower a Fixed Rate Term
which would end after the Repayment Date. If, upon the expiration of any Fixed
Rate Term, the Borrower fails to contact the Bank and make such an Interest Rate
Election, as to all of the Loans which were subject to the Fixed Rate in
question, Effective Prime shall thereafter be deemed to be the applicable
interest rate payable on such Loans until such later date (not sooner than 30
days later), as the Borrower may again elect to convert to a Fixed Rate as set
forth above. As to any portion of the Loans at any time not subject to a Fixed
Rate, the interest rate payable with respect
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thereto shall be Effective Prime, as elsewhere provided under the terms of this
Agreement. Upon the Borrower's making any telephonic election of a Fixed Rate,
the Borrower shall contemporaneously submit to the Bank a written Interest Rate
Election specifying that commencing with the date in question, the applicable
interest rate for a specified portion of the Loans of at least $100,000 shall be
the Fixed Rate offered by the Bank which shall remain in effect for a specified
Fixed Rate Term.
2.5.2 Voluntary Prepayment. The Borrower shall be permitted to voluntarily
prepay, in whole or in part, any Fixed Rate Loan at any time, subject to the
Borrower giving the Bank not less than 30 Business Days prior written notice
thereof, subject to current market conditions, as determined by the Bank, and,
subject to the Borrower's payment to the Bank of a prepayment premium in an
amount computed as provided below. In the event, of any such voluntary
prepayment the date upon which such computation of such prepayment premium is
based (the "Determination Date") shall be the date upon which such prepayment is
made.
2.5.3 Involuntary Prepayment. If the obligations of the Borrower to the
Bank evidenced by any of the Financing Documents shall be accelerated, by reason
of the occurrence of an Event of Default thereunder or for any other reason,
then upon the Bank's demand made at any time thereafter the Borrower shall pay
to the Bank a prepayment premium in respect of any Fixed Rate Loans in an amount
computed as provided below. In such event the Determination Date upon which the
computation of such prepayment premium is based shall be such date as may be
selected by the Bank, in its sole discretion, within the period commencing with
the date of such acceleration and ending on the last day of any applicable Fixed
Rate Term. In the event of such acceleration, an involuntary prepayment of all
Fixed Rate Loans shall be deemed to have occurred upon the Determination Date
selected by the Bank regardless of whether funds are actually received by the
Bank.
2.5.4 Prepayment Premium. The prepayment premium to be paid by the Borrower
shall be computed as follows: the latest published rate preceding the
Determination Date for United States Treasury Note or Bills (Bills on a
discounted basis shall be converted to a bond equivalent) as published weekly in
the Federal Reserve Statistical Release with a maturity date closest to the
expiration date of the applicable Fixed Rate Term shall be subtracted from the
applicable Fixed Rate. If the result is zero or a negative number, there shall
be no prepayment premium. If the result is a positive number, then the resulting
percentage shall be multiplied by the amount of the principal balance being
prepaid. The resulting amount will be divided by 360 and multiplied by the
number of days remaining between the Determination Date and the expiration date
of the applicable Fixed Rate Term (the "Unexpired Term"). Said amount shall be
reduced to present value calculated by using the above referenced United States
Treasury Note or Bill rate and assuming that said amount will be paid in equal
monthly installments over the Unexpired Term, commencing 30 days after the
Determination Date. The resulting amount shall be the prepayment premium due to
the Bank.
Section 2.6. Computation of Interest and Fees. Interest and fees due under
this Agreement and under the Note shall be computed on the basis of a year of
360 days for the actual number of days elapsed.
Section 2.7. Origination Fee. On the Closing Date, Borrower shall pay to
Bank an origination fee in the amount of Ten Thousand and 00/100 Dollars
($10,000.00).
Section 2.8. Increased Costs - Capital. If, after the date hereof, Bank
shall have reasonably determined that the adoption of any applicable law,
governmental rule, regulation or
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order regarding capital adequacy of banks or bank holding companies, or any
change therein, or any change in the interpretation or administration thereof by
any governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by Bank with any policy,
guideline, directive or request regarding capital adequacy (whether or not
having the force of law and whether or not failure to comply therewith would be
unlawful) of any such authority, central bank or comparable agency, has or would
have the effect of reducing the rate of return on the capital of Bank, as a
consequence of the obligations hereunder to a level below that which Bank could
have achieved but for such adoption, change or compliance (taking into
consideration the policies of Bank with respect to capital adequacy immediately
before such adoption, change or compliance and assuming that the capital of Bank
was fully utilized prior to such adoption, change or compliance), then Borrower
shall pay to Bank from time to time as specified by Bank such additional amounts
as shall be sufficient to compensate Bank for such reduced return, each such
payment to be made by Borrower within five (5) Business Days after each demand
by Bank. A certificate of one of the officers of Bank setting forth the amount
to be paid to Bank hereunder shall, in the absence of manifest error, be
conclusive. In determining such amount, Bank may use any reasonable averaging
and attribution methods. Bank will use its best efforts to inform Borrower of
any event occurring after the date hereof which will require payments to be made
under this section promptly after Bank becomes aware of such event, but the
failure of Bank so to inform Borrower shall not affect any of the obligations of
Borrower hereunder.
Section 2.9. Notations. At the time of the making of the Loans and each
payment or prepayment of principal, interest, fees and other sums due in
connection with this Agreement and/or the Note, Bank may enter upon its records
an appropriate notation evidencing the Loans and/or such payment or prepayment.
No failure to make any such notation shall affect Borrower's unconditional
obligations to repay the Loans, and all interest, fees and other sums due in
connection with this Agreement and/or the Note in full, nor shall any such
failure, standing alone, constitute grounds for disproving a payment by
Borrower. However, in the absence of manifest error, such notations and Bank's
records containing such notations shall constitute conclusive evidence of the
facts stated therein, including, without limitation, the outstanding amount of
the Loans and all amounts due and owing to Bank at any time. Any such notations
and Bank's records containing such notations may be introduced in evidence in
any judicial or administrative proceeding relating to this Agreement, the Loan,
or the Note.
Section 2.10. Time and Place of Payments.
All payments and prepayments of principal, fees, interest and any other
amounts owed from time to time under this Agreement and/or under the Note shall
be made to the Bank at the address referred to in Section 8.6 in Dollars and in
immediately available funds prior to 1 o'clock P.M. on the Business Day that
such payment is due provided that Borrower hereby authorizes and instructs Bank
to charge against its accounts, if any, with Bank on each payment date hereunder
and under the Note, an amount up to the principal, interest and fees due and
payable to Bank hereunder and under the Note, and such charge shall be deemed
payment hereunder, and under the Note, to the extent that immediately available
funds are then in such accounts. Borrower may revoke the foregoing instruction
by written notice to Bank given in accordance with this Agreement. In addition,
Borrower hereby irrevocably authorizes Bank, if and to the extent payment of any
installment of principal, interest and/or fees hereunder and/or under the Note
is not made when due, to charge against any or all of its accounts with Bank an
amount equal to the amount thereof not paid when due. Any such payment or
prepayment which is received by Bank in Dollars and in immediately available
funds after 1 o'clock P.M. on a Business Day shall be deemed received for all
purposes of this Agreement on the next succeeding Business Day except
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that solely for the purpose of determining whether a Default has occurred under
Paragraph 6.1.1, any such payment or prepayment if received by Bank prior to the
close of Bank's business on a Business Day shall be deemed received on such
Business Day.
Section 2.11. Right of Setoff. Upon the occurrence and during the
continuance of any Event of Default, Bank is hereby authorized at any time and
from time to time, without notice to Borrower and/or any Subsidiaries (any such
notice being expressly waived by Borrower and any Subsidiaries) to set off and
apply any and all deposits (general or special, time or demand, provisional or
final, and other than impressed payroll accounts and any postretirement medical
benefits accounts) at any time held and other Indebtedness at any time owing by
Bank to or for the credit or the account of Borrower and any Subsidiaries
against any and all of the obligations of Borrower now or hereafter existing
under this Agreement or the Note irrespective of whether or not Bank shall have
made any demand under this Agreement, the Note and although such obligations may
be unmatured. Bank agrees to provide prompt notice after any such setoff and
application; provided that the failure to give such notice shall not affect the
validity of such setoff and application. The rights of Bank under this section
are in addition to all other rights and remedies (including, without limitation,
other rights of setoff) which Bank may have.
Section 2.12. Unconditional Obligations and No Deductions. Borrower's
obligation to make all payments by it provided for in this Agreement and/or the
Note shall be unconditional. Each such payment shall be made without deduction
for any claim, defense or offset of any type, including without limitation any
withholdings and other deductions on account of income or other taxes and
regardless of whether any claims, defenses or offsets of any type exist.
Section 2.13. Prepayment and Certain Payments.
2.13.1 Voluntary Prepayments. All or any portion of the unpaid principal
balance of any Prime Rate Loan may be prepaid at any time by a payment to the
Bank of immediately available Dollars by the Borrower, all or any portion of the
unpaid principal balance of any Fixed Rate Loan may be prepaid or paid to the
Bank by a payment of immediately available Dollars on the Interest Adjustment
Date for such Loan, upon concurrent telephonic or telecopied notice promptly
confirmed in writing, without premium or penalty, except as provided in Section
2.5; provided that all such payments and prepayments of Fixed Rate Loans shall
be accompanied by the interest accrued on the principal amount being paid or
prepaid through the date of payment or prepayment and provided further that each
such partial payment or prepayment of principal of a Fixed Rate Loan shall be in
such amount so that each outstanding Fixed Rate Loan remains in a principal
amount of at least One Hundred Thousand and 00/100 Dollars ($100,000.00). Any
prepayment of the Loans shall be applied to installments thereof in the inverse
order of maturity.
2.13.2. Mandatory Prepayment. In the event that the KSOP repays an amount
of principal or interest on its loan from the Borrower KSOP or the amount owing
by the KSOP in any calendar year is reduced in either case by amounts in excess
of the amount payable by the Borrower on the Loan, the Borrower shall, on the
last Business Day of such calendar year, prepay to the Bank an amount of
principal of the Loan equal to such excess, any such prepayment to be applied to
installments of the Loan in the inverse order of maturity.
2.13.3. Absence of Designation of Payment or Prepayment. In the event that
or to the extent that at the time of any payment or prepayment of all or any
portion of the Loans, the Borrower fails to provide the Bank with telephoned or
telecopied notice confirmed in writing designating whether such payment or
prepayment is a payment or prepayment of Prime Rate Loans or Fixed Rate Loans,
the Bank shall allocate any such payment or prepayment to
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outstanding Prime Rate Loans, if any, until paid or prepaid in full and
thereafter to such Loans as the Bank, in its complete discretion, may designate
or select. Upon acceleration or for any other reason, and on the date any
payment is due hereunder, the amount of Prime Rate Loans, if any, plus the
amount of Fixed Rate Loans as to which such date is an Interest Adjustment Date
for such Fixed Rate Loans is less than the amount of such required payment or
prepayment, such payment or prepayment shall nevertheless be paid in full by the
Borrower when due and the proceeds thereof will, to the extent not directed to
be applied first to outstanding Prime Rate Loans shall be applied to outstanding
Prime Rate Loans until paid in full, and thereafter to such Loans as the Bank,
in its complete discretion, may designate or select.
Section 2.14. Payment on Non-Business Days. Whenever any payment to be made
hereunder or under the Note shall be stated to be due on a day other than a
Business Day, such payment may be made on the next succeeding Business Day, and
such extension of time shall in such case be included in the computation of
payment of fees, if any, and interest under this Agreement and under the Note.
Section 2.15. Use of Proceeds. Borrower shall use the proceeds of the Term
Loan solely for the purpose of repaying a $1,405,000 term loan from the Bank for
the purpose of making a loan to the KSOP, the proceeds of which shall be used
solely for purposes of (a) paying off indebtedness to the Bank in the amount of
$1,405,000, the proceeds of which were used to purchase Employer Securities in
accordance with the KSOP Plan, (b) paying off Indebtedness owing by the KSOP to
Valley Gas Company, the proceeds of which were used to purchase Employer
Securities in accordance with the predecessor plan to the KSOP plan, and (c)
purchasing Employer Securities pursuant to the terms and conditions contained in
the KSOP Plan, and subject to the provisions of this Agreement.
Section 2.16. Security. Borrower's obligations hereunder shall be secured
by the Security Documents.
ARTICLE 3.
CONDITIONS OF LENDING
Section 3.1. Conditions Precedent to the Loan. The obligation of Bank to
make the Loans is subject to performance by Borrower of its obligations under
this Agreement and to the satisfaction of the conditions precedent that all
legal matters incident to the transactions contemplated hereby or incidental to
the Loans shall be satisfactory to counsel for Bank, and Bank, at its request,
shall have received before, or otherwise on, the Closing Date all of the
following, each dated the Closing Date or another date acceptable to Bank and
each to be in the form and substance approved by Bank on the date on which this
Agreement is executed and delivered by the parties hereto:
3.1.1 Financing Documents. The Financing Documents duly executed and
delivered, as appropriate, by Borrower and each party thereto.
3.1.2 Trustee's Certificate. A certificate duly executed and delivered by
Trustee authorizing and approving such of the Financing Documents to which the
KSOP is a party, the loan documents relating to the loan by the Borrower to the
KSOP and other matters contemplated hereby and certifying as to the power,
identity and signature of each person authorized to sign and deliver each
Financing Document to be executed and delivered by or on behalf of the KSOP. The
Bank may conclusively rely on such Trustee's certificate until the Bank shall
receive a further
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certificate of the Trustee canceling or amending the prior certificate and
submitting the signatures of the officers named in such further certificate.
3.1.3 Secretary's Certificate. Certificate of the clerk or secretary of
Borrower, certifying as to the resolutions of the board of directors and/or
shareholders of Borrower authorizing and approving such of the Financing
Documents to which Borrower is a party and other matters contemplated hereby and
certifying as to the names and signatures of each officer of Borrower authorized
to sign and deliver each Financing Document to be executed and delivered by or
on behalf of Borrower. Bank may conclusively rely on each such clerk's or
secretary's certificate until Bank shall receive a further certificate of the
clerk or secretary of Borrower canceling or amending the prior certificate and
submitting the signatures of the officers named in such further certificate.
3.1.4 Opinion of Borrower's Counsel. Favorable opinion of Wallis M.
Koutsogiane, counsel for Borrower and the Subsidiaries, substantially in the
form of Exhibit E.
3.1.5 Closing Certificates. The following certificates:
A. Officer's Certificate of Borrower stating that:
(i) The representations and warranties contained
in Article 4 are correct on and as of the Closing Date as
though made on and as of such date;
(ii) No Default or Event of Default has occurred
and is continuing, or would result from the making of the Loan;
and
(iii) From August 31, 1996 to the Closing Date
there has been no material adverse change in the financial
condition or operations of Borrower or the Subsidiaries.
B. A certificate executed and delivered by Trustee stating that no
Default or Event of Default has occurred and is continuing, or would
result from the making of the loan by the Borrower to the KSOP, and
that from January 1, 1997 to the Closing Date there has been no
material adverse change in the financial condition or operations of
the KSOP.
3.1.6 Good Standing Certificates. Certificates of the Secretary of State
and of the Department of Taxation (Tax Certificate) of the State of Rhode
Island, dated reasonably near the Closing Date, stating that Borrower and each
Subsidiary is duly organized or qualified and in good standing as a corporation
in such state and that Borrower and each Subsidiary has paid all franchise and
other taxes required to be filed or paid to the date of such certificate.
3.1.7 Discharge of Indebtedness. All documents, instruments and
agreements necessary to terminate, cancel or discharge the documents,
instruments and agreements evidencing or securing any and all existing
Indebtedness for Borrowed Money of Borrower, the Subsidiaries and the KSOP other
than that listed in Exhibit G.
3.1.8 KSOP Documents. True copies of the KSOP Plan and such other
documents, agreements, or instruments deemed necessary by Bank to establish the
validity of the KSOP.
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3.1.9 Acquisition Documents. True copies of all documents, agreements and
instruments pertaining to the KSOP's acquisition of Employer Securities.
3.1.10 Financial Reports. True copies of the financial statements and
other information required pursuant to Section 4.5 and any revisions thereto and
such other evidence as deemed necessary by Bank to establish Borrower's, each
Subsidiary's and the KSOP's solvency, ability to pay debts generally as they
mature and sufficiency of capital for an ongoing business.
3.1.11 Other Documents. Such other information about Borrower, the KSOP
and the Subsidiaries, and/or their assets, business and/or financial condition
as Bank may reasonably request.
3.1.12 Counsel Fees. Payment of all fees and disbursements of Bank's
attorneys in connection with the negotiation, preparation, amendment, execution
and delivery of the Financing Documents.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to Bank that after giving effect to the
Loans and the application of the proceeds thereof (which representations and
warranties shall survive the making of the Loans):
Section 4.1 Organization and Existence. Borrower and each Subsidiary are
duly organized, validly existing and in good standing under the laws of the
state of their organization and are duly qualified to do business in all
jurisdictions in which such qualification is required, except where failure to
so qualify would not have a material adverse effect on their financial condition
or business on a consolidated basis, and have all requisite power and authority
to conduct their businesses, to own their properties and to execute and deliver,
and to perform all of their obligations under the Financing Documents.
Section 4.2 Authorization and Absence of Defaults. The execution, delivery
to Bank and performance by Borrower, the KSOP and each Subsidiary of the
Financing Documents have been duly authorized by all necessary legal and
governmental action and do not and will not (i) require any consent or approval
of any Person or of the shareholders or board of directors of Borrower or of any
Affiliate or Subsidiary which has not been obtained, (ii) violate any provision
of any law, rule, regulation (including, without limitation, Regulations U and X
of the Board of Governors of the Federal Reserve System), order, writ, judgment,
injunction, decree, determination or award presently in effect having
applicability to Borrower, the KSOP, any Affiliate and/or any Subsidiary and/or
the articles of incorporation or by-laws, where applicable, of Borrower, the
KSOP, any Affiliate and/or any Subsidiary, (iii) result in a breach of or
constitute a default under any indenture or loan or credit agreement or any
other agreement, lease or instrument to which Borrower, the KSOP, any Affiliate
and/or any Subsidiary is or are a party or parties or by which it or they or its
or their properties may be bound or affected; or (iv) result in, or require, the
creation or imposition of any Lien on any of its or their respective properties
or revenues other than Liens granted to Bank by the Security Documents. Borrower
and each Subsidiary are in compliance with any such law, rule, regulation,
order, writ, judgment, injunction, decree, determination or award or any such
indenture, agreement, lease or instrument, except where the failure to be in
compliance is immaterial to the financial condition or business of Borrower,
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the KSOP and each Subsidiary on a consolidated basis, and the condition or
business of the KSOP.
Section 4.3 Acquisition of Consents. No authorization, consent, approval,
license, exemption of or filing or registration with any Person, court or
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, including the Rhode Island Public Utility Commission and
the Rhode Island Division of Public Utilities and Carriers, is or will be
necessary to the valid execution and delivery to Bank or performance by
Borrower, the KSOP and each Subsidiary of each Financing Document to which it is
a party.
Section 4.4 Validity and Enforceability. Each of the Financing Documents
when delivered hereunder will constitute the legal, valid and binding
obligations of the parties thereto, other than Bank, enforceable against the
parties thereto, other than Bank, in accordance with their respective terms.
Section 4.5 Financial Information. The following information with respect
to the Borrower has heretofore been furnished to the Bank:
(i) the consolidated balance sheets and consolidated
statements of capitalization of the Borrower and Subsidiaries as at
August 31, l996 together with consolidated statements of earnings,
cash flows and changes in common stock equity for the fiscal year
then ending, certified by Grant Thornton, independent certified
public accountants;
(ii) the unaudited consolidated balance sheet of the
Borrower and Subsidiaries as at February 28, l997 together with the
unaudited consolidated statements of earnings for the six-month
period then ended; and
(iii) the unaudited pro forma consolidated balance
sheet of the Borrower and Subsidiaries as of February 28, l997,
giving effect to the initial Loan.
Each of the financial statements referred to above in Section 4.5 (i) and (ii)
was prepared in accordance with GAAP applied on a consistent basis subject in
the case of interim statements, to year-end adjustments and the absence of
certain statements and footnotes. Each of the financial statements referred to
above in Section 4.5 (i) through (iii), fairly presents the financial condition
of the Person being reported on at such dates (and, in the case of clauses (i)
and (ii)), the results of operations for the periods then-ended) and is complete
and correct in all material respects, subject in the case of interim financial
statements, to year-end adjustments and the absence of certain financial
statements and footnotes. Since August 31, 1996, there has been no material
adverse change in the financial condition or operations of the Borrower and
Subsidiaries on a consolidated basis.
Section 4.6 No Litigation. There are no actions, suits or proceedings
pending or, to the knowledge of the Borrower or any Subsidiary threatened
against or affecting Borrower, Trustee, the KSOP, any Affiliate and/or any
Subsidiary or any of their properties before any court or governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, which if determined adversely to Borrower, Trustee, the KSOP, any
Affiliate and/or any Subsidiary would draw into question the legal existence of
Borrower, the KSOP and/or any Subsidiary and/or the validity, authorization
and/or enforceability of the Financing Documents and/or any provision thereof
and/or could have a material adverse effect on the financial condition,
properties, or operations on a consolidated basis of Borrower and each
Subsidiary
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except those matters, if any, described on Exhibit F none of which, in
Borrower's good faith opinion, will have such a material adverse effect.
Section 4.7 Regulation U. Neither Borrower nor any Subsidiary is engaged
in the business of extending credit for the purpose of purchasing or carrying
"margin stock" within the meaning of Regulation U of the Board of Governors of
the Federal Reserve System (12 CFR Part 221), does not own and has no present
intention of acquiring any such margin stock or a "margin security" within the
meaning of Regulation G of the Board of Governors of the Federal Reserve System
(12 CFR, Part 207). None of the proceeds of the Loan will be used directly or
indirectly by Borrower or any Subsidiary for the purpose of purchasing or
carrying, or for the purpose of reducing or retiring any Indebtedness which was
originally incurred to purchase or carry, any such margin security or margin
stock or for any other purpose which might constitute the transaction
contemplated hereby a "purpose credit" within the meaning of said Regulation G
or Regulation U, or cause this Agreement to violate any other regulation of the
Board of Governors of the Federal Reserve System or the Securities and Exchange
Act of 1934, as amended, or any rules or regulations promulgated under either
said statute.
Section 4.8 Absence of Adverse Agreements. Neither Borrower nor any
Subsidiary is a party to any indenture, loan or credit agreement or any lease or
other agreement or instrument or subject to any corporate restriction which
would have a material adverse effect on the business, properties, assets,
operations or condition, financial or otherwise, of Borrower and any Subsidiary
on a consolidated basis or on the ability of the Borrower or any Subsidiary to
carry out its obligations under the Financing Documents.
Section 4.9 Taxes. Borrower, the KSOP and each Subsidiary have filed
all tax returns (federal, state and local) required to be filed and paid all
taxes shown thereon to be due, including interest and penalties, or provided
adequate reserves for payment thereof.
Section 4.10 ERISA. Borrower and any Commonly Controlled Entity do not
maintain or contribute to any Single Employer Plan which is not in substantial
compliance with ERISA, as amended, or which has incurred any accumulated funding
deficiency within the meaning of Section 412 and 418B of the Code, or which has
applied for or obtained a waiver from the Internal Revenue Service of any
minimum funding requirement under Section 412 of the Code. Borrower and any
Commonly Controlled Entity have not incurred any liability to the PBGC in
connection with any Plan covering any employees of Borrower or any Commonly
Controlled Entity, or ceased operations at any facility or withdrawn from any
Plan in a manner which could subject any of them to liability under section
4062(e), 4063 or 4064 of ERISA, and know of no facts or circumstance which might
give rise to any liability of Borrower or any Commonly Controlled Entity to the
PBGC under Title IV of ERISA. Borrower and any Commonly Controlled Entity have
not incurred any withdrawal liability (including but not limited to any
contingent or secondary withdrawal liability) within the meaning of sections
4201 and 4202 of ERISA, to any Multiemployer Plan, and no event has occurred,
and there exists no condition or set of circumstances, which presents a risk of
the occurrence of any withdrawal from or the partition, termination,
reorganization or insolvency of any Multiemployer Plan which could result in any
liability to a Multiemployer Plan.
Full payment has been made of all amounts which Borrower and any Commonly
Controlled Entity are required to have paid as contributions to any Plan under
applicable law or under any Plan or any agreement relating to any Plan to which
Borrower or any Commonly Controlled Entity is a party. Borrower and each
Commonly Controlled Entity have made
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adequate provision for reserves to meet contributions that have not been made
because they are not yet due under the terms of any Plan or related agreements.
Neither Borrower nor any Commonly Controlled Entity has any knowledge, or
reason to believe, that a Reportable Event has occurred with respect to any
Plan.
Section 4.11. Validity of the KSOP. The KSOP Plan is valid, binding and
enforceable under the laws of the State of Rhode Island. The KSOP is a duly
organized and validly existing "employee stock ownership plan" as defined in
Sections 133(c) and 4975(e)(7) of the Code, applicable Regulations and Section
407(d)(6) of ERISA, and a determination letter has been applied for from the
Internal Revenue Service requesting a favorable determination that the KSOP is
qualified under Section 401(a) of the Code.
Section 4.12. Authority of the KSOP. No consent, license, approval or
authorization of, or registration or declaration with, any governmental
authority, bureau or agency (other than a Form S8 which has been filed with
Securities and Exchange Commission) is required to authorize, or is otherwise
required in connection with the KSOP's purchases of Employer Securities and
pledge of its shares in Borrower and such purchases and pledge are within the
authority of the KSOP, have been duly authorized and are not in violation of the
terms of the KSOP Plan, or any provision of applicable law.
Section 4.13 Ownership of Properties. Borrower and each Subsidiary own
all of their respective properties and assets free and clear of all Liens,
except those not prohibited under Section 5.2.1 of this Agreement.
Section 4.14 No Investment Company. Neither Borrower, nor any Subsidiary
is an "investment company" or a company "controlled" by an "investment company"
as such terms are defined in the Investment Company Act of 1940, as amended.
Section 4.15 Solvency. After giving effect to the consummation of the Loan
to be made under this Agreement, Borrower and each Subsidiary (a) will be able
to pay their respective debts as they become due, (b) will have funds and
capital sufficient to carry on their businesses and all businesses in which they
are about to engage, and (c) will own property having a value both at fair
valuation and at fair salable value in the ordinary course greater than the
amount required to pay their Indebtedness, including for this purpose
unliquidated and disputed claims. Neither Borrower nor any Subsidiary will be
rendered insolvent by the execution and delivery of this Agreement and the
consummation of any transactions contemplated herein.
Section 4.16. Licenses, Registrations, and Compliance with Laws. Borrower
and each Subsidiary have all permits, governmental licenses, registrations and
approvals, material to carrying out their respective businesses as presently
conducted and as required by law or the rules and regulations of any federal,
foreign governmental, state, county or local association, corporation or
governmental agency, body, instrumentality or commission having applicable
jurisdiction including but not limited to the United States Environmental
Protection Agency, the United States Department of Labor, the United States
Occupational Safety and Health Administration, the United States Equal
Employment Opportunity Commission and analogous and related state and foreign
agencies. Except as previously disclosed to Bank in writing, there is no
violation or failure of compliance or allegation of such violation or failure of
compliance on the part of Borrower or any of the Subsidiaries with any of the
foregoing permits, licenses, registrations, approvals, rules or regulations and
there is no action, proceeding or investigation pending or to the knowledge of
Borrower threatened nor has Borrower or any Subsidiary
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received any notice of such which might result in the termination or suspension
of any such permit, license, registration or approval.
Section 4.17 Principal Place of Business; Books and Records. Borrower's
and each Subsidiary's principal places of business are located at the applicable
address set forth in Section 8.6. All of Borrower's and each Subsidiary's books
and records are kept at their principal place of business.
Section 4.18 Subsidiaries. Borrower has no Subsidiaries other than those
listed on Exhibit H.
Section 4.19 Hazardous Waste. Except as set forth on Exhibit J, neither
Borrower nor any Subsidiary (a) has ever released, generated, stored or disposed
of any Hazardous Waste on the Property, (b) is aware of the existence, release
or threat of release of any Hazardous Waste on or from the Property or on or
from any property adjacent to the Property, and (c) has received any notice,
order, claim or demand from the United States Environmental Protection Agency
("EPA") or any state or local governmental agency, authority or body having
jurisdiction over Hazardous Waste or the storage or removal thereof
(collectively, a "State Agency") with respect to the existence, release or
threat of release of any Hazardous Waste.
Section 4.20 Accuracy of Representations and Warranties. None of the
representations or warranties set forth in this Agreement or in any document or
certificate taken together with any related document or certificate furnished
pursuant to this Agreement or in connection with the transactions contemplated
hereby contains or will contain any untrue statement of a material fact or omits
or will omit to state a material fact necessary to make any statement of fact
contained herein or therein, in light of the circumstances under which it was
made, not misleading; except that unless provided otherwise any such document or
certificate which is dated speaks as of the date stated and not the present.
ARTICLE 5
COVENANTS
Section 5.1. Affirmative Covenants of Borrower Other than Reporting
Requirements. From the date hereof and thereafter for so long as any portion of
the Loan is outstanding, or Bank has any obligation to make Advances under this
Agreement or Borrower and/or any Subsidiary is indebted to Bank under any of the
Financing Documents, Borrower will for itself, and Borrower shall cause each
Subsidiary to and the KSOP to:
5.1.1 Payment of Taxes. Pay and discharge all taxes and assessments and
governmental charges or levies imposed upon it or upon its income or profits, or
upon any properties belonging to it, prior to the date on which penalties attach
thereto, and all lawful claims for the same which, if unpaid, might become a
Lien upon any of its properties, provided that (unless and until foreclosure,
restraint, sale or any similar proceeding shall have been commenced) there shall
be no obligation to pay any such tax, assessment, charge, levy or claim which is
being contested in good faith and by proper proceedings and for which proper
reserve or other provision has been made in accordance with GAAP.
5.1.2 Maintenance of Insurance. Maintain insurance with responsible and
reputable insurance companies or associations and covering such risks as is
usually carried by companies engaged in similar businesses and owning similar
properties and in accordance with the requirements of any governmental agency
having jurisdiction over Borrower, the KSOP and/or
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any Subsidiary. Borrower, the KSOP and each Subsidiary shall provide Bank with
such evidence as Bank may request from time to time as to the maintenance of all
such insurance.
5.1.3 Registration of Securities. With respect to Borrower only, upon
reasonable request of Bank immediately take all action necessary (at Borrower's
sole expense) to register pursuant to federal and state securities laws all or
any portion of the shares of capital stock of Borrower pledged to Bank pursuant
to the Security Documents, and list such securities with such national
securities exchanges, and take such additional action as is necessary for such
shares to be transferred by Bank without restriction as to resale or otherwise.
5.1.4 Compliance with Securities Law Requirements. File and submit all
financial statements or reports, other statements, reports, registrations, forms
and filings required under federal or state securities laws, or as reasonably
requested by Bank at any time, with respect to shares of capital stock of
Borrower and the Subsidiaries pledged to Bank pursuant to the Security
Documents.
5.1.5 Preservation of Existence. With respect to Borrower and each
Subsidiary, preserve and maintain in full force and effect its existence,
rights, franchises and privileges in the jurisdiction of its organization;
preserve and maintain all licenses, governmental approvals, trademarks, patents,
trade secrets, copyrights and trade names owned or possessed by it and which are
necessary or, in its reasonable business judgment, desirable in view of its
business and operations or the ownership of its properties; and qualify or
remain qualified to transact business in each jurisdiction in which such
qualification is necessary or, in its reasonable business judgment, desirable in
view of its business and operations and ownership of the properties.
5.1.6 Maintenance of Properties. Maintain and preserve all of its
properties necessary or useful in the proper conduct of its business, in good
working order and condition, ordinary wear and tear, and in accordance with each
of the Security Documents.
5.1.7 Compliance with Laws. Comply with the requirements of all present
and future applicable laws, rules, regulations and orders of any governmental
authority having jurisdiction over it and/or its business, except where the
failure to comply would not have a material adverse effect on Borrower, the KSOP
or any Subsidiaries individually or on a consolidated basis.
5.1.8 Visitation Rights. Permit during normal business hours and upon
reasonable notice, Bank or any agents or representatives thereof, to examine and
make copies of and abstracts from the records and books of account of, and visit
its properties to discuss the affairs, finances and accounts of Borrower, the
KSOP and any Subsidiaries with any or all of their partners, officers, or
employees and/or any independent certified public accountant of Borrower, the
KSOP and/or any Subsidiary.
5.1.9 Recordkeeping. Keep adequate records and books of account, in which
complete entries will be made in accordance with GAAP and with applicable
requirements of any governmental authority having jurisdiction reflecting all
financial transactions.
5.1.10 Accounting System. Maintain a standard system of accounting in
accordance with GAAP and in accordance with the requirements of any governmental
authority having jurisdiction.
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5.1.11 Other Obligations. Except as otherwise required by this Agreement,
pay, perform and fulfill all of its obligations and covenants under each
material document, instrument or agreement to which it is a party.
5.1.12 KSOP Continuation. Do or cause to be done all things possible to
preserve and keep in force and effect the KSOP and KSOP Plan and to continue to
satisfy the requirements for (i) qualification under Section 401(a) of the Code,
(ii) tax exempt status of the KSOP Plan under Section 501(a) of the Code, (iii)
treatment of the KSOP as an employee stock ownership plan under Section
4975(e)(7) of the Code, and (iv) exemption of the Loan and any transactions
contemplated by the Financing Documents from the "prohibited transaction"
provisions of Code Section 4975 or Sections 406 or 408 of ERISA.
5.1.13 Prevention. Prevent the proceeds of the Loan from being used for
any purpose other than those permitted by this Agreement.
5.1.14 Ratio of Adjusted Indebtedness to Consolidated Tangible Net Worth.
Maintain a ratio of Adjusted Indebtedness to Consolidated Tangible Net Worth of
the Borrower of not more than 1.7 : 1.
5.1.15 Minimum Consolidated Net Income. Maintain aggregate Consolidated
Net Income as of the date in question and the immediately preceding 364 calendar
days of not less than $1,750,000.
5.1.16 Ratio of EBIT to Interest Expense. Maintain a ratio of aggregate
EBIT as of the date in question and the immediately preceding 364 calendar days
to aggregate Interest Expense, all on a consolidated basis, of not less than
2.0 : 1.
5.1.17 Ratio of Funded Indebtedness to Capitalization. Maintain a ratio of
Funded Indebtedness to Capitalization of not greater than .60 : 1.
5.1.18 Ratio of Adjusted Indebtedness to Total Capitalization. Maintain at
the end of each fiscal year of Borrower a ratio of Adjusted Indebtedness to
Total Capitalization of not greater than .65 : 1.
Section 5.2. Negative Covenants of the Borrower. From the date hereof and
thereafter for so long as any portion of the Loan is outstanding, or Bank has
any obligation to make Advances under this Agreement, or Borrower and/or any
Subsidiary is indebted to Bank under any of the Financing Documents, Borrower
will not with respect to itself or the KSOP, and Borrower shall ensure that with
respect to each of the Subsidiaries that each such Subsidiary will not, without
the prior written consent of the Bank, such consent not to be unreasonably
withheld:
5.2.1 Liens. Create, incur, assume or suffer to exist any Lien of any
nature, upon or with respect to any of its properties, now owned or hereafter
acquired, or assign or pledge as collateral or otherwise convey as collateral,
any right to receive income, except that the foregoing restrictions shall not
apply to any Liens:
(a) for taxes, assessments or governmental charges or levies on
property if the same shall not at the time be delinquent or thereafter can
be paid without penalty or interest, or (if foreclosure, distraint, sale or
other similar proceedings shall not have been commenced) are being
contested in good faith and by appropriate proceedings diligently conducted
and for which proper reserve or other provision has been made in accordance
with GAAP;
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(b) imposed by law, such as carriers', warehousemen's and
mechanics' liens, bankers' set off rights and other similar liens arising
in the ordinary course of business for sums not yet due or being contested
in good faith and by appropriate proceedings diligently conducted and for
which proper reserve or other provision has been made in accordance with
GAAP;
(c) arising in the ordinary course of business out of pledges or
deposits under worker's compensation laws, unemployment insurance, old age
pensions, or other social security or retirement benefits, or similar
legislation;
(d) arising from or upon any judgment or award, provided that
such judgment or award is being contested in good faith by proper appeal
proceedings and only so long as execution thereon shall be stayed;
(e) those set forth on Exhibit G;
(f) those now or hereafter granted pursuant to the Security
Documents or otherwise now or hereafter granted to Bank as collateral for
the Loan and/or Borrower's other obligations arising in connection with or
under this Agreement;
(g) deposits to secure the performance of bids, trade contracts
(other than for borrowed money), leases, statutory obligations, surety
bonds, performance bonds and other obligations of a like nature incurred in
the ordinary course of Borrower's or any Subsidiary's business;
(h) easements, rights of way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount, and which do not in any case
materially detract from the value of the property subject thereto or
interfere with the ordinary conduct of business by the Borrower, the KSOP
or any Subsidiary; and
(i) other Liens securing indebtedness permitted by Section
5.2.7(vi).
5.2.2 Assumptions, Guaranties, Indebtedness of Other Persons. Assume,
guarantee, endorse or otherwise become directly or contingently liable in
connection with any obligation or Indebtedness of any other Person, except:
(a) guaranties by endorsement of negotiable instruments for
deposit or collection or similar transactions in the ordinary course of
business;
(b) assumptions, guaranties, endorsements and contingent
liabilities within the definition of Indebtedness and permitted by Sections
5.2.7(iii) or (v);
(c) those set forth on Exhibit G.
5.2.3 Dissolution. Dissolve, liquidate, wind up, merge or consolidate with
another Person, provided, however, nothing in this Section 5.2.3 shall prohibit
Borrower from merging with any other Person where (a) Borrower is the surviving
entity, and (b) immediately after giving effect to such merger, no Default or
Event of Default shall have occurred and be continuing, and (c) immediately
prior to the consummation of said merger, Borrower has delivered to Bank
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an opinion of counsel satisfactory to Bank that such merger complies with the
requirements of this Section 5.2.3.
5.2.4 Change in Nature of Business. Make any material change in the nature
of its business.
5.2.5 Sale and Leaseback. Enter into any sale and leaseback arrangement
with any lender or investor, or enter into any leases except in the normal
course of business at reasonable rents comparable to those paid for similar
leasehold interests in the area.
5.2.6 Sale of Accounts. Sell, assign, discount or dispose in any way of any
accounts receivable, promissory notes or trade acceptances held by Borrower, the
KSOP or any Subsidiary, with or without recourse, except in the ordinary course
of the Borrower's, the KSOP's or any Subsidiary's business.
5.2.7 Indebtedness. Incur, create, become or be liable directly or
indirectly in any manner with respect to or permit to exist any Indebtedness
except:
(i) Indebtedness under the Financing Documents;
(ii) Indebtedness with respect to trade
obligations and other normal accruals in the ordinary course of
business not yet due and payable in accordance with customary
trade terms or with respect to which the Borrower, the KSOP or
any Subsidiary is contesting in good faith the amount or
validity thereof by appropriate proceedings and then only to
the extent such Person has set aside on its books adequate
reserves therefor;C
(iii) Indebtedness described in the financial
statements or other information provided to the Bank pursuant
to Section 4.5 and existing on the Closing Date; provided that
such Indebtedness is paid in accordance with its stated terms
without renewal, extension or modification (except renewals or
extensions of Indebtedness that by its nature is customarily
renewed or extended annually);
(iv) Indebtedness permitted by Section 5.2.2; and
(v) Indebtedness secured by Liens permitted
under Section 5.2.1; and
(vi) Indebtedness where immediately after giving
effect thereto no Default or Event of Default in respect of any
of the Financing Documents shall have occurred and be
continuing.
5.2.8 Other Agreements. Amend any material term or condition of any
indenture, agreement, document, note or other instrument evidencing, securing or
relating to Indebtedness permitted under Section 5.2.7 (iii).
5.2.9 Dividends, Payments and Distributions. Declare or pay any dividends
or management or like fees or make any other distribution of cash or property or
both to holders of its shares of capital stock or use any of its assets for
payment, purchase, retention, acquisition or retirement of any shares of its
capital stock or other equity securities of Borrower, or set aside or
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reserve assets for sinking or like funds for any of the foregoing purposes, make
any other distribution by reduction of capital or otherwise in respect of any
shares of any class of capital stock of Borrower or permit any Subsidiary which
is not a wholly-owned Subsidiary so to do; provided, however, that this
paragraph shall not prohibit the KSOP from purchasing shares of the capital
stock of Borrower in accordance with the KSOP Plan and this Agreement, and shall
not prohibit Borrower from redeeming shares of its capital stock put to Borrower
by KSOP participants in accordance with the KSOP Plan, and shall not prohibit
any payment of cash dividends or management or like fees or distributions of
cash or property to Borrower from any Subsidiary of Borrower, and shall not
prohibit the declaration or payment of any cash dividends or cash distributions
on any shares of Borrower's capital stock, if, with respect to each of the
foregoing exceptions, immediately after giving effect thereto, (a) the sum of
(x) the aggregate amount declared as cash dividends on all shares of capital
stock of Borrower or distributed in respect of such shares of capital stock
subsequent to August 31, 1996, plus (y) the aggregate amount applied or set
aside after August 31, 1996 to or for the payment, purchase, redemption or other
acquisition or retirement of shares of capital stock of all classes of the
Borrower exceeds Consolidated Net Income accrued subsequent to August 31, 1996
(provided that such dividends or distributions are made not later than 60 days
after its authorization or declaration) and (b) no Default or Event of Default
in respect of any of the Financing Documents shall have occurred and be
continuing.
5.2.10 Sale of Assets. Sell, assign, lease (as lessor) or turn over the
management or otherwise dispose of or permit the disposal of (whether in one
transaction or in a series of transactions) all or a substantial part of its
assets (whether now owned or hereafter acquired).
5.2.11 Investments in or to Other Persons. Make or commit to make any
Investment in or to any other Person (including without limitation any
Subsidiary) other than (i) advances to employees for business expenses or
personal needs not to exceed Ten Thousand Dollars ($10,000) in the aggregate
outstanding for any one employee and not to exceed Fifty Thousand Dollars
($50,000) in the aggregate outstanding at any one time to all such employees,
(ii) Cash Equivalent Investments, (iii) investments in accounts, contract rights
and chattel paper (as defined in the Uniform Commercial Code) and notes
receivable, arising or acquired in the ordinary course of business, (iv)
Investments in those Subsidiaries listed on Exhibit H as of the date hereof; and
(v) Investments in or to any other Person not to exceed $50,000 in the aggregate
in any fiscal year of Borrower.
[Intentionally omitted].
5.2.13 Change of Fiscal Year. Change its fiscal year without consent of
Bank.
5.2.14 Subordination of Claims. Subordinate or permit to be subordinated
any present or future claim against or obligation of another Person, except as
ordered in a bankruptcy or similar creditors' remedy proceeding of such other
Person.
5.2.15 Compliance with ERISA. With respect to Borrower and any Commonly
Controlled Entity only (a) terminate, or cease to have an obligation to
contribute to, any Multiemployer Plan so as to result in any material liability
of Borrower or any Commonly Controlled Entity to PBGC or to any Multiemployer
Plan, (b) engage in any "prohibited transaction" (as defined in section 4975 of
the Code) involving any Plan which would result in a material liability of
Borrower or any Commonly Controlled Entity for an excise tax or civil penalty in
connection therewith, (c) except for any deficiency caused by a waiver of the
minimum funding requirement under section 412 of the code, as described above,
incur or suffer to exist any
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material "accumulated funding deficiency" (as defined in section 302 of ERISA
and sections 412 and/or 418 of the Code) of Borrower or any Commonly Controlled
Entity, whether or not waived, involving any Single Employer Plan, (d) incur or
suffer to exist any Reportable Event or the appointment of a trustee or
institution of proceedings for appointment of a trustee for any Single Employer
Plan if, in the case of a Reportable Event, same continues unremedied for ten
(10) days after notice of such Reportable Event pursuant to section 4043(a), (c)
or (d) of ERISA is given, if in the reasonable opinion of the Banks any of the
foregoing is likely to result in a material liability of Borrower or any
Commonly Controlled Entity. The assets held under these Plans being sufficient
to protect all accrued benefits, (e) allow or suffer to exist any event or
condition, which presents a material risk of incurring a material liability of
Borrower or any Commonly Controlled Entity to PBGC by reason of termination of
any such Plan or (f) cause or permit any Plan maintained by Borrower and/or any
Commonly Controlled Entity to be out of compliance with ERISA. For purposes of
this section, "material liability" shall be deemed to mean any liability of
Fifty Thousand and 00/100 Dollars ($50,000.00) or more in the aggregate.
5.2.16 Hazardous Waste. Release, generate, store, permit or dispose of any
Hazardous Waste on the Property or on any property adjacent to the Property
except in accordance with all Hazardous Waste Laws and all other applicable laws
and as disclosed on Exhibit J.
Section 5.3. Reporting Requirements. From the date hereof and thereafter
for as long as any portion of the Loan is outstanding, or Bank has any
obligation to make Advances under this Agreement, or the Borrower and/or any
Subsidiary is indebted to the Bank under any of the Financing Documents,
Borrower will, unless Bank shall otherwise consent in writing, furnish or cause
to be furnished to Bank:
5.3.1 as soon as possible and in any event upon acquiring knowledge of an
Event of Default or Default, continuing on the date of such statement, the
written statement of an officer of Borrower setting forth details of such Event
of Default or Default and the action which Borrower proposes to take with
respect thereto;
5.3.2 with respect to Borrower, as soon as practicable after the end of
each fiscal year and in any event within one hundred and twenty (120) days
thereafter, a consolidating and consolidated balance sheet of Borrower and the
Subsidiaries as at the end of such year, a consolidating and consolidated
statement of earnings of Borrower and each of the Subsidiaries for such year
setting forth in each case the corresponding figures for the preceding fiscal
year, and a consolidating and consolidated statement of cash flows during such
year, such consolidated statements to be certified by a firm of independent
certified public accountants reasonably acceptable to Bank, and to contain a
statement to the effect that such accountants have examined Sections 5.1.14
through 5.1.18 and that no Default or Event of Default exists on account of
Borrower's failure to have been in compliance therewith on the date of such
statement;
5.3.3 as soon as is practicable after the end of each of the first three
fiscal quarters of each fiscal year of Borrower and in any event within
forty-five (45) days thereafter, a consolidated and consolidating balance sheet
of Borrower and the Subsidiaries as of the end of such period, a consolidated
and consolidating statement of earnings of Borrower and Subsidiaries for such
period and fiscal year to that date, and a consolidated and consolidating
statement of cash flows of Borrower and the Subsidiaries for the fiscal year to
that date, subject to changes resulting from year-end adjustments, such balance
sheet and statements to be prepared and certified by an officer of Borrower in
an Officer's Certificate as having been prepared in
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accordance with GAAP except for footnotes and year-end adjustments, and to be in
form satisfactory to Bank;
5.3.4 with respect to Borrower only, simultaneously with the furnishing of
each of the year-end financial statements to be delivered pursuant to Paragraph
5.3.2 and each of the quarterly financial statements to be delivered pursuant to
Paragraph 5.3.3 an Officer's Certificate of an officer of Borrower in the form
of Exhibit D which shall contain a statement to the effect that no Event of
Default or Default has occurred, without having been waived in writing or if
there shall have been an Event of Default not previously waived in writing
pursuant to the provisions hereof, or a Default, such Officer's Certificate
shall disclose the nature thereof.
5.3.5 promptly after the commencement thereof, notice of all material
actions, suits and proceedings before any court or governmental department,
commissions, board, bureau, agency or instrumentality, domestic or foreign,
affecting the Borrower, the KSOP and/or any Subsidiary;
5.3.6 prompt written notice of any material adverse change in Borrower's
or any Subsidiary's condition, financial or otherwise, and an explanation
thereof and of the actions Borrower and/or such Subsidiary propose to take with
respect thereto;
5.3.7 written notice of the following events, as soon as possible and in
any event within 15 days after the Borrower knows or has reason to know thereof:
(i) the occurrence or expected occurrence of any Reportable Event with respect
to any Plan, or (ii) the institution of proceedings or the taking or expected
taking of any other action by PBGC or Borrower or any Commonly Controlled Entity
to terminate, withdraw or partially withdraw from any Plan and, with respect to
any Multiemployer Plan, the Reorganization (as defined in Section 4241 of ERISA)
Bank or Insolvency (as defined in Section 4345 of ERISA) of such Plan and in
addition to such notice, deliver to the Lender whichever of the following may be
applicable: (a) an Officer's Certificate setting forth details as to such
Reportable Event and the action that Borrower or Commonly Controlled Entity
proposes to take with respect thereto, together with a copy of any notice of
such Reportable Event that may be required to be filed with PBGC, or (b) any
notice delivered by PBGC evidencing its intent to institute such proceedings or
any notice to PBGC that such Plan is to be terminated, as the case may be;
5.3.8 within 30 days after execution, copies of all documents that amend,
modify or delete any term or provision of the KSOP Plan, or that materially
affect the validity of the KSOP;
5.3.9 promptly after the same are sent, filed or submitted, copies of all
financial statements or reports, other statements, reports, forms and filings
submitted to or filed with any federal or state governmental authority or sent
to its shareholders;
5.3.10 immediate notice of (a) any and all enforcement, clean-up, removal
or other action instituted or threatened by the EPA or any State Agency pursuant
to any Hazardous Waste Laws, and (b) any and all claims made or threatened by
any third party against Borrower, any Subsidiary or the Property or any part
thereof, relating to the existence of, or damage, loss or injury from, any
Hazardous Waste; and
5.3.11 such other information respecting the business, properties or the
condition or operations, financial or otherwise, of Borrower, the KSOP, Trustee
or any Subsidiaries as Bank may from time to time reasonably request.
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ARTICLE 6
EVENTS OF DEFAULT
Section 6.1. Events of Default. Borrower and each Subsidiary shall be in
default under each of the Financing Documents, upon the occurrence of any one or
more of the following events ("Events of Default"):
6.1.1 if Borrower shall fail to make due and punctual payment of any
principal, fees, interest and/or other amounts payable by it under this
Agreement or as provided in the Note and/or under the Financing Documents
whether at the date due or at a date fixed for such prepayment or when due by
acceleration;
6.1.2 if Borrower, Trustee, or any Subsidiary shall make an assignment for
the benefit of creditors, or shall fail generally to pay its or their debts as
they become due, or shall admit in writing its or their inability to pay its
debts as they become due or shall file a voluntary petition in bankruptcy, or
shall file any petition or answer seeking any reorganization, arrangement,
composition, adjustment, liquidation, dissolution or similar relief under the
present or any future federal bankruptcy laws or other applicable federal, state
or other statute, law or regulation, or shall seek or consent to or acquiesce in
the appointment of any trustee, receiver or liquidator of it or of all or any
substantial part of its properties, or if partnership or corporate action shall
be taken for the purpose of effecting any of the foregoing; or
6.1.3 to the extent not described in Paragraph 6.1.2, (i) if Borrower,
Trustee, or any Subsidiary shall be the subject of a bankruptcy proceeding, or
(ii) if any proceeding against any of them seeking any reorganization,
arrangement, composition, adjustment, liquidation, receivership, dissolution, or
similar relief under the present or any future federal bankruptcy law or other
applicable federal, foreign, state or other statute, law or regulation shall be
commenced, or (iii) if any trustee, receiver or liquidator of any of them or of
all or any substantial part of any or all of their properties shall be appointed
without their consent or acquiescence; provided that in any of the cases
described above in this paragraph, such proceeding or appointment shall not be
an Event of Default if the Person in question shall cause such proceeding or
appointment to be discharged, vacated, dismissed or stayed within 60 days after
commencement thereof; or
6.1.4 if final judgment or judgments aggregating more than Ten Thousand and
00/100 Dollars ($10,000.00) shall be rendered against the Borrower, Trustee or
any Subsidiary and shall remain undischarged, unstayed or unpaid for an
aggregate of 30 days (whether or not consecutive) after entry thereof; or
6.1.5 if Borrower, Trustee or any Subsidiary shall default (after giving
effect to any applicable grace period) in the due and punctual payment of the
principal of or interest on any Indebtedness exceeding in the aggregate Ten
Thousand and 00/100 Dollars ($10,000.00), or if any default shall have occurred
and be continuing after any applicable grace period under any mortgage, note or
other agreement evidencing, securing or providing for the creation of such
Indebtedness exceeding in the aggregate Ten Thousand and 00/100 Dollars
($10,000.00), which results in the acceleration of such Indebtedness or which
permits, or with the giving of notice would permit, any holder or holders of any
such Indebtedness to accelerate the stated maturity thereof;
6.1.6 (i) if there shall be a default in the performance of the obligations
under Paragraphs 5.1.1, 5.1.2, 5.1.3, 5.1.4, 5.1.5, 5.1.8, 5.1.10, or 5.1.11 or
Section 5.2 of this
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Agreement, or if there shall be a default in the performance of the obligations
under Paragraphs 5.1.6, 5.1.7 or 5.1.9 that has remained uncured for more than
30 days; and
6.1.7 in addition to the provision of Paragraph 6.1.1, if there shall be
any default in the performance of any covenant or condition contained in this
Agreement or in any of the Financing Documents or any other mortgage or other
agreement securing payment of the Note and/or payment of any Indebtedness to be
observed or performed pursuant to the terms hereof, any Security Document or in
any such mortgage or other agreement, as the case may be, other than a covenant
or condition referred to in any other subsection of this section and such
default shall continue unremedied or unwaived, (i) in the case of any covenant
or condition contained in Section 5.3, for 30 Business Days, or (ii) in the case
of any other covenant or condition for which no other grace period is provided,
for 30 days, or (iii) if any of the representations and warranties made or
deemed made by Borrower to Bank pursuant to this Agreement proves to have been
false or misleading in any material respect when made; or
6.1.8 if there shall be any attachment of any deposits or other property
of the Borrower, Trustee and/or any Subsidiary in the possession of the Bank or
any attachment of any other property of Borrower, Trustee or any Subsidiary in
an amount exceeding Thirty Thousand and 00/100 Dollars ($30,000.00), which shall
not be discharged within 30 days of the date of such attachment; or
6.1.9 any certification of the financial statements, furnished to the Bank
pursuant to Paragraph 5.3.2 shall contain any qualification; provided, however,
that such qualifications will not be deemed an Event of Default if in each case
(i) such certification shall state that the examination of the financial
statements covered thereby was conducted in accordance with generally accepted
auditing standards, including but not limited to all such tests of the
accounting records as are considered necessary in the circumstances by the
independent certified public accountants preparing such statements, (ii) such
financial statements were prepared in accordance with GAAP and (iii) such
qualification does not involve the "going concern" status of the entity being
reported upon.
ARTICLE 7
REMEDIES OF BANK
Upon the occurrence of any one or more of the Events of Default the Bank
may, by notice to the Borrower, declare the obligation of the Bank to make the
Loan to be terminated, whereupon the same shall forthwith terminate, and the
Bank may, by notice to the Borrower, declare the entire unpaid principal amount
of the Note and all fees and interest accrued and unpaid thereon and/or under
any of the other Financing Documents and any and all other Indebtedness
hereunder to be forthwith due and payable, whereupon the Note and all such
accrued fees and interest and other such Indebtedness shall become and be
forthwith due and payable, without presentment, demand, protest or further
notice of any kind, all of which are hereby expressly waived by the Borrower;
provided, however that in the event that an assignee or holder of the KSOP Note
shall be a "Party in Interest" as defined in Section 3(14) of ERISA, the Bank
shall have no right to accelerate the due date of unpaid principal on the KSOP
Note, fees or interest accrued thereon; and provided further that upon the
occurrence of an Event of Default under Paragraphs 6.1.2, 6.1.3 or 6.1.7, all of
the unpaid principal amounts of the Note, all fees and interest accrued and
unpaid thereon and/or under any of the other Financing Documents and any and all
other such Indebtedness of the Borrower to the Bank and/or to any such holder
shall thereupon be due and payable in full without any need for the Bank to make
any such declaration or take any action and the Bank's obligation to make the
Loan shall simultaneously terminate.
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ARTICLE 8
MISCELLANEOUS
Section 8.1. Consent to Jurisdiction and Service of Process.
(A) Borrower irrevocably:
(i) AGREES THAT ANY SUIT, ACTION, OR OTHER LEGAL
PROCEEDINGS ARISING OUT OF THIS AGREEMENT AND/OR THE NOTE MAY
BE BROUGHT IN THE COURTS OF RECORD OF THE STATE OF RHODE ISLAND
OR THE COURTS OF THE UNITED STATES LOCATED IN SAID STATE;
(ii) CONSENTS TO THE JURISDICTION OF EACH SUCH
COURT IN ANY SUCH SUIT, ACTION OR PROCEEDING; AND
(iii) WAIVES ANY OBJECTION WHICH IT MAY HAVE TO
THE LAYING OF VENUE OF SUCH SUIT, ACTION OR PROCEEDING IN ANY
OF SUCH COURTS AND WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY
OF SUCH COURTS.
For such time as any of the Indebtedness of Borrower and/or the Subsidiary
to the Bank shall be unpaid in whole or in part, Borrower irrevocably designate
its registered agent for service of process in Rhode Island and, in the absence
thereof, the Secretary of State of Rhode Island and agrees and consents that any
such service of process upon such agent and written notice of such service to
the Borrower by registered or certified mail shall be taken and held to be valid
personal service upon Borrower whether Borrower shall then be doing business
within the State of Rhode Island, and that any such service of process shall be
of the same force and validity as if service were made upon it according to the
laws governing the validity and requirements of such service in each such state
and waives any claim of lack of personal service or other error by reason of any
such service. Any notice, process, pleadings or other papers served upon the
aforesaid designated agents shall, within three (3) Business Days thereafter, be
sent by certified or registered mail to the applicable address set forth in this
Agreement and to such party's counsel at its address set forth in Section 8.7.
Section 8.2. Rights and Remedies Cumulative. No right or remedy conferred
upon or reserved to Bank in this Agreement is intended to be exclusive of any
other right or remedy, and every right and remedy shall, to the extent permitted
by law, be cumulative and in addition to every other right and remedy given
under this Agreement or now or hereafter existing at law or in equity or
otherwise. The assertion or employment of any right or remedy under this
Agreement, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
Section 8.3. Delay or Omission Not Waiver. No delay in exercising or
failure to exercise by Bank any right or remedy accruing upon any Event of
Default shall impair any such right or remedy or constitute a waiver of any such
Event of Default or an acquiescence therein. Every right and remedy given by
this Agreement or by law to Bank may be exercised from time to time, and as
often as may be deemed expedient, by Bank.
29
<PAGE>
Section 8.4. Waiver of Stay or Extension Laws. Borrower 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 covenant or the performance of this Agreement; and Borrower
(to the extent that it may lawfully do so) hereby expressly waives all benefit
and advantage of any such law and covenants that it will not hinder, delay or
impede the execution of any power herein granted to Bank, but will suffer and
permit the execution of every such power as though no such law had been enacted.
Section 8.5. Amendments, etc. No amendment, modification, termination, or
waiver of any provision of this Agreement, nor consent to any departure by
Borrower therefrom shall in any event be effective unless the same shall be in a
written notice given to the applicable party by Bank.
Section 8.6. Addresses for Notices, etc. All notices, requests, demands and
other communications provided for hereunder (other than those which, under the
terms of this Agreement, may be given by telephone, which shall be effective
when received verbally) shall be in writing (including telegraphic or telecopied
communication) and mailed, telegraphed, telecopied or delivered to the
applicable party at the addresses indicated below:
If to Bank:
Fleet National Bank
111 Westminster Street
RI MO235
Providence, RI 02903
Attention: John D. Webb
Vice President
Telecopy: (401) 278-5726
With a copy to:
Hinckley, Allen & Snyder
1500 Fleet Center
Providence, Rhode Island 02903
Attention: Malcolm Farmer III, Esq.
Telecopy: (401) 277-9600
If to Borrower:
Valley Resources, Inc.
1595 Mendon Road
P.O. Box 7900
Cumberland, Rhode Island 02864
Attention: Sharon Partridge, Treasurer and
Assistant Vice President, Finance
Telecopy: (401) 334-2333
or, as to each party, at such other address as shall be designated by such party
in a written notice to each other party complying as to the delivery with the
terms of this Section. All such notices, requests, demands and other
communications shall be effective when received. Requests,
30
<PAGE>
certificates, items provided pursuant to Section 5.3, other than Paragraph
5.3.1, and other routine mailings or notices need not be accompanied by a copy
to legal counsel for Bank, Borrower, or Trustee.
Section 8.7. Costs, Expenses and Taxes. Regardless of whether the Loan is
made, Borrower agrees to pay on demand the reasonable fees and out-of-pocket
expenses of Messrs. Hinckley, Allen & Snyder counsel for Bank in connection with
the preparation, execution, delivery, amendment and administration of the
Financing Documents and the Loan. Borrower agree to pay on demand all reasonable
costs and expenses (including without limitation reasonable attorneys' fees)
incurred by Bank, upon or after an Event of Default, if any, in connection with
the enforcement of any of the Financing Documents and any amendments, waivers,
or consents with respect thereto. In addition, Borrower shall pay on demand any
and all costs, expenses and fees payable or determined to be payable in
connection with the commitment and execution and delivery of the Financing
Documents, including, but not limited to, revenue, stamp and other taxes and
fees, title insurance premiums and costs, recording fees, appraisal fees, and
surety fees, and agrees to save Bank harmless from and against any and all
liabilities with respect to or resulting from any delay in paying or omission to
pay such costs, expenses, taxes and fees.
Section 8.8. Participations; Assignments. Bank may sell participations in
all or part of the Loan made by it or any other interest herein, in which event
the participant shall not have any rights under any Financing Document (the
participant's rights against Bank in respect of that participation to be those
set forth in the agreement executed by the Bank in favor of the participant
relating thereto) and all amounts payable by the Borrower hereunder or
thereunder shall be determined as if the Bank had not sold such participation.
Bank also may assign a portion of the Loan to another financial institution
which shall become a party to the Loan Agreement as a lender and the Borrower
shall execute and deliver any and all documents, instruments or agreements
necessary to accomplish any such assignment so long as the terms thereof do not
materially change the Borrower's obligations under this Agreement or the Note or
the Security Documents. In the event of any such sale, the term "Bank" shall
mean the Bank and any such additional lender. Bank may furnish any information
concerning Bank, Borrower, the KSOP and any Subsidiaries in the possession of
Bank from time to time to participants (including prospective participants).
Section 8.9. Brokers. Any brokerage fee or commission due in connection
with the transactions contemplated by this Agreement shall be borne solely by
Borrower. Borrower agrees to indemnify Bank for all claims, demands and costs of
brokers arising in connection with the transactions contemplated by this
Agreement.
Section 8.10. Binding Effect; Assignment. This Agreement shall be binding
upon and inure to the benefit of the parties and their respective successors and
assigns, except that Borrower shall not have the right to assign its respective
rights hereunder or delegate its respective duties hereunder or any interest
herein without the prior written consent of the Bank. Any assignment or
delegation in contravention of the foregoing shall be null and void. This
Agreement and all covenants, representations and warranties made herein and/or
in any of the other Financing Documents shall survive the making of the Loan,
the execution and delivery of the Financing Documents and shall continue in
effect so long as any amounts payable under or in connection with any of the
Financing Documents remains unpaid to Bank provided, however, that Section 8.2
shall survive and remain in full force and effect after repayment in full of all
amounts payable under or in connection with all of the Financing Documents and
any other such Indebtedness.
31
<PAGE>
Section 8.11. Actual Knowledge. For purposes of this Agreement, Bank shall
not be deemed to have actual knowledge of any fact or state of facts unless the
senior loan officer or any other officer responsible for Borrower's account
established pursuant to this Agreement at Bank, shall, in fact, have actual
knowledge of such fact or state of facts or unless written notice of such fact
shall have been received by Bank in accordance with Section 8.6.
Section 8.12. Governing Law. This Agreement and the Note shall be governed
by, and construed in accordance with, the laws of the State of Rhode Island
without resort to its conflict of laws provisions.
Section 8.13. Severability of Provisions. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
Section 8.14. Headings. Article Section, and Paragraph headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.
Section 8.15. Counterparts. This Agreement may be executed and delivered in
any number of counterparts each of which shall be deemed an original, and this
Agreement shall be effective when at least one counterpart hereof has been
executed by each of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as a sealed instrument by their respective officers thereunto duly
authorized, as of June 30, 1997.
FLEET NATIONAL BANK
By:___________________________________
Its:__________________________________
VALLEY RESOURCES, INC.
By: S/S. Partridge
-----------------------------------
Title:________________________________
#157045 v3
32
<PAGE>
SCHEDULE OF EXHIBITS
A. Form of Term Note
B. Interest Rate Election
C. Designation of Authorized Representative
D. Compliance Certificate Form
E. Form of Opinion of Counsel to Borrower
F. Pending Litigation
G. Permitted Encumbrances and Capitalized Leases
H. Subsidiaries of Borrower
I. Form of Request
J. Hazardous Waste Disclosure
#157045 v3
<PAGE>
EXHIBIT A
TERM NOTE
$3,142,200 Providence, Rhode Island
June __, 1997
FOR VALUE RECEIVED, VALLEY RESOURCES, INC., a Rhode Island corporation,
with a principal business address at 1595 Mendon Road, Cumberland, Rhode Island
02864 (the "Borrower") promises to pay to the order of Fleet National Bank, a
national banking association organized and existing under the laws of the United
States of America (the "Bank"), at the Bank's office located at 111 Westminster
Street, Providence, Rhode Island 02903, in accordance with that certain Loan
Agreement dated as of June ___, 1997 by and among Bank and Borrower (the "Loan
Agreement") the principal sum of Three Million One Hundred Fortytwo Thousand Two
Hundred and 00/100 Dollars ($3,142,200.00), which shall be repaid in one hundred
and nineteen consecutive monthly installments of principal each in the minimum
amount of Twelve Thousand Five Hundred and 00/100 Dollars ($12,500.00) and each
due and payable on the last Business Day of each calendar month commencing July
31, 1997 and a final consecutive monthly installment of principal due and
payable on the last Business Day of July, 2007 in amount equal to the entire
outstanding principal balance of this Term Note.
IN ALL EVENTS, THE OUTSTANDING PRINCIPAL BALANCE OF THIS TERM NOTE,
TOGETHER WITH ALL INTEREST, FEES, CHARGES, COSTS AND EXPENSES ACCRUED THEREON
SHALL BE PAID TO BANK NOT LATER THAN THE REPAYMENT DATE.
The Borrower promises to pay to the order of the Bank interest before and
after maturity on the principal amount of this Term Note outstanding from time
to time from the date hereof until payment in full of all principal, interest,
fees and other sums due under this Term Note and/or under the Loan Agreement,
payable monthly in arrears on the last Business Day of each calendar month,
commencing July 31, 1997, and, with respect to any Fixed Rate Loan on the
Interest Adjustment Date on which each such Loan matures, all in accordance with
the Loan Agreement. Subject to the other provisions of this Term Note, interest
shall accrue and be due and payable under this Term Note on said unpaid
principal balance of this Term Note at a rate per annum equal to Effective Prime
or the Fixed Rate, in accordance with Borrower's Interest Rate Elections made
from time to time pursuant to the Loan Agreement.
Any amount of principal or interest hereof which is not paid when due,
whether at stated maturity, by acceleration or otherwise, shall bear interest,
payable on demand, at a floating interest rate per annum equal to five percent
(5.0%) above the Prime Rate.
If any amount of principal and/or interest is not paid in full within ten
(10) days after the same is due, Borrower shall pay to Bank a late fee on such
unpaid amount equal to five percent (5%) of such late payment.
Principal, interest, fees and other sums are payable in immediately
available Dollars to the Bank at its address set forth above.
#157045 v3
<PAGE>
This Term Note is the Note referred to in, and is entitled to the benefits
of, the Loan Agreement. The applicable terms and provisions of the Loan
Agreement are incorporated herein by reference as if fully set forth herein.
Each capitalized term used in this Term Note and not expressly defined in this
Term Note shall have the meaning ascribed to such term in the Loan Agreement.
The Loan Agreement, among other things, contains provisions for acceleration of
the maturity of this Term Note upon the happening of certain stated events.
If this Term Note shall not be paid when due and shall be placed by the
holder hereof in the hands of an attorney for collection, through legal
proceedings or otherwise, Borrower will pay reasonable attorneys' fees to the
holder hereof together with reasonable costs and expenses of collection.
This Note is secured by the Security Documents.
All interest and fees payable under or in connection with this Term Note
shall be computed on the basis of the actual number of days elapsed using a
360-day year.
All provisions of this Term Note and any other agreements between the
Borrower and the Bank are expressly subject to the condition that in no event,
whether by reason of acceleration of maturity of the Indebtedness evidenced by
this Term Note or otherwise, shall the amount paid or agreed to be paid to the
Bank which is deemed interest under applicable law exceed the maximum permitted
rate of interest under applicable law (the "Maximum Permitted Rate"), which
shall mean the law in effect on the date of this Term Note, except that if there
is a change in such law which results in a higher Maximum Permitted Rate, then
this Term Note shall be governed by such amended law from and after its
effective date. In the event that fulfillment of any provision of this Term
Note, or the Loan Agreement or any document, instrument or agreement providing
security for this Term Note results in the rate of interest charged hereunder
being in excess of the Maximum Permitted Rate, the obligation to be fulfilled
shall automatically be reduced to eliminate such excess. If, notwithstanding the
foregoing, the Bank receives an amount which under applicable law would cause
the interest rate under this Term Note to exceed the Maximum Permitted Rate, the
portion thereof which would be excessive shall automatically be deemed a
prepayment of and be applied to the unpaid principal balance of this Term Note
to the extent of then outstanding Prime Rate Loan and not a payment of interest
and to the extent said excessive portion exceeds the outstanding principal
amount of Prime Rate Loan, said excessive portion shall be repaid to the
Borrower.
Borrower expressly waives presentment, notice of acceleration and intent to
accelerate, demand for payment and protest and notice of protest and nonpayment.
This Term Note shall for all purposes be governed by and construed in
accordance with the local laws of the State of Rhode Island.
#157045 v3
<PAGE>
Executed as a sealed instrument as of the date first above written.
In the presence of: VALLEY RESOURCES, INC.
_____________________________ By_______________________________
Title:___________________________
#157045 v3
<PAGE>
EXHIBIT B
---------
FORM OF INTEREST RATE ELECTION
------------------------------
Fleet National Bank
111 Westminster Street
Providence, RI 02903
Attn: John D. Webb
RE: Interest Rate Election
Dear John:
Reference is made to that certain Loan Agreement, dated as of June ___,
1997 by and among Fleet National Bank and Valley Resources, Inc. (the "Loan
Agreement"). Capitalized terms used herein shall have the same meaning as in the
Loan Agreement.
(If applicable) The undersigned has today submitted to you a Request for a
Loan in the amount of and no/100 ($ ). The undersigned
hereby elects, pursuant to the Loan Agreement, that [Effective Prime or the
Fixed Rate] shall be the interest rate applicable to such Loan.
(If applicable) The undersigned hereby elects, pursuant to the Loan
Agreement, that [Effective Prime or the Fixed Rate] shall be the interest rate
applicable to that certain outstanding Loan in the principal amount of
and no/100 Dollars ($ ). The Interest Adjustment Date for said Loan is .
(If applicable) The undersigned hereby elects an Interest Period [or
Fixed Rate Term] for such Loan (complete and strike inapplicable designation)
of ________ days/ ________ months.
The undersigned hereby certifies to the Bank that as of the date hereof:
A. No Event of Default and no Default has occurred and is continuing;
and
B. The representations and warranties of the undersigned contained in
Article 4 of the Loan Agreement are true and correct in all
material respects except as altered by actions permitted under the
Loan Agreement.
VALLEY RESOURCES, INC.
By:______________________________
Title:___________________________
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EXHIBIT C
DESIGNATION OF AUTHORIZED REPRESENTATIVES
I, ______________, hereby certify that the following is a true and correct
list of the names and signatures of those persons referred to as "Authorized
Representatives" in Valley Resources, Inc.'s Loan Agreement with Fleet National
Bank dated June ___, 1997.
NAME SIGNATURE
1. Kenneth Hogan __________________________________
2. Sharon Partridge __________________________________
3. Clement W. Bethel __________________________________
IN WITNESS WHEREOF, I have subscribed my name this ____ day of June ___, 1997.
__________________________________
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<PAGE>
EXHIBIT D
______________, ____
Fleet National Bank
111 Westminster Street
Providence RI 02903
Attn: John D. Webb
Re: Compliance Certificate Required by Sec-tion 5.3.4 of Loan Agreement dated
June ___, 1997 between Fleet National Bank and Valley Resources, Inc.
Dear John:
This certificate is submitted by the undersigned pursuant to Section 5.3.4
of the Loan Agreement. Capitalized terms used herein have the same meaning as in
the Loan Agreement.
The undersigned hereby certifies to Bank that the following information is
true, accurate and complete as of February 28, 1997 (the most recent publicly
released financial information):
Section 5.1.14 Ratio of Adjusted Indebtedness Liabilities to Consolidated
- -------------------------------------------------------------------------
Tangible Net Worth
------------------
(a) Adjusted Indebtedness. ______________
(b) Consolidated Tangible Net Worth ______________
(c) Ratio of Adjusted Indebtedness to Consolidated Net worth ______________
Section 5.1.15 Minimum Consolidated Net Income
- ----------------------------------------------
Consolidated Net Income ______________
Section 5.1.16 Ratio of EBIT to Interest Expense
- ------------------------------------------------
(a) EBIT ______________
(b) Interest Expense ______________
(c) Ratio of EBIT to Interest Expense ______________
#157045 v3
<PAGE>
Section 5.1.17 Ratio of Funded Indebtedness to Capitalization
- -------------------------------------------------------------
(a) Funded Indebtedness ______________
(b) Capitalization ______________
(c) Ratio of Funded Indebtedness to Capitalization ______________
Section 5.1.18 Ratio of Adjusted Indebtedness to Total Capitalization
- ---------------------------------------------------------------------
(a) Adjusted Indebtedness ______________
(b) Total Capitalization ______________
(c) Ratio of Adjusted Indebtedness to Total Capitalization ______________
The undersigned further certifies to Fleet National Bank that as of the
date hereof, no Event of Default or Default has occurred without having been
waived in writing.
VALLEY RESOURCES, INC.
By:____________________________
Title:_________________________
#157045 v3
<PAGE>
EXHIBIT E
---------
[Form of Opinion of Borrower's Counsel]
June 30, 1997
Fleet National Bank
111 Westminster Street
Providence, RI 02903
Re: Loan Agreement of even date herewith (the "Loan Agreement") by and between
Valley Resources, Inc., a Rhode Island corporation (the "Borrower") and
Fleet National Bank (the "Bank")
Ladies and Gentlemen:
I have examined an executed counterpart of the Loan Agreement and have also
examined executed, conformed or other copies identified to my satisfaction of
each of the following:
(a) certificates of recent date of the Secretary of State of the State of
Rhode Island to the legal existence of Borrower and each Subsidiary and listing
the charter documents of Borrower and each Subsidiary on file in his office;
(b) copies, certified by said Secretary of State, of all such charter
documents of Borrower and each Subsidiary;
(c) copies of the by-laws of Borrower and each Subsidiary, certain
resolutions of the Board of Directors of Borrower , in each case as certified as
of the date hereof by the Secretary of said corporation, relating to the Loan
and the transactions contemplated thereby;
(d) certificate dated the date hereof of the Secretary of Borrower as to
certain matters, including the incumbency and signatures of certain of its
officers;
(g) the Financing Documents; and
(h) such other certificates, documents and records as I have deemed
necessary for the purposes of this opinion.
I have also examined and relied upon the representations and warranties as
to matters of fact contained in the Financing Documents and the certificates
delivered to you in connection therewith at the Closing at which this opinion is
being rendered. As to certain matters of fact of which I have no independent
knowledge I have also relied upon representations and certificates of the Board
and of officers of Borrower delivered at the Closing insofar as the same pertain
to the Financing Documents. I have also relied on the covenants as to the
application of the proceeds of the Loan and in the documents delivered in
connection therewith.
In my examination of documents, I have assumed the genuineness of all
signatures, the authenticity of all documents and instruments submitted to me as
originals, the conformity to original documents of all documents submitted to me
as certified, conformed or photostatic copies and the authenticity of the
originals of such copies.
#157045 v3
<PAGE>
Please be advised that I am a member of the Bar of the State of Rhode
Island. No opinion is expressed herein as to any matter governed by any law
other than the laws of the State of Rhode Island, the laws of the United States
of America, in each case as such laws are in effect on the date hereof.
I am assuming that you have all requisite power and authority and have
taken all necessary corporate action to enter into the Financing Documents to
which you are a party and to effect the transactions contemplated thereby, and
that each such Financing Agreement is the legal, valid and binding obligation of
you and is enforceable against you in accordance with its terms.
Based upon and subject to the foregoing, I am of the opinion that:
1. Good Standing and Power. Trustee is trustee of the Valley Resource, Inc.
401(k) Employee Stock Ownership Trust, a trust duly organized and existing under
the laws of the jurisdiction of its organization. Borrower and each Subsidiary
is a corporation duly organized and existing under the laws of the jurisdiction
of its incorporation, and has the corporate power to own its property and to
carry on its business as now being conducted. Borrower and each Subsidiary is
duly qualified to do business as a foreign corporation and in good standing
under the laws of each jurisdiction where its ownership, lease or operation of
property or the conduct of its business requires such qualification.
2. KSOP Validity. The KSOP is a validly formed employee stock ownership
plan (as defined in Code section 4975(e)(7) and the regulations thereunder),
constitutes a tax qualified trust under Code section 401(a) and an employee
stock ownership plan which satisfies the requirements thereof and, to the extent
applicable, Code section 409 and 4975(e)(7).
3. Authority. Borrower has full trust or corporate power and authority to
enter into the Financing Documents and to grant to you the liens and make the
pledges described therein, to make the borrowing under the Loan Agreement and
Note, to execute and deliver the Financing Documents, to incur the obligations
provided for therein, and to complete the transactions contemplated by the Loan
Agreement, all of which have been duly authorized by all proper and necessary
action, and have been executed by the duly authorized officers of the Borrower.
No consent or approval of stockholders or of any governmental authority is
required as a condition to the validity of the Financing Documents.
4. Authorizations. The consent of any other Person, and all authorizations,
consents, approvals, registrations, exemptions and licenses with or from
governmental authorities that are necessary for the borrowing, the execution and
delivery by Borrower of the Financing Documents, and the performance by Borrower
of its obligations thereunder have been duly effected or obtained and are in
full force and effect.
5. Binding Agreement. Each of the Financing Documents executed and
delivered by Borrower constitutes the valid and legally binding obligations of
Borrower enforceable in accordance with its terms.
6. Loan Status. Neither the Loan nor the taking of any action contemplated
by the Financing Documents is a "Prohibited Transaction" within the meaning of
Code section 4975 or section 406 and 408 of ERISA. Proceeds of the Loan will not
be used for any purpose which would violate or be inconsistent with Regulations
G, T, U, or X of the Board of Governors of the Federal Reserve System.
#157045 v3
<PAGE>
7. Security Interest All action necessary or desirable that may be taken by
Borrower, to protect and perfect a first priority security interest in favor of
Bank in all collateral pledged to Bank as security for the obligations under the
Loan Agreement has been taken. Assuming that Bank or its duly appointed agent
obtains and maintains continuous possession of such collateral, Bank has a
legal, valid and perfected first priority security interest in the collateral.
All necessary consents, recordings and filings have been obtained or made in
order to create and perfect such Liens and all necessary filing, subscription
and inscription fees and all recording and other similar fees, and all taxes and
other expenses related to such filings, registrations and recording have been
paid in full. The Pledge Agreements and Collateral Assignments create in favor
of Bank a first priority security interest in the collateral pledged thereunder.
8. Litigation. Except as set forth in Exhibit J to the Loan Agreement, to
my knowledge after due inquiry, there are no proceedings or investigations
pending or threatened before any court or arbitrator or before or by any
governmental authority which, in any one case or in the aggregate, if determined
adversely to the interests of Borrower, the KSOP or any Subsidiaries, could have
a material adverse effect on the business, properties, condition (financial or
otherwise) or operations of Borrower, the KSOP or any Subsidiaries.
9. No Conflicts. There is no statute, regulation, rule, order or judgment,
no charter, by-law or preference stock provision of Borrower or any Subsidiary
and, to my knowledge, no provision of any mortgage, indenture, contract or
agreement binding on Borrower, the KSOP or any Subsidiary or affecting its or
their property, which would prohibit, conflict with or in any way prevent the
execution, delivery or carrying out of the terms of the Financing Documents.
10. Subsidiaries. At the date hereof, Borrower has the Subsidiaries set
forth on Exhibit H to the Loan Agreement.
I express no opinion herein as to the ownership of or title to any of the
collateral purported to be covered by the Security Documents.
My opinion that the Financing Documents are enforceable, each in accordance
with its terms, is subject to the qualifications that: (a) enforcement of the
rights and remedies created thereby is subject to (i) bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting the
rights and remedies of creditors and secured parties generally and (ii) general
principles of equity (whether considered in a proceeding at law or in equity);
and (b) certain provisions of the Financing Documents relating to waivers and to
your rights and remedies are or may be unenforceable in whole or in part, but
the inclusion of such provisions does not affect the validity of any such
Financing Documents and each such Financing Document contains adequate
provisions for enforcing payment of the obligations evidenced and/or secured
thereby and for the practical realization of the rights and benefits afforded
thereby.
The opinion expressed above is intended solely for your use in the
above-described transaction and may not be reproduced, filed publicly or relied
upon by any other persons for any reason without the express written consent of
the undersigned.
Very truly yours,
Wallis M. Koutsogiane
Staff Counsel
#157045 v3
<PAGE>
EXHIBIT F
Pending Litigation
See Exhibit J hereto.
#157045 v3
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EXHIBIT G
Permitted Encumbrances and Capitalized Leases
Capital Leases, all as listed on financial statements:
a) Vehicles - Bankers Leasing (CA), U.S. Fleet Leasing
(Waltham, MA) and McCullagh Leasing (Hartford, CT):
b) Computer equipment - Unisys (Woburn, MA) and Center Capital
Corp (Stanford, CT)
8% First Mortgage Bonds, due 2022 - Trustee: State Street Bank and Trust
__% Indenture to be dated September 15, 1997, due 2027 - Trustee: Mellon Bank,
N.A., Pennsylvania
#157045 v3
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EXHIBIT H
Subsidiaries of Valley Resources, Inc.
1. Valley Gas Company
2. Valley Appliance and Merchandising Company
3. Valley Propane, Inc.
4. Morris Merchants, Inc.
5. Rhode Island Development and Exploration Company (inactive)
6. Bristol & Warren Gas Company
7. Alternative Energy Corporation
8. New England Gas Company (inactive)
#157045 v3
<PAGE>
EXHIBIT I
---------
FORM OF REQUEST
---------------
____________,_____
Fleet National Bank
111 Westminster Street
Providence, RI 02903
Attn: John D. Webb
RE: Request for Loan
Dear John:
Reference is made to that certain Loan Agreement, dated as of June ___,
1997 by and among Fleet National Bank and Valley Resources, Inc. (the "Loan
Agreement"). Capitalized terms used herein shall have the same meaning as in the
Loan Agreement.
The undersigned hereby requests a Loan from the Bank pursuant to the Loan
Agreement in the amount of Three Million One Hundred Forty-Two Thousand Two
Hundred and no/100 Dollars ($3,142,200.00). Kindly disburse the proceeds of such
Loan as follows: [].
The undersigned requests that such Loan be funded on June 30, 1997 and such
date is in accordance with the terms and conditions of the Loan Agreement.
The undersigned is submitting herewith an Interest Rate Election with
respect to such Loan.
The undersigned hereby certifies to the Bank that as of the date hereof:
(a) no Event of Default and no Default has occurred and is continuing; and
(b) the representations and warranties of the undersigned contained in
Article 4 of the Loan Agreement are true and correct in all material respects
except as altered by actions not prohibited under the Loan Agreement.
VALLEY RESOURCES, INC.
By:_____________________________
Title:__________________________
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EXHIBIT J
---------
Hazardous Waste Disclosure
--------------------------
a) Valley Gas Company purchased the assets of the gas division of Blackstone
Valley Gas and Electric Company (now Blackstone Valley Electric Company) on
August 1, 1961. Valley Gas did not conduct operations before that date. In
January 1994, a lawsuit was filed against Valley Gas and other parties by
Blackstone Valley Electric Company (Blackstone). The claim is for contribution
towards a judgment against Blackstone's share of total clean up costs of
approximately $6 million of a site in Massachusetts to which oxide waste was
transported in the 1930's (the "Mendon Road site"), prior to the incorporation
of Valley Gas, and for related declaratory relief concerning potential liability
for the site of the former Tidewater plant. Blackstone and the former Mendon
Road site owner have been held jointly and severally liable for the cost of the
clean up by the Massachusetts Department of Environmental Protection (formerly,
the Massachusetts Department of Environmental Quality Engineering) as a result
of its suit against Blackstone and the former Mendon Road site owner.
To the extent that any liability has been asserted against Valley Gas
arising out of events relating to the actual or alleged operations of the gas
department of Blackstone for any period prior to August 1, 1961, it is the
opinion of Valley Gas's management that this liability was not assumed by Valley
Gas at the time of the transfer of the gas properties. Rather, it is Valley
Gas's position that Blackstone should be obliged to indemnify and to hold Valley
Gas harmless from any such liability under the transfer agreements dated August
1, 1961. Specific reference is made to Article III of each of the following
documents, copies of which are attached:
1. Indenture of Transfer and Assignment and Assumption of Liabilities of
Property under Blackstone Mortgage, dated August 1, 1961.
2. Indenture of Transfer and Assignment and Assumption of Liabilities of
Property Not under Blackstone Mortgage, dated August 1, 1961.
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.
Legal fees associated with this claim are expected to be recovered in
rates.
b) On March 22, 1996, Valley Gas and Blackstone filed suit in Rhode Island
federal district court (with a reservation of Valley Gas's rights against
Blackstone on the indemnity issue) to resolve the contribution/indemnity claims
in the above case as against Stone & Webster Management Company.
Legal fees associated with this claim are expected to be recovered in
rates.
c) In September 1995, 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. The DEM has requested Valley Gas and Blackstone to
submit a remedial action work plan to address certain releases on the site. It
is too early in the process to determine the extent of any liability of Valley
Gas. Management takes the position that it is indemnified by Blackstone for any
such expenses. Valley
#157045 v3
<PAGE>
Gas will seek recovery from Blackstone and any insurance carriers deemed to be
at risk during the relevant period.
d) In February 1997, Valley Gas received a letter of responsibility from the
Rhode Island DEM with respect to the presence of contamination at the site of a
former coal gas plant located on Hamlet Ave. in Woonsocket, Rhode Island, which
ceased operation before its acquisition by Valley Gas. Valley Gas and Blackstone
have been ordered to submit a site investigation work plan to address the nature
and extent of contamination at the site. It is too early in the process to
determine the extent of any liability of Valley Gas. Management takes the
position that it is indemnified by Blackstone for any such expenses. Valley Gas
and Blackstone have collaborated on the preparation of the Site Investigation
Work Plan. As in the other proceedings, Valley Gas's position is that the 1961
Indemnity Agreements should be enforced, and all collaborative efforts with
Blackstone are subject to Valley Gas's reservation of all rights on that issue.
#157045 v3
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