<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 6, 1997
REGISTRATION NO. 333-30113
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
VALLEY RESOURCES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
RHODE ISLAND 05-0384723
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
------------------------
1595 MENDON ROAD, CUMBERLAND, RHODE ISLAND 02864, (401) 334-1188
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
ALFRED P. DEGEN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
VALLEY RESOURCES, INC.
1595 MENDON ROAD
CUMBERLAND, RHODE ISLAND 02864
(401) 334-1188
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
CHRISTINE M. MARX, ESQ. JOHN L. GILLIS, JR., ESQ.
EDWARDS & ANGELL ARMSTRONG, TEASDALE, SCHLAFLY & DAVIS
150 JOHN F. KENNEDY PARKWAY ONE METROPOLITAN SQUARE
SHORT HILLS, NEW JERSEY 07078 ST. LOUIS, MISSOURI 63102
(201) 376-7700 (314) 621-5070
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED AUGUST 6, 1997
PROSPECTUS
- ----------
VALLEY RESOURCES, INC.
620,000 SHARES OF COMMON STOCK
$7,000,000 % DEBENTURES DUE 2027
------------------------
The Corporation's Common Stock ("Common Stock") is listed on the American
Stock Exchange. On August 4, 1997, the reported last sale price of the Common
Stock on the American Stock Exchange was $10.875. See "Price Range of Common
Stock and Dividends."
Interest on the Debentures is payable semiannually on the first day of March
and September, commencing March 1, 1998.
The % Debentures due 2027 (the "Debentures") will be issued in the form
of one global security (the "Global Security") registered in the name of the
nominee of The Depository Trust Company (the "Depository"), and such nominee
will be the sole holder of the Debentures. An owner of an interest in the
Debentures ("Beneficial Owner") will not be entitled to the delivery of a
definitive security except in limited circumstances. A Beneficial Owner's
interest in the Global Security will be recorded on and transfers will be
effected only through records maintained by the Depository and its participants.
See "Description of Debentures."
At the option of any deceased Beneficial Owner's representative, the
Debentures are redeemable at 100% of their principal amount, plus accrued
interest, at any time, subject to the maximum principal amounts of $25,000 per
deceased Beneficial Owner and $210,000 in the aggregate for all deceased
Beneficial Owners during the initial period ending September 1, 1998 and during
each twelve month period thereafter, within 60 days after presentment to the
Depository of a satisfactory request for redemption. Otherwise, neither the
Corporation nor a Beneficial Owner can require redemption of the Debentures
until September 1, 2002, although the Corporation may, but is not required to,
redeem interests in the Debentures tendered in excess of the above limitations.
On or after September 1, 2002, interests in the Debentures will be redeemable,
in whole or in part, at the option of the Corporation at declining premiums. The
Debentures will be unsecured obligations of the Corporation payable out of the
Corporation's general operating funds, and no mandatory sinking fund will exist
to provide for the repayment of the indebtedness represented by the Debentures.
See "Description of Debentures."
Prior to this offering, there has been no public market for the Debentures,
and no assurance can be given that one will develop.
------------------------
THE SECURITIES OFFERED HEREBY INVOLVE A DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 6 OF THIS PROSPECTUS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
<TABLE>
<CAPTION>
====================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) CORPORATION(2)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share........................ $ $ $
Total Common Stock(3).......... $ $ $
- ------------------------------------------------------------------------------------
Per Debenture.................... $ $ $
Total Debentures............... $ $ $
- ------------------------------------------------------------------------------------
Total Offering(3).............. $ $ $
======================================================================================================
</TABLE>
(1) The Corporation has agreed to indemnify the Underwriters against certain
civil liabilities, including liabilities under the Securities Act of 1933.
See "Underwriting."
(2) Before deduction of expenses payable by the Corporation estimated at
$115,000.
(3) The Corporation has granted to the Underwriters an option (the
"Over-Allotment Option"), exercisable for a period of 30 days after the date
of this Prospectus, to purchase up to 93,000 additional shares of Common
Stock upon the same terms and conditions set forth above, solely to cover
over-allotments, if any. If the Over-Allotment Option is exercised in full,
the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Corporation will be $ , $ and $ ,
respectively. See "Underwriting."
------------------------
The Common Stock and Debentures are offered, subject to prior sale, when, as
and if issued by the Corporation and accepted by the Underwriters, and subject
to approval of certain legal matters by their counsel. The Underwriters reserve
the right to withdraw, cancel or modify such offer and to reject orders in whole
or in part. It is expected that delivery of the Common Stock and Debentures will
be made in St. Louis, Missouri, on or about August , 1997. The Debentures will
bear interest from the date of delivery of the Global Security to the
Underwriters, which is expected to be on or about August , 1997.
------------------------
EDWARD D. JONES & CO., L.P. FIRST ALBANY CORPORATION
The date of this Prospectus is , 1997.
<PAGE> 3
[MAP OF VALLEY RESOURCES, INC. APPEARS HERE]
The above map depicts the areas serviced by the Utilities and the propane
operations. Morris Merchants' sales area encompasses New England and upstate New
York. Alternate Energy Corporation's primary sales area is New England, but
customers are also serviced throughout the United States and in South America.
Certain persons participating in this offering may engage in transactions
that stabilize, maintain, or otherwise affect the price of the common stock and
debentures. Such transactions may include stabilizing, the purchase of common
stock and debentures to cover syndicate short positions and the imposition of
penalty bids. For a description of these activities, see "Underwriting."
2
<PAGE> 4
AVAILABLE INFORMATION
Valley Resources, Inc. (the "Corporation") has filed with the Securities
and Exchange Commission (the "Commission") a Registration Statement on Form S-2
with respect to the securities offered hereby (herein, together with all
amendments and exhibits, referred to as the "Registration Statement") under the
Securities Act of 1933, as amended (the "Act"). This Prospectus does not contain
all of the information set forth in such Registration Statement, certain parts
of which are omitted in accordance with the Rules and Regulations of the
Commission. For further information pertaining to these securities and the
Corporation, reference is made to the Registration Statement.
The Corporation is subject to the informational requirements of the
Securities Exchange Act of 1934 (the "Exchange Act") and, in accordance
therewith, files reports, proxy statements and other information with the
Commission. Reports, proxy statements and other information filed by the
Corporation can be inspected and copied at the public reference facilities of
the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, DC 20549, as well as at the following Regional Offices: 7 World
Trade Center, New York, NY 10048; and Citicorp Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, IL 60661. Copies can be obtained by mail at
prescribed rates. Requests should be directed to the Commission's Public
Reference Section, Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC
20549. Such material also can be inspected at the offices of the American Stock
Exchange, 86 Trinity Place, New York, NY 10006. In addition, certain of such
materials are also available electronically by means of the Commission's home
page on the Internet at http://www.sec.gov.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents, which have heretofore been filed by the
Corporation with the Commission pursuant to the Exchange Act, are incorporated
by reference into this Prospectus and shall be deemed to be a part hereof as of
their respective dates:
1. The annual report of the Corporation on Form 10-K for the fiscal
year ended August 31, 1996.
2. The quarterly reports of the Corporation on Form 10-Q for the
fiscal quarters ended November 30, 1996, February 28, 1997 and May 31,
1997.
Any statement contained in any document incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Registration
Statement to the extent that a statement contained herein or in any subsequently
filed document which also is incorporated by reference herein modifies or
supersedes such statement. Except as so modified or superseded, such statement
shall not be deemed to constitute a part of this Registration Statement.
ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, RECEIVING A COPY OF THIS
PROSPECTUS MAY OBTAIN, WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, A COPY OF
ANY OF THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN, EXCEPT FOR THE EXHIBITS
TO SUCH DOCUMENTS. WRITTEN REQUESTS SHOULD BE MAILED TO KENNETH W. HOGAN, SENIOR
VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND SECRETARY, VALLEY RESOURCES, INC.,
1595 MENDON ROAD, CUMBERLAND, RHODE ISLAND 02864. TELEPHONE REQUESTS MAY BE
DIRECTED TO (401) 334-1188.
3
<PAGE> 5
- --------------------------------------------------------------------------------
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the detailed
information appearing elsewhere in this Prospectus or incorporated herein by
reference and, except as otherwise noted, assumes that the Underwriters'
Over-Allotment Option will not be exercised.
THE CORPORATION
Valley Resources, Inc. is a Rhode Island holding company organized in 1979,
whose principal office is located at 1595 Mendon Road, Cumberland, Rhode Island
02864. (Telephone number 401-334-1188). The Corporation has five active
wholly-owned subsidiaries: Valley Gas Company, Bristol & Warren Gas Company,
Valley Appliance and Merchandising Company, Valley Propane, Inc. and Morris
Merchants, Inc. The Corporation also has an 80% interest in Alternate Energy
Corporation. See "Valley Resources, Inc."
THE OFFERING
<TABLE>
<CAPTION>
COMMON STOCK:
<S> <C>
Shares of Common Stock offered..... 620,000
Shares of Common Stock outstanding
after the offering................. 4,875,080*
Latest 52-week Range of Sales
Prices (through July 31, 1997)..... $13-$10 1/2
Indicated annual dividend rate per
share of Common Stock.............. $0.74
American Stock Exchange Symbol..... VR
Dividend Reinvestment Plan (the
"Plan")............................ Available by separate prospectus
DEBENTURES:
Debentures offered................. $7,000,000 in aggregate principal amount.
Maturity........................... September 1, 2027.
Interest........................... % payable semi-annually on each
September 1 and March 1, commencing March
1, 1998.
Beneficial Owner's Redemption
Privilege.......................... At the option of any deceased Beneficial
Owner's representative, the interests in
the Debentures are redeemable at 100% of
the principal amount, plus accrued
interest, at any time, subject to the
maximum principal amount of $25,000 per
deceased Beneficial Owner and $210,000 in
the aggregate for all deceased Beneficial
Owners, during the initial period ending
September 1, 1998 and for each twelve
month period thereafter. See "Description
of Debentures."
Corporation's Redemption
Privilege.......................... In whole or in part, beginning September
1, 2002, at a premium of 104% declining
by 1% per year for the next four years,
plus accrued interest. See "Description
of Debentures."
USE OF PROCEEDS.................... To reduce short-term debt of utility
operations, to make loans to nonutility
subsidiaries to repay short-term debt,
and for working capital requirements. See
"Use of Proceeds."
</TABLE>
- ---------------
* Based on the number of shares of Common Stock outstanding as of June 30, 1997.
- --------------------------------------------------------------------------------
4
<PAGE> 6
- --------------------------------------------------------------------------------
SUMMARY FINANCIAL INFORMATION
The following table sets forth certain summary financial information of the
Corporation and the ratio of earnings to fixed charges as of May 31, 1997 and
1996 and for the nine months then ended and as of and for each of the five
fiscal years ended August 31, 1996. The summary financial information is
qualified by reference to the consolidated financial statements and other
information and data set forth elsewhere in the Prospectus.
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS
ENDED MAY 31, FOR THE FISCAL YEAR ENDED AUGUST 31,
------------------ ------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
(IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING INCOME:
Operating revenues............ $73,553 $68,011 $80,360 $74,870 $83,553 $77,286 $67,144
Operating income.............. $ 6,659 $ 7,172 $ 6,850 $ 5,744 $ 6,501 $ 6,084 $ 4,899
Net income.................... $ 4,444 $ 5,075 $ 3,998 $ 2,555 $ 3,826 $ 3,727 $ 3,115
Net income applicable to
common stock............... $ 4,444 $ 5,075 $ 3,998 $ 2,555 $ 3,826 $ 3,727 $ 3,115
Earnings per average common
share outstanding.......... $ 1.04 $ 1.19 $ 0.94 $ 0.61 $ 0.91 $ 0.89 $ 0.74
Dividends per common share.... $ 0.55 $ 0.543 $ 0.725 $ 0.71 $ 0.69 $ 0.66 $ 0.63
Average Number of Common
Shares Outstanding......... 4,263 4,255 4,259 4,223 4,206 4,203 4,201
RATIO OF EARNINGS TO FIXED
CHARGES(1):
Actual........................ 3.3 3.8 2.5 1.9 2.6 2.8 2.8
Pro Forma(2).................. 3.5 2.7
</TABLE>
<TABLE>
<CAPTION>
MAY 31, 1997
------------------------------------
ACTUAL PRO FORMA(2)
---------------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
CAPITALIZATION:
Long-term debt (including current maturities)............ $23,674 44.7% $30,674 46.0%
Common equity............................................ 29,339 55.3% 35,761 54.0%
------- ----- ------- -----
Total capitalization..................................... $53,013 100.0% $66,435 100.0%
======= ===== ======= =====
Short-term debt.......................................... $12,000 $ -0-
======= =======
</TABLE>
- ---------------
(1) The ratio of earnings to fixed charges represents the number of times that
fixed charges are covered by earnings. Earnings for the calculation consist
of net income before income taxes and fixed charges. Fixed charges consist
of interest expense and amortization of debt expense.
(2) Adjusted to reflect the sale of the Common Stock (at an assumed price of $11
per share) and the issuance of the Debentures (at an assumed interest rate
of 7.625%) offered hereby and the application of the estimated net proceeds
of $13,014,000 therefrom.
- --------------------------------------------------------------------------------
5
<PAGE> 7
RISK FACTORS
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Act and Section 21E of the Exchange Act. Actual results could
differ materially from those projected in the forward-looking statements as a
result of the risk factors set forth below and elsewhere in this Prospectus. In
addition to the other information contained and incorporated by reference in
this Prospectus, the following factors should be carefully considered in
evaluating the Corporation and its business before purchasing the securities
offered hereby.
FACTORS AFFECTING THE GAS UTILITY INDUSTRY
The natural gas industry is subject to numerous regulations and
uncertainties, many of which affect the utility operations of the Corporation in
varying degrees. Industry issues which have affected or may affect the
Corporation from time to time include the following: fluctuations in demand
attributable to weather; new business and operational requirements for gas
supply resulting from changes in federal regulation of interstate pipelines;
competition with other gas sources for commercial and industrial customers;
competition with alternative sources of energy; uncertainty in achieving an
adequate return on invested capital due to inflation; difficulty in obtaining
rate increases from regulatory authorities in adequate amounts and on a timely
basis; attrition in earnings produced by the combination of increasing expenses
and the costs of new capital which may exceed allowed rates of return; the
availability of pipeline transportation capacity necessary to secure supplies of
gas; volatility in the price of natural gas; increases in construction and
operating costs; environmental regulations; and uncertainty in the projected
rate of growth of customers' energy requirements.
Sales of natural gas for heating are sensitive to fluctuations in
temperatures. Rates in the industry are set at levels assuming normal
temperatures. In an abnormally warm year, revenues from sales of gas to heating
customers will be adversely affected. The service areas of the Corporation's
utilities have experienced warmer than normal weather in two of the last five
years.
FACTORS AFFECTING THE CORPORATION'S NON-UTILITY OPERATIONS
The Corporation's nonutility operations are subject to market competition
and the ability to meet and maintain competitive pricing. Morris Merchants has
exclusive rights to represent certain manufacturers in New England and upstate
New York; however, there is no assurance that these rights will continue.
ABSENCE OF PUBLIC MARKET FOR DEBENTURES
There is no public trading market for the Debentures and the Corporation
does not intend to apply for listing of the Debentures on any national
securities exchange or for quotation of the Debentures on any automated dealer
quotation system. The Corporation has been advised by the Underwriters that they
presently intend to make a market in the Debentures after the consummation of
the offering contemplated hereby, although they are under no obligation to do so
and may discontinue any market-making activities at any time without any notice.
No assurance can be given as to the liquidity of the trading market for the
Debentures or that an active public market for the Debentures will develop. If
an active public trading market for the Debentures does not develop, the market
price and liquidity of the Debentures may be adversely affected. If the
Debentures are traded, they may trade at a discount from their initial offering
price, depending on prevailing interest rates, the market for similar
securities, the performance of the Corporation and certain other factors.
RELIANCE OF CORPORATION ON DIVIDENDS AND OTHER PAYMENTS FROM SUBSIDIARIES;
DIVIDEND RESTRICTIONS IMPOSED ON SUBSIDIARIES
The Corporation is a holding company, the principal assets of which are
shares of the capital stock of its subsidiaries. As a holding company without
independent means of generating revenues, the Corporation depends on dividends
and other permitted payments from its subsidiaries to fund its obligations and
meet its cash needs, including its payment obligations under the Debentures and
the payment of dividends. Valley Gas Company ("Valley Gas") has outstanding
indebtedness which may increase and any of the subsidiaries could
6
<PAGE> 8
issue preferred stock in the future which would have a preference over its
common stock as to dividends. Valley Gas is not in default in payment of
interest or principal on its outstanding indebtedness. Under the terms of its
outstanding indebtedness, Valley Gas is subject to restrictions on the payment
of dividends on its common stock. Under the most restrictive of these
provisions, approximately $2,501,400 of Valley Gas' retained earnings at May 31,
1997 was available for common stock dividends. There are no restrictions as to
the payment of dividends by the other subsidiary companies.
REDUCED PROBABILITY OF CHANGE OF CONTROL OR ACQUISITION OF CORPORATION DUE TO
EXISTENCE OF ANTI-TAKEOVER PROVISIONS
The Corporation's Articles of Incorporation and By-Laws contain certain
provisions that reduce the probability of any change of control or acquisition
of the Corporation. These provisions include, but are not limited to, the
division of the Board of Directors into three classes with one class being
elected each year for a term of three years, the ability of the Board of
Directors to issue preferred stock in one or more series with such rights,
obligations and preferences as the Board of Directors may determine without any
further vote or action by the stockholders, and certain super-majority voting
requirements for certain business combinations or for certain amendments of the
Articles of Incorporation and By-laws. In addition, each share of Common Stock
includes one preferred stock purchase Right which entitles the holder to
purchase one one-hundredth of a share of Cumulative Participating Junior
Preferred Stock, par value $100, upon the occurrence of certain events in excess
of a stipulated percentage of ownership. See "Description of Common Stock."
VALLEY RESOURCES, INC.
Valley Resources, Inc. (the "Corporation"), a Rhode Island corporation
organized in 1979, is a holding company whose principal subsidiary operations
are natural gas distribution. The Corporation's principal executive offices are
located at 1595 Mendon Road, Cumberland, Rhode Island 02864, and its telephone
number is 401-334-1188. As a holding company, the Corporation's principal asset
is the common stock of its subsidiaries.
The Corporation has five active wholly-owned subsidiaries: Valley Gas and
Bristol & Warren Gas Company ("Bristol & Warren") (Valley Gas and Bristol &
Warren collectively, the "Utilities") -- regulated natural gas distribution
companies which accounted for 76% and 80% of the Corporation's revenues and net
income, respectively, in fiscal 1996; Valley Appliance and Merchandising Company
("VAMCO") -- a merchandising appliance rental, sales and service company; Valley
Propane, Inc. ("Valley Propane") -- a wholesale and retail propane company;
Morris Merchants, Inc., d/b/a the Walter F. Morris Company ("Morris
Merchants") -- a manufacturer's representative of franchised lines in the
plumbing and heating contractor supply and other energy related businesses. The
Corporation also has an 80% interest in, and the obligation to acquire the
remaining 20% interest of, Alternate Energy Corporation ("AEC"), which sells,
installs and designs natural gas conversion systems and facilities.
7
<PAGE> 9
USE OF PROCEEDS
The net proceeds to the Corporation from the sale of the securities offered
hereby are expected to be approximately $13,014,000, after deducting the
underwriting commissions and other expenses of the offering. The Corporation
intends to contribute $6,422,000 of the net proceeds of the offering described
herein to the Utilities as a capital contribution, subject to the approval of
the Rhode Island Division of Public Utilities, and the remainder will be used to
make loans to its subsidiaries to repay short-term debt and for working capital
requirements. The Utilities intend to use all of the capital contribution to
retire a portion of their outstanding short-term debt, which was incurred
principally for construction purposes. Utility construction expenditures for
fiscal 1996 aggregated approximately $4,396,000 and are estimated at $4,233,400
for the year ending August 31, 1997. Additions to utility plant consist
primarily of the construction of new mains and services and the installation of
new meters in the service area. As of June 30, 1997, short-term bank notes
aggregated $13,100,000. The interest rate on these borrowings ranged from 5.60%
to 5.71% with maturities not exceeding 31 days.
Pending such applications, the net proceeds may be held in temporary cash
investments.
CAPITALIZATION
The following table sets forth the capitalization of the Corporation as of
May 31, 1997 and the pro forma capitalization which reflects the issuance of the
Common Stock and Debentures offered hereby and the application of the estimated
net proceeds therefrom. See "Use of Proceeds."
<TABLE>
<CAPTION>
ACTUAL PRO FORMA(1)
-------- ------------
(IN THOUSANDS)
<S> <C> <C>
Long-Term Debt:
8% First Mortgage Bonds, due 2022................................. $20,130 $20,130
Note Payable...................................................... 1,405 1,405
9% Note Payable, due 1999......................................... 2,139 2,139
Debentures Offered Hereby......................................... -- 7,000
------- -------
Total..................................................... 23,674 30,674
Common Equity:
Common Stock...................................................... 4,280 4,900
Paid in Capital................................................... 18,159 23,961
Retained Earnings................................................. 9,851 9,851
Less Accounts Receivable -- Employee Stock Ownership Plan......... (2,951) (2,951)
------- -------
Total..................................................... 29,339 35,761
------- -------
Total Capitalization................................................ $53,013 $66,435
======= =======
Short-Term Debt..................................................... $12,000 $ -0-
======= =======
</TABLE>
- ---------------
(1) As adjusted for the estimated net proceeds from the sale of 620,000 shares
of Common Stock (at an assumed price of $11 per share) being offered hereby
and the issuance of the Debentures (at an assumed interest rate of 7.625%)
offered hereby and the application of the estimated net proceeds of
$13,014,000 therefrom.
8
<PAGE> 10
SELECTED FINANCIAL DATA
The following tables set forth selected financial data of the Corporation.
The following data should be read in conjunction with the consolidated financial
statements and the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MAY 31, AUGUST 31,
----------------------- --------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Utility plant -- net............... $ 49,987 $ 48,889 $ 49,442 $ 47,411 $ 44,207 $ 42,313 $ 38,838
Leased property -- net............. 2,505 3,138 2,945 2,014 2,436 2,395 3,343
Nonutility plant -- net............ 3,677 3,565 3,568 3,547 3,519 3,334 2,180
Current assets..................... 20,876 18,736 19,307 18,409 18,358 20,727 20,908
Other assets....................... 22,215 21,215 21,427 20,957 22,549 12,026 10,594
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total........................ $ 99,260 $ 95,543 $ 96,689 $ 92,338 $ 91,069 $ 80,795 $ 75,863
========== ========== ========== ========== ========== ========== ==========
Capitalization and liabilities
Capitalization
Common equity.................... $ 29,339 $ 28,892 $ 27,092 $ 25,993 $ 26,036 $ 24,943 $ 24,018
Long-term debt (less current 23,174 23,291 23,256 24,616 27,035 27,580 15,795
maturities)....................
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total........................ 52,513 52,183 50,348 50,609 53,071 52,523 39,813
---------- ---------- ---------- ---------- ---------- ---------- ----------
Revolving credit arrangement....... 2,300 2,200 2,200 -0- -0- -0- -0-
Obligations under capital leases... 1,636 2,298 2,134 1,255 1,747 1,847 1,790
Current liabilities................ 24,643 21,788 24,005 23,932 18,530 18,982 26,922
Other liabilities.................. 18,168 17,074 18,002 16,542 17,721 7,443 7,338
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total........................ $ 99,260 $ 95,543 $ 96,689 $ 92,338 $ 91,069 $ 80,795 $ 75,863
========== ========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED MAY 31, FOR THE YEAR ENDED AUGUST 31,
----------------------- --------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED) (IN THOUSANDS EXCEPT FOR SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenues................... $ 73,553 $ 68,011 $ 80,360 $ 74,870 $ 83,553 $ 77,286 $ 67,144
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating expenses:
Cost of gas sold................... 33,146 27,950 31,951 30,229 38,234 33,410 28,963
Cost of sales -- nonutility........ 11,134 10,372 13,689 13,190 12,784 12,715 11,893
Other operation and maintenance.... 14,912 14,702 19,379 18,288 17,784 17,300 15,107
Depreciation....................... 2,333 2,212 2,956 2,685 2,474 2,304 1,770
Taxes -- other than Federal 3,400 3,273 4,091 4,002 4,463 4,073 3,557
income...........................
-Federal income.............. 1,969 2,330 1,444 732 1,313 1,400 955
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total........................ 66,894 60,839 73,510 69,126 77,052 71,202 62,245
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating income..................... 6,659 7,172 6,850 5,744 6,501 6,084 4,899
Other income -- net of tax........... 268 332 460 115 227 253 267
Total interest charges............... 2,483 2,429 3,312 3,304 2,902 2,610 2,051
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income........................... $ 4,444 $ 5,075 $ 3,998 $ 2,555 $ 3,826 $ 3,727 $ 3,115
========== ========== ========== ========== ========== ========== ==========
Shares outstanding -- average........ 4,262,679 4,255,017 4,258,877 4,222,662 4,205,760 4,203,398 4,201,105
Shares outstanding -- period-end..... 4,280,028 4,260,797 4,280,028 4,260,797 4,213,043 4,213,043 4,213,043
Earnings per share................... $ 1.04 $ 1.19 $ 0.94 $ 0.61 $ 0.91 $ 0.89 $ 0.74
Dividends declared per share......... $ 0.55 $ .543 $ 0.725 $ 0.71 $ 0.69 $ 0.66 $ 0.63
</TABLE>
9
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
OVERVIEW
The discussion and analysis that follows reflect the operations of the
Corporation and its six active subsidiaries: Valley Gas and Bristol & Warren,
both regulated natural gas distribution companies; VAMCO, a merchandising,
appliance rental, and service company; Valley Propane, a propane sales and
service company; Morris Merchants, a representative distributor of franchised
lines; and AEC, which sells, installs and designs natural gas conversion systems
and facilities.
Operating results are derived from two major classifications -- utility and
nonutility. Utility revenues are generated from the operations of the regulated
natural gas distribution companies and include the distribution and sale of
natural gas to firm and seasonal customers. Nonutility revenues are a
consolidation of the revenues of VAMCO, Valley Propane, Morris Merchants and
AEC.
The distribution and sale of natural gas to customers on a year-round basis
for heating, water heating, cooking and processing are the sources of firm
utility revenues. Firm customers can be residential, commercial or industrial.
The revenues from firm sales customers are determined by regulated tariff
schedules and through Rhode Island Public Utilities Commission ("RIPUC")
approved commodity charge factors. These factors include the Purchased Gas Price
Adjustment ("PGPA"), which requires the Utilities to collect from or return to
customers changes in gas costs from those included in the regulated tariffs, and
provides for an adjustment to collect post-retirement benefits.
Seasonal and dual-fuel sales (see "Business") are made when excess gas
supplies are available and gas prices are competitive with alternative fuel
markets. These sales are generally made in non-winter months and can be
interrupted by the Utilities at any time. Margins from seasonal sales and
margins above $1 per thousand cubic feet ("Mcf") of gas sold to dual fuel
customers are returned to firm sales customers through a reduction in the PGPA.
Prior to November 1995, Bristol & Warren retained all margins on seasonal sales.
The Utilities also provide transportation through their distribution systems for
customer-purchased natural gas received by the Utilities on an off-peak basis.
Morris Merchants and VAMCO generate nonutility revenues through the
wholesale and retail sales of plumbing and heating supplies and appliances.
Additionally, VAMCO generates revenues from appliance rentals and a service
contract repair program.
All of the Corporation's propane operations are conducted through Valley
Propane, which sells propane at retail and provides service to propane customers
in Rhode Island and southeastern Massachusetts.
AEC, acquired in May 1996, generates revenues through the conversion of
vehicles and stationary engines to natural gas and through the design and
installation of natural gas fueling facilities. The Corporation owns an 80%
interest in AEC and has the obligation to acquire the remaining 20% of the
company currently held by the management of AEC. The operations of AEC did not
materially impact the operations of the Corporation in fiscal 1996 or for the
first nine months of fiscal 1997.
SEASONALITY
The bulk of firm distribution and sales are made during the months of
November through March. As a result, the highest levels of earnings and cash
flow are generated in the quarters ending in February and May. The bulk of the
capital expenditure programs are undertaken during the months of May through
October, causing cash flow to be at its lowest during the quarters ending in
November and August.
Short-term borrowing requirements vary according to the seasonal nature of
sales and expense activities of the Utilities, creating greater need for
short-term borrowings during periods when internally generated funds are not
sufficient to cover all capital and operating requirements, particularly in the
summer and fall. Short-term borrowings utilized for construction expenditures
generally are replaced by permanent financing when it
10
<PAGE> 12
becomes economical and practical to do so and where appropriate to maintain an
acceptable relationship between borrowed and equity resources.
RESULTS OF OPERATIONS
For the 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% 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% due to
decreased natural gas sales resulting from warmer than normal weather. Revenues
generated through the PGPA 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% higher than the
same period in fiscal 1996. The volume of seasonal gas sales increased 13.4% and
the remainder of the increase was attributable to higher gas prices. 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 operating income.
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% 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% 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% 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 of 1996 as a result of both the
increased 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%
over the prior year nine month period 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
result of a decline in off-system sales. The decrease in other income was offset
by increased interest income and the recognition of income on other investments.
Interest expense increased 2.3% for the nine month period over the
comparable period in fiscal 1996. Interest on increased short-term borrowings
was slightly offset by a reduction in interest accrued on deferred fuel costs
and lower borrowing rates.
Fiscal 1996 versus Fiscal 1995
Utility gas revenues in fiscal 1996 totaled $60,773,500, an increase of
8.5% over fiscal 1995. Revenues from sales to firm customers increased 9.8% over
the prior fiscal year as a result of increased gas sales and rate
11
<PAGE> 13
relief. Offsetting the increase in revenues was a decrease of $2,654,800 in gas
costs recovered through the PGPA. The PGPA does not impact operating income as
it effectuates a dollar for dollar recovery of gas costs.
In fiscal 1996, gas sold to firm customers increased 12.0% over fiscal 1995
and totaled 8,255,500 Mcf. The primary contributor to the increase in gas sales
was the weather which was 17.0% colder than the prior year during the critical
heating period, December through February.
In October 1995, Valley Gas and Bristol & Warren were authorized by the
RIPUC to consolidate their rate structures and to increase their tariffs to
collect an additional $1,100,000 in revenues. The new tariffs collect an
increased share of revenues through the customer charge, thus reducing
sensitivity of utility revenues to weather. Approximately $825,000 of this
revenue increase is reflected in fiscal 1996 revenues.
Sales to seasonal customers in fiscal 1996 decreased 21.2% as compared to
fiscal 1995. Seasonal sales are dependent on the availability of gas and the
price of competing fuels. The colder winter period resulted in less gas
available for sales to this market. Since profits on seasonal sales are returned
to firm sales customers through the PGPA, seasonal sales have no impact on
operating income.
Transportation revenues declined by $124,800, or 24.6%, in fiscal 1996 as
compared to fiscal 1995. The reduction in transportation revenues was the result
of a decrease in gas delivered to Valley Gas on behalf of customers.
Nonutility revenues totaled $19,586,600, an increase of 3.9% over fiscal
1995. Revenues from retail merchandising operations, inclusive of rental and
service program revenues, increased 12.6% over the prior fiscal year. The focus
on the commercial and industrial markets led to an increase in retail
merchandising revenues and related gross profit, even though a lower profit
margin percentage is earned on these sales. The service contract and rental
program revenues increased due to new customers and price increases. The
wholesale operations have faced gross profit margin declines because of pricing
competition among manufacturers and consolidation of wholesale outlets within
their market. Wholesale merchandise revenues declined slightly in fiscal 1996.
The revenues generated from the propane company are included in nonutility
revenues. Propane revenues increased 17.5% in fiscal 1996 over the prior fiscal
year. The increase was due to a 12.3% increase in gallons of propane sold and an
increase in the retail price of propane. Colder weather and sales to the
construction heating market accounted for the increase in sales.
Cost of gas sold includes the cost of natural gas, underground storage gas,
liquefied natural gas and liquid propane gas to serve utility sales customers.
The average cost per Mcf of natural gas distributed for utility operations in
fiscal 1996 and fiscal 1995 was $3.84 and $3.21, respectively. Cold weather in
November and December required the use of storage gas before the peak winter
period which caused increased demands for natural gas supply during the winter
period and resulted in increased natural gas prices. Changes in gas costs of the
utility operations are passed through to firm sales customers in the
calculations of the PGPA. Therefore, increases and decreases in gas costs do not
impact the profit margins of the utility operations.
The cost of sales for nonutility operations in fiscal 1996 increased 3.8%
over the prior fiscal year. The increase was the result of increased retail
sales and increased gallons sold of propane. The average cost of propane
distributed was $0.48 per gallon in fiscal 1996 versus $0.44 per gallon in
fiscal 1995.
Other operation expenses increased 5.7% in fiscal 1996 over fiscal 1995 due
to wages and increased costs associated with the operation of the peak shaving
facilities. An increase in uncollectible expenses also contributed to the
increase.
Maintenance expense in fiscal 1996 was $1,672,000, an increase of 8.9% over
the prior year. Maintenance expense increased due to costs related to the record
snowfall experienced during the winter period and computer maintenance.
Operation and maintenance expenses are impacted by general inflation and wages.
Taxes -- other than Federal income increased 2.2% to $4,090,800 in fiscal
1996. Gross receipts taxes on increased utility revenues were responsible for
the increase. The effective Federal income tax rates for the years ended August
31, 1996 and 1995 were 28% and 24%, respectively.
12
<PAGE> 14
Other income -- net of tax totaled $459,900 in fiscal 1996 and $115,000 in
fiscal 1995. The increase in fiscal 1996 was a result of off-system natural gas
sales and investment income. Off-system natural gas sales are natural gas sales
to customers outside the franchise area at market clearing prices. The
opportunities for off-system sales are dependent upon market demand and the
ability of other gas suppliers to meet their delivery requirements. Management
believes it is unlikely that conditions will exist for this level of off-system
sales in subsequent years.
Fiscal 1996 interest expense was $3,311,700, an increase of 0.2% over the
prior fiscal year. Interest expense was impacted by an increase in short-term
debt only partially offset by a reduction in the deferred fuel cost liability
and the related interest accrual.
Fiscal 1995 versus Fiscal 1994
Fiscal 1995 utility gas revenues totaled $56,012,900, a 14.3% decrease from
fiscal 1994. Firm revenues in fiscal 1995 decreased 16.1% from fiscal 1994 due
to a $6,457,700 reduction in gas costs recovered through the PGPA and decreased
gas sales.
Gas sales to firm customers were 7,368,700 Mcf in fiscal 1995, a decrease
of 6.7% from the prior year. The primary contributor to the sales decrease was
warmer weather. Weather, as measured by degree days, in fiscal 1995 was 8.2%
warmer than normal and 9.9% warmer than fiscal 1994. Weather during the critical
heating period of December through February was 15.5% warmer than the prior
year. In fiscal 1995, sales to seasonal customers increased 23.3% over the prior
fiscal year. The warm weather made gas supplies available at competitive prices
which was the primary reason for the sales increase. The profits from these
sales for Valley Gas are returned to firm customers through the PGPA. Bristol &
Warren's margin accrued to the benefit of stockholders in fiscal 1995 and 1994.
Sales to dual fuel customers in fiscal 1995 increased by 24,600 Mcf over the
prior fiscal year. Revenues from the transportation of customer-owned natural
gas increased $134,800 in fiscal 1995.
Nonutility revenues in fiscal 1995 were $18,857,200, an increase of 3.4%
over fiscal 1994. VAMCO focused its retail merchandising attention on the
commercial and industrial equipment market in response to the effects of the
sluggish economy on the residential market. This led to increased retail sales
of equipment to this market and an improvement in the gross margin of the retail
operations. The rental and service contract programs continued to impact
earnings positively. Wholesale operations experienced slight improvements in
sales levels and gross margins as they continued their focus on higher margin
lines. However, profitability decreased in the wholesale business due to
expenses incurred from changes in management and the implementation of a
computerized reporting system to improve communications between the customers
and the sales force.
As stated earlier, propane operations also are included in nonutility
revenues. Propane revenues in fiscal 1995 decreased by 4.8% as a result of a
10.0% decrease in gallons sold, offset by increases in the wholesale price of
propane. The warm weather was the major contributor to the decreased propane
volume sold. Price competition continued to be a critical factor in the ability
to expand these operations.
The Utilities distribute natural gas, underground storage gas, liquefied
natural gas and a limited amount of liquid propane gas to meet customer demands;
the cost of these fuels is included in the cost of gas sold. The average cost
per Mcf of gas distributed in fiscal 1995 was $3.21 versus $4.01 in fiscal 1994.
The decrease in the cost per Mcf was the result of lower demand for natural gas
as a result of the warmer weather. All changes in gas costs are passed through
to firm customers through the workings of the PGPA.
Cost of sales -- nonutility includes the cost of sales for the retail
merchandising operation, the wholesale merchandising operation and the propane
operation. Cost of merchandising goods sold increased 3.4% in fiscal 1995 over
fiscal 1994 which was directly attributable to the increase in merchandise
sales. The average cost of propane for the retail propane operations, included
in cost of sales, was $0.44 per gallon in fiscal 1995 versus $0.40 per gallon in
fiscal 1994.
13
<PAGE> 15
Operations expenses in fiscal 1995 increased 2.7% over fiscal 1994. Planned
wage and benefit increases and an increase in uncollectible expenses accounted
for a majority of this increase. A decreased use of peak shaving facilities and
improved cost controls slightly offset these increases.
Maintenance expense in fiscal 1995 was $1,535,200, an increase of 3.4% over
fiscal 1994. Expenses related to the distribution system were responsible for
the increase. Operation and maintenance expenses were impacted by wages and
general inflation.
Taxes -- other than Federal income were $4,002,100 in fiscal 1995, a
decrease of $461,300 from the prior year. A reduction in gross receipts taxes as
a result of decreased revenues and the lowering of the gross receipts tax rate
for manufacturing customers were responsible for the decrease. The effective
Federal income tax rates for the years ended August 31, 1995 and 1994 were 24%
and 27%, respectively.
Fiscal 1995 other income -- net of tax decreased $112,400 from the prior
year. A decrease in funds available for overnight investments and interest
earned on those investments were responsible for the decrease in other income.
Interest expense in fiscal 1995 totaled $3,304,600, an increase of 13.8%
over fiscal 1994. Increased short-term borrowing rates were responsible for the
increase in interest expense.
LIQUIDITY AND CAPITAL RESOURCES
The sale of natural gas, propane and merchandise and revenues collected
through rental and service contract programs generate cash flows to meet the
cash requirements of the Corporation. Operations, external financings and
investments are also used to meet corporate cash needs. Short-term financings
under existing lines of credit are available to meet daily cash needs. Long-term
and intermediate financings, and when appropriate, equity issues are used to
refinance short-term debt when deemed appropriate by management.
The cash position of the Corporation is impacted by the requirement to
inventory supplemental gas supplies and the timing of inventory acquisitions to
meet the peak winter demand of the Utilities. Supplemental gas inventories are
filled in the summer period for use during the winter period which has a
negative impact on cash flows.
Effective November 1995, the Utilities, as authorized by the RIPUC,
consolidated their rate structures and increased their rate tariffs to collect
an additional $1,100,000 in revenues. Approximately $825,000 of this rate
increase positively impacted liquidity in fiscal 1996. Colder weather and its
positive influence on revenues similarly impacted cash flow.
During fiscal 1996, actual gas costs were greater than expected, which
resulted in the Utilities' under-recovery of gas costs through the PGPA; this
caused the liability to customers at the end of fiscal 1995 to become a
receivable from customers in fiscal 1996, negatively impacting liquidity. This
under-recovery is being collected from customers through an increase in the PGPA
in fiscal 1997, which has had a positive impact on fiscal 1997 cash flows.
Interest costs and the timing of Federal and state tax payments also impact
liquidity.
Cash flows were positively impacted during the third quarter of fiscal 1997
by the receipt of a natural gas supplier refund in the amount of $1,700,000
which was credited to the PGPA. However, sales during the quarter were less than
anticipated due to warmer than normal weather which negatively impacted
liquidity.
Valley Gas entered into a revolving credit arrangement to fund the
redemption of the Valley Gas 8% First Mortgage Bonds as they are redeemed by the
current holders. During fiscal 1996, $2,200,000 of funds were borrowed under
this arrangement, at a financing rate of less than 8%, which favorably impacted
liquidity.
Funding requirements are met through short-term borrowings under existing
lines of credit. At May 31, 1997, the Corporation had $17,000,000 of available
borrowings under its lines of credit. These lines are reviewed annually by the
lending banks, and management believes they will be renewed or replaced.
Management believes the available financings are sufficient to meet cash
requirements for the foreseeable future.
14
<PAGE> 16
A lawsuit has been filed against Valley Gas and other parties by Blackstone
Valley Electric Company ("Blackstone") seeking contribution towards a judgment
against Blackstone's share of total clean-up costs of approximately $6,000,000
at the Mendon Road site in Attleboro, Massachusetts. The expenses relate to a
site to which oxide waste was transported in the 1930's prior to the
incorporation of Valley Gas. Management is of the opinion the Corporation will
prevail as a result of the indemnification provisions included in the agreement
entered into when Valley Gas acquired the utility assets from Blackstone.
Management cannot determine the future cash flow impact, if any, of this claim
and related legal fees. In a recent decision of the U.S. Court of Appeals for
the First Circuit, Blackstone's appeal of the judgment against it was sustained
and the case was remanded for further proceedings, including a referral of the
case to the EPA to determine if the substance in question (FFC) is hazardous.
Valley Gas received a letter of responsibility from the Rhode Island
Department of Environmental Management ("DEM") with respect to releases from
manufactured coal waste on its property that is the site of the former Tidewater
plant in Pawtucket, Rhode Island. Valley Gas and Blackstone have submitted a
site investigation report to DEM relating to certain releases on the site.
Management cannot determine the future cash flow impact, if any, of this claim
and related expenses. Management takes the position that it is indemnified by
Blackstone for any such expenses. Valley Gas intends to seek recovery from
Blackstone and any insurance carriers deemed to be at risk during the relevant
period. Remediation of sites such as the former Tidewater plant is governed by a
regulatory framework which now permits more flexibility in methods of
remediation and in property reuse.
Valley Gas received a letter of responsibility from DEM with respect to
releases from manufactured coal waste on its property that is the site of the
former Hamlet Avenue plant in Woonsocket, Rhode Island. Valley Gas and
Blackstone have submitted a site investigation work plan to address certain
releases at the site. Management cannot determine the future cash flow impact,
if any, of this claim and related expenses. Management takes the position that
it is indemnified by Blackstone for any such expenses. Valley Gas intends to
seek recovery from Blackstone and any insurance carriers deemed to be at risk
during the relevant period. Remediation of this site is also governed by a
regulatory framework that permits more flexibility in methods of remediation and
in property reuse.
The Corporation's net cash from operating activities in fiscal 1996 was
$3,669,000 versus $6,728,000 in fiscal 1995 and $8,342,900 in fiscal 1994. Cash
from operations was impacted by the deferred fuel cost account which used funds
of $3,977,800 in fiscal 1996 and provided funds in fiscal 1995 and 1994. Cash
from investing activities in the amount of $5,058,100 in fiscal 1996, $5,929,300
in fiscal 1995 and $4,604,700 in fiscal 1994 was used primarily for capital
expenditures. Financing activities in fiscal 1996 provided cash of $1,441,200
primarily from the issuance of the revolving credit arrangement and the issuance
of short-term debt offset by the use of funds for the payment of dividends and
the redemption of a portion of the 8% First Mortgage Bonds. Financing activities
used cash of $931,400 in fiscal 1995 and $4,090,800 in fiscal 1994.
Cash flows from operating activities were positively impacted for the nine
months ended May 31, 1997 as a result of increased collections through the PGPA
and the receipt of a natural gas supplier refund. Cash flows for the nine months
ended May 31, 1996 were positively impacted by increased sales and decreased
cost of natural gas. Cash from investing activities was $3,054,500 for the nine
months ended May 31, 1997 compared to $3,763,260 in the prior year nine-month
period. Financing activities used cash of $5,270,400 for the nine months ended
May 31, 1997 primarily as a result of short-term borrowings and the payment of
dividends. This compares to cash used of $3,400,600 in the prior nine month
period as a result of decreased short-term borrowings and dividend payments
offset slightly by borrowings under a revolving credit arrangement to fund
redemptions of the 8% First Mortgage Bonds.
Capital expenditures are primarily for the expansion and improvement of the
gas utility plant and for the purchase of rental and propane equipment. In
fiscal 1996, capital expenditures were $5,008,700 versus $5,915,900 in fiscal
1995 and $4,553,400 in fiscal 1994. Fiscal 1997 capital expenditures are
estimated to be $4,942,500, of which $2,987,500 was incurred in the
Corporation's first three quarters; such expenditures have been and will be
primarily for the expansion and improvements of gas utility property. It is
anticipated that such expenditures will be financed through funds from
operations and short-term borrowings.
15
<PAGE> 17
BUSINESS
The Corporation is a holding company organized in 1979 and incorporated in
the State of Rhode Island. The Corporation has five wholly-owned active
subsidiaries: Valley Gas and Bristol & Warren -- regulated natural gas
distribution companies; VAMCO -- a merchandising and appliance rental company;
Valley Propane -- a wholesale and retail propane company; and Morris
Merchants -- a wholesale distributor of franchised lines in plumbing and heating
contractor supply and other energy-related business. The Corporation also has an
80% interest in AEC which sells, installs and designs natural gas conversion
systems and facilities.
Bristol & Warren, acquired by the Corporation on April 1, 1992, was
incorporated in the State of Rhode Island in 1953 to distribute natural gas to
customers in Bristol and Warren, Rhode Island.
In May 1996, the Corporation acquired its 80% interest in AEC. AEC was
incorporated in the State of Rhode Island in April 1992 to design and install
equipment for the conversion of vehicular and stationary engines to natural gas.
The Corporation has the obligation to acquire the remaining 20% interest in AEC
over the next five fiscal years. Such 20% interest is currently held by AEC
management.
Effective September 1995, all propane sales and service, some of which had
formerly been conducted by the Corporation's now inactive subsidiary, The New
England Gas Company, were combined into a single operation under the name Valley
Propane.
STRATEGY
The Corporation considers itself an integrated diversified energy company.
It plans to continue its diversification efforts, primarily through internal
growth of existing subsidiaries. Existing businesses continue to focus on the
expansion of their activities to acquire additional market share. If attractive
opportunities become available, diversification efforts will include the
acquisition of new businesses.
UTILITY OPERATIONS
Gas Sales and Transportation
The Corporation's utility operations are conducted through the Utilities,
which had an average of 61,653 customers during the twelve months ended May 31,
1997, of which approximately 91% were residential and 9% were commercial and
industrial. For the nine months ended May 31, 1997, 50% of gas sales were to
residential customers and 50% were to commercial and industrial customers.
The Utilities provide natural gas service to residential, commercial and
industrial customers and transportation services to industrial customers. Valley
Gas' service territory is approximately 92 square miles located in the
Blackstone Valley region in northeastern Rhode Island with a population of
approximately 250,000. Bristol & Warren's service territory is approximately 15
square miles in eastern Rhode Island with a population of approximately 35,000.
Effective November 1995, the Utilities operate under a single rate structure.
The following table shows the distribution of gas sold during the years
since fiscal 1992 in millions of cubic feet ("MMcf"):
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED AUGUST 31,(1)
----------------------------------------------
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Residential........................ 4,612 4,078 4,517 4,439 3,965
Commercial......................... 2,252 1,953 2,078 1,978 1,680
Industrial -- firm................. 1,391 1,338 1,299 1,185 1,152
Industrial -- seasonal............. 1,047 1,298 996 818 1,010
----- ----- ----- ----- -----
TOTAL.............................. 9,302 8,667 8,890 8,420 7,807
===== ===== ===== ===== =====
</TABLE>
- ---------------
(1) The operations of Bristol & Warren are included since April 1992.
16
<PAGE> 18
Firm customers of the Utilities use gas for cooking, heating, water
heating, drying and commercial/ industrial processing. Certain industrial
customers use additional gas in the summer months, when it is available at lower
prices. These customers are subject to having their service interrupted at the
discretion of the Utilities with very little notice. This use is classified as
seasonal use. As discussed further below, the margin on seasonal use is passed
through the PGPA to lower the cost of gas to all categories of firm customers.
Bristol & Warren retained the margin on seasonal sales prior to November 1995.
The primary source of utility revenues is firm use customers under tariffs
which are designed to recover a base cost of gas, administrative and operating
expenses and provide sufficient return to cover interest and profit. The
Utilities also service dual fuel, interruptible and transportation customers
under rates approved by the RIPUC. Additionally, Valley Gas services
cogeneration customers under separate contract rates that were individually
approved by the RIPUC.
The Utilities' tariffs include a PGPA which allows an adjustment of rates
charged to customers in order to recover all changes in gas costs from
stipulated base gas costs. The PGPA provides for an annual reconciliation of
total gas costs billed with the actual cost of gas incurred. Any excess or
deficiency in amounts collected as compared to costs incurred is deferred and
either reduces the PGPA or is billed to customers over subsequent periods. The
PGPA does not impact operating income as it effectuates a dollar for dollar
recovery of gas costs. All margins from interruptible customers are returned to
firm customers through the workings of the PGPA.
Utility revenues include a surcharge on firm gas consumption to collect a
portion of the costs to fund postretirement medical and life insurance benefits
above the pay-as-you-go costs included in base tariffs. The surcharge was
authorized by the RIPUC in a generic rate proceeding and is being phased in over
a ten-year period which commenced September 1, 1993. Effective November 1995,
the current year funding of postretirement medical and life insurance benefits
is included in base tariffs. In September 1996, the RIPUC authorized the funding
shortages from the first two years of the phase-in to be recovered through a
surcharge over the next three fiscal years.
The prices of alternative sources of energy impact the interruptible and
dual fuel markets. The Utilities serve these customers in the nonpeak periods of
the year or when competitively priced gas supplies are available. These
customers are subject to service discontinuance on short notice as system firm
requirements may demand. Prices for these customers are based on the price of
the customers' alternative fuel. In order to mitigate the volatility of earnings
from interruptible and dual fuel sales, the Utilities roll into the PGPA the
margin earned on these interruptible sales and all margins in excess of $1 Mcf
of gas sold to dual fuel customers. This margin credit reduces rates to firm
customers. This means of margin treatment alleviates the negative impact that
swings in sales can have on earnings in the highly competitive industrial
interruptible market.
The Utilities business is seasonal. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Seasonality."
Rates and Regulation
The Utilities are subject to regulation by the RIPUC with respect to rates,
adequacy of service, issuance of securities, accounting and other matters.
On January 19, 1995, Valley Gas and Bristol & Warren filed revised tariffs
with the RIPUC to consolidate their rate structures and to increase their
combined annual revenues. On October 18, 1995, the RIPUC authorized the
consolidated rate structure and allowed the Utilities to adjust their tariffs to
annually collect $1,100,000 or 2.0%. These rates became effective November 21,
1995.
On April 29, 1997, the Utilities were authorized to offer transportation
rates to large commercial and industrial customers and to redesign the rates for
other firm customer classes. The revenue-neutral rate redesign became effective
June 1, 1997.
17
<PAGE> 19
Gas Supply and Storage
Tennessee Gas Pipeline Company is the major natural gas transporter for
Valley Gas under long-term contracts. Bristol & Warren's principal gas
transporters are Algonquin Gas Transmission Company and Texas Eastern
Transmission Corporation. The Utilities purchase natural gas from several
suppliers on a long-term firm basis, as well as on the spot market whenever
available.
Year-Round Wellhead Firm Supply -- Valley Gas is a charter member of the
Mansfield Consortium, which consists of five local distribution companies joined
together to use their combined market power to secure favorable terms for
longterm gas supply. In addition, Valley Gas is an investor in Boundary Gas,
Inc. and a customer of Alberta Northeast, LTD, both of which were founded by
groups of gas distribution companies in the Northeast to import natural gas from
Canada.
Valley Gas and Bristol & Warren together have 24,402 dekatherms per day
("Dth/day") of year-round firm supply under long-term contracts with four
domestic and two Canadian suppliers. Of these contracts, 22,335 of the
contracted Dth/day will expire in the next five years; 7,035 Dth/day are due to
expire November 1, 1999 and 15,300 Dth/day are due to expire on June 30, 2002.
All of the Utilities' gas supply contracts are spot-indexed based. The Utilities
have flexible take requirements, with only 1,973 dekatherms categorized as
"baseload" supply which must be taken every day, and that contract expires in
1999.
Winter-Only Firm Supply -- The Utilities are well-positioned with respect
to winter-only firm supply in that their actual and prospective long-term
contracts are with major participants in this market, and contract prices are at
competitively favorable terms.
Liquefied Natural Gas ("LNG") -- Valley Gas is entitled to 5,300 Dth/day of
firm supply from Distrigas, which revaporizes LNG at its Everett, Massachusetts
facility for delivery during the winter months to Valley Gas by Tennessee Gas
Pipeline or to Bristol & Warren via Algonquin Gas Transmission. As an option,
Valley Gas may take this gas in its liquefied state for transportation by truck
to and storage at Valley Gas' on-site LNG tank. A further option allows Valley
Gas to increase its maximum daily quantity from 5,300 to 7,950 dekatherms. There
are no minimum takes, and the contract runs through October 31, 2005.
Maritimes & Northeast Pipeline -- Subject to approval by the Federal Energy
Regulatory Commission and subsequent construction of the proposed Maritimes &
Northeast Pipeline from Sable Island, Canada into a Massachusetts interconnect
with Tennessee Gas Pipeline, Valley Gas will be entitled to firm winter delivery
of 5,000 Dth/day to its city gate, with an option to increase its maximum daily
quantity to 7,500 dekatherms. There are no minimum takes. This 10-year contract
is scheduled to go into effect November 1, 1999.
Pawtucket Power Co-Generation Plant -- Valley Gas is entitled under
long-term contract to utilize up to 540 dekatherms per hour, with a maximum
annual quantity of 333,000 dekatherms, of natural gas used by Pawtucket Power in
its generation of electricity and steam. This firm gas supply originates in
Alberta, Canada.
Underground Storage -- The Utilities have 1,543,958 dekatherms of
underground storage capacity with CNG Transmission and National Fuel Gas Supply
Corporation, with a total maximum daily withdrawal quantity of 20,589
dekatherms. Underground storage gas is injected during the non-winter months by
the Utilities into fields located in Pennsylvania and New York, for subsequent
withdrawal during the winter when customer demand is greatest.
Interstate Pipeline Capacity -- The Utilities utilize firm pipeline
capacity for two basic purposes: 1) daily transportation of firm and spot market
gas supply throughout the year from the Gulf Coast to their city gates, and 2)
winter-only transportation of underground storage gas to their city gates.
Gas Supply Pipeline Capacity -- Total year-round firm capacity is 24,902
Dth/day. Of this total, 86% expires by December 1, 2002.
Storage Pipeline Capacity -- The Utilities' storage-related pipeline
capacity totals 11,349 Dth/day. About 37% of this capacity expires November 1,
2000, and the remainder extends from 2003 through 2012.
On-Site LNG and Propane Storage -- In addition to the gas delivered by the
interstate pipeline, the Utilities have on-site storage facilities for liquid
propane gas ("LPG"), with Valley Gas having about 857,000
18
<PAGE> 20
gallons and Bristol & Warren having about 117,000 gallons of LPG storage. Valley
Gas also has on-site storage facilities for 968,320 gallons (about 85,000
dekatherms) of LNG. Both LPG and LNG are vaporized into the Utilities
distribution systems during periods of peak demand, and utilized as backup in
the event of failure of an upstream pipeline to deliver needed gas supplies.
Competition and Marketing
The primary competition faced by the Utilities is from other energy
sources, primarily heating oil. The principal considerations affecting a
customer's selection among competing energy sources include price, equipment
cost, reliability, ease of delivery and service. In addition, the type of
equipment already installed in businesses and residences significantly affects
the customer's choice of energy. However, where previously installed equipment
is not an issue, households in recent years have consistently preferred the
installation of gas heat. For example, Valley Gas' statistics indicate that
approximately 90% of the new homes built on or near Valley Gas' service mains in
recent years have selected gas as their energy source.
The Utilities are pursuing new markets believed to have the potential to
provide both growth and/or lessen sales sensitivity to weather: industrial
processing, cogeneration, natural gas vehicles and conversions from oil or
electricity to gas.
In recent utility rate decisions, the RIPUC approved rates which will
retain and attract industrial customers. Additionally, the Utilities have two
rates which promote economic development in its service territory. These rates
provide incentives for companies that add industrial processing load, make a
substantial investment in new natural gas equipment and hire additional
employees.
The cogeneration market is addressed through sales contacts with customers
who have applications suitable to use waste heat through the cogeneration
process. There are established rate tariffs to specifically address the
requirements of the cogeneration market. In addition, Valley Gas has a 50
kilowatt demonstration facility at its Cumberland location which provides
electricity for computer facilities and hot water requirements.
Valley Gas has a compressed natural gas ("CNG") fueling station at its
Cumberland, Rhode Island headquarters. The use of natural gas in vehicles is
promoted through conversions of its own fleet and the CNG rate approved by the
RIPUC.
The Utilities' residential marketing department seeks to increase
conversions from oil to natural gas through installations of conversion burners
and conversions to natural gas of housing developments that initially chose
alternate energy sources. Additional efforts are made to convert homes with
inactive natural gas service and to replace electric heating systems with
natural gas systems.
The distribution company unbundling process will add competition from a new
source -- natural gas suppliers. The Utilities have received approval from the
RIPUC for transportation rates which allow large commercial and industrial
customers the choice to purchase gas from the Utilities or from natural gas
marketers; gas purchased by users within the Utilities' territories is
transported to the users by the Utilities. Since the Utilities' profits are
derived from distribution of natural gas and not natural gas sales, this process
should not significantly impact the profitability of the Utilities.
Gas Distribution System
Valley Gas' distribution system consists of approximately 900 miles of gas
mains and service lines. Bristol & Warren's gas distribution system consists of
approximately 100 miles of gas mains and service lines. The aggregate maximum
daily quantity of gas that may be distributed through the Utilities from their
own facilities and under existing supply and transportation contracts is
approximately 100 MMcf, and the maximum daily gas sendouts for all sales
customers of the Utilities during the last five fiscal years were 71 MMcf in
1996, 66 MMcf in 1995, 77 MMcf in 1994, 69 MMcf in 1993, and 67 MMcf in 1992.
19
<PAGE> 21
GAS MARKETING
The Corporation is positioning itself to participate in the deregulated
energy markets by entering into a marketing alliance with Total/Louis Dreyfus
Energy Services, L.L.C. to market natural gas and petroleum-based products. The
marketing alliance will provide the Corporation the opportunity to supply energy
needs to customers without franchise territory barriers. The Utilities also
filed to unbundle their firm commercial and industrial tariffs with the RIPUC in
September 1996. Effective June 1, 1997, the Utilities were authorized to offer
transportation rates to large commercial and industrial customers and redesign
the rates for other customers.
APPLIANCE CONTRACT SALES AND RENTALS
The Corporation conducts appliance sales, service contract sales and
appliance rentals through its subsidiaries VAMCO and Morris Merchants. VAMCO's
revenues are generated through retail appliance sales, service contract sales
and through the rental of gas-fired appliances. The merchandising subsidiaries
are in competitive businesses with competition based on many factors, including
price, quality of product and service.
Morris Merchants has contracts for the distribution of certain lines that
it wholesales. At this time the Corporation has no reason to believe it will
lose any of its existing lines.
PROPANE OPERATIONS
The propane operations are conducted through Valley Propane, which sells,
at retail, liquid propane gas to residential and commercial customers in Rhode
Island and nearby Massachusetts. At May 31, 1997, Valley Propane had 2,729
customers. Valley Propane also supplies propane to holding customers of the
Utilities; these customers are serviced by Valley Propane until the Utilities
can connect mains and service lines. Valley Propane is also impacted by weather,
as a large percentage of its customers use propane as a primary source of heat.
Valley Propane increases and decreases the selling price of its gas depending
upon supply and competition.
NATURAL GAS CONVERSIONS
The Corporation conducts natural gas conversions through AEC. AEC generates
its revenues through the engineering and installation of compressed natural gas
refueling stations, the conversion of gasoline and diesel-powered vehicles to
natural gas and through the implementation of its patented process to co-fire
natural gas and diesel fuel in engines, primarily generators.
The Corporation owns an 80% interest in AEC and has the obligation over the
next five fiscal years to acquire the remaining 20%, which is currently held by
the management of AEC.
ENVIRONMENTAL PROCEEDINGS
For information regarding the Corporation's potential environmental
liabilities, see "Management's Discussion and Analysis of the Results of
Operations and Financial Condition -- Liquidity and Capital Resources."
20
<PAGE> 22
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Common Stock is traded on the American Stock Exchange ("AMEX") under
the symbol "VR." The following table sets forth for the periods indicated the
high and low sale prices of the Common Stock as reported by AMEX and the cash
dividends paid per share in such periods.
The Corporation has paid cash dividends on its Common Stock each year since
1964. While it is the intention of the Board of Directors to continue to declare
dividends on a quarterly basis, the frequency and amount of future dividends
will depend upon the Corporation's earnings, financial requirements and other
relevant factors, including limitations imposed by the indenture for the
Debentures. See "Description of Common Stock." There were 2,416 record holders
of the Corporation's Common Stock as of July 15, 1997.
<TABLE>
<CAPTION>
MARKET PRICE
CASH -----------------
DIVIDEND HIGH LOW
-------- ------ ------
<S> <C> <C> <C>
Fiscal 1995
First Quarter.................................. $ .175 $13.25 $12.00
Second Quarter................................. .175 12.63 10.75
Third Quarter.................................. .18 11.38 10.50
Fourth Quarter................................. .18 11.50 10.38
Fiscal 1996
First Quarter.................................. $ .18 $11.50 $10.25
Second Quarter................................. .18 11.38 10.50
Third Quarter.................................. .1825 11.88 10.88
Fourth Quarter................................. .1825 12.63 11.88
Fiscal 1997
First Quarter.................................. $.1825 $13.00 $11.75
Second Quarter................................. .1825 12.00 11.00
Third Quarter.................................. .185 12.50 11.25
Fourth Quarter (through July 31, 1997)......... .185 11.81 10.63
</TABLE>
DESCRIPTION OF COMMON STOCK
The following description relating to the Common Stock is summarized from,
and subject to the provisions of, the Articles of Incorporation and the Bylaws
of the Corporation, as amended.
GENERAL
The Corporation is authorized to issue 20,000,000 shares of Common Stock,
$1 par value, of which 4,280,028 were issued and outstanding at June 30, 1997.
The Corporation is also authorized to issue 500,000 shares of Preferred Stock,
$100 par value, none of which is issued and outstanding. As of June 30, 1997,
41,125 shares of Common Stock were reserved for issuance under the Corporation's
dividend reinvestment plan.
DIVIDEND RIGHTS
Dividends are payable on the Common Stock when and as declared by the Board
of Directors out of funds legally available therefor. Under Rhode Island law,
dividends may be paid out of unreserved and unrestricted retained earnings.
Inasmuch as the Corporation is structured as a holding company, the funds
required to enable the Corporation to pay dividends on its Common Stock are
derived from the dividends paid by its subsidiaries on their common stock, all
of which is held by the Corporation, except for 20% of AEC. See "Risk Factors --
Reliance of Corporation on Dividends and Other Payments from Subsidiaries;
Dividend Restrictions Imposed on Subsidiaries."
21
<PAGE> 23
VOTING RIGHTS
Each share of Common Stock is entitled to one vote on all matters submitted
to stockholders.
Directors. The Articles of Incorporation and Bylaws of the Corporation
provide that the Board of Directors (presently numbering nine) shall be divided
into three classes with each class to be as nearly equal in number as shall be
possible, and that one class shall be elected each year for a term of three
years. The Corporation's Bylaws provide that the affirmative vote of a majority
of the outstanding shares of Common Stock is required to elect directors.
Directors may be removed by stockholders from office at any time, but only for
cause, by the affirmative vote of the holders of not less than 80% of the
outstanding shares of Common Stock; however the 80% vote is not required when
such action is recommended by a two-thirds vote of directors then in office.
Certain Business Combinations. The Corporation's Articles of Incorporation
provide that any "Business Combinations" involving a "Related Person" must be
approved by the holders of 80% of the outstanding shares of its capital stock,
provided that majority approval shall apply if (a) the proposed transaction has
been approved by two-thirds of the Corporation's "Continuing Directors" or
(b)(1) the consideration to be received by the holders of the Corporation's
capital stock is at least equal to the highest of (i) the highest per share
price paid by the Related Person for any shares acquired within two years of the
first public announcement of the proposed transaction (the "Announcement Date")
or in the transaction in which it became a Related Person, (ii) the fair market
value (as defined in the Articles of Incorporation) per share of the capital
stock on the Announcement Date or the date on which the Related Person become a
Related Person, or (iii) in the case of the Corporation's Preferred Stock, an
amount equal to the highest preferential amount per share in the event of any
liquidation, dissolution or winding up of the Corporation, (2) the consideration
to be received by the Corporation's shareholders is in the same form as that
previously paid by the Related Person for its shares, and (3) a proxy statement
containing a fairness opinion of an investment banking firm and the position of
the Continuing Directors on the proposed transaction shall have been mailed to
all of the Corporation's shareholders to solicit their approval of the proposed
transaction. A "Business Combination" is defined to include mergers,
consolidations, leases, sales and exchanges of assets and similar transactions
involving the Corporation and its subsidiaries which amount to 20% or more of
the fair market value of the consolidated assets of the Corporation, including
any securities issued by a subsidiary, between the Corporation (or a subsidiary)
and a Related Person. The definition also includes certain other transactions
(including reclassifications and recapitalizations) which would have the effect
of, directly or indirectly, increasing the Related Persons' proportionate share
of capital stock in the Corporation and complete or partial liquidations or
dissolutions proposed by a Related Person. A "Related Person" is defined to
include a person, entity or affiliated group of persons or entities that
beneficially owns 15% or more of the capital stock of the Corporation. A
"Continuing Director" is defined as a director (a) unaffiliated with any Related
Person who was a member of the Board immediately prior to the time the Related
Person became a Related Person or (b) who was designated as a Continuing
Director by a majority of the then Continuing Directors.
Amendments to Articles and Bylaws. The Articles of Incorporation and
Bylaws of the Corporation provide for amendment of the foregoing provisions of
the Articles or the Bylaws by 80% and two-thirds, respectively, of the
outstanding shares entitled to vote unless the proposed amendment has been
approved by two-thirds of the Board of Directors, in which case majority
approval by stockholders as required by applicable law is necessary. The Board
of Directors may amend the Bylaws subject, however, to the rights, preferences
and privileges to which the holder of any class of stock shall be entitled.
The general purpose of the foregoing provisions is to make more difficult
and deter efforts by another party to gain control of the Corporation on a
non-negotiated basis. It is possible that such provisions might also deter
non-negotiated tender offers at a premium over market price which might be, or
might be viewed by stockholders as being, beneficial. In addition, to the extent
such non-negotiated takeover attempts are deterred, the positions held by
management are made more secure.
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<PAGE> 24
LIQUIDATION RIGHTS
Shares of Preferred Stock, if any are issued in the future and then
outstanding, will be preferred over Common Stock in the event of liquidation of
the Corporation at the redemption price for such preferred shares in effect at
the time of such liquidation, and in involuntary liquidation at prices not to
exceed $100 par value per share, plus accrued dividends. In addition, in the
event of liquidation of any of the Corporation's subsidiaries, all securities of
the subsidiaries, other than common stock, including shares of preferred stock
then issued and outstanding, would receive payment in full before any amounts
would be available for distribution to the Corporation as the holder of the
common stock of the subsidiaries. Subject to the foregoing, holders of the
Common Stock will share ratably in assets available for distribution after
payment in full of all obligations of the Corporation in the event of its
liquidation.
RIGHTS
Each share of Common Stock of the Corporation includes one preferred stock
purchase Right which entitles the holder to purchase one one-hundredth of a
share of Cumulative Participating Junior Preferred Stock, par value $100, at a
price of $35 per one one-hundredth of a share subject to adjustment. The Rights
are not currently exercisable and trade automatically with the Common Stock. The
Rights will generally become exercisable, and separate certificates representing
the Rights will be distributed, upon occurrence of the acquisition or the
commencement of a tender or an exchange offer by any person or group to acquire
10% or more of the issued and outstanding shares of Common Stock.
The Rights should not interfere with any merger or business combination
approved by the Board of Directors because, prior to the Rights becoming
exercisable, the Rights may be redeemed by the Corporation at $0.01 per Right.
The Rights have no dilutive effect and do not affect reported earnings per
share.
DIVIDEND REINVESTMENT PLAN
The Corporation offers holders of the Common Stock an opportunity through
the Plan to reinvest their dividends automatically in shares of the Common Stock
at a price equal to 95% of the average of the reported closing price of the
Common Stock on the three trading days preceding the dividend payment date. The
Plan also permits holders of Common Stock to make cash investments for the
purchase of shares of Common Stock on the open market, without any discount.
Such shares are offered only by means of a separate Prospectus available from
the Corporation upon request.
TRANSFER AGENT & REGISTRAR
The transfer agent and registrar of the Common Stock is The Bank of New
York, New York, New York.
DESCRIPTION OF DEBENTURES
GENERAL
The Debentures are to be issued under an Indenture dated as of August 15,
1997 (the "Indenture"), by and between the Corporation and Mellon Bank, N.A., as
Trustee. A copy of the Indenture has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The terms of the
Debentures include those stated in the Indenture and those made a part of the
Indenture by reference to the Trust Indenture Act of 1939 (the "Trust Indenture
Act") as in effect on the date of the Indenture. Potential investors are
referred to the Indenture and the Trust Indenture Act for a statement of such
terms. The following statements relating to the Debentures and certain
provisions of the Indenture are summaries, do not purport to be complete, and
are subject to and are qualified in their entirety by reference to the
provisions of the Indenture. Unless otherwise stated, capitalized terms defined
in the Indenture have the same meanings when used herein.
The Corporation does not intend to list the Debentures on a national
securities exchange. There is presently no trading market for the Debentures,
and there can be no assurance that such a market will develop or, if developed,
that it will be maintained. See "Risk Factors -- Absence of Public Market for
Debentures."
23
<PAGE> 25
BOOK-ENTRY ONLY SYSTEM
The Debentures will be issued in the aggregate initial principal amount of
$7,000,000 and will be represented by one certificate (the "Global Security") to
be registered in the name of the nominee of The Depository Trust Company ("DTC")
or any successor depository (the "Depository"). The Depository will maintain the
Debentures in denominations of $1,000 and integral multiples thereof through its
book-entry facilities. In accordance with its normal procedures, the Depository
will record the interests of each Depository participating firm (e.g., brokerage
firm) ("Participant") in the Debentures, whether held for its own account or as
a nominee for another person.
So long as the nominee of the Depository is the registered owner of the
Debentures, such nominee will be considered the sole owner or holder of the
Debentures for all purposes under the Indenture and any applicable laws, except
as noted below. A Beneficial Owner, as hereinafter defined, of interests in the
Debentures will not be entitled to receive a physical certificate representing
such ownership interest and will not be considered an owner or holder of the
Debentures under the Indenture, except as otherwise provided below. A Beneficial
Owner is the person who has the right to sell, transfer or otherwise dispose of
an interest in the Debentures and the right to receive the proceeds therefrom,
as well as interest, principal and premium (if any) payable in respect thereof.
A Beneficial Owner's interest in the Debentures will be recorded, in integral
multiples of $1,000, on the records of the Participant that maintains such
Beneficial Owner's account for such purpose. In turn, the Participant's interest
in such Debentures will be recorded, in integral multiples of $1,000, on the
records of the Depository. Therefore, the Beneficial Owner must rely on the
foregoing arrangements to evidence its interest in the Debentures. Beneficial
ownership of the Debentures may be transferred only by compliance with the
procedures of a Beneficial Owner's Participant (e.g., brokerage firm) and the
Depository.
All rights of ownership must be exercised through the Depository and the
book-entry system, except that a Beneficial Owner is entitled to exercise
directly its rights under Section 316(b) of the Trust Indenture Act with respect
to the payment of interest and principal on the Debentures. Notices that are to
be given to registered owners by the Corporation or the Trustee will be given
only to the Depository. It is expected that the Depository will forward the
notices to the Participants by its usual procedures, so that such Participants
may forward such notices to the Beneficial Owners. Neither the Corporation nor
the Trustee will have any responsibility or obligation to assure that any
notices are forwarded by the Depository to the Participants or by any
Participants to the Beneficial Owners.
DTC has advised the Corporation and the Underwriters as follows: DTC is a
limited-purpose trust company organized under the Banking Law of the State of
New York, a member of the Federal Reserve System, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities of Participants and facilitates the clearance and settlement of
securities transactions among Participants in such securities transactions
through electronic book-entry changes in accounts of Participants, thereby
eliminating the need for physical movement of securities certificates.
Participants include securities brokers and dealers (including the
Underwriters), banks, trust companies, clearing corporations and certain other
organizations, some of whom (and/or their representatives) own DTC. Access to
DTC's book-entry system is also available to others, such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly. Persons who are
not Participants may beneficially own securities held by DTC only through
Participants.
INTEREST AND PAYMENT
The Debentures will mature on September 1, 2027. The Debentures will bear
interest from the date of issuance at the rate per annum stated on the cover
page hereof, calculated on the basis of a 360-day year of twelve 30-day months,
payable semi-annually on March 1 and September 1 of each year, commencing March
1, 1998 to the Persons in whose names the Debentures are registered at the close
of business on the 15th day of the month prior to such Interest Payment Date. If
any payment date would otherwise be a day that is a Legal Holiday, the payment
will be postponed to the next day that is not a Legal Holiday, and no interest
on such payment shall accrue for the period from and after such otherwise
scheduled payment date for the purposes of the payment to be made on such next
succeeding day.
24
<PAGE> 26
So long as the nominee of the Depository is the registered owner of the
Debentures, payments of interest, principal and premium (if any) in respect of
the Debentures will be made to the Depository. The Depository will be
responsible for crediting the amount of such payments to the accounts of the
Participants entitled thereto, in accordance with the Depository's normal
procedures. Each Participant will be responsible for disbursing such payments to
the Beneficial Owners of the interests in Debentures that it represents. Neither
the Corporation nor the Trustee will have any responsibility or liability for
any aspect of the records relating to, notices to, or payments made on account
of, beneficial ownership interests in the Debentures; maintaining, supervising
or reviewing any records relating to such beneficial ownership interests; the
selection of any Beneficial Owner to receive payment in the event of a partial
redemption of the Global Security; or consents given or other action taken on
behalf of any Beneficial Owner.
REDEMPTION AT THE OPTION OF THE CORPORATION
The Debentures will be redeemable at any time on or after September 1,
2002, as a whole or in part, at the election of the Corporation, at a Redemption
Price equal to the percentage of the principal amount set forth below if
redeemed during the twelve-month period beginning September 1 of the year
indicated:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE %
---- ------------------
<S> <C>
2002........................................... 104%
2003........................................... 103%
2004........................................... 102%
2005........................................... 101%
2006 to maturity............................... 100%
</TABLE>
In each case, interest accrued to the Redemption Date shall also be paid.
If less than all the Debentures are redeemed, the particular Debentures to be
redeemed will be selected by the Trustee by lot.
Notice of redemption will be mailed at least 30 days before the Redemption
Date to each holder of Debentures to be redeemed at the holder's registered
address.
On and after the Redemption Date, interest will cease to accrue on
Debentures or portions thereof called for redemption, unless the Corporation
shall default in the payment of the Redemption Price.
LIMITED RIGHT OF REDEMPTION UPON DEATH OF BENEFICIAL OWNER
Unless the Debentures have been declared due and payable prior to their
maturity by reason of an Event of Default, the Representative (as hereinafter
defined) of a deceased Beneficial Owner has the right to request redemption of
all or part of his interest at par, expressed in integral multiples of $1,000
principal amount, in the Debentures for payment prior to maturity, and the
Corporation will redeem the same subject to the limitations that the Corporation
will not be obligated to redeem during the period from the original issuance of
the Debentures through and including September 1, 1998 (the "Initial Period"),
and during any twelve-month period which ends on and includes each September 1
thereafter (each such twelve-month period being hereinafter referred to as a
"Subsequent Period"), (i) any interest in the Debentures which exceeds an
aggregate principal amount of $25,000 or (ii) interests in the Debentures in an
aggregate principal amount exceeding $210,000. A request for redemption may be
presented to the Trustee by the Representative of a deceased Beneficial Owner at
any time and in any principal amount. Representatives of deceased Beneficial
Owners must make arrangements with the Participant through whom such interest is
owned in order that timely presentation of redemption requests can be made by
the Participant and, in turn, by the Depository to the Trustee. If the
Corporation, although not obligated to do so, chooses to redeem interests of a
deceased Beneficial Owner in the Debentures in the Initial Period or in any
Subsequent Period in excess of the $25,000 limitation, such redemption, to the
extent that it exceeds the $25,000 limitation for any deceased Beneficial Owner,
shall not be included in the computation of the $210,000 aggregate limitation
for such Initial Period or such Subsequent Period, as the case may be, or for
any succeeding Subsequent Period.
Subject to the $25,000 and the $210,000 limitations, the Corporation will,
upon the death of any Beneficial Owner, redeem the interest of the Beneficial
Owner in the Debentures within 60 days following
25
<PAGE> 27
receipt by the Trustee of a Redemption Request (as hereinafter defined) from
such Beneficial Owner's personal representative, or surviving joint tenant(s),
tenant(s) by the entirety or tenant(s) in common, or other persons entitled to
effect such a Redemption Request (each, a "Representative"). If Redemption
Requests exceed the aggregate principal amount of interests in Debentures
required to be redeemed during the Initial Period or any Subsequent Period, then
such excess Redemption Requests will be applied to successive Subsequent
Periods, regardless of the number of Subsequent Periods required to redeem such
interests.
A request for redemption of an interest in the Debentures may be made by
delivering a request to the Depository, in the case of a Participant which is
the Beneficial Owner of such interest, or to the Participant through whom the
Beneficial Owner owns such interest, in form satisfactory to the Participant,
together with evidence of the death of the Beneficial Owner and evidence of the
authority of the Representative satisfactory to the Participant and Trustee. A
Representative of a deceased Beneficial Owner may make the request for
redemption and shall submit such other evidence of the right to such redemption
as the Participant or Trustee shall require. The request shall specify the
principal amount of interest in the Debentures to be redeemed. A request for
redemption in form satisfactory to the Participant and accompanied by the
documents relevant to the request as above provided, together with a
certification by the Participant that it holds the interest on behalf of the
deceased Beneficial Owner with respect to whom the request for redemption is
being made (a "Redemption Request"), shall be provided to the Depository by a
Participant, and the Depository will forward the request to the Trustee.
Redemption Requests shall be in form satisfactory to the Trustee.
The price to be paid by the Corporation for an interest in the Debentures
to be redeemed pursuant to a request on behalf of a deceased Beneficial Owner is
one hundred percent (100%) of the principal amount thereof plus accrued but
unpaid interest to the date of payment. Subject to arrangements with the
Depository, payment for interests in the Debentures which are to be redeemed
shall be made to the Depository upon presentation of Debentures to the Trustee
for redemption in the aggregate principal amount specified in the Redemption
Requests submitted to the Trustee by the Depository which are to be fulfilled in
connection with such payment. Any acquisition of Debentures by the Corporation
or its Subsidiaries other than by redemption at the option of any Representative
of a deceased Beneficial Owner shall not be included in the computation of
either the $25,000 or the $210,000 limitation for the Initial Period or for any
Subsequent Period.
Interests in the Debentures held in tenancy by the entirety, joint tenancy
or by tenants in common will be deemed to be held by a single Beneficial Owner
and the death of a tenant in common, tenant by the entirety or joint tenant will
be deemed the death of a Beneficial Owner. The death of a person who, during
such person's lifetime, was entitled to substantially all of the rights of a
Beneficial Owner of an interest in the Debentures will be deemed the death of
the Beneficial Owner, regardless of the recordation of such interest on the
records of the Participant, if such rights can be established to the
satisfaction of the Participant and the Trustee. Such interest shall be deemed
to exist in typical cases of nominee ownership, ownership under the Uniform
Gifts to Minors Act or the Uniform Transfers to Minors Act, community property
or other joint ownership arrangements between a husband and wife (including
individual retirement accounts or Keogh plans maintained solely by or for the
decedent or by or for the decedent and his or her spouse), and trust and certain
other arrangements where one person has substantially all of the rights of a
Beneficial Owner during such person's lifetime.
In the case of a Redemption Request which is presented on behalf of a
deceased Beneficial Owner and which has not been fulfilled at the time the
Corporation gives notice of its election to redeem the Debentures, the interests
in the Debentures which are subject of such Redemption Request shall not be
eligible for redemption pursuant to the Corporation's option to redeem but shall
remain subject to fulfillment pursuant to such Redemption Request.
Subject to the provisions of the immediately preceding paragraph, any
Redemption Request may be withdrawn upon delivery of a written request for such
withdrawal given to the Trustee by the Depository prior to payment for
redemption of the interest in the Debentures by reason of the death of a
Beneficial Owner.
The Corporation is legally obligated to redeem Debentures and interests of
Beneficial Owners therein properly presented for redemption pursuant to a
Redemption Request in accordance with and subject to the terms, conditions and
limitations of the Indenture, as summarized above. The Corporation's redemption
26
<PAGE> 28
obligation is not cumulative. Nothing in the Indenture prohibits the Corporation
from redeeming, in fulfillment of Redemption Requests made pursuant to the
Indenture, Debentures or interests therein of Beneficial Owners in excess of the
principal amount the Corporation is obligated to redeem, nor does anything in
the Indenture prohibit the Corporation from purchasing any Debentures or
interests therein in the open market. However, the Corporation may not use any
Debentures redeemed or purchased as described in the immediately preceding
sentence as a credit against its redemption obligation.
Because of the limitations of the Corporation's requirement to redeem, no
Beneficial Owner can have any assurance that its interest in the Debentures will
be paid prior to maturity.
SINKING FUND; NON-CONVERTIBILITY
The Debentures are not subject to a sinking fund and are not convertible.
DEBENTURES UNSECURED
The Debentures will be unsecured and will rank on a parity with all of the
other unsecured and unsubordinated Indebtedness of the Corporation outstanding
from time to time. Subject only to the restrictive covenants described below
(see "Restrictive Covenants"), the Indenture does not limit the amount of
Indebtedness which the Corporation or its subsidiaries may incur.
RESTRICTIVE COVENANTS
The Corporation covenants in the Indenture that it will not declare or pay
any dividends or make any other distribution upon its Common Stock (other than
dividends and distributions payable only in shares of Common Stock) and will not
directly or indirectly apply any of the assets of the Corporation to the
redemption, retirement, purchase or other acquisition of any stock of the
Corporation of any class, except purchases or redemptions in compliance with any
mandatory sinking fund or purchase fund or redemption requirement in respect of
any preferred stock of the Corporation, whether now or hereafter authorized or
issued, unless after giving effect to such declaration, payment, distribution or
application of assets the Consolidated Tangible Net Worth of the Corporation
shall be at least equal to $20,000,000 as reflected on the Corporation's latest
available balance sheet. Consolidated Tangible Net Worth is defined in the
Indenture as the shareholders' equity of the Corporation, less intangible assets
other than amounts recoverable from future ratepayers in accordance with RIPUC
rate treatment. At May 31, 1997, after giving effect to the issuance of the
Common Stock and the Debentures, Consolidated Tangible Net Worth of the
Corporation would have been approximately $33,242,600.
Subject to certain exceptions described in the Indenture, the Corporation
also covenants that neither it nor any of its subsidiaries will issue, assume or
guarantee any Indebtedness secured by a Lien (as defined in the Indenture) on
any property or asset at any time owned by it, without effectively securing,
prior to or concurrently with the issuance, assumption or guarantee of any such
Indebtedness, the Debentures equally and ratably (or, at the Corporation's
option, prior to) such Indebtedness.
The Corporation also covenants that neither it nor any of its subsidiaries
will issue, assume or guarantee any Funded Indebtedness (as defined in the
Indenture) on any property or asset at any time owned by it, unless immediately
thereafter, and after giving effect thereto and to the application of the
proceeds thereof, Consolidated Net Utility Fixed Assets shall be at least equal
to Consolidated Funded Indebtedness.
Except as described in the preceding paragraphs, the Indenture does not
afford any protection to holders of Debentures solely on account of the
Corporation's involvement in highly leveraged transactions.
SUCCESSOR CORPORATION
The Corporation covenants in the Indenture that it will not consolidate
with, merge into or transfer or lease all or substantially all of its assets to
another corporation, unless immediately after such transaction no default will
exist, such corporation assumes all the obligations of the Corporation under the
Debentures and the Indenture, and certain other requirements are met.
27
<PAGE> 29
EVENTS OF DEFAULT; NOTICE AND WAIVER
The following constitute events of default under the Indenture: (a) default
in the payment of principal (or premium, if any) of the Debentures when due; (b)
default in the payment of any interest on the Debentures when due, continued for
30 days; (c) default in the performance of any other agreement of the
Corporation in the Debentures or the Indenture, continued for 60 days after
written notice; (d) acceleration of certain indebtedness of the Corporation or
its Subsidiaries for borrowed money under the terms of any instrument under
which indebtedness of $500,000 or more is issued or secured; and (e) certain
events in bankruptcy, insolvency or reorganization.
The Indenture provides that the Trustee will, within 90 days after the
occurrence of a default, give the holders of Debentures notice of all continuing
defaults (as defined) known to it; but, except in the case of a default in the
payment of the principal or premium, if any, or interest in respect of any of
the Debentures, the Trustee shall be protected in withholding such notice if it
in good faith determines that the withholding of such notice is in the interest
of such holders.
If any event of default shall occur and be continuing, the Trustee or the
holders of at least 25% in principal amount of outstanding Debentures may
declare the Debentures immediately due and payable. Any such acceleration may be
rescinded by the holders of a majority in principal amount of the Debentures
then outstanding, upon the conditions provided in the Indenture.
An existing default and its consequences may be waived by the holders of a
majority in principal amount of the Debentures, upon the conditions provided in
the Indenture, other than an uncured default in payment of principal, premium,
if any, or interest in respect of the Debentures, an uncured failure to make any
redemption payment or an uncured default with respect to a provision which
cannot be modified under the terms of the Indenture without the consent of each
holder affected.
The Indenture includes a covenant that the Corporation will file annually
with the Trustee, within 120 days after the end of each fiscal year, a statement
regarding compliance by the Corporation with the terms thereof and specifying
any defaults by the Corporation of which the signers may have knowledge.
MODIFICATION OF THE INDENTURE
Modifications and amendments of the Indenture which materially affect the
rights of the holders of the Debentures may be made by the Corporation and the
Trustee only with the consent of the holders of not less than a majority in
principal amount of the Debentures then outstanding; provided that no such
modification or amendment may change the stated maturity of any Debenture, or
reduce the principal amount of or redemption premium, if any, or interest rate
on any Debenture or change the interest payment date or otherwise modify the
terms of payment of the principal of or redemption premium, if any, or interest
on the Debentures, or reduce the percentage required for any consent, waiver or
modification, or modify certain other provisions of the Indenture, without the
consent of each holder of any Debenture affected thereby.
DISCHARGE OF THE INDENTURE
The Indenture will be discharged and canceled upon payment of all the
Debentures or upon deposit with the Trustee, within no more than one year prior
to the maturity or the redemption of all the Debentures, of funds or U.S.
Government Obligations sufficient to pay the principal of and premium, if any,
and interest on the Debentures.
28
<PAGE> 30
UNDERWRITING
The Underwriters named below (the "Underwriters") have severally agreed,
subject to the terms and conditions of the Underwriting Agreement, the form of
which is filed as an exhibit to the Registration Statement, to purchase from the
Corporation the number of shares of Common Stock and the principal amounts of
Debentures set forth opposite their respective names.
<TABLE>
<CAPTION>
NUMBER OF SHARES PRINCIPAL AMOUNT
UNDERWRITERS OF COMMON STOCK OF DEBENTURES
------------ ---------------- ----------------
<S> <C> <C>
Edward D. Jones & Co., L.P. ..................
First Albany Corporation......................
------- ----------
Total............................... 620,000 $7,000,000
======= ==========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the Common Stock and Debentures
are subject to the approval of certain legal matters by counsel and to certain
other conditions. The Underwriters are obligated to take and pay for all of the
shares of Common Stock and Debentures offered hereby if any are taken (other
than shares of Common Stock covered by the over-allotment option described
below).
The Underwriters have advised the Corporation that they propose to offer
the Common Stock and Debentures being purchased by them directly to the public
at the initial public offering prices set forth on the cover page of this
Prospectus and in part to certain securities dealers, which are members of the
National Association of Securities Dealers, Inc., at such prices less a
concession of not more than $ per share of Common Stock and not more
than % of the principal amount of the Debentures. After the initial public
offering, the public offering prices and concessions may be changed by the
Underwriters.
The offering of the Common Stock and Debentures is made for delivery when,
as and if accepted by the Underwriters and subject to prior sale and to
withdrawal, cancellation or modification of the offer without notice. The
Underwriters reserve the right to reject any order for the purchase of Common
Stock or Debentures in whole or in part.
The Corporation has granted to the Underwriters an option for 30 days to
purchase (at the Common Stock Price to Public less the Underwriting Discounts
and Commissions shown on the cover page of this Prospectus) up to 93,000
additional shares of Common Stock. The Underwriters may exercise such option
only to cover over-allotments of shares of Common Stock made in connection with
the sale of the shares offered hereby.
Until the distribution of the Common Stock and Debentures is completed,
rules of the Commission may limit the ability of the Underwriters and certain
selling group members to bid for and purchase the Common Stock and Debentures.
As an exception to these rules, the Underwriters are permitted to engage in
certain transactions that stabilize the price of the Common Stock and
Debentures. Such transactions consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of the Common Stock and Debentures.
If the Underwriters create a short position in the Common Stock or
Debentures in connection with the Offering, i.e., if they sell more Common Stock
or Debentures than are set forth on the cover page of this Prospectus, the
Underwriters may reduce that short position by purchasing Common Stock or
Debentures in the open market.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.
Neither the Corporation nor either of the Underwriters makes any
representation or prediction as to the direction or magnitude of any effect that
the transactions described above may have on the price of the Common Stock and
Debentures. In addition, neither the Corporation nor either of the Underwriters
makes
29
<PAGE> 31
any representation that the Underwriters will engage in such transactions or
that such transactions, once commenced, will not be discontinued without notice.
The Corporation has agreed to indemnify the Underwriters and persons who
control the Underwriters against certain liabilities that may be incurred in
connection with the offering contemplated hereby, including liabilities under
the Act or to contribute to payments the Underwriters may be required to make in
respect thereof.
LEGAL MATTERS
The validity of the securities offered hereby has been passed upon for the
Corporation by Edwards & Angell, 150 John F. Kennedy Parkway, Short Hills, New
Jersey 07078-2701. Certain matters will be passed upon for the Underwriters by
Armstrong, Teasdale, Schlafly & Davis, One Metropolitan Square, St. Louis,
Missouri 63102.
EXPERTS
The consolidated financial statements of Valley Resources, Inc. and
subsidiaries at August 31, 1996 and 1995 and for each of the three years in the
period ended August 31, 1996, are included and incorporated by reference in this
Prospectus, have been audited by Grant Thornton, LLP, independent certified
public accountants, as indicated in their report with respect thereto, and are
included and incorporated herein in reliance upon the authority of said firm as
experts in accounting and auditing in giving said report.
30
<PAGE> 32
VALLEY RESOURCES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Certified Public Accountants.................................... F-2
Consolidated Statements of Earnings for the Nine Months Ended May 31, 1997 and 1996
(unaudited) and the Fiscal Years Ended August 31, 1996, 1995 and 1994 (audited)..... F-3
Consolidated Statements of Cash Flows for the Nine Months Ended May 31, 1997 and 1996
(unaudited) and the Fiscal Years Ended August 31, 1996, 1995 and 1994 (audited)..... F-4
Consolidated Balance Sheets as of May 31, 1997 (unaudited) and August 31, 1996 and
1995 (audited)...................................................................... F-5
Consolidated Statements of Changes in Common Stock Equity for the Nine Months Ended
May 31, 1997 (unaudited) and the Fiscal Years Ended August 31, 1996, 1995 and 1994
(audited)........................................................................... F-7
Consolidated Statements of Capitalization as of May 31, 1997 (unaudited) and August
31, 1996 and 1995 (audited)......................................................... F-8
Notes to Consolidated Financial Statements............................................ F-9
</TABLE>
F-1
<PAGE> 33
VALLEY RESOURCES, INC. AND SUBSIDIARIES
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders
of Valley Resources, Inc.
We have audited the accompanying consolidated balance sheets and
consolidated statements of capitalization of Valley Resources, Inc. (a Rhode
Island corporation) and subsidiaries as of August 31, 1996 and 1995 and the
related consolidated statements of earnings, cash flows and changes in common
stock equity for each of the three years in the period ended August 31, 1996.
These consolidated financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Valley Resources, Inc. and subsidiaries as of August 31, 1996 and 1995 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended August 31, 1996, in conformity with generally
accepted accounting principles.
GRANT THORNTON, LLP
Boston, Massachusetts
September 24, 1996
F-2
<PAGE> 34
VALLEY RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED
MAY 31, AUGUST 31,
------------------------- ---------------------------------------
1997 1996 1996 1995 1994
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating revenues:
Utility gas revenues.......... $57,412,230 $53,087,986 $60,773,519 $56,012,913 $65,323,556
Nonutility revenues........... 16,141,389 14,922,573 19,586,615 18,857,277 18,229,362
----------- ----------- ----------- ----------- -----------
Total................. 73,553,619 68,010,559 80,360,134 74,870,190 83,552,918
----------- ----------- ----------- ----------- -----------
Operating expenses:
Cost of gas sold.............. 33,145,587 27,949,784 31,951,154 30,229,359 38,233,511
Cost of sales -- nonutility... 11,133,782 10,371,783 13,688,935 13,189,797 12,783,575
Operations.................... 13,659,370 13,469,871 17,706,904 16,752,501 16,299,527
Maintenance................... 1,253,160 1,232,442 1,671,971 1,535,206 1,485,279
Depreciation (Note A)......... 2,333,214 2,212,317 2,956,727 2,684,755 2,473,467
Taxes -- other than Federal
income............... 3,400,490 3,273,181 4,090,751 4,002,076 4,463,406
-- Federal income
(Notes A and F)..... 1,969,120 2,329,617 1,443,547 731,947 1,313,227
----------- ----------- ----------- ----------- -----------
Total................. 66,894,723 60,838,995 73,509,989 69,125,641 77,051,992
----------- ----------- ----------- ----------- -----------
Operating income................ 6,658,896 7,171,564 6,850,145 5,744,549 6,500,926
Other income -- net of tax
(Notes A and F)............... 268,365 331,952 459,938 115,032 227,450
----------- ----------- ----------- ----------- -----------
Total income before
interest............ 6,927,261 7,503,516 7,310,083 5,859,581 6,728,376
----------- ----------- ----------- ----------- -----------
Interest charges:
Long-term debt................ 1,456,544 1,437,577 1,927,154 1,947,205 2,037,760
Other......................... 1,027,058 991,326 1,384,569 1,357,451 864,590
----------- ----------- ----------- ----------- -----------
Total................. 2,483,602 2,428,903 3,311,723 3,304,656 2,902,350
----------- ----------- ----------- ----------- -----------
Net income available for common
stock......................... $ 4,443,659 $ 5,074,613 $ 3,998,360 $ 2,554,925 $ 3,826,026
=========== =========== =========== =========== ===========
Average number of common shares
outstanding................... 4,262,679 4,255,017 4,258,877 4,222,662 4,205,760
Earnings per average common
share outstanding............. $ 1.04 $ 1.19 $ 0.94 $ 0.61 $ 0.91
</TABLE>
The accompanying Notes are an integral part of these statements.
F-3
<PAGE> 35
VALLEY RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED
MAY 31, AUGUST 31,
------------------------- ---------------------------------------
1997 1996 1996 1995 1994
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Increase (decrease) in cash:
Cash flows from operating activities:
Net income................................... $ 4,443,659 $ 5,074,613 $ 3,998,360 $ 2,554,925 $ 3,826,026
Adjustments to reconcile net income to net
cash:
Depreciation............................... 2,333,214 2,212,317 2,956,727 2,684,755 2,473,467
Provision for uncollectibles............... 1,159,240 1,087,195 1,459,761 1,274,238 959,404
Deferred Federal income taxes.............. 108,070 434,005 922,007 619,918 1,040,691
Amortization of investment tax credits..... -- -- (49,452) (50,144) (44,940)
Change in assets and liabilities:
Accounts receivable........................ (6,011,017) (3,515,550) (718,826) (1,612,297) (492,220)
Deferred fuel costs........................ 2,130,692 (1,857,435) (3,977,779) 2,629,056 1,752,484
Unbilled gas costs......................... (56,790) (48,766) (4,603) (4,617) (5,256)
Fuel and other inventories................. 1,950,415 1,667,099 (663,964) 502,202 331,499
Prepayments................................ 852,780 631,731 (249,971) (72,088) (31,177)
Common stock held for dividend reinvestment
plan..................................... (56,276) 156,661 158,876 (271,315) 23,530
Prepaid pensions........................... (693,559) (469,029) (625,374) (572,320) (784,454)
Accounts payable........................... (444,258) 350,413 921,892 (275,189) (323,061)
Security deposits.......................... (21,777) (55,973) (65,258) 30,945 47,803
Taxes accrued.............................. 2,055,954 1,671,170 (317,791) (131,917) 69,422
Other...................................... 808,844 130,922 (75,564) (578,144) (500,288)
----------- ----------- ----------- ----------- -----------
Total adjustments..................... 4,115,532 2,394,760 (329,319) 4,173,083 4,516,904
----------- ----------- ----------- ----------- -----------
Net cash provided by operating activities.... 8,559,191 7,469,373 3,669,041 6,728,008 8,342,930
----------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Utility capital expenditures............... (2,456,995) (3,248,493) (4,396,081) (5,335,159) (3,953,702)
Nonutility capital expenditures............ (530,530) (459,937) (612,628) (580,772) (599,725)
Other investments.......................... (66,988) (54,754) (49,360) (13,400) (51,262)
----------- ----------- ----------- ----------- -----------
Net cash used by investing activities...... (3,054,513) (3,763,184) (5,058,069) (5,929,331) (4,604,689)
----------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Dividends paid............................... (2,343,667) (2,305,155) (3,083,369) (2,989,702) (2,900,408)
Common stock transactions.................... (44,687) 129,580 184,615 391,278 (95,418)
Issuance of revolving credit arrangement..... 100,000 2,200,000 2,200,000 -- --
Retirement of long-term debt................. (82,000) (825,000) (860,000) (1,333,000) (95,000)
(Decrease) increase in notes payable......... (2,900,000) (2,600,000) 3,000,000 3,000,000 (1,000,000)
----------- ----------- ----------- ----------- -----------
Net cash (used) provided by financing
activities................................. (5,270,354) (3,400,575) 1,441,246 (931,424) (4,090,826)
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash................ 234,324 305,614 52,218 (132,747) (352,585)
Cash, beginning................................ 506,813 454,595 454,595 587,342 939,927
----------- ----------- ----------- ----------- -----------
Cash, ending................................... $ 741,137 $ 760,209 $ 506,813 $ 454,595 $ 587,342
=========== =========== =========== =========== ===========
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest................................... $ 2,091,679 $ 2,136,026 $ 3,311,577 $ 3,265,612 $ 2,895,752
=========== =========== =========== =========== ===========
Federal income taxes....................... $ 386,140 725,000 $ 885,000 $ 380,000 $ 637,000
=========== =========== =========== =========== ===========
Supplemental disclosures of noncash activity:
Capital lease obligations incurred........... $ 313,956 $ 1,803,938 $ 1,844,817 $ 300,972 $ 956,973
=========== =========== =========== =========== ===========
</TABLE>
The accompanying Notes are an integral part of these statements.
F-4
<PAGE> 36
VALLEY RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AUGUST 31,
MAY 31, ---------------------------
1997 1996 1995
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Assets:
Utility plant, at cost (Notes A and D).............. $78,710,640 $76,534,841 $72,759,666
Less: Accumulated provision for depreciation
(Note A).......................................... 28,723,467 27,092,766 25,348,673
----------- ----------- -----------
Net utility plant................................... 49,987,173 49,442,075 47,410,993
----------- ----------- -----------
Leased property-less accumulated amortization of
$3,237,074, $2,789,155 and $2,088,737............. 2,505,147 2,944,581 2,013,647
----------- ----------- -----------
Nonutility property-less accumulated provision for
depreciation of $4,123,817, $3,850,692 and
$3,434,784 (Note A)............................... 3,676,885 3,567,797 3,546,543
----------- ----------- -----------
Other investments................................... 1,577,448 1,510,460 1,461,100..
----------- ----------- -----------
Current assets:
Cash.............................................. 741,137 506,813 454,595
Accounts receivable-less allowance for
uncollectibles of $784,058, $719,721 and
$655,951....................................... 14,797,258 9,945,481 10,686,414
Deferred fuel costs (Note A)...................... -0- 827,012 -0-
Deferred unbilled gas costs (Note A).............. 495,684 438,894 434,291
Fuel and other inventories (Note A)............... 4,098,032 6,048,447 5,384,483
Prepayments....................................... 556,522 1,409,302 1,159,331
Common stock held for dividend reinvestment plan
(Note B)....................................... 187,095 130,819 289,695
----------- ----------- -----------
Total current assets...................... 20,875,728 19,306,768 18,408,809
----------- ----------- -----------
Deferred debits:
Recoverable postretirement benefit (Note H)....... 519,692 692,922 692,922
Recoverable vacations accrued..................... 795,077 633,194 846,825
Recoverable deferred Federal income taxes
(Note F)...................................... 6,070,362 5,969,839 5,713,177
Recoverable transition obligation (Note H)........ 1,700,000 1,700,000 1,325,000
Unamortized debt discount and expense............. 1,479,644 1,523,092 1,581,023
Prepaid pensions (Note H)......................... 6,864,396 6,170,837 5,545,463
Other............................................. 3,208,836 3,227,420 3,792,004
----------- ----------- -----------
Total deferred debits..................... 20,638,007 19,917,304 19,496,414
----------- ----------- -----------
Total assets.............................. $99,260,388 $96,688,985 $92,337,506
=========== =========== ===========
</TABLE>
The accompanying Notes are an integral part of these statements.
F-5
<PAGE> 37
VALLEY RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AUGUST 31,
MAY 31, ---------------------------
1997 1996 1995
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Capitalization and liabilities:
Capitalization (see Consolidated Statements of
Capitalization)................................... $52,512,857 $50,348,234 $50,608,628
----------- ----------- -----------
Revolving credit arrangements (Note F).............. 2,300,000 2,200,000 -0-
----------- ----------- -----------
Obligations under capital leases (Note D)........... 1,636,473 2,133,543 1,254,778
----------- ----------- -----------
Current liabilities:
Current maturities of long-term debt (Note D)..... 500,000 500,000 500,000
Obligations under capital leases (Note D)......... 868,674 811,036 758,870
Notes payable (Note C)............................ 12,000,000 14,900,000 11,900,000
Accounts payable.................................. 4,798,949 5,243,207 4,321,315
Security deposits................................. 1,074,970 1,096,747 1,162,005
Taxes accrued..................................... 2,245,979 190,025 507,816
Deferred fuel costs (Note A)...................... 1,303,680 -0- 3,150,767
Accrued interest.................................. 939,770 551,979 655,045
Other............................................. 911,207 712,413 976,138
----------- ----------- -----------
Total current liabilities................. 24,643,229 24,005,407 23,931,956
----------- ----------- -----------
Commitments and contingencies (Note H)
Deferred credits:
Unamortized investment tax credit (Note A)........ 723,688 723,688 773,141
Transition obligation (Note H).................... 1,700,000 1,700,000 1,325,000
Unfunded deferred Federal income taxes (Note F)... 1,922,773 1,922,773 1,930,375
Postretirement benefit obligation (Note H)........ 500,444 692,922 692,922
Other............................................. 1,834,858 1,700,469 1,729,504
----------- ----------- -----------
Total deferred credits.................... 6,681,763 6,739,852 6,450,942
----------- ----------- -----------
Deferred Federal income taxes (Notes A and F)....... 11,486,066 11,261,949 10,091,202
----------- ----------- -----------
Total liabilities......................... 46,747,531 46,340,751 41,728,878
----------- ----------- -----------
Total capitalization and liabilities...... $99,260,388 $96,688,985 $92,337,506
=========== =========== ===========
</TABLE>
The accompanying Notes are an integral part of these statements.
F-6
<PAGE> 38
VALLEY RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY
<TABLE>
<CAPTION>
COMMON SHARES
ISSUED AND OUTSTANDING
------------------------ PAID IN RETAINED
NUMBER AMOUNT CAPITAL EARNINGS
--------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, August 31, 1993................. 4,213,043 $4,213,043 $17,790,573 $ 6,344,574
Add (deduct):
Net income............................. 3,826,026
Cash dividends on common stock......... (2,900,408)
Other.................................. (95,418)
--------- ---------- ----------- ----------
Balance, August 31, 1994................. 4,213,043 4,213,043 17,695,155 7,270,192
--------- ---------- ----------- ----------
Add (deduct):
Net income............................. 2,554,925
Cash dividends on common stock ........ (2,989,702)
Dividend reinvestment plan (Note B).... 47,754 47,754 465,376
Other.................................. (121,852)
--------- ---------- ----------- ----------
Balance, August 31, 1995................. 4,260,797 4,260,797 18,038,679 6,835,415
--------- ---------- ----------- ----------
Add (deduct):
Net income............................. 3,998,360
Cash dividends on common stock......... (3,083,369)
Dividend reinvestment plan (Note B).... 19,231 19,231 202,680
Other.................................. (37,296)
--------- ---------- ----------- ----------
Balance, August 31, 1996................. 4,280,028 4,280,028 18,204,063 7,750,406
--------- ---------- ----------- ----------
Add (deduct):
Net income............................. 4,443,659
Cash dividends on common stock......... (2,343,667)
Other.................................. (44,687)
--------- ---------- ----------- ----------
Balance, May 31, 1997 (unaudited)........ 4,280,028 $4,280,028 $18,159,376 $ 9,850,398
========= ========== =========== ==========
</TABLE>
The accompanying Notes are an integral part of these statements.
F-7
<PAGE> 39
VALLEY RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPITALIZATION
<TABLE>
<CAPTION>
AUGUST 31,
MAY 31, ---------------------------
1997 1996 1995
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Common stock equity:
Common stock, $1 par value (Note B) Authorized
20,000,000 shares
Issued and outstanding 4,280,028, 4,280,028 and
4,260,797 shares............................... $ 4,280,028 $ 4,280,028 $ 4,260,797
Paid in capital (Note B).......................... 18,159,376 18,204,063 18,038,679
Retained earnings (Notes B and E)................. 9,850,398 7,750,406 6,835,415
----------- ----------- -----------
32,289,802 30,234,497 29,134,891
Less: Accounts receivable from Valley Gas Employee
Stock Ownership Plan (Note D).................. 2,950,882 3,142,200 3,142,200
----------- ----------- -----------
Total common stock equity................. 29,338,920 27,092,297 25,992,691
----------- ----------- -----------
Long-term debt (Note D):............................
8% First Mortgage Bonds, due 2022................. 20,130,000 20,212,000 21,072,000
9% Notes Payable, due 1999........................ 2,138,937 2,138,937 2,138,937
Note payable...................................... 1,405,000 1,405,000 1,905,000
----------- ----------- -----------
Total..................................... 23,673,937 23,755,937 25,115,937
Less: Current maturities.......................... 500,000 500,000 500,000
----------- ----------- -----------
Total long-term debt...................... 23,173,937 23,255,937 24,615,937
----------- ----------- -----------
Total capitalization...................... $52,512,857 $50,348,234 $50,608,628
=========== =========== ===========
</TABLE>
The accompanying Notes are an integral part of these statements.
F-8
<PAGE> 40
VALLEY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING NOTES APPLICABLE TO UNAUDITED PERIODS)
NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation -- The consolidated financial statements include the accounts
of Valley Resources, Inc. and its active wholly-owned subsidiaries (the
"Corporation") -- Valley Gas Company ("Valley Gas"), Valley Appliance and
Merchandising Company ("VAMCO"), Valley Propane, Inc. ("Valley Propane"), Morris
Merchants, Inc. ("Morris Merchants") (d/b/a the Walter F. Morris Company), and
Bristol & Warren Gas Company ("Bristol & Warren"). The consolidated financial
statements also include the Corporation's 80% interest in Alternate Energy
Corporation ("AEC"). All significant intercompany transactions have been
eliminated where required.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Regulation -- The utility operations of Valley Gas and Bristol & Warren
(collectively the "Utilities") are subject to regulation by the Rhode Island
Public Utilities Commission ("RIPUC"). Accounting policies conform with
generally accepted accounting principles, as applied in the case of regulated
public utilities, and are in accordance with the accounting requirements and
rate making practices of the RIPUC.
Depreciation -- Annual provisions for depreciation for the Utilities are
determined on a composite straight-line basis. The composite rate for fiscal
1996 was 2.91% and was 2.72% for fiscal 1995 and fiscal 1994. Depreciation
provisions for other subsidiary companies are provided on the straight-line and
accelerated methods at rates ranging from 2.86% to 34%.
Deferred Fuel Costs -- The Utilities' tariffs include a Purchased Gas Price
Adjustment ("PGPA") which allows an adjustment of rates charged to customers in
order to recover all changes in gas costs from stipulated base gas costs. The
PGPA provides for an annual reconciliation of total gas costs billed with the
actual cost of gas incurred. Any excess or deficiency in amounts collected as
compared to costs incurred is deferred and either reduces the PGPA or is billed
to customers over subsequent periods.
Deferred Unbilled Gas Costs -- Revenue is recorded on the basis of bills
rendered on a cycle basis throughout the month. Valley Gas defers to the
following month that portion of the base cost of gas delivered but not yet
billed under the cycle billing system.
Accounting for Income Taxes -- Income tax regulations allow recognition of
certain transactions for tax purposes in time periods other than the period
during which these transactions will be recognized in the determination of net
income for financial reporting purposes. As required by generally accepted
accounting principles, deferred income taxes are provided to reflect the tax
effect of these timing differences in the proper accounting periods.
In accordance with Financial Accounting Standards Board Statement No. 109
"Accounting for Income Taxes," deferred income taxes are recorded for all book
and tax temporary timing differences.
Investment tax credits relating to the Utilities property have been
deferred and will be amortized to income over the productive lives of the
related assets. Investment tax credits earned by the Corporation's other
subsidiary companies were recognized as a reduction of Federal income tax
expense in the year utilized.
Pension Plans -- Valley Gas maintains two non-contributory defined benefit
pension plans covering substantially all of Valley Gas' employees. The plans
provide benefits based on compensation and years of service. Valley Gas' policy
is to fund pension costs that are deductible for Federal income tax purposes
(see
F-9
<PAGE> 41
VALLEY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(INCLUDING NOTES APPLICABLE TO UNAUDITED PERIODS)
Note H). Additionally, Valley Gas maintains a 401(k) plan covering substantially
all of Valley Gas' employees. In fiscal 1996, 1995 and 1994, plan expense was
$126,100, $122,400 and $112,900, respectively.
Morris Merchants maintains an employee profit sharing plan covering
substantially all of the employees who have completed one year of service.
Contributions to the plan are at the discretion of the Board of Directors. In
fiscal 1996, 1995 and 1994 profit sharing expense was $68,400, $68,400 and
$73,700, respectively.
Bristol & Warren maintains a non-contributory defined contribution pension
plan covering substantially all of its employees. The plan provides benefits
based on hours worked and rate of pay. In fiscal 1996, 1995 and 1994 plan
expense was $23,000, $27,500 and $23,100, respectively.
New Accounting Standard -- In March 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Of", which will be effective for the Corporation's fiscal year ending
August 31, 1997. This statement requires the Corporation to review long-lived
assets for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. The Corporation intends
to adopt this statement prospectively. The impact of the standard is not
expected to have a material impact on the Corporation's financial condition or
results of operations.
Inventories -- Fuel and other inventories are as follows:
<TABLE>
<CAPTION>
(UNAUDITED) AUGUST 31,
MAY 31, -------------------------
1997 1996 1995
----------- ---------- ----------
<S> <C> <C> <C>
Fuels (at average cost)................ $ 1,582,394 $3,622,698 $3,254,439
Merchandise (at LIFO).................. 1,332,693 1,225,893 1,078,459
----------- ---------- ----------
$ 4,098,032 $6,048,447 $5,384,483
=========== ========== ==========
</TABLE>
Merchandise (at LIFO), if valued at current cost, would have been greater
by $327,300 in 1996 and $255,400 in 1995.
NOTE B: COMMON STOCK AND RIGHTS
Pursuant to the Corporation's dividend reinvestment plan, stockholders can
reinvest dividends and make limited additional cash investments. Shares issued
through dividend reinvestment can be acquired on the open market or original
issue. In fiscal 1996 and 1995, the Corporation issued 19,231 and 47,754 shares
of common stock, respectively, under provisions of the dividend reinvestment
plan. All shares issued pursuant to the plan in fiscal 1994 were open-market
purchases. At August 31, 1996 and 1995, 10,813 and 26,190 shares, respectively,
were held by the Corporation for issuance to the plan.
On August 31, 1996, except as mentioned above, no shares of common stock of
the Corporation were held by or for the account of the Corporation or were
reserved for officers or employees or for options, warrants or other rights,
except 41,125 shares of common stock reserved subject to sale under the
Corporation's dividend reinvestment plan.
Each share of common stock of the Corporation includes one preferred stock
purchase Right which entitles the holder to purchase one one-hundredth of a
share of Cumulative Participating Junior Preferred Stock, par value $100, at a
price of $35 per one one-hundredth of a share subject to adjustment. The Rights
are not currently exercisable, and trade automatically with the common stock.
The Rights will generally become exercisable and separate certificates
representing the Rights will be distributed, upon occurrence of certain events
in excess of a stipulated percentage of ownership.
F-10
<PAGE> 42
VALLEY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(INCLUDING NOTES APPLICABLE TO UNAUDITED PERIODS)
The Rights should not interfere with any merger or business combination
approved by the Board of Directors because, prior to the Rights becoming
exercisable, the Rights may be redeemed by the Corporation at $0.01 per Right.
The Rights have no dilutive effect and will not affect reported earnings per
share.
NOTE C: SHORT-TERM DEBT
The Corporation borrows on bank lines of credit at the prevailing interest
rate available at the time of borrowing. The Corporation either pays commitment
fees or maintains compensating balances in connection with these lines of
credit. Commitment fees paid in fiscal 1996, 1995 and 1994 amounted to $114,800,
$94,500, and $64,900, respectively. There are no legal restrictions on
withdrawal of compensating balances.
A detail of short-term borrowings for fiscal 1996, 1995 and 1994 is as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
At year end
Weighted average interest rate.... 5.7% 5.9% 5.2%
Unused lines of credit............ $14,100,000 $15,100,000 $14,600,000
For the year ended
Weighted average interest rate.... 6.0% 6.2% 3.9%
Average borrowings................ $12,908,300 $11,283,300 $10,991,700
Maximum month-end borrowings...... $16,000,000 $16,000,000 $14,900,000
Month of maximum borrowings....... November December January
</TABLE>
NOTE D: LONG-TERM DEBT
The composition of long-term debt is included in these financial statements
in the separate Consolidated Statements of Capitalization. The aggregate amount
of maturities and sinking fund requirements for each of the five fiscal years
following fiscal 1996 are: 1997, $1,311,000; 1998, $3,901,100; 1999, $2,714,100;
2000, $568,400; and 2001, $135,500, inclusive of capitalized lease obligations.
Valley Gas utility plant and equipment have been pledged as collateral to
secure its long-term debt. In accordance with the redemption provisions of the
Valley Gas 8% First Mortgage Bonds, $860,000 and $1,333,000 of the bonds were
redeemed by holders in fiscal 1996 and fiscal 1995, respectively.
The fair market value of the Corporation's long-term debt is estimated
based on the quoted market prices for the same or similar issues or on the
current rates offered to the Corporation for debt of the same remaining
maturities. Management believes the carrying value of the debt approximates the
fair value at August 31, 1996.
Regulatory treatment allows payments under capital leases to be recorded as
rental expenses. Rental expenses for all leases in fiscal 1996, 1995 and 1994
were $1,437,900, $1,179,800, and $1,235,200, respectively.
Valley Gas entered into an intermediate term financing arrangement with a
bank in November 1995. The terms of the arrangement call for a $6,000,000
revolving line of credit which matures in 1998, with the option to extend the
termination date to November 30, 2000.
The Corporation borrowed funds under a line of credit at rates less than
the prevailing prime rate, which are restricted in their use to being loaned to
Valley Gas Employee Stock Ownership Plan ("ESOP"). The receivable from the ESOP
has been shown as a reduction of common stock equity. The financing by the ESOP
is secured by the common stock of two unregulated subsidiaries and the
unallocated shares held by the ESOP.
F-11
<PAGE> 43
VALLEY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(INCLUDING NOTES APPLICABLE TO UNAUDITED PERIODS)
The Corporation's common stock purchased by the ESOP with the borrowed
money is held by the ESOP trustee in a "suspense account." As Valley Gas makes
contributions to the plan, a portion of the common stock is released from the
suspense account and allocated to participating employees. Any dividends on
unallocated shares are used to pay loan interest. ESOP expense in fiscal 1996
was $100,000. There was no ESOP expense recorded in fiscal 1995 and 1994.
NOTE E: RESTRICTION ON RETAINED EARNINGS
At August 31, 1996, $1,229,400 of the retained earnings of Valley Gas were
available for the payment of cash dividends to the Corporation under the most
restrictive provisions of Valley Gas' first mortgage bonds. There are no
restrictions as to the payment of dividends for the other subsidiaries.
NOTE F: INCOME TAXES
In accordance with Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes" ("SFAS 109"), the Corporation's financial
statements are required, among other things, to record the cumulative deferred
income taxes on all temporary timing differences. As approved by the RIPUC, the
Utilities did not fully record deferred income taxes but, rather, "flowed
through" certain tax benefits to utility customers prior to fiscal 1994. At
August 31, 1996, the Corporation has a liability of $5,969,800 on the
Consolidated Balance Sheets as recoverable deferred income taxes and a
corresponding recoverable deferred charge. The liability represents the tax
effect of timing differences for which deferred income taxes had not been
provided, increased in accordance with SFAS 109 for the tax effect of future
revenue requirements. The Utilities are recovering unfunded deferred taxes from
utility customers over the remaining book life of utility property.
F-12
<PAGE> 44
VALLEY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(INCLUDING NOTES APPLICABLE TO UNAUDITED PERIODS)
Federal income tax expense has been calculated based on filing a
consolidated corporate tax return and is comprised of the following:
<TABLE>
<CAPTION>
1996 1995 1994
---------- -------- ----------
<S> <C> <C> <C>
Current income tax expense:
Operating expense..................... $ 521,540 $112,029 $ 272,536
Nonoperating expense.................. 147,065 71,230 82,678
---------- -------- ----------
668,605 183,259 355,214
---------- -------- ----------
Deferred income tax expense:
Accelerated depreciation.............. 276,474 194,537 269,823
Pensions.............................. 212,627 194,588 266,715
Deferred fuel costs................... 293,801 -0- -0-
Uncollectibles........................ (21,840) 2,142 (32,289)
Directors' fees and interest.......... (36,453) (8,744) (46,169)
Bond premium.......................... (6,240) (6,242) 176,387
Rate case expenses.................... (37,626) 174,290 (43,785)
Capitalization of inventory costs..... (6,897) (2,079) 45,977
Consulting contracts.................. 64,392 64,389 150,111
Software amortization................. 140,856 140,856 254,350
Alternative minimum tax............... 8,617 (180,000) -0-
Other................................. 34,296 46,181 (429)
---------- -------- ----------
922,007 619,918 1,040,691
---------- -------- ----------
Total......................... $1,590,612 $803,177 $1,395,905
========== ======== ==========
</TABLE>
The Federal income tax amounts included in the Consolidated Statements of
Earnings differ from the amounts which result from applying the statutory
Federal income tax rate to income from operations before income tax. The
reasons, with related percentage effects, are shown below:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Statutory Federal rate................................. 34% 34% 34%
Maintenance costs capitalized for book purposes...... (3) (4) (4)
Cost of removal...................................... (1) (1) (1)
ESOP dividends....................................... (1) (2) (1)
Prior year over accrual.............................. -0- (2) -0-
Other................................................ (1) (1) (1)
---- ---- ----
Total........................................ 28% 24% 27%
==== ==== ====
</TABLE>
F-13
<PAGE> 45
VALLEY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(INCLUDING NOTES APPLICABLE TO UNAUDITED PERIODS)
Temporary differences which gave rise to the following deferred tax assets
and liabilities at August 31, 1996 and 1995 are:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Unbilled revenues............................... $ 271,504 $ 264,144
Directors' fees and interest.................... 215,477 179,024
Other........................................... 525,365 505,245
------------ ------------
Total deferred tax assets..................... 1,012,346 948,413
------------ ------------
Accelerated depreciation........................ (8,446,411) (7,905,673)
Pensions........................................ (2,116,771) (1,904,144)
Software amortization........................... (536,062) (395,206)
Deferred fuel costs............................. (293,801) -0-
Other........................................... (881,250) (834,592)
------------ ------------
Total deferred tax liabilities................ (12,274,295) (11,039,615)
------------ ------------
Total deferred taxes.................. $(11,261,949) $(10,091,202)
============ ============
</TABLE>
The Corporation's nonutility operations are subject to state income taxes.
For fiscal 1996, 1995 and 1994, state income taxes totaled $124,300, $131,800,
and $125,300, respectively.
NOTE G: REGULATORY MATTERS
In January 1995, the Utilities filed revised tariffs with the RIPUC to
consolidate their rate structure and to increase their combined annual revenues.
On October 18, 1995, the RIPUC authorized the Utilities to adjust their tariffs
to collect $1,100,000 and consolidate their rate structure.
NOTE H: COMMITMENTS AND CONTINGENCIES
Pension Plans -- Valley Gas has two non-contributory defined benefit
pension plans covering substantially all of its employees and a supplemental
pension plan covering certain officers.
Net periodic pension income for fiscal 1996, 1995 and 1994 included the
following components:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Service cost -- benefits earned
during the period................. $ 534,961 $ 470,907 $ 472,621
Interest cost on projected benefit
obligation ....................... 1,321,504 1,232,168 1,153,139
Actual return on plan assets........ (3,266,264) (3,448,848) (251,149)
Net amortization and deferral....... 784,425 1,173,453 (2,159,065)
----------- ----------- -----------
Net periodic pension income......... $ (625,374) $ (572,320) $ (784,454)
=========== =========== ===========
</TABLE>
F-14
<PAGE> 46
VALLEY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(INCLUDING NOTES APPLICABLE TO UNAUDITED PERIODS)
<TABLE>
<CAPTION>
PLANS FUNDED STATUS -- JULY 31 1996 1995
------------------------------ ------------ ------------
<S> <C> <C>
Projected benefit obligations:
Vested....................................... $ 15,511,957 $ 15,143,093
Nonvested.................................... 225,232 140,275
------------ ------------
Accumulated.......................... 15,737,189 15,283,368
Due to recognition of future salary
increases................................. 3,757,612 3,685,361
------------ ------------
Total................................ (19,494,801) (18,968,729)
Plan assets at fair value...................... 29,152,063 26,885,983
------------ ------------
Plan assets in excess of projected benefit
obligation................................... 9,657,262 7,917,254
Unrecognized transition amount................. (824,232) (971,756)
Unrecognized net gains......................... (2,662,193) (1,400,035)
------------ ------------
Prepaid pension costs.......................... $ 6,170,837 $ 5,545,463
============ ============
</TABLE>
Plan assets are invested in common stock, short-term investments and
various other fixed income securities.
The weighted-average discount rate used in determining the projected
benefit obligation were 7 3/4% and 7 1/2%, respectively, as of July 31, 1996 and
1995. The assumed rate of future compensation increases was 5 1/2% per year. The
expected long-term rate of return on assets was 9% for all years presented.
Postretirement Life and Health Benefit Plan -- Valley Gas sponsors a
postretirement benefit plan that covers substantially all of its employees. The
plan provides medical, dental and life insurance benefits. The plan is
non-contributory.
In accordance with Statement of Financial Accounting Standards No. 106
"Employers' Accounting for Postretirement Benefits Other Than Pensions" ("SFAS
106"), Valley Gas records the cost for this plan on an accrual basis. As
permitted by SFAS 106, Valley Gas will record the transition obligation over a
twenty-year period. Valley Gas' cost under this plan for fiscal 1996, 1995 and
1994 was $809,500, $815,100 and $841,500, respectively. The regulatory asset
represents the excess of postretirement benefits on the accrual basis over
amounts authorized to be recovered in rates. The RIPUC authorized Valley Gas a
phase-in recovery of the tax deductible portion of these postretirement
benefits, if funded.
Valley Gas has funded a portion of these costs through trusts established
under Section 501(c)(9) of the Internal Revenue Code for the bargaining and
nonbargaining unit plans. Valley Gas is currently funding the amount recovered
through rates.
F-15
<PAGE> 47
VALLEY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(INCLUDING NOTES APPLICABLE TO UNAUDITED PERIODS)
The following table sets forth the Plans' funded status reconciled with the
amounts recognized in Valley Gas' financial statements at August 31:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees................................................ $(2,787,993) $(2,719,221)
Fully eligible active plan participants................. (775,563) (849,327)
Other active plan participants.......................... (2,007,935) (2,156,452)
----------- -----------
(5,571,491) (5,725,000)
Plan assets at fair value................................. 951,546 481,494
----------- -----------
Accumulated postretirement benefit obligation in excess of
plan assets............................................. (4,619,945) (5,243,506)
Unrecognized transition obligation........................ 4,722,146 4,999,920
Unrecognized net (gain) from past experience different
from that assumed and from changes in assumptions....... (795,123) (449,336)
----------- -----------
Accrued postretirement benefit cost....................... $ (692,922) $ (692,922)
=========== ===========
</TABLE>
Net periodic postretirement benefit cost consisted of the following:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Service cost -- benefits attributable to service
during the period................................ $156,991 $140,882 $148,014
Interest cost on accumulated postretirement benefit
obligation....................................... 417,117 420,725 424,964
Actual return (loss) on plan assets................ 33,712 (10,575) -0-
Net amortization and deferral...................... 201,640 264,026 268,511
-------- -------- --------
Net periodic postretirement benefit cost........... 809,460 815,058 841,489
Regulatory asset................................... -0- 252,365 440,557
-------- -------- --------
Net expense........................................ $809,460 $562,693 $400,932
======== ======== ========
</TABLE>
For measurement purposes, a 12% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 1995; the rate was assumed
to decrease gradually to 5% by fiscal 2002 and to remain at that level
thereafter. The rates of increase assumed for post-age 65 medical benefits were
slightly lower. The health care cost trend rate assumption has a significant
effect on the amounts reported. To illustrate, increasing the assumed health
care cost trend rates by 1% in each year would increase the accumulated
postretirement benefit obligation at August 31, 1996 by $434,000 and the
aggregate of the service and the interest cost components of net periodic
postretirement benefit cost ("NPPBC") for the year by $58,000. The discount rate
was 7 1/2% for the development of the NPPBC. The assumed rate of future
compensation increases was 5 1/2% per year. The trend rates were set by the
RIPUC.
Long-Term Obligations -- The Utilities have contracts which expire at
various dates through the year 2012 for the purchase, delivery and storage of
natural gas and supplemental gas supplies. Certain contracts for the purchase of
the supplemental gas supplies contain minimum purchase obligations which
approximate 2% of total system requirements.
FERC Order No. 636 Transition Costs -- As a result of FERC Order 636, the
Utilities' interstate pipeline service providers have been required to unbundle
their supply, storage and transportation services. This unbundling has caused
the interstate pipeline companies to incur substantial costs in order to comply
F-16
<PAGE> 48
VALLEY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(INCLUDING NOTES APPLICABLE TO UNAUDITED PERIODS)
with Order 636. These transition costs include four types: (1) unrecovered gas
costs (gas costs that have been incurred but not yet recovered by the pipelines
when they were providing bundled service to local distribution companies); (2)
gas supply realignment costs (the cost of renegotiating existing gas supply
contracts with producers); (3) stranded costs (unrecovered costs of assets that
cannot be assigned to customers of unbundled services); and (4) new facilities
costs (costs of new facilities required to physically implement Order 636).
Pipelines are expected to be allowed to recover prudently incurred
transition costs from customers primarily through a demand charge, after
approval by FERC. The Utilities' pipeline suppliers began direct billing these
costs in fiscal 1994 as a component of demand charges. The Utilities estimate
their remaining portion of transition costs to be $1,700,000 and have recognized
a liability for these costs as of August 31, 1996. The RIPUC has allowed the
recovery of transition costs through the PGPA. Under the provisions of SFAS 71,
regulatory assets totaling $1,700,000 were recorded for the expected future
recovery of the transition obligations. Actual transition costs to be incurred
depend on various factors, and, therefore, future costs may differ from the
amounts discussed above.
Contingent Liability -- A lawsuit has been filed against Valley Gas and
other parties by Blackstone Valley Electric Company ("Blackstone") seeking
contribution towards a judgment against Blackstone's share of total clean-up
costs of approximately $6,000,000 at the Mendon Road site in Attleboro,
Massachusetts. The expenses relate to a site to which oxide waste was
transported in the 1930's prior to the incorporation of Valley Gas. Management
is of the opinion the Corporation will prevail as a result of the
indemnification provisions included in the agreement entered into when Valley
Gas acquired the utility assets from Blackstone. Management cannot determine the
future cash flow impact, if any, of this claim and related legal fees. Legal
fees associated with this claim are expected to be recovered in rates. In a
recent decision of the U.S. Court of Appeals for the First Circuit, Blackstone's
appeal of the judgment against it was sustained and the case was remanded for
further proceedings, including a referral of the case to the EPA to determine if
the substance in question (FFC) is hazardous.
Valley Gas received a letter of responsibility from the Rhode Island
Department of Environmental Management ("DEM") with respect to releases from
manufactured coal waste on its property that is the site of the former Tidewater
plant in Pawtucket, Rhode Island. Valley Gas and Blackstone have submitted a
site investigation report to DEM relating to certain releases on the site.
Management cannot determine the future cash flow impact, if any, of this claim
and related expenses. Management takes the position that it is indemnified by
Blackstone for any such expenses. Valley Gas intends to seek recovery from
Blackstone and any insurance carriers deemed to be at risk during the relevant
period. Remediation of sites such as the former Tidewater plant is governed by a
regulatory framework which now permits more flexibility in methods of
remediation and in property reuse.
Valley Gas received a letter of responsibility from DEM with respect to
releases from manufactured coal waste on its property that is the site of the
former Hamlet Avenue plant in Woonsocket, Rhode Island. Valley Gas and
Blackstone have submitted a site investigation work plan to address certain
releases at the site. Management cannot determine the future cash flow impact,
if any, of this claim and related expenses. Management takes the position that
it is indemnified by Blackstone for any such expenses. Valley Gas intends to
seek recovery from Blackstone and any insurance carriers deemed to be at risk
during the relevant period. Remediation of this site is also governed by a
regulatory framework that permits more flexibility in methods of remediation and
in property reuse.
F-17
<PAGE> 49
VALLEY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(INCLUDING NOTES APPLICABLE TO UNAUDITED PERIODS)
NOTE I: SEGMENT INFORMATION
In accordance with SFAS 14, the following information is presented relative
to the gas, merchandising and other operations of the Corporation.
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
GAS OPERATIONS
Operating revenues.................................. $60,773,250 $56,012,913 $65,323,556
Operating income before Federal income taxes........ 7,150,140 5,157,534 6,412,020
Identifiable assets at August 31.................... 84,646,797 83,952,630 83,070,742
Depreciation........................................ 2,364,999 2,131,425 2,060,071
Capital expenditures................................ 4,396,081 5,335,159 3,953,702
APPLIANCE & CONTRACT SALES & RENTALS
Operating revenues.................................. $17,617,481 $17,216,397 $16,506,364
Operating income before Federal income taxes........ 986,920 1,111,530 1,183,132
Identifiable assets at August 31.................... 8,116,782 8,148,961 8,060,902
Depreciation........................................ 512,242 475,456 339,068
Capital expenditures................................ 531,152 521,345 549,067
OTHER OPERATIONS, INCLUDING CORPORATE & ELIMINATIONS
Operating revenues.................................. $ 1,969,403 $ 1,640,880 $ 1,722,998
Operating income before Federal income taxes........ 156,632 207,432 219,001
Identifiable assets at August 31.................... 3,925,406 235,915 (62,447)
Depreciation........................................ 79,486 77,874 74,328
Capital expenditures................................ 81,476 59,427 50,658
TOTAL CORPORATION
Operating revenues.................................. $80,360,134 $74,870,190 $83,552,918
Operating income before Federal income taxes........ 8,293,692 6,476,496 7,814,153
Federal income tax expense.......................... (1,443,547) (731,947) (1,313,227)
Nonoperating income -- net.......................... 459,938 115,032 227,450
Interest expense.................................... (3,311,723) (3,304,656) (2,902,350)
Net income.......................................... 3,998,360 2,554,925 3,826,026
Identifiable assets at August 31.................... 96,688,985 92,337,506 91,069,197
Depreciation........................................ 2,956,727 2,684,755 2,473,467
Capital expenditures................................ 5,008,709 5,915,931 4,553,427
</TABLE>
Expenses used to determine operating income before Federal income taxes are
charged directly to each segment or are allocated based on time studies. Assets
allocated to each segment are based on specific identification of such assets as
provided by Corporate records.
F-18
<PAGE> 50
VALLEY RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(INCLUDING NOTES APPLICABLE TO UNAUDITED PERIODS)
NOTE J: SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------
NOVEMBER FEBRUARY MAY AUGUST
-------- ------- ------- -------
(IN THOUSANDS, EXCEPT AS TO EARNINGS (LOSS)
PER AVERAGE SHARE)
<S> <C> <C> <C> <C>
Fiscal 1996
Total operating revenues................... $14,095 $30,250 $23,665 $12,351
Income (loss) before Federal income
taxes.................................... $(1,214) $ 5,817 $ 2,934 $(1,948)
Net income (loss).......................... $ (775) $ 3,855 $ 1,995 $(1,077)
Earnings (loss) per average share.......... $ (.18) $ .90 $ .47 $ (0.25)
Fiscal 1995
Total operating revenues................... $14,774 $26,965 $21,438 $11,693
Income (loss) before Federal income
taxes.................................... $(1,186) $ 3,602 $ 2,242 $(1,300)
Net income (loss).......................... $ (735) $ 2,382 $ 1,586 $ (678)
Earnings (loss) per average share.......... $ (.17) $ .56 $ .38 $ (.16)
</TABLE>
NOTE K: NOTES TO UNAUDITED FINANCIAL INFORMATION
Earnings Per Share -- The Corporation computes earnings per average common
share based on the weighted average number of shares outstanding during the
period.
Results of Operations -- In the opinion of the Corporation, the
accompanying unaudited consolidated condensed financial statements contain all
adjustments (consisting of only normal recurring accruals and matters discussed
in "Management's Discussion and Analysis of Financial Condition and Results of
Operations") necessary to present fairly the financial position as of May 31,
1997, the results of operations for the 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 nine-month periods ended May 31, 1997 and
1996 are not necessarily indicative of the results to be expected for the full
year.
F-19
<PAGE> 51
================================================================================
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS; ANY
INFORMATION OR REPRESENTATION NOT CONTAINED HEREIN MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE CORPORATION OR ANY UNDERWRITER. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES OTHER THAN THE SECURITIES COVERED BY THIS PROSPECTUS; NOR DOES IT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY OF THE
SECURITIES COVERED BY THIS PROSPECTUS BY THE CORPORATION OR ANY UNDERWRITER IN
ANY STATE TO ANY PERSON TO WHOM IT IS UNLAWFUL FOR THE CORPORATION OR ANY
UNDERWRITER TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE CORPORATION
SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
PAGE
----
Available Information................. 3
Incorporation of Certain Information
by Reference........................ 3
Prospectus Summary.................... 4
Risk Factors.......................... 6
Valley Resources, Inc. ............... 7
Use of Proceeds....................... 8
Capitalization........................ 8
Selected Financial Data............... 9
Management's Discussion and Analysis
of the Results of Operations and
Financial Condition................. 10
Business.............................. 16
Price Range of Common Stock and
Dividends........................... 21
Description of Common Stock........... 21
Description of Debentures............. 23
Underwriting.......................... 29
Legal Matters......................... 30
Experts............................... 30
Index to Consolidated Financial
Statements.......................... F-1
================================================================================
VALLEY RESOURCES, INC.
620,000 SHARES
OF
COMMON STOCK
($1 PAR VALUE)
$7,000,000
OF
% DEBENTURES DUE 2027
------------------------
PROSPECTUS
DATED , 1997
------------------------
EDWARD D. JONES & CO., L.P.
FIRST ALBANY CORPORATION
================================================================================
<PAGE> 52
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 16. EXHIBITS.
NUMBER DESCRIPTION
- ------ -----------
1 Proposed form of Underwriting Agreement.
12 Statement re-computation in support of earnings to fixed charges.
13 Quarterly Report on Form 10-Q for the quarter ended May 31, 1997.
23(a) Consent of Grant Thornton LLP.
25 Statement of Eligibility of Trustee.
II-1
<PAGE> 53
SIGNATURES
Pursuant to the requirement of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirement for filing on Form S-2 and had duly caused this Amendment to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the Town of Cumberland, State of Rhode Island, on the 6th of
August, 1997.
VALLEY RESOURCES, INC.
By: /s/ ALFRED P. DEGEN
-----------------------------------
Alfred P. Degen
President & Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities indicated on August 6, 1997.
SIGNATURE TITLE
--------- -----
/s/ ALFRED P. DEGEN President, Chief Executive Officer & Director
- -------------------------------
(Alfred P. Degen)
* Senior Vice President, Chief Financial
- ------------------------------- Officer & Secretary
(K. W. Hogan)
* Director
- -------------------------------
(Ernest N. Agresti)
* Director
- -------------------------------
(Melvin G. Alperin)
* Director
- -------------------------------
(C. Hamilton Davison)
* Director
- -------------------------------
(Don A. DeAngelis)
Director
- -------------------------------
(James M. Dillon)
* Director
- -------------------------------
(Jonathan K. Farnum)
* Director
- -------------------------------
(John F. Guthrie)
* Director
- -------------------------------
(Eleanor M. McMahon)
*By /s/ ALFRED P. DEGEN
-------------------------------
(Alfred P. Degen,
Attorney-in-Fact)
II-2
<PAGE> 1
Exhibit 1
$7,000,000 Principal Amount of
___% Debentures due 2027 and
620,000 Shares of Common Stock
of
VALLEY RESOURCES, INC.
UNDERWRITING AGREEMENT
August __, 1997
Edward D. Jones & Co., L.P.
As Representative of the several
Underwriters named in Schedule I
c/o Edward D. Jones & Co., L.P.
12555 Manchester Road
St. Louis, Missouri 63131
Dear Sirs and Mesdames:
Valley Resources, Inc., a Rhode Island corporation (the "Company"),
confirms its agreement with the Underwriters, acting severally and not jointly,
listed in Schedule I hereto (the "Underwriters") as follows:
Description of Debentures and Shares. The Company proposes to issue and
sell to the Underwriters $7,000,000 principal amount of ___% Debentures due 2027
(the "Debentures") described in the Indenture (as defined below) and 620,000
shares of the common stock, par value $1.00 per share ("Common Stock") of the
Company (such 620,000 shares are hereinafter sometimes referred to as the "Firm
Shares") in the aggregate principal amount and aggregate number of shares
specified in Schedule I. In addition, solely for the purpose of covering
over-allotments, the Company proposes to grant the Underwriters the option to
purchase up to an additional 93,000 shares of Common Stock (the "Option
Shares"). The Firm Shares and the Option Shares are hereinafter sometimes
referred to collectively as the "Shares." The Debentures and Shares are more
fully described in the Registration Statement and Prospectus hereinafter
defined. The Debentures will be issued by the Company under its Indenture dated
as of ____________, 1997 (the "Indenture") between the Company and Mellon Bank,
N.A., as trustee (the "Trustee"). No amendments to the Indenture will be made
prior to the Closing Date hereinafter referred to without your prior approval.
1
<PAGE> 2
Representations and Warranties of the Company. The Company represents,
warrants and agrees that:
The Company meets the requirements for use of Form S-2 under the
Securities Act of 1933, as amended (the "Act"), and has prepared and filed
with the Securities and Exchange Commission (the "Commission") a
registration statement on Form S2 (Registration Statement No. 333-_____)
relating to $7,000,000 aggregate principal amount of its Debentures and
713,000 of its Shares, and the offering thereof in accordance with the Act
and the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act")
and has filed such amendments thereto as may have been required to the date
hereof. The registration statement has been prepared in conformity with the
requirements of the Act and the rules and regulations thereunder (the
"Rules and Regulations") and the Trust Indenture Act and the rules and
regulations thereunder. Copies of that registration statement as amended to
date have been delivered by the Company to you as the Underwriters. As
used in this Agreement, "Preliminary Prospectus" means each prospectus
included in that registration statement, or amendments of such registration
statement or prospectus, before that registration statement, as so amended,
became effective under the Act and any prospectus filed by the Company with
the consent of the Underwriters pursuant to Rule 424(a) of the Rules and
Regulations and the documents incorporated by reference in such preliminary
prospectus. "Registration Statement" means that registration statement
including the prospectus, exhibits and financial statements, and all
documents incorporated by reference therein, including any information
deemed by virtue of Rule 430A(a)(3) of the Rules and Regulations to be part
of such Registration Statement, as of the time such registration statement
or posteffective amendment became effective under the Act and the Trust
Indenture Act; and "Prospectus" means the prospectus filed with the
Commission by the Company with the consent of the Underwriters pursuant to
Rule 424(b) of the Rules and Regulations, unless no such Rule 424(b)
Prospectus is filed, in which case it shall mean the Prospectus filed as
part of the last Registration Statement filed on or before the effective
date thereof, and the documents incorporated by reference therein. The
Commission has not issued any order preventing or suspending the use of any
Preliminary Prospectus.
Each Preliminary Prospectus, at the time of the filing thereof, did
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which made, not
misleading; provided that no representation or warranty is made as to
information contained in or omitted from any Preliminary Prospectus in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of the Underwriters specifically for inclusion
therein. The Registration Statement has been declared effective by the
Commission.
The Registration Statement and the Prospectus, at the time the
Registration Statement became effective, complied, as of the date hereof
comply and as of the Closing Date, as hereinafter defined, will comply, in
all material respects with the requirements of the Act, the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and the Trust
Indenture Act and the rules and regulations of the
2
<PAGE> 3
Commission under such Acts; the Registration Statement and any amendment
thereof, at the time it became effective, did not contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading; and the Prospectus, at the time the Registration Statement
became effective did not, as of the date hereof does not and as of the
Closing Date will not, contain an untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that the representations and warranties in
this Paragraph shall not apply to (A) that part of the Registration
Statement which constitutes the Statement of Eligibility and Qualification
(Form T1) of the Trustee under the Trust Indenture Act or (B) statements in
or omissions from the Registration Statement or the Prospectus made in
reliance upon and in conformity with information furnished to the Company
in writing by the Underwriters expressly for use in the Registration
Statement or the Prospectus.
The documents incorporated by reference into the Prospectus pursuant
to Item 12 of Form S-2 under the Act, at the time they were filed with the
Commission, complied in all material respects with the requirements of the
Exchange Act and the rules and regulations of the Commission thereunder
(the "Exchange Act Rules and Regulations").
Grant Thornton LLP, the accountants whose report appears in the
Prospectus, are independent public accountants as required by the Act and
the Rules and Regulations.
The consolidated financial statements of the Company and its
subsidiaries filed as part of the Registration Statement or included in any
Preliminary Prospectus or the Prospectus present fairly, and the financial
statements included in any amendment or supplement to the Prospectus will
present fairly, the financial condition and results of operations of the
Company and its subsidiaries, at the dates and for the periods indicated,
and have been, and in the case of financial statements included in any
amendment or supplement to the Prospectus will be, prepared in conformity
with generally accepted accounting principles applied on a consistent basis
throughout the periods involved. No other financial statements are required
to be set forth in the Registration Statement or the Prospectus under the
Act or the Rules and Regulations thereunder.
Except as described in or contemplated by the Registration Statement
and the Prospectus, subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus,
neither the Company nor any of its subsidiaries (as defined in Paragraph )
has incurred any material liability or obligation, direct or contingent, or
entered into any material transaction, whether or not in the ordinary
course of business, and there has not been any material change on a
consolidated basis in the Company's capital stock, or any material increase
in the longterm debt of the Company or any of its subsidiaries, or any
issuance of options, warrants, convertible securities or other rights to
purchase capital stock of such entity, or any material adverse change in,
or any adverse development which materially
3
<PAGE> 4
affects, the business, properties, financial condition, results of
operations, or prospects of the Company and its subsidiaries taken as a
whole.
Each of the Company and its subsidiaries has been duly incorporated,
is validly existing and in good standing under the laws of its jurisdiction
of incorporation, and the Company and each of its subsidiaries are duly
qualified to do business and in good standing as foreign corporations in
each jurisdiction in which their respective ownership of property or the
conduct of their respective businesses requires such qualification and
wherein the failure to be so qualified would have a material adverse effect
on the business of the Company and each of its subsidiaries, and have all
power and authority necessary to own or hold its properties and to conduct
the business in which it is engaged. All outstanding shares of capital
stock of the subsidiaries of the Company are owned directly or indirectly
by the Company and are validly authorized, issued and outstanding, fully
paid and non-assessable with no personal liability attaching to the
ownership thereof, and all of such shares are owned free and clear of any
lien, pledge or encumbrance or any claim of any third party.
The authorized and outstanding capitalization of the Company as of May
31, 1997 was as set forth in the Registration Statement and the Prospectus,
and there have been no changes in the authorized or outstanding
capitalization of the Company since May 31, 1997 except as contemplated by
the Registration Statement and the Prospectus. All corporate action
required to have been taken by the Company for the due and proper
authorization, execution and delivery of the Indenture and the due and
proper authorization, issuance, sale and delivery of the Debentures and the
Shares have been validly and sufficiently taken. When the Debentures and
the Shares have been executed, issued, delivered and paid for in the manner
herein described, the Debentures will be duly issued and will constitute
valid and legally binding obligations of the Company entitled to the
benefits provided by the Indenture, and the Debentures will be enforceable
in accordance with their terms (except insofar as enforcement may be
limited by applicable bankruptcy, reorganization, insolvency or other laws
affecting creditors' rights and remedies generally, as may from time to
time be in effect, and by the availability of specific performance or of
other equitable relief which is subject to the discretion of the court
before which any proceeding may be brought) and the Shares will be fully
paid, duly issued and non-assessable; the Debentures and the Shares conform
to all statements relating thereto in the Registration Statement, and
holders of neither the Debentures nor the Shares will be entitled to
preemptive rights.
The Indenture is in due and proper form, has been duly and validly
executed and delivered and is a valid and enforceable instrument in
accordance with its terms, except to the extent that enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws affecting creditors' rights generally and to the extent that
general equitable principles may limit the right to obtain the remedy of
specific performance of certain of the obligations thereunder.
The filing of the Registration Statement and the execution and
delivery by the Company of this Agreement, and the consummation of the
transactions contemplated hereby and thereby, have been duly authorized by
the board of directors
4
<PAGE> 5
of the Company, and all necessary corporate action to authorize and approve
the same has been taken. This Agreement has been duly executed and
delivered by the Company and is a valid and legally binding obligation of
the Company subject, as to enforcement, to bankruptcy, insolvency,
reorganization and other laws of general applicability relating to or
affecting creditors' rights and to general equity principles.
The Company and its subsidiaries have good and marketable title to, or
valid and enforceable leasehold interests in, all items of real and
personal property which are material to the business of the Company and its
subsidiaries taken as a whole, free and clear of all liens, encumbrances
and claims (other than the liens disclosed in the Prospectus) which might
materially interfere with the conduct of the business of the Company and
its subsidiaries taken as a whole.
Except to the extent disclosed in the Prospectus, neither the Company
nor any of its subsidiaries is in violation of its corporate charter or
bylaws or in default under any obligation, agreement, covenant or condition
contained in any mortgage or other material contract, lease, note,
indenture or instrument to which it is a party or by which it may be bound,
the effect of which violation or default would be material to the Company
and its subsidiaries taken as a whole, or is in violation in any material
respect of any law, ordinance, governmental rule, regulation or court
decree to which it or its property may be subject the effect of which
violation would be material to the Company and its subsidiaries taken as a
whole, or has failed to obtain any material license, permit, certificate,
franchise or other governmental authorization or permit necessary to the
ownership of its property or to the conduct of its business; and the
execution, delivery and performance of this Agreement by the Company, the
sale of the Debentures and the Shares, compliance by the Company with the
provisions of the Debentures and the Indenture, and the consummation of the
transactions contemplated by this Agreement will not conflict with, result
in the creation or imposition of any lien, charge or encumbrance upon any
of the properties or assets of the Company pursuant to the terms of, or
constitute a breach of or default under, any agreement, indenture or
instrument to which the Company is a party, or by which the Company is
bound, or result in a violation of the corporate charter or bylaws of the
Company or, except to the extent disclosed in the Prospectus, any law or
ordinance to which the Company or its properties may be subject or of any
order, rule or regulation of any court or governmental agency having
jurisdiction over the Company or its properties, except for conflicts,
breaches, violations or defaults which would be immaterial to the business
and operations of the Company and its subsidiaries taken as a whole and
which would not affect the validity or enforceability of the Debentures,
the Indenture or this Agreement or otherwise adversely affect the rights,
duties or obligations of the Trustee, the Underwriters or the holders of
the Debentures or the Shares.
No approval or consent of any governmental body other than as may be
required under the Act or the Trust Indenture Act or in connection or
compliance with the provisions of the securities or "blue sky" laws of any
jurisdiction is legally required for the carrying out by the Company of the
provisions of this Agreement.
5
<PAGE> 6
Except as described in the Registration Statement and the Prospectus,
there is no litigation or governmental proceeding pending or, to the
knowledge of the Company threatened against the Company or any of its
subsidiaries which, if adversely resolved, could reasonably be expected to
result in any material adverse change in the business, properties,
financial condition, results of operations or prospects of the Company and
its subsidiaries taken as a whole or which is required to be disclosed in
the Registration Statement or the Prospectus.
There are no contracts or other documents which are required to be
filed as exhibits to the Registration Statement by the Act or by the Rules
and Regulations which have not been filed as exhibits to the Registration
Statement.
Except as disclosed in the Prospectus, the Company and each of its
subsidiaries have sufficient authority under statutory provisions or by
grant of franchises or permits by municipalities or counties to conduct
their respective businesses as presently conducted and as described in the
Registration Statement and Prospectus.
Except as set forth in the Registration Statement and the Prospectus,
the Company and its subsidiaries are in compliance with all applicable
existing federal, state and local laws and regulations relating to
protection of human health or the environment or imposing liability or
standards of conduct concerning any Hazardous Material ("Environmental
Laws"), except for such instances of noncompliance which, either singly or
in the aggregate, would not have a material adverse effect on the condition
(financial or otherwise), results of operations or properties of the
Company and its subsidiaries, taken as a whole. The term "Hazardous
Material" means (i) any "hazardous substance" as defined by the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, (ii) any "hazardous waste" as defined by the Resource
Conservation and Recovery Act, as amended, (iii) any petroleum or petroleum
product, (iv) any polychlorinated biphenyl, and (v) any pollutant or
contaminant or hazardous, dangerous or toxic chemical, material, waste or
substance regulated under or within the meaning of any other law relating
to protection of human health or the environment or imposing liability or
standards of conduct concerning any such chemical, material, waste or
substance.
No labor dispute with the employees of the Company or any of its
subsidiaries exists or, to the knowledge of the Company, is imminent; and
the Company knows of no existing or imminent labor disturbance by the
employees of any of its principal suppliers, manufacturers or contractors
which might reasonably be expected to result in any material adverse change
in the condition, financial or otherwise, or in the earnings, business
affairs or business prospects of the Company and its subsidiaries taken as
a whole.
Each of the Company and its subsidiaries owns, possesses or has the
right to use all licenses, trademarks, patents, patent rights, inventions,
copyrights, service marks and trade names presently employed by it in
connection with the businesses now operated by it, and neither the Company
nor any of its subsidiaries has
6
<PAGE> 7
received any notice of infringement of or conflict with asserted rights of
others with respect to any of the foregoing.
The Company and its subsidiaries maintain insurance covering their
properties, operations, personnel and businesses which insures against such
losses and risks as are adequate in accordance with its reasonable business
judgment to protect the Company and its subsidiaries and their businesses.
Neither the Company nor any of its subsidiaries has received notice from
any insurer or agent of such insurer that substantial capital improvements
or other expenditures will have to be made in order to continue such
insurance. All such insurance is outstanding and duly in force on the date
hereof and will be outstanding and duly in force on the Closing Date.
Neither the Company nor any of its subsidiaries is an "investment
company" or an entity "controlled" by an "investment company," as such
terms are defined in the Investment Company Act of 1940, as amended.
Except as otherwise disclosed in the Prospectus, the Company and each
of its subsidiaries have all necessary consents, authorizations, approvals,
orders, certificates and permits of and from, and have made all
declarations and filings with, all federal, state, local and other
governmental authorities, all selfregulatory organizations and all courts
and other tribunals, to own, lease, license and use their respective
properties and assets and to conduct their respective businesses in the
manner described in the Prospectus, except to the extent that the failure
to obtain or file would not have a material adverse effect on the Company
and its subsidiaries taken as a whole.
Any certificate signed by any officer of the Company and delivered to you
or to counsel for the Underwriters shall be deemed a representation and warranty
by the Company to the Underwriters as to the matters covered thereby.
Purchase, Sale and Delivery of Debentures and Shares. On the basis of the
representations and warranties contained in, and subject to the terms and
conditions of, this Agreement, the Company agrees to sell to the Underwriters,
and the Underwriters agree to purchase the Firm Shares and the Debentures from
the Company. The purchase price for the Debentures will be [__%] of the
principal amount thereof, and the purchase price for the Firm Shares will be an
amount equal to the initial public offering price for the Shares as set forth in
the Prospectus (the "Share Public Offering Price"), less [___%] of the Share
Public Offering Price.
Delivery of the Debentures and the Firm Shares, in definitive form, and
payment therefor, shall be made at 10:00 A.M., St. Louis time, on the fourth
business day after the Registration Statement shall have been declared effective
by the Commission, or on such later date and time as may be agreed upon in
writing between the Underwriters and the Company, such day and time of delivery
and payment being herein called the "Closing Date." On the Closing Date, the
Debentures and the Firm Shares shall be delivered by the Company to the
Underwriters at The Depository Trust Company in New York, New York, against
payment of the purchase price therefor in funds immediately available to the
order of the Company. The
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<PAGE> 8
Company agrees to make available to the Underwriters for inspection and
packaging in New York, New York, at least one full business day prior to the
Closing Date, certificates for the Debentures and the Shares so to be delivered
in good delivery form and in such denominations and registered in such names as
the Underwriters shall have requested, all such requests to have been made in
writing at least one full business day prior to the Closing Date.
In addition, on the basis of the representations and warranties herein
contained, but subject to the terms and conditions herein set forth, the Company
hereby grants to the Underwriters the option to purchase all or a portion of the
Option Shares as may be necessary to cover over-allotments, at the Share Public
Offering Price. This option may be exercised only to cover over-allotments in
the sale of Firm Shares by the Underwriters. This option may be exercised at any
time (but not more than once) on or before the thirtieth day following the
effective date of the Registration Statement by written notice by you to the
Company. Such notice shall set forth the number of Option Shares as to which the
option is being exercised, and the date and time, as reasonably determined by
the Underwriters, when the Option Shares are to be delivered (such date and time
being herein sometimes referred to as the "Additional Closing Date"); provided,
however, that the Additional Closing Date shall not be earlier than the Closing
Date nor earlier than the third business day after the date on which the option
shall have been exercised nor later than the eighth business day after the day
on which the option shall have been exercised, unless otherwise agreed by the
parties.
Payment for the Option Shares shall be made in immediately available funds,
payable to the order of the Company, at the offices of the Company, or such
other place as shall be agreed upon between us, against delivery of the Option
Shares to the Underwriters through the facilities of The Depository Trust
Company for the account of the Underwriters.
Certificates for the Option Shares shall be in such denominations and
registered in such names as requested in writing by the Underwriters at least
two business days prior to the Additional Closing Date.
Covenants. The Company covenants and agrees with the Underwriters:
To furnish promptly to each of the Underwriters and counsel for the
Underwriters one signed copy of the Registration Statement as originally
filed, and of each amendment thereto filed with the Commission, including
all consents and exhibits filed therewith;
to deliver promptly to the Underwriters such number of conformed
copies of the Registration Statement as originally filed and each amendment
thereto (excluding exhibits other than this Agreement) and of each
Preliminary Prospectus, the Prospectus and any amended or supplemented
Prospectus as the Underwriters may reasonably request;
to file promptly with the Commission the Prospectus pursuant to Rule
424(b) of the Rules and Regulations and to file with the Commission any
amendment to the Registration Statement or the Prospectus or any supplement
to the Prospectus that
8
<PAGE> 9
may, in the reasonable judgment of the Company or the Underwriters, be
required by the Act or requested by the Commission and approved by the
Underwriters;
prior to filing with the Commission any amendment to the Registration
Statement or amendment or supplement to the Prospectus, or to filing any
Prospectus pursuant to Rule 424 of the Rules and Regulations, to furnish a
copy thereof to each of the Underwriters and counsel for the Underwriters
and obtain the consent of the Underwriters to the filing, which consent
will not be unreasonably withheld;
to use its best efforts to cause any posteffective amendment to the
Registration Statement to become effective and to advise the Underwriters
promptly (i) when any posteffective amendment to the Registration Statement
becomes effective, (ii) of any request or proposed request by the
Commission for an amendment to the Registration Statement, an amendment or
a supplement to the Prospectus or for any additional information, (iii) of
the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or the initiation or threat of
any stop order proceeding, (iv) of receipt by the Company of any
notification with respect to the suspension of the qualification of the
Debentures or the Shares for sale in any jurisdiction or the initiation or
threat of any proceeding for that purpose, and (v) of the happening of any
event which makes untrue any statement of a material fact made in the
Registration Statement or the Prospectus, or which requires the making of a
change in the Registration Statement or the Prospectus in order to make any
material statement therein not misleading;
if, at any time when a prospectus relating to the Debentures or the
Shares is required to be delivered under the Act, any event occurs as a
result of which the Prospectus as then amended or supplemented would
include an untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it shall be
necessary to amend or supplement the Registration Statement or the
Prospectus to comply with the Act or the Exchange Act or the rules and
regulations of the Commission under such Acts, the Company promptly will
prepare and file with the Commission, subject to Paragraph , an amendment
or supplement which will correct such statement or omission or an amendment
which will effect such compliance;
if the Commission shall issue a stop order suspending the
effectiveness of the Registration Statement, to make every reasonable
effort to obtain the lifting of that order at the earliest possible time;
as soon as practicable after the effective date of the Registration
Statement, to make generally available to its security holders and to
deliver to the Underwriters an earnings statement, conforming with the
requirements of Section 11(a) of the Act, covering a period of at least
twelve months beginning after the effective date of the Registration
Statement, provided that the Company may comply with this Paragraph by
complying with the safe harbor provisions of Rule 158 of the Rules and
Regulations;
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<PAGE> 10
for a period of three years from the effective date of the
Registration Statement, to furnish to the Underwriters copies of all
reports to shareholders and all reports, filings and financial statements
furnished by the Company to any securities exchange pursuant to
requirements of or agreements with such exchange or to the Commission
pursuant to the Exchange Act or any rule or regulation of the Commission
thereunder;
to endeavor to qualify the Debentures and the Shares for offer and
sale under the securities laws of such jurisdictions as the Underwriters
may reasonably request, provided that no such qualification shall be
required if as a result thereof the Company would be required to qualify as
a foreign corporation, subject itself to general taxation or would be made
subject to service of general process, in each case in any jurisdiction in
which it is not so qualified or subject; and to maintain such
qualifications in effect so long as required for the distribution of the
Debentures and the Shares and to arrange for the determination of the
legality of the Debentures and the Shares for purchase by institutional
investors;
whether or not the transactions contemplated by this Agreement are
consummated or this Agreement is terminated, the Company will pay (i) the
costs incident to the sale and delivery of the Debentures and the Shares
and any taxes payable in that connection; (ii) the costs incident to the
preparation, printing and filing under the Act of the Registration
Statement, any Preliminary Prospectus, the Prospectus and any amendments,
supplements and exhibits thereto; (iii) the costs of distributing the
Registration Statement as originally filed and each amendment thereto and
any posteffective amendments thereof (including exhibits), any Preliminary
Prospectus, the Prospectus, and any amendment or supplement to the
Prospectus; (iv) the costs, if any, of printing and distributing this
Agreement; (v) the costs of filings incident to securing any required
review by the National Association of Securities Dealers, Inc.; (vi) the
fees and expenses of qualifying the Debentures and the Shares under the
securities laws of the several jurisdictions as provided in this Paragraph
and of preparing and printing a Blue Sky Memorandum (including related fees
and expenses of counsel to the Underwriters); (vii) the cost of printing
the Indenture, the Debentures, the certificates for the Shares and the fees
of the Trustee; (viii) the fees and expenses of the Company's accountants
and counsel; and (ix) all other costs and expenses incident to the
performance of the obligations of the Company under this Agreement;
provided, however, that except as provided in sub-parts (v) and (vi) of
this Paragraph and in Paragraph , the Underwriters shall pay their own
costs and expenses, including the fees and expenses of their counsel, any
transfer taxes on the Debentures and the Shares which they may sell and the
expenses of advertising any offering of the Debentures and the Shares made
by the Underwriters;
until the termination of the offering of the Debentures and the
Shares, to timely file all documents, and any amendments to previously
filed documents, required to be filed by it pursuant to the Exchange Act;
to apply the net proceeds of the Debentures and the Shares as set
forth in the Prospectus.
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<PAGE> 11
Conditions of Underwriters' Obligations. The obligations of the
Underwriters hereunder are subject to the accuracy, when made and on the Closing
Date, of the representations and warranties of the Company contained herein, to
the performance by the Company of its obligations hereunder, and to each of the
following additional terms and conditions:
The Prospectus shall have been timely filed to the extent required; at
or before the Closing Date or the Additional Closing Date, no stop order
suspending the effectiveness of the Registration Statement shall have been
issued, and prior to that time no stop order proceeding nor any order
directed at any document incorporated by reference in the Prospectus shall
have been initiated or, to the knowledge of the Company, threatened by the
Commission and no challenge shall have been made to any document
incorporated by reference in the Prospectus; any request of the Commission
for inclusion of additional information in the Registration Statement or
the Prospectus or otherwise shall have been complied with; and the Company
shall not have filed with the Commission the Prospectus or any amendment or
supplement to the Registration Statement or the Prospectus without the
consent of the Underwriters.
The Underwriters shall not have discovered and disclosed to the
Company on or prior to the Closing Date that the Registration Statement or
the Prospectus or any amendment or supplement thereto contains an untrue
statement of a fact which, in the reasonable opinion of the Underwriters or
Armstrong, Teasdale, Schlafly & Davis, counsel for the Underwriters, is
material or omits to state a fact that, in the reasonable opinion of the
Underwriters or such counsel, is material and is required to be stated
therein or is necessary to make the statements therein not misleading.
All corporate proceedings and other legal matters incident to the
authorization, form and validity of this Agreement, the Debentures, the
Shares, the form of the Registration Statement and the Prospectus, other
than financial statements and other financial data, and all other legal
matters relating to this Agreement and the transactions contemplated hereby
shall be satisfactory in all respects to Armstrong, Teasdale, Schlafly &
Davis, counsel for the Underwriters; and the Company shall have furnished
to such counsel all documents and information that such counsel may
reasonably request to enable them to pass upon such matters.
Edwards & Angell, as counsel to the Company, shall have furnished to
the Underwriters their opinion, addressed to the Underwriters and dated the
Closing Date and the Additional Closing Date, if any, to the effect that:
The Company and each of its subsidiaries has been duly
incorporated and is validly existing and in good standing under the
laws of its jurisdiction of incorporation, is duly qualified to do
business and in good standing as a foreign corporation in each
jurisdiction in which its ownership of property or conduct of business
requires such qualification and wherein the failure to be so qualified
would have a material adverse effect on the business of
11
<PAGE> 12
the Company or such subsidiary, and has all corporate power and
authority necessary to own or hold its properties and conduct the
business in which it is engaged as described in the Prospectus.
The Indenture has been duly authorized, qualified under the Trust
Indenture Act, executed and delivered; the Debentures have been duly
authorized, executed, authenticated, issued and delivered; and the
Indenture and the Debentures constitute valid and legally binding
obligations of the Company, enforceable in accordance with their
terms, subject, as to enforcement, to bankruptcy, insolvency,
reorganization and other laws of general applicability relating to or
affecting creditors' rights and to general equity principles.
All of the outstanding shares of Common Stock of the Company
(including the Shares) have been duly authorized and validly issued,
are fully paid and non-assessable and conform to the description
thereof in the Prospectus; and the shareholders of the Company have no
preemptive rights with respect to the Shares being issued and sold by
the Company hereunder.
All corporate action required to have been taken by the Company
for the due and proper authorization, issuance, sale and delivery of
the Debentures and the Shares, has been validly and sufficiently
taken, and the Debentures constitute valid and binding obligations of
the Company and the Shares have been duly authorized, validly issued
and are nonassessable.
The Indenture, the Debentures and the Shares conform in all
respects to the statements concerning them in the Prospectus.
To the knowledge of such counsel based upon communications with
representatives of the Commission, the Registration Statement is
effective under the Act, and the Prospectus was timely filed with the
Commission as required, and to the knowledge of such counsel no stop
order suspending the effectiveness of the Registration Statement has
been issued, and no proceeding for that purpose is pending or
threatened by the Commission.
To the knowledge of such counsel, no order directed to any
document incorporated by reference in the Prospectus has been issued,
and no challenge has been made to the accuracy or adequacy of any such
document.
The Registration Statement and the Prospectus and each amendment
or supplement, if any, thereto comply as to form in all material
respects with the requirements of the Act and the Rules and
Regulations thereunder and the Trust Indenture Act and the rules and
regulations of the Commission under such act (except that no opinion
need be expressed as to the Trustee's Statement of Qualification and
as to the financial statements or financial data contained therein).
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<PAGE> 13
The statements made in the Prospectus, insofar as they purport to
summarize the provisions of statutes, legal and governmental
proceedings, contracts or other documents specifically referred to
therein are accurate and fairly present the information called for
with respect thereto by Form S2 under the Act (except that no opinion
need be expressed as to financial statements or financial date
contained therein).
To such counsel's knowledge, except as described in the
Prospectus there is no litigation or any governmental proceeding
pending or threatened against the Company or any of its subsidiaries
which could have a material adverse effect on the Company and its
subsidiaries taken as a whole, or is required to be disclosed in the
Registration Statement or the Prospectus.
To such counsel's knowledge, there are no contracts or other
documents which are required to be filed as exhibits to the
Registration Statement by the Act or by the Rules and Regulations
which have not been filed as exhibits to the Registration Statement as
provided by the Rules and Regulations.
To such counsel's knowledge, neither the Company nor any of its
subsidiaries is in violation of its corporate charter or bylaws, or in
default under any agreement, indenture or instrument, the effect of
which violation or default would be material to the Company and its
subsidiaries taken as a whole or is in violation in any material
respect of any law, ordinance, governmental rule, regulation or court
decree to which it or its property may be subject or, except as
disclosed in the Prospectus, has failed to obtain any material
license, permit, certificate, franchise or other governmental
authorization or permit necessary to the ownership of its property or
to the conduct of its business.
This Agreement has been duly authorized, executed and delivered
by the Company; and the execution, delivery and performance of this
Agreement by the Company and the consummation of the transactions
contemplated by this Agreement will not conflict with, or result in
the creation or imposition of any material lien, charge or encumbrance
upon any of the property or assets of the Company pursuant to the
terms of, or constitute a default under, any agreement, indenture,
mortgage, deed of trust, loan agreement or other similar agreement or
instrument known to such counsel, or result in a violation of the
corporate charter or bylaws of the Company or any of its subsidiaries
or any law or ordinance to which the Company or any of its
subsidiaries or their respective properties may be subject or of any
order, rule or regulation of any court or governmental agency having
jurisdiction over the Company, any of its subsidiaries or their
respective properties which breach or default could have a material
effect on the Company and its subsidiaries taken as a whole or which
would cause a current or prospective material adverse change in or
affecting the financial position, shareholders' equity or results of
operations of the Company or affecting the validity of the Debentures
or the
13
<PAGE> 14
Shares or the legal authority of the Company to comply with the
Debentures, the Indenture or this Agreement.
No approval or consent of any governmental body, other than as
may be required under the Act or the Trust Indenture Act or in
connection or compliance with the provisions of the securities or
"blue sky" laws of any jurisdiction, is legally required for the issue
and sale of the Debentures and the Shares by the Company or for the
carrying out by the Company of the provisions of this Agreement.
Such counsel also shall confirm that during the preparation of the
Registration Statement and Prospectus, such counsel has participated in
conferences with your representatives and counsel for the Underwriters, and with
officers and representatives of the Company, at which conferences the contents
of the Registration Statement and Prospectus were discussed, reviewed and
revised. On the basis of the information which was developed in the course
thereof, considered in light of such counsel's understanding of applicable law
and the experience gained by such counsel thereunder, such counsel shall confirm
that nothing came to such counsel's attention that would lead such counsel to
believe that either the Registration Statement or Prospectus or any amendment or
supplement thereto (other than the financial statements and notes thereto, or
any related schedules therein, as to which such counsel need express no opinion)
contains any untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading.
On the Closing Date and on the Additional Closing Date, if any, there
shall have been furnished to you a certificate, dated such date, from the
Company, signed on behalf of the Company by the President and Chief
Executive Officer and the Treasurer, stating that to the knowledge of the
officers signing such certificate:
The representations, warranties and agreements of the Company in
Paragraph are true and correct as of such date; the Company has
complied with all its agreements contained herein; and the conditions
set forth in Paragraph have been fulfilled;
Neither the Registration Statement, as of its effective date, nor
the Prospectus, as of its date, included any untrue statement of a
material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading, and since the effective date of the Registration
Statement, no event has occurred which should have been set forth in a
supplement to or amendment of the Prospectus which has not been set
forth in such a supplement or amendment; and
No stop order suspending the effectiveness of the Registration
Statement has been issued, and no proceedings for that purpose have
been instituted or are pending or threatened, under the Act.
14
<PAGE> 15
On the date of this Agreement and on the Closing Date, and on the
Additional Closing Date, if any, Grant Thornton LLP shall have furnished to
you letters dated such dates substantially in the form of a draft of such
letter previously delivered to you.
Subsequent to the respective dates as of which information is given in
the Registration Statement and the Prospectus, there shall not have been
any change specified in the letter referred to in Paragraph which makes it
impractical or inadvisable in the reasonable judgment of the Underwriters
to proceed with the public offering or delivery of the Debentures and the
Shares as contemplated by the Prospectus.
The Underwriters shall have received from Armstrong, Teasdale,
Schlafly & Davis, counsel for the Underwriters, such opinion or opinions,
dated the Closing Date and the Additional Closing Date, if any, with
respect to the issuance and sale of the Debentures and the Shares, the
Indenture, the Registration Statement, the Prospectus, and other related
matters as the Underwriters may reasonably require, and the Company shall
have furnished to such counsel such documents as they reasonably request
for the purpose of enabling them to pass upon such matters.
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably satisfactory
to the Underwriters and Armstrong, Teasdale, Schlafly & Davis, counsel for the
Underwriters.
If any of the conditions specified in this Paragraph shall not have been
fulfilled when and as provided in this Agreement, or if any of the opinions or
certificates mentioned above or elsewhere in this Agreement shall not be in all
material respects reasonably satisfactory in form and substance to the
Underwriters and their counsel, this Agreement and all obligations of the
Underwriters hereunder may be canceled at, or at any time prior to, the Closing
Date by the Underwriters.
Indemnification and Contribution. The Company shall indemnify and hold
harmless each Underwriter and each person, if any, who controls any Underwriter
within the meaning of the Act from and against any loss, claim, damage or
liability, joint or several, and any action in respect thereof, to which any
Underwriter or any such controlling person may become subject, under the Act or
otherwise, insofar as such loss, claim, damage, liability or action arises out
of, or is based upon, any untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, the Registration
Statement, the Prospectus, or the Registration Statement or Prospectus as
amended or supplemented, or arises out of, or is based upon, the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and shall reimburse
each Underwriter and each such controlling person for any legal and other
expenses reasonably incurred by such Underwriter or such controlling person for
any legal and other expenses reasonably incurred by such Underwriter or such
controlling person in investigating or defending or preparing to defend against
any such loss, claim, damage, liability or action; provided, however, that the
Company shall not be liable in any such case to
15
<PAGE> 16
the extent that any such loss, claim, damage, liability or action arises out of,
or is based upon, any untrue statement or alleged untrue statement or omission
or alleged omission made in any Preliminary Prospectus or in the Registration
Statement or the Prospectus or any amendment or supplement thereto in reliance
upon and in conformity with written information furnished to the Company by the
Underwriters specifically for inclusion therein; and provided further that as to
any Preliminary Prospectus this indemnity agreement shall not inure to the
benefit of any Underwriter or any person controlling an Underwriter on account
of any loss, claim, damage, liability or action arising from the sale of
Debentures or the Shares to any person by any Underwriter if such Underwriter
failed to send or give a copy of any Prospectus, as the same may be amended or
supplemented, to that person within the time required by the Act, and the untrue
statement or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact in such Preliminary Prospectus was corrected
in such Prospectus, unless such failure resulted from noncompliance by the
Company with Paragraph hereof. The foregoing indemnity is in addition to any
liability which the Company may otherwise have to the Underwriters or any
controlling person of any of the Underwriters.
Each Underwriter, severally and not jointly, agrees to indemnify and hold
harmless the Company, its directors and officers who signed the Registration
Statement and any person who controls the Company within the meaning of the Act
from and against any loss, claim, damage or liability, joint or several, or any
action in respect thereof, to which the Company or any such director, officer or
controlling person may become subject, under the Act or otherwise, insofar as
such loss, claim, damage, liability or action arises out of, or is based upon,
(i) any untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration Statement, the
Prospectus or the Registration Statement or Prospectus as amended or
supplemented, (ii) the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, but in each case arising under subparagraphs (i) or (ii), only
to the extent that the untrue statement or alleged untrue statement or omission
or alleged omission was made in reliance upon and in conformity with written
information furnished to the Company by such Underwriter specifically for
inclusion therein, (iii) the failure of such Underwriter to comply with any
prospectus delivery requirement, or (iv) the content of, or omission of any
information from, any prospectus (as defined in Section 2(10) of the Act)
utilized by such Underwriter, other than the Preliminary Prospectus or the
Prospectus; and shall reimburse the Company for any legal and other expenses
reasonably incurred by the Company or any such director, officer or controlling
person in investigating or defending or preparing to defend against any such
loss, claim, damage, liability or action arising under subparagraphs (i) through
(iv) of this paragraph. The foregoing indemnity agreement is in addition to any
liability which the Underwriters may otherwise have to any such indemnified
party.
Promptly after receipt by an indemnified party under this Paragraph of
notice of any claim or the commencement of any action, the indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under this Paragraph, notify the indemnifying party in writing of the
claim or the commencement of that action, provided that the failure to notify
the indemnifying party shall not relieve it from any liability which it may have
to an indemnified party otherwise than under this Paragraph . If any such claim
or action shall be brought against an indemnified party, and it shall notify the
indemnifying
16
<PAGE> 17
party thereof, the indemnifying party shall be entitled to participate therein,
and, to the extent that it wishes, jointly with any other similarly notified
indemnifying party, to assume the defense thereof with counsel reasonably
satisfactory to the indemnified party; provided, however, if the defendants in
any such action include both the indemnified party and the indemnifying party
and the indemnified party shall have reasonably concluded that there may be
legal defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party, the
indemnified party or parties shall have the right to select separate counsel to
assume such legal defenses and to otherwise participate in the defense of such
action on behalf of such indemnified party or parties. After notice from the
indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable to
the indemnified party under this Paragraph for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
other than reasonable costs of investigation, unless (i) the indemnified party
shall have employed such counsel in connection with the assumption of legal
defenses in accordance with the proviso to the next preceding sentence, (ii) the
indemnified party shall have reasonably concluded that there may be a conflict
of interest between the indemnifying party and the indemnified party in the
conduct of the defense of such action (in which case the indemnifying party
shall not have the right to direct the defense of such action on behalf of the
indemnified party), (iii) the indemnifying party shall not have employed counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party within a reasonable time after notice of commencement of the action, or
(iv) the indemnifying party has authorized the employment of counsel for the
indemnified party at the expense of the indemnifying party.
If the indemnification provided for in this Paragraph shall for any reason
be unavailable to an indemnified party under Paragraph or in respect of any
loss, claim, damage or liability, or any action in respect thereof, referred to
therein, then each indemnifying party shall, in lieu of indemnifying such
indemnified party, contribute to the amount paid or payable by such indemnified
party as a result of such loss, claim, damage or liability, or action in respect
thereof, (i) in such proportion as shall be appropriate to reflect the relative
benefits received by the Company on the one hand and the Underwriters on the
other from the offering of the Debentures and the Shares or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company on
the one hand and the Underwriters on the other with respect to the statements or
omissions which resulted in such loss, claim, damage or liability, or action in
respect thereof, as well as any other relevant equitable considerations. The
relative benefits received by the Company on the one hand and the Underwriters
on the other hand with respect to such offering shall be deemed to be in the
same proportion as the total net proceeds from the offering of the Debentures
and the Shares (before deducting expenses) received by the Company bears to the
total underwriting discounts and commissions received by the Underwriters with
respect to such offering, in each case as set forth in the table on the cover
page of the Prospectus. The relative fault shall be determined by reference to
whether the untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by the
Company or the Underwriters, the intent of the parties and their relative
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and the Underwriters agree that it would
17
<PAGE> 18
not be just and equitable if contributions pursuant to this Paragraph were to be
determined by pro rata allocation or by any other method of allocation which
does not take into account the equitable considerations referred to herein. The
amount paid or payable by an indemnified party as a result of the loss, claim,
damage or liability, or action in respect thereof, referred to above in this
Paragraph shall be deemed to include, for purposes of this Paragraph , any legal
or other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any such action or claim. Notwithstanding the
provisions of this Paragraph , no Underwriter shall be required to contribute
any amount in excess of the amount by which the total price at which the
Debentures and the Shares underwritten by it and distributed to the public was
offered to the public exceeds the amount of any damages which such Underwriter
has otherwise paid or become liable to pay by reason of any untrue or alleged
untrue statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation.
The Underwriters confirm that the statements with respect to the public
offering of the Debentures and the Shares set forth on the cover page of, and
under the caption "Underwriting" in, the Prospectus are correct and were
furnished in writing to the Company by the Underwriters for inclusion in the
Registration Statement and the Prospectus.
The agreements contained in this Paragraph and the representations,
warranties and agreements of the Company contained in Paragraphs and shall
survive the delivery of the Debentures and the Shares and shall remain in full
force and effect, regardless of any termination or cancellation of this
Agreement or any investigation made by or on behalf of any indemnified party.
Termination by the Underwriters. The obligations of the Underwriters
hereunder may be terminated by the Underwriters, in their absolute discretion,
by notice given to and received by the Company prior to delivery of and payment
for the Debentures and the Shares, if prior to that time (a)(i) the Company
shall have failed, refused or been unable to perform any agreement on its part
to be performed hereunder, (ii) any other condition to the Underwriters'
obligations hereunder is not fulfilled, (iii) the Company sustains a loss,
whether or not insured, by reason of fire, flood, accident or other calamity,
which, in the reasonable opinion of the Underwriters, substantially affects the
value of the properties of the Company or which materially interferes with the
operation of the business of the Company, (iv) trading generally shall have been
suspended or materially limited on or by the New York Stock Exchange or American
Stock Exchange or the National Association of Securities Dealers, Inc. or
trading in any securities of the Company shall have been suspended by any
securities exchange or in the over the counter market, (v) a banking moratorium
is declared by the United States, or by New York, Missouri or Rhode Island state
authorities, (vi) an outbreak of major hostilities or other national or
international calamity occurs, (vii) any action is taken by any government in
respect of its monetary affairs which, in the reasonable opinion of the
Underwriters, has a material adverse effect on the United States securities
markets, or (viii) there is a pending or threatened material legal or
governmental proceeding against the Company, other than proceedings described in
the Registration Statement or amendments or supplements thereto delivered to the
Underwriters prior to the execution of this Agreement,
18
<PAGE> 19
which in the reasonable opinion of the Underwriters has a material adverse
effect upon the Company, and (b) with respect to the events specified in clauses
(a)(i) through (a)(iii) hereof, such event singly or together with other such
events makes it, in the Underwriters' reasonable judgment, impractical to market
the Shares and Debentures on the terms and in the manner contemplated in the
Prospectus.
Substitution of Underwriters. If one or more of the Underwriters shall fail
on the Closing Date to purchase and pay for the Debentures and Firm Shares
agreed to be purchased by such Underwriter hereunder (the "Defaulted Debentures"
or the "Defaulted Shares", respectively) and such failure to purchase shall
constitute a default in the performance of its obligations under this Agreement,
the remaining Underwriters shall have the right, within 48 hours thereafter, to
make arrangements for one or more of the non-defaulting Underwriters, or any
other persons, to purchase all, but not less than all, of the Defaulted
Debentures or the Defaulted Shares, as the case may be, in such amounts as may
be agreed upon and upon the terms herein set forth; if, however, the
Underwriters shall not have completed such arrangements within such 48 hour
period, then:
with respect to the Defaulted Debentures:
if the amount of Defaulted Debentures does not exceed 10% of the
aggregate principal amount of the Debentures, the non-defaulting
Underwriters shall be obligated to purchase the full amount thereof in the
proportions that their respective underwriting obligations hereunder bear
to the underwriting obligations of all non-defaulting Underwriters; or
if the amount of Defaulted Debentures exceeds 10% of the
aggregate principal amount of the Debentures, the non-defaulting
Underwriters shall have the right to purchase all, but shall not be under
any obligation to purchase any, of the Defaulted Debentures and if such
non-defaulting Underwriters do not purchase all the Defaulted Debentures,
this Agreement will terminate without liability to any non-defaulting
Underwriter; and
with respect to the Defaulted Shares:
if the number of Defaulted Shares, does not exceed 10% of the
aggregate number of the Firm Shares, the non-defaulting Underwriters shall
be obligated to purchase the full amount thereof in the proportions that
their respective underwriting obligations hereunder bear to the
underwriting obligations of all non-defaulting Underwriters; or
if the number of Defaulted Shares, exceeds 10% of the aggregate
number of the Firm Shares, the non-defaulting Underwriters shall have the
right to purchase all, but shall not be under any obligation to purchase
any, of the Defaulted Shares and if such non-defaulting Underwriters do not
purchase all the Defaulted Shares, this Agreement will terminate without
liability to any non-defaulting Underwriter.
19
<PAGE> 20
In the event of a default by any Underwriter as set forth in this Paragraph
8 the Underwriters or the Company shall have the right to postpone the Closing
Date for such period not exceeding five business days in order that the required
changes in the Registration Statement and the Prospectus or in any other
documents or arrangement may be effected, and the Company agrees promptly to
file any amendments to the Registration Statement or supplements to the
Prospectus which may thereby be made necessary. Nothing contained in this
Agreement shall relieve any defaulting Underwriter of its liability to the
Company and any non-defaulting Underwriters for damages occasioned by its
default hereunder.
Termination by the Company. The obligation of the Company to deliver the
Debentures and the Shares upon payment therefor shall be subject to the
following conditions:
On the Closing Date the Indenture shall be qualified under the Trust
Indenture Act as and to the extent required by such Act; and no stop order
suspending the effectiveness of the Registration Statement shall be in effect
and no proceedings for that purpose shall then be pending before, or threatened
by, the Commission.
In case any of the conditions specified above in this Paragraph shall not
have been fulfilled, this Agreement may be terminated by the Company by
delivering written notice of termination to the Underwriters. Any such
termination shall be without liability of any party to any other party except to
the extent provided in Paragraph and Paragraph hereof.
Expenses Following Termination. If the sale of Shares and Debentures
provided for herein are not consummated because of any refusal, inability or
failure on the part of the Company to comply with any of the terms or to fulfill
any of the conditions of this Agreement, or if for any reason the Company shall
be unable to perform all its obligations under this Agreement, the Company shall
not be liable to the Underwriters for damages arising out of the transactions
covered by this Agreement, provided however that (i) the Company shall remain
liable to the extent provided in Paragraphs , and hereof and (ii) except where
termination occurs pursuant to Section 9 hereof, the Company shall pay the
out-of-pocket expenses incurred by the Underwriters in contemplation of the
performance by them of their obligations hereunder, including the fees and
disbursements of their counsel and their travel, postage, telegraph and
telephone expenses.
Notices. The Company shall be entitled to act and rely upon any request,
consent, notice or agreement given or made by the Underwriters. Any notice to
the Underwriters shall be sufficient if given in writing or by telecopy
addressed to Edward D. Jones & Co., L.P., 12555 Manchester Road, St. Louis,
Missouri 63131 (Attention: Lawrence R. Sobol); any notice to the Company shall
be sufficient if given in writing or by telecopy addressed to the Company at:
1595 Mendon Road, Cumberland, Rhode Island 02864 (Attention: Kenneth W. Hogan).
Parties. This Agreement shall inure to the benefit of and be binding upon
the Underwriters, the Company and their respective successors. This Agreement
and the terms and provisions hereof are for the sole benefit of only those
persons, except that (a) the representations, warranties, indemnities and
agreements of the Company contained in this Agreement shall also be deemed to be
for the benefit of the person or persons, if any, who
20
<PAGE> 21
control the Underwriters within the meaning of Section 15 of the Act, and (b)
the indemnities and agreements of the Underwriters contained in Paragraph of
this Agreement shall be deemed to be for the benefit of directors of the
Company, officers of the Company who have signed the Registration Statement and
any person controlling the Company. Nothing in this Agreement is intended or
shall be construed to give any person other than the persons referred to in this
paragraph any legal or equitable right, remedy or claim under or in respect of
this Agreement or any provision contained herein.
Defined Terms. For purposes of this Agreement, (a) "business day" means any
day on which the American Stock Exchange is open for trading, and (b)
"subsidiary" shall have the meaning set forth in Rule 405 of the Rules and
Regulations.
Successors. This Agreement will inure to the benefit of and be binding upon
the parties hereto and their respective successors and assigns and the officers
and directors and controlling persons referred to in Paragraph hereof, and no
other person will have any right or obligation hereunder. The term "successors
and assigns" as used in this Agreement shall not include any purchaser, as such
purchaser, of any of the Debentures or the Shares from the Underwriters.
Counterparts. This Agreement may be executed in multiple counterparts, all
of which, when taken together, shall constitute one and the same agreement among
the parties to such counterparts.
Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Missouri.
21
<PAGE> 22
If the foregoing correctly sets forth the agreement between the Company and
the Underwriters, please indicate your acceptance in the space provided for that
purpose.
Very truly yours,
VALLEY RESOURCES, INC.
By:
President and Chief Executive Officer
Accepted:
EDWARD D. JONES & CO., L.P.
By:
Title:
22
<PAGE> 23
Schedule I
$7,000,000 Principal Amount of
___% Debentures due 2027 and
620,000 Shares of Common Stock
of
VALLEY RESOURCES, INC.
Number of Principal
Firm Shares to Amount of De-
be bentures to be
Purchased Purchased
-------------------------------
Underwriters
------------
Edward D. Jones & Co., L.P.
First Albany Corporation
------------- -------------
TOTAL 620,000 $7,000,000
23
<PAGE> 1
<TABLE>
Exhibit 12
VALLEY RESOURCES, INC. AND SUBSIDIARIES
COMPUTATION OF THE CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
<CAPTION>
For the nine months ended For the year ended
May 31, August 31,
------- ----------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Net Income...................... $4,443,659 $ 5,074,613 $3,998,360 $2,554,925 $3,826,026 $3,727,230 $3,114,599
Provisions for income taxes..... 2,038,690 2,462,319 1,541,160 753,033 1,350,965 1,444,936 1,012,043
Fixed Charges................... 2,766,743 2,710,862 3,683,294 3,599,618 3,191,174 2,860,700 2,350,821
---------- ----------- ---------- ---------- ---------- ---------- ----------
Total........................ $9,249,092 $10,247,794 $9,222,814 $6,907,576 $8,368,165 $8,032,866 $6,477,463
========== =========== ========== ========== ========== ========== ==========
Fixed Charges:
Interest on debt................ 2,441,311 2,391,253 3,259,495 3,247,752 2,846,880 2,572,082 2,091,019
Amortization of debt expense.... 43,448 43,448 57,931 57,931 57,931 53,056 57,710
Interest component of rent...... 281,984 276,161 365,868 293,935 286,363 235,562 202,092
---------- ----------- ---------- ---------- ---------- ---------- ----------
Total........................ $2,766,743 $ 2,710,862 $3,683,294 $3,599,618 $3,191,174 $2,860,700 $2,350,821
========== =========== ========== ========== ========== ========== ==========
Ratio of Earnings to Fixed Charges.. 3.3 3.8 2.5 1.9 2.6 2.8 2.8
Pro Forma:
Actual fixed charges............ $2,766,743 $3,683,294
Pro forma interest on debt to be
sold, assuming a rate of
7.625% 400,313 533,750
Actual interest on debt to be
retired...................... (552,698) (774,498)
---------- ----------
Pro forma fixed charges......... $2,614,358 $3,442,546
========== ==========
Pro forma ratio of earnings to
fixed charges................ 3.5 2.7
</TABLE>
<PAGE> 1
Exhibit 23(a)
Consent of Independent Certified Public Accountants
We have issued our reports dated September 24, 1996, accompanying the
consolidated financial statements and schedule incorporated by reference or
included in the Annual Report of Valley Resources, Inc. and subsidiaries on Form
10-K for the year ended August 31, 1996. We hereby consent to the inclusion and
incorporation by reference of said reports in the Prospectus and Registration
Statement, Amendment No. 1, (Registration No. 333-30113) of Valley Resources,
Inc. and subsidiaries filed on Form S-2.
/s/ Grant Thornton LLP
--------------------------
GRANT THORNTON LLP
Boston, Massachusetts
August 1, 1997
<PAGE> 1
Exhibit 25
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________
Form T-1
_______________________
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS
TRUSTEE
_______________________
Check if an application to determine eligibility of
a Trustee pursuant to Section 305(b)(2)
MELLON BANK, N.A.
(Name of Trustee)
25-0659306 U.S.
(I.R.S. Employer Identification No.) (Jurisdiction of incorporation)
One Mellon Bank Center
Pittsburgh, PA 15258-0001
(Address of Principal Executive Office)
Marvin Kierstead
Assistant Vice President
MELLON BANK, N.A.
701 Market Street - 5th Floor
Philadelphia, Pennsylvania 19106
(215) 553-1752
(Name, Address and Telephone Number of Agent for Service)
_______________________
VALLEY RESOURCES, INC.
(Name of Obligor)
RHODE ISLAND
(State or Other Jurisdiction of Incorporation or Organization)
05-0384723
(I.R.S. Employer Identification No.)
1595 Mendon Road, Cumberland, Rhode Island 02864
(Address of Principal Executive Offices)
_% Debentures due 2027
(Title of Indenture Securities)
<PAGE> 2
1. General information. Furnish the following information as to the trustee --
(a) Name and address of each examining or supervising authority to which it
is subject.
Comptroller of the Currency Washington, D.C.
Federal Reserve Bank of Cleveland Cleveland, Ohio
Federal Deposit Insurance Corporation Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
2. Affiliations with the obligor. If the obligor is an affiliate of the trustee,
describe each such affiliation.
The obligor is not an affiliate of the trustee.
Items 3-15 are not applicable since the Obligor is not in default on securities
issued under Indentures under which the applicant is trustee.
16. List of exhibits. List below all exhibits filed as a part of this statement
of eligibility.
Exhibit 1 - Copy of articles of association of the trustee as
now in effect, filed as Exhibit 1 to trustee's
statement of eligibility and qualification,
Registration No. 33-46990, and incorporated herein
by reference.
Exhibit 2 - Copy of certificate of the authority of the trustee
to commence business, copy of certificate of
consolidation with the Union Trust Company of
Pittsburgh and copy of certificate approving merger
of Mellon National Bank and Trust Company into
Mellon Bank, N.A. filed as Exhibit T1A(b) to
trustee's statement of eligibility and
qualification, Registration No. 33-13020, and
incorporated herein by reference.
Exhibit 3 - Copy of certificate as to authority of the trustee
to exercise corporate trust powers, filed as
Exhibit T1A(c) to trustee's statement of
eligibility and qualification, Registration No.
33-13020, and incorporated herein by reference.
Exhibit 4 - Copy of existing by-laws of the trustee, filed as
Exhibit 4 to trustee's statement of eligibility and
qualification, Registration No. 33-46990, and
incorporated herein by reference.
Exhibit 5 - Copy of each indenture referred to in Item 4, if
the obligor is in default. Not Applicable.
Exhibit 6 - Consent of the trustee required by Section 321(b)
of the Act, filed as Exhibit T1D to trustee's
statement of eligibility and qualification,
Registration No. 33-13020, and incorporated herein
by reference.
Exhibit 7 - Copy of the latest report of condition of the
trustee transmitted electronically pursuant to law
or the requirements of its supervising or examining
authority.
1
<PAGE> 3
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
trustee, Mellon Bank, N.A., a national banking association organized and
existing under the laws of the United States of America, has duly caused this
statement of eligibility to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of Philadelphia, and Commonwealth of
Pennsylvania, on the 15th day of July, 1997.
MELLON BANK, N.A.
TRUSTEE
By: ________________________
Marvin Kierstead
Assistant Vice President
2
<PAGE> 4
EXHIBIT 7
REPORT OF CONDITION
CONSOLIDATING DOMESTIC AND FOREIGN SUBSIDIARIES OF
MELLON BANK, N.A.
FOR MARCH 31, 1997
In the Commonwealth of Pennsylvania, at the close of business on March 31,
1997; Transmitted electronically in response to call made by Comptroller of the
Currency, under Title 12, United States Code, Section 161.
Charter No. 6301 Northeastern District
<TABLE>
<CAPTION>
STATEMENT OF RESOURCES AND LIABILITIES
(in thousands)
<S> <C> <C>
Assets
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin............................... $ 2,720,649
Interest-bearing balances........................................................ 979,615
Securities:
Held-to-maturity securities...................................................... 2,140,459
Available-for-sale securities.................................................... 3,307,982
Federal funds sold and securities purchased under agreements to resell................ 237,232
Loans and lease financing receivables:
Loans and leases, net of unearned income........................... $23,309,589
LESS: Allowance for loan and lease losses......................... 312,644
Loans and leases, net of unearned income, allowance, and reserve................. 22,996,945
Trading assets ....................................................................... 464,892
Premises and fixed assets (including capitalized leases).............................. 500,605
Other real estate owned............................................................... 46,749
Customers' liability to this bank on acceptances outstanding.......................... 271,584
Intangible assets..................................................................... 1,665,337
Other assets.......................................................................... 1,494,470
Total Assets............................................................ 36,826,519
Liabilities
Deposits:
In domestic offices.............................................................. 22,926,531
Noninterest-bearing............................................ 6,940,906
Interest-bearing............................................... 15,985,625
In foreign offices, Edge and Agreement subsidiaries, and IBFs.................... 3,504,606
Noninterest-bearing............................................ 41,133
Interest-bearing............................................... 3,463,473
Federal funds purchased and securities sold under agreements to repurchase............ 2,608,878
Demand notes issued to the U.S. Treasury.............................................. 722,847
Trading liabilities................................................................... 373,562
Other borrowed money (includes mortgage indebtedness and obligations under
capitalized leases):
With remaining maturity of one year or less...................................... 1,100,458
With remaining maturity of more than one year.................................... 164,548
Bank's liability on acceptances executed and outstanding.............................. 271,584
Subordinated notes and debentures..................................................... 977,752
Other liabilities..................................................................... 822,613
Total Liabilities....................................................... 33,473,379
Equity Capital
Common stock.......................................................................... 167,285
Surplus (exclude all surplus related to preferred stock).............................. 903,801
Undivided profits and capital reserves................................................ 2,324,743
Net unrealized holding gains (losses) on available-for-sale securities................ (35,704)
Cumulative foreign currency translation adjustments................................... ( 6,985)
Total Equity Capital.................................................... 3,353,140
Total Liabilities, Limited-Life Preferred Stock, and Equity Capital..... 36,826,519
</TABLE>
3
<PAGE> 5
I, Michael K. Hughey, Senior Vice President and Corporate Controller of the
above-named bank, do hereby declare that this Report of Condition is true and
correct to the best of my knowledge and belief.
Michael K. Hughey
May 8, 1997
We, the undersigned directors, attest to the correctness of this Statement
of Resources and Liabilities. We declare that it has been examined by us, and to
the best of our knowledge and belief has been prepared in conformance with the
instructions and is true and correct.
Frank V. Cahouet
W. Keith Smith
Charles A. Corry
4
