UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(MARK ONE)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended August 31, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ____________________ to _____________________
Commission File number 1-7924
VALLEY RESOURCES, INC.
(Exact name of Registrant as specified in its charter)
Rhode Island 05-0384723
(State of Incorporation or Organization) (IRS Employer Identification No.)
1595 Mendon Road, Cumberland, Rhode Island 02864
(Address of principal executive offices)
Registrant's Telephone Number, Including Area Code (401) 334-1188
Securities Registered Pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- -----------------------
Common Stock American Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X . No .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
form 10-K. [__]
The aggregate market value of the common stock held by non-affiliates,
computed on the basis of $18.375 per share (the closing price of such stock on
November 15, 1999 on the American Stock Exchange) was $91,746,889.50.
As of November 15, 1999 there were 4,993,028 shares of Valley Resources,
Inc. Common Stock, $1 par value, outstanding.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
The Consolidated Financial Statements, Notes to Consolidated Financial
Statements, Report of Independent Certified Public Accountants, Management's
Discussion and Analysis, Summary of Consolidated Operations, Dividends, and the
Market Data appearing on pages 1 and 6 of the Registrant's Annual Report to
Stockholders for the fiscal year ended August 31, 1999 are incorporated by
reference in Parts I, II and IV.
The Directors and Executive Officers of the registrant, Executive
Compensation and Security Ownership and Certain Beneficial Owners and Management
appearing in the Proxy Statement dated November 9, 1999 as filed with the
Securities and Exchange Commission are incorporated by reference in Part III.
2
<PAGE>
PART I
Item 1 Business
--------
Valley Resources, Inc. (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 Company ("Valley Gas") and Bristol
& Warren Gas Company ("Bristol & Warren" and collectively with Valley Gas, the
"Utilities")--regulated natural gas distribution companies; Valley Appliance and
Merchandising Company ("VAMCO")--a merchandising and appliance rental company;
Valley Propane, Inc. ("Valley Propane")--a wholesale and retail propane company;
and Morris Merchants, Inc., d/b/a the Walter Morris Company ("Morris
Merchants")--a wholesale distributor of franchised lines in plumbing and heating
contractor supply and other energy-related business. The Corporation also owned
an 80% interest in Alternate Energy Corporation ("AEC") during fiscal 1999. The
Corporation acquired an additional 10% interest from AEC's current management on
September 1, 1999 and has the obligation to acquire the remaining 10% in 2001.
AEC sells, installs and designs natural gas conversion systems and facilities,
is an authorized representative of the ONSI fuel cell, holds a patent for a
natural gas/diesel co-firing system and has a patent pending for a device to
control the flow of fuel on dual-fuel equipment.
Utility Operations
- ------------------
Gas Sales and Transportation
The Corporation's utility operations are conducted through the Utilities.
The Utilities had an average of 63,172 customers during the fiscal year ended
August 31, 1999, of which approximately 91% were residential and 9% were
commercial and industrial. For the fiscal year ended August 31, 1999, 52% of gas
sales were to residential customers and 48% 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' 92 square mile service territory is located in the Blackstone Valley region
in northeastern Rhode Island with a population of approximately 250,000. Bristol
& Warren's 15 square mile service territory is located in eastern Rhode Island
with a population of approximately 35,000. Since November 1995, the Utilities
have operated under a single rate structure.
The following table shows the distribution of gas sold and transported
since fiscal 1995 in millions of cubic feet ("MMcf"):
<TABLE>
<CAPTION>
For the Fiscal Year Ended August 31,
---------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Residential .................. 4,165 4,225 4,393 4,612 4,078
Commercial ................... 2,054 2,060 2,161 2,252 1,953
Industrial-firm .............. 1,024 1,133 1,440 1,391 1,338
Industrial-seasonal .......... 692 648 1,110 1,047 1,298
Transportation-firm .......... 543 346 -0- -0- -0-
Transportation-seasonal ...... 4,442 4,895 5,043 3,273 4,419
------ ------ ------ ------ ------
TOTAL ..................... 12,920 13,307 14,147 12,575 13,086
====== ====== ====== ====== ======
</TABLE>
Firm customers of the Utilities use gas for cooking, heating, water
heating, drying and commercial/industrial processing. Certain industrial
customers use additional gas in the summer months, when it is available at lower
prices. These customers are subject to having their service interrupted at the
discretion of the Utilities with very little notice. This use is classified as
seasonal use. As discussed below, the margin on seasonal use is passed through
the Purchased Gas Price Adjustment ("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.
3
<PAGE>
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 Rhode Island Public Utilities Commission ("RIPUC").
Additionally, Valley Gas services cogeneration customers under separate contract
rates that were individually approved by the RIPUC.
The Utilities' sales 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 throughput 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 per
thousand cubic feet ("Mcf") of gas sold to dual fuel customers. This margin
credit reduces rates to firm customers. This margin treatment alleviates the
negative impact that swings in sales can have on earnings in the highly
competitive industrial interruptible market.
Seasonality
The Utilities business is seasonal. 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 from 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. As a result, there is a greater
need for short-term borrowings during periods when internally generated funds
are not sufficient to cover all capital and operating requirements, particularly
in the summer and fall. Short-term borrowings utilized for construction
expenditures generally are replaced by permanent financing when it becomes
economical and practical to do so and where appropriate to maintain an
acceptable relationship between borrowed and equity resources.
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.
4
<PAGE>
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, a group of five local distribution companies that joined
together to use their combined market power to secure favorable terms for
long-term gas supply. In addition, Valley Gas is an investor in Boundary Gas,
Inc. and a customer of Alberta Northeast, LTD, both of which were founded by
groups of gas distribution companies in the Northeast to import natural gas from
Canada.
Valley Gas and Bristol & Warren together have 17,367 dekatherms per day
("Dth/day") of year-round firm supply under long-term contracts with two
domestic and two Canadian suppliers. Of these contracts, 15,300 Dth/day are due
to expire on June 30, 2002, 1,067 Dth on December 1, 2002 and the remainder
extends through 2012. All of the Utilities' gas supply contracts are
spot-indexed based. The Utilities have flexible take requirements, with no gas
categorized as "baseload" supply which must be taken every day.
Winter-Only Firm Supply - The Utilities believe they are well-positioned
with respect to winter-only firm supply. Their actual and prospective long-term
contracts are with major participants in this market, and contract prices are at
competitively favorable terms.
Liquefied Natural Gas ("LNG") - Valley Gas is entitled to 5,300 Dth/day of
firm supply from Distrigas, which re-vaporizes LNG at its Everett, Massachusetts
facility for delivery during the winter months to Valley Gas by Tennessee Gas
Pipeline or to Bristol & Warren via Algonquin Gas Transmission. As an option,
Valley Gas may take this gas in its liquefied state for transportation by truck
to and storage at Valley Gas' on-site LNG tank. A further option allows Valley
Gas to increase its maximum daily quantity from 5,300 to 7,550 dekatherms
("Dth"). There are no minimum takes, and the contract runs through October 31,
2005. Valley Gas also has a multi-year contract with Distrigas for 250,000 Dth
of LNG.
Maritimes & Northeast Pipeline - Valley Gas has a one year contract for
180,000 Dth of firm winter-only gas supply which is delivered from Canada by
Maritimes & Northeast Pipeline and then to Valley's city gate by Tennessee Gas
Pipeline.
Pawtucket Power Co-Generation Plant - Valley Gas is entitled under
long-term contract to utilize up to 540 Dth per hour, with a maximum annual
quantity of 333,000 Dth, 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 1,544,258 Dth of underground
storage capacity with Tennessee Gas Pipeline, Texas Eastern Gas Transmission,
CNG Transmission and National Fuel Gas Supply Corporation, with a total maximum
daily withdrawal quantity of 20,589 Dth. The Utilities' inject underground
storage gas during the non-winter months 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 24,912
Dth/day. Of this total, 82% expires by November 1, 2002, and the remainder
extends through 2012.
Storage Pipeline Capacity - The Utilities' storage-related pipeline
capacity totals 12,738 Dth/day. About 85% of this capacity expires November 1,
2002, and the remainder extends through 2012.
5
<PAGE>
On-Site LNG and Propane Storage - In addition to the gas delivered by the
interstate pipeline, the Utilities have on-site storage facilities for liquid
propane gas ("LPG"), with Valley Gas having about 857,000 gallons and Bristol &
Warren having about 117,000 gallons of LPG storage. Valley Gas also has on-site
storage facilities for 968,320 gallons (about 85,000 Dth) 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. 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
is not expected to significantly impact the profitability of the Utilities.
6
<PAGE>
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
1999, 70 MMcf in 1998, 73 MMcf in 1997, 71 MMcf in 1996 and 66 MMcf in 1995.
Gas Marketing
- ------------
The Utilities 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 the rental of gas-fired appliances. 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. The
merchandising subsidiaries are in competitive businesses with competition based
on many factors, including price, quality of product and service.
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 August 31, 1999, Valley Propane had 2,508
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.
In fiscal 1998, AEC opened a public natural gas vehicle ("NGV") refueling
station located at the Valley Resources corporate headquarters. AEC buys gas
from Valley Gas and retails it to a number of different customers.
The Corporation acquired an 80% interest in AEC in May 1996. It acquired an
additional 10% interest from AEC's management on September 1, 1999. The
Corporation is required to acquire the remaining 10%, which is currently held by
the management of AEC, in 2001.
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", pages 36
and 37, and Note H, page 27, in the 1999 Annual Report to Stockholders which is
incorporated by reference herein.
7
<PAGE>
Item 2 Properties
1595 Mendon Road, Cumberland, Rhode Island
Office, Sales, and Service Center
This location comprises the headquarters, sales and service operation of
the Corporation, Valley Gas, VAMCO and Valley Propane. It includes accounting,
billing, credit, engineering, garage, maintenance, service, storeroom and
construction. The headquarters and sales office for AEC are also located at this
facility. The Corporation considers these facilities to be suitable and adequate
to meet its needs.
425 Turnpike Street
Canton, Massachusetts
Office and Warehouse Facilities
Morris Merchants conducts its business at this leased warehouse and office
building in Canton, MA. Since its business does not require any special
facilities, its leased facilities are not significant to its operation. The
total lease payments are less than 1 percent of all corporate assets of the
Corporation.
106-B Federal Way
Johnston, Rhode Island
Service Center
AEC conducts its servicing business at this leased garage in Johnston, RI.
The leased facility is not significant to its operations and the total lease
payments are less than 1 percent of all corporate assets of the Corporation.
Scott Road, Cumberland, Rhode Island
LNG Storage Plant
Propane Storage Plant
This facility is used for the storage of LNG and propane used in the
peak-shaving operations of Valley Gas. Its daily delivery capacity of LNG and
LPG is 25,000 Mcf's and 12,000 Mcf's, respectively.
100 Broad Common Road
Bristol, Rhode Island
Office, Sales and Service Center
This location comprises the office, sales and service operation of Bristol
& Warren and includes construction, credit, engineering, garage, maintenance,
service, and storeroom.
Brown Street
Warren, Rhode Island
Propane Storage
This facility is used for the storage of propane used in peak-shaving
operations of Bristol & Warren. Its daily delivery capacity of LPG is 1,600
Mcf's.
The Corporation believes its storage facilities are adequate to meet the
needs of the Utilities for the foreseeable future. All of the storage facilities
are owned. All Valley Gas properties, except leased property, are held in fee.
See Item 1 for discussion of gas supply.
8
<PAGE>
Item 3 Legal Proceedings
-----------------
There were no material legal proceedings pending to which the Corporation
or any of its subsidiaries is a party, or of which any of their property is the
subject, except two environmental claims that were asserted against Valley Gas
as referred to in Note H, page 27, in the 1999 Annual Report to Stockholders
which is incorporated by reference herein.
Item 4 Submission of Matters to a
Vote of Security Holders
None
9
<PAGE>
Executive Officers of the Registrant
- ------------------------------------
The names, ages, and position of all the executive officers of the
Corporation on October 15, 1999 are listed below, together with their business
experience during the past five years. All officers of the Corporation are
elected or appointed annually by the board of directors at the directors' first
meeting following the Annual Meeting of Stockholders.
Business Experience
Name Age Position During Last Five Years
Alfred P. Degen 52 Chairman, President and Chairman since December 1997;
Chief Executive Chief Executive Officer of
Officer Valley Resources, Inc. since
March 1995; President, Valley
Resources, Inc. from July
1994; Executive Vice Presi-
dent, Philadelphia Gas Works
for more than 5 years prior
to July 1994.
Charles K. Meunier 57 Vice President, Vice President Operations since
Operations December 1994; Assistant Vice
President Operations and Human
Resources prior to December
1994.
Richard G. Drolet 51 Vice President, Vice President Information
Information Systems Systems and Corporate Planning
and Corporate since December 1994; Assistant
Planning Vice President Information
Systems and Corporate Planning
prior to December 1994.
Sharon Partridge 43 Vice President, Vice President, Chief Financial
Chief Financial Officer and Secretary since
Officer, Secretary June 1999; Assistant Vice
and Treasurer President Finance and Treasurer
since December 1994; Assistant
Treasurer prior to December
1994.
Jeffrey P. Polucha 44 Vice President, Vice President Marketing and
Marketing and Development since December
Development 1994; Manager Residential and
Propane Sales prior to December
1994.
10
<PAGE>
PART II
Item 5 Market for the Registrant's Securities
and Related Stockholder Matters
--------------------------------------
The common stock market prices, dividends declared and dividend
restrictions appearing on pages 1, 6 and 25 of the Annual Report to Stockholders
for the fiscal year ended August 31, 1999 are incorporated herein by reference.
The common stock of Valley Resources, Inc. is listed on the American Stock
Exchange under the symbol VR. There were 2,062 shareholders of record at August
31, 1999.
Item 6 Selected Financial Data
-----------------------
The selected financial data (Summary of Consolidated Operations) appearing
on page 38 of the Annual Report to Stockholders for the fiscal year ended August
31, 1999 is incorporated herein by reference.
Item 7 Management's Discussion and Analysis of Financial Condition and Results
of Operations
-----------------------------------------------------------------------
Management's discussion and analysis of the results of operations,
liquidity and capital resources appearing on pages 33 through 37 of the Annual
Report to Stockholders for the fiscal year ended August 31, 1999 are
incorporated herein by reference.
Item 7A Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
Not applicable
Item 8 Financial Statements and Supplementary Data
-------------------------------------------
The following consolidated financial statements of the registrant and its
subsidiaries appearing on pages 18 through 32 in the Annual Report to
Stockholders for the fiscal year ended August 31, 1999 are incorporated herein
by reference:
Consolidated Statements of Earnings for each of the three years in the
period ended August 31, 1999
Consolidated Statements of Cash Flows for each of the three years in
the period ended August 31, 1999
Consolidated Balance Sheets - August 31, 1999 and 1998
Consolidated Statements of Changes in Common Stock Equity for each of
the three years in the period ended August 31, 1999
Consolidated Statements of Capitalization - August 31, 1999 and 1998
Notes to Consolidated Financial Statements
Report of Independent Certified Public Accountants
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
---------------------------------------------
None.
11
<PAGE>
PART III
Item 10 Directors and Executive Officers of the Registrant
--------------------------------------------------
For information with respect to the executive officers of the registrant,
see "Executive Officers of the Registrant" at the end of Part I of this report.
Information regarding the directors of the registrant appearing on pages 2
through 5 of the Proxy Statement filed with the Securities and Exchange
Commission on November 9, 1999 is incorporated herein by reference.
Section 16 (a) Beneficial Ownership Reporting Compliance
- ---------------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934 requires the
Corporation's executive officers and directors and persons who own more than 10%
of a registered class of the Corporation's equity securities ("insiders") to
file reports of ownership and changes in ownership with the Securities and
Exchange Commission ("SEC"). Insiders are required by SEC regulation to furnish
the Corporation with copies of all Section 16(a) forms they file. Based solely
on review of the copies of such forms furnished to the Corporation, the Form 4
for the month of May 1999 for Alfred P. Degen was filed one date late for the
purchase of 1,000 shares of Common Stock. Due to a clerical error, dividend
reinvestment plan acquisitions on Form 5 for Messrs. DeAngelis, Farnum, Davison
and Guthrie were filed 16 days late.
Item 11 Executive Compensation
----------------------
Information regarding management compensation appearing on pages 6 through
9 of the Proxy Statement filed with the Securities and Exchange Commission on
November 9, 1999 is incorporated herein by reference.
Item 12 Security Ownership of Certain
Beneficial Owners and Management
--------------------------------
Information regarding the beneficial owners of more than 5 percent of the
outstanding Common Stock of the Corporation, the only class of equity security
issued and outstanding, and the security ownership of management appearing on
pages 1 and 2 of the Proxy Statement filed with the Securities and Exchange
Commission on November 9, 1999 is incorporated herein by reference.
Item 13 Certain Relationships and Related Transactions
----------------------------------------------
None.
12
<PAGE>
PART IV
Item 14 Exhibits, Financial Statement
Schedules and Reports on Form 8-K
---------------------------------
(a) 1. The following consolidated financial statements of Valley Resources,
Inc. and subsidiaries appearing on pages 18 through 32 in the Annual
Report to Stockholders for the year ended August 31, 1999 are incorpo-
rated by reference in Item 8:
Consolidated Statements of Earnings for each of the
three years in the period ended August 31, 1999
Consolidated Statements of Cash Flows for each of the
three years in the period ended August 31, 1999
Consolidated Balance Sheets - August 31, 1999 and 1998
Consolidated Statements of Changes in Common Stock Equity
for each of the three years in the period ended August 31,
1999
Consolidated Statements of Capitalization - August 31, 1999
and 1998
Notes to Consolidated Financial Statements
Report of Independent Certified Public Accountants
(a) 2. Consolidated Financial Schedule
Schedule VIII - Valuation and Qualifying Accounts
Report of Independent Certified Public Accountants on Consolidated
Financial Schedule
Schedules I, II, III, IV, V, VI, VII, IX, X, XI, XII, XIII and XIV are
either inapplicable or not required or the required information is
shown in the financial statements or notes thereto under the
instructions and have been omitted.
(a) 3. Exhibits
3. (a) Articles of Incorporation, as amended (Exhibit 3 to the Corpo-
ration's Annual Report on Form 10-K for the year ended
August 31, 1988 is hereby incorporated by reference.)
3. (b) Bylaws of the Corporation (Exhibit 3 to the Corporation's
Annual Report on Form 10-K for the year ended August 31,
1988 is hereby incorporated by reference.)
4. (a) Shareholder Rights Plan dated as of June 18, 1991 (Filed on
Form 8-K dated June 28, 1991 is hereby incorporated by
reference.)
13
<PAGE>
4. (b) Indenture between Valley Resources, Inc. and Mellon Bank,
N.A., Trustee dated as of September 1, 1997. (Exhibit 4 to
the Corporation's Registration Statement on Form S-2
(File No. 333-30113) is hereby incorporated by reference.)
4. (c) Indenture of First Mortgage dated as of December 15, 1992
between Valley Gas Company, Valley Resources, Inc.
as guarantor and State Street Bank and Trust Company,
Trustee (Exhibit 4 to the Corporation's Annual Report on
Form 10-K for the year ended August 31, 1993 is hereby
incorporated by reference.)
4. (d) Loan Agreement between Valley Resources, Inc. and Fleet
National Bank dated June 30, 1997 (Exhibit 10 to the Corpo-
ration's Quarterly Report on Form 10-Q for the quarter ended
May 31, 1997 is incorporated herein by reference.)
10. Compensation Contracts or Arrangements
10. (a) Valley Gas Company Supplemental Retirement Plan (Exhibit 10 to
the Corporation's Annual Report on Form 10-K for the year
ended August 31, 1989 is hereby incorporated by reference.)
10. (b) Valley Resources, Inc. Directors Retirement Plan (Exhibit 10
to the Corporation's Annual Report on Form 10-K for the year
ended August 31, 1992 is hereby incorporated by reference.)
10. (c) Valley Resources, Inc. 1999 Executive Incentive Plan dated
September 1, 1998.
10. (d) Change in Control agreement dated April 1, 1999 between Valley
Resources, Inc. and Alfred P. Degen.
10. (e) Change in Control agreement dated June 15, 1999 between Valley
Resources, Inc. and Sharon Partridge, as amended June 15,
1999.
10. (f) Change in Control agreement dated April 1, 1999 between Valley
Resources, Inc. and Charles K. Meunier.
10. (g) Change in Control agreement dated April 1, 1999 between Valley
Resources, Inc. and Richard G. Drolet.
10. (h) Change in Control agreement dated April 1, 1999 between Valley
Resources, Inc. and Jeffrey P. Polucha.
Other Material Contracts or Agreements
10. (i) Firm Storage Service Transportation contract between Valley
Gas and Tennessee Gas Pipeline Company, dated December 15,
1985 (Exhibit 10 to the Corporation's Annual Report on Form
10-K for the year ended August 31, 1986 is hereby incorpo-
rated by reference.)
10. (j) Storage Service Agreement dated July 3, 1985 between Valley
Gas and Consolidated Gas Transmission Corporation
(Exhibit 10 to the Corporation's Registration Statement on
Form S-2 (File No. 2-99315) is hereby incorporated by
reference.)
10. (k) Underground Storage Service Agreement dated October 3, 1984
between Valley Gas and Penn-York Energy Corporation
(Exhibit 10 to the Corporation's Registration Statement on
Form S-2 (File No. 2-99315) is hereby incorporated by
reference.)
14
<PAGE>
10. (l) Underground Storage Service Agreement dated August 19, 1983
between Valley Gas and Penn-York Energy Corporation
(Exhibit 10 to the Corporation's Annual Report on Form 10-K
for the year ended August 31, 1983 is hereby incorporated by
reference.)
10. (m) Service agreement for storage of LNG dated June 30, 1982
between Valley Gas and Algonquin LNG, Inc. (Exhibit 10 to
the Corporation's Annual Report on Form 10-K for the year
ended August 31, 1982 is hereby incorporated by reference.)
10. (n) Contract for the purchase of natural gas dated March 1, 1981,
between Valley Gas and Tennessee Gas Pipeline Company
(Exhibit 10 to the Corporation's Annual Report on Form 10-K
for the year ended August 31, 1981 is hereby incorporated by
reference.)
10. (o) Storage Service Transportation contract dated May 15, 1981,
between Valley Gas and Tennessee Gas Pipeline Company
(Exhibit 10 to the Corporation's Annual Report on Form 10-K
for the year ended August 31, 1981 is hereby incorporated by
reference.)
10. (p) Storage Service Transportation contract dated May 26, 1981,
between Valley Gas and Tennessee Gas Pipeline Company
(Exhibit 10 to the Corporation's Annual Report on Form 10-K
for the year ended August 31, 1981 is hereby incorporated by
reference.)
10. (q) Storage Service Agreement dated February 18, 1980, between
Valley Gas and Consolidated Gas Supply Corporation
(Exhibit 10 to the Corporation's Annual Report on Form 10-K
for the year ended August 31, 1981 is hereby incorporated by
reference.)
10. (r) Precedent Agreement for Firm Services on Maritimes and
Northeast Pipeline Project Phase II dated September 21,
1996, between Valley Gas and Maritimes and Northeast
Pipeline L.L.C. (Exhibit 10 to the Corporation's Regis-
tration Statement on Form S-2 (File No. 333-30113) is
hereby incorporated by reference.)
10. (s) Gas Sales Agreement dated June 15, 1992 between Aquila Energy
Marketing Corporation and Valley Gas (Exhibit 10 to the
Corporation's Annual Report on Form 10-K for the year ended
August 31, 1992 is incorporated herein by reference.)
10. (t) Gas Sales Agreement dated June 8, 1992 between Natural Gas
Clearinghouse and Valley Gas Company (Exhibit 10 to the
Corporation's Annual Report on Form 10-K for the year ended
August 31, 1992 is incorporated herein by reference).
13. Annual Report to Stockholders.
21. Subsidiaries of the Registrant (Exhibit 21 to the Corporation's Annual
Report on Form 10-K for the year ended August 31, 1996 is incorpo-
rated herein by reference.)
23. Consent of Grant Thornton LLP.
27. Financial Data Schedule.
(b) No Form 8-K was required to be filed for the last quarter of the
period covered by this report.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
VALLEY RESOURCES, INC. AND SUBSIDIARIES
Date: November 26, 1999 By s/S. Partridge
---------------------------------------
Sharon Partridge
Vice President, Chief Financial Officer,
Secretary & Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: November 26, 1999 s/A. P. Degen
----------------------------------------
Alfred P. Degen, Chairman, President and
Chief Executive Officer
Date: November 26, 1999 s/S. Partridge
----------------------------------------
Sharon Partridge, Vice President, Chief
Financial Officer, Secretary & Treasurer
Date: November 26, 1999 s/E. N. Agresti
----------------------------------------
Ernest N. Agresti, Director
Date: November 26, 1999
----------------------------------------
Melvin G. Alperin, Director
Date: November 26, 1999
----------------------------------------
C. Hamilton Davison, Director
Date: November 26, 1999 s/D. A. DeAngelis
----------------------------------------
Don A. DeAngelis, Director
Date: November 26, 1999
----------------------------------------
James M. Dillon, Director
Date: November 26, 1999 s/J. K. Farnum
----------------------------------------
Jonathan K. Farnum, Director
Date: November 26, 1999 s/J. F. Guthrie
----------------------------------------
John F. Guthrie, Jr., Director
Date: November 26, 1999
----------------------------------------
Eleanor M. McMahon, Director
16
<PAGE>
<TABLE>
Item 14(a) 2
VALLEY RESOURCES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
SCHEDULE VIII
Fiscal Years Ended August 31, 1999, 1998 and 1997
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- --------------------------------- -------- --------
Additions
---------------------------------
Balance at (1) (2) Deductions Balance at
Beginning of Charged to Costs Charged to from End of
Description Period and Expenses Other Accounts Reserves Period
----------- ------------ ---------------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1999
- ----
Allowance for doubtful accounts $928,279 $1,247,842 $123,891 (a) $ 990,602 (b) $1,309,410
1998
- ----
Allowance for doubtful accounts $840,433 $1,912,813 $126,610 (a) $1,951,577 (b) $ 928,279
1997
- ----
Allowance for doubtful accounts $719,721 $1,603,597 $183,220 (a) $1,666,105 (b) $ 840,433
Notes: (a) Collections on accounts previously charged off.
(b) Accounts charged off.
</TABLE>
17
<PAGE>
Report of Independent Certified Public Accountants
on Consolidated Financial Schedule
To the Shareholders of
Valley Resources, Inc.
In connection with our audit of the consolidated financial statements of
Valley Resources, Inc. and subsidiaries referred to in our report dated
September 27, 1999, which is included in the Annual Report to Stockholders and
incorporated by reference in Part II of this form, we have also examined the
schedule listed in the index at Part IV, Item 14(a)2. In our opinion, this
schedule presents fairly, in all material respects, the information required to
be set forth therein.
GRANT THORNTON LLP
Boston, Massachusetts
September 27, 1999
18
Exhibit 10.(c)
VALLEY RESOURCES, INC.
Executive Incentive Compensation Plan
1. Purpose. The purpose of this plan is to advance the interests of Valley
Resources, Inc. (the "company") by providing financial incentives to selected
key employees of the company and its subsidiaries for achieving specified
objectives. The plan is designed to recognize and reward success relative to
plan objectives and permit participants to acquire common shares of the company
("shares"). By encouraging such share ownership, the company seeks to attract,
retain and motivate employees of training, experience and ability.
2. Plan term. This plan became effective on September 1, 1998 (the
"effective date"), the date it was adopted by the Board of Directors of the
company. The plan will operate on a fiscal year basis beginning September 1 and
concluding August 31. Awards under the plan may be granted through September 1,
2008.
3. Administration. The plan shall be administered by the Compensation
Committee of the Board of Directors of the company (the "committee") who may not
participate in the plan. Subject to the provisions of this plan, the committee
shall have full power to construe and interpret the plan and to establish, amend
and rescind rules and regulations for its administration. The interpretation and
construction by the committee of any provisions of the plan or an award
("incentive award") granted pursuant to the plan and any determination by the
committee pursuant to any provision of the plan or any such incentive award
shall be final and conclusive, and binding on both the participant and the
company.
<PAGE>
The committee shall hold meetings at such times and places as it may
determine. A majority of members of the committee shall constitute a quorum and
actions approved by a majority of the members of the committee at a meeting at
which a quorum is present or available by telephone, or actions reduced to or
approved in writing by a majority of the members of the committee, shall be
valid actions of the committee.
4. Eligible employees. Incentive awards may be granted to such key
employees of the company (including members of the Board of Directors who are
also employees of the company) as are selected by the committee (any such
selected employee, a "participant").
5. Shares subject to the plan. The maximum number of shares in respect for
which incentive awards may be cumulatively granted under the plan, subject to
adjustment as provided in paragraph 12 of the plan, during the term in which the
plan is effective shall be seventy-five thousand (75,000) shares of the common
stock of the company. Shares that are forfeited under the provisions specified
in paragraph 10 (f) (1) may again be subjected to an incentive award under the
Plan.
6. Incentive award potential. Participants will be assigned threshold,
target, and maximum incentive award potentials, each expressed as a percentage
of the participant's base salary range control point at the beginning of the
plan year. Incentive award potential percentages shall be established by the
committee from time to time, at its sole discretion. For the 1999 plan year
(fiscal 1999) the plan incentive award potentials are in accordance with Table 1
following:
<PAGE>
<TABLE>
TABLE 1
1999 Incentive Award Potential
<CAPTION>
PERCENT OF CONTROL POINT
------------------------
Level Eligible Employees Threshold Target Maximum
- ----- ------------------ --------- ------ -------
<S> <C> <C> <C>
1 President & CEO ......................... 12.5% 25% 37.5%
2 Senior Vice President ................... 10.0% 20% 30.0%
3 Vice Presidents/Assistant VPs ........... 7.5% 15% 22.5%
</TABLE>
Each participant's actual incentive award will depend upon the company's
achievements during the plan year and a discretionary assessment of the
participant's contribution relative to specific key results as made by either
the committee (for the president and CEO) or the president and CEO for other
plan participants as set forth in paragraph 7 and subject to the satisfaction of
the provisions in paragraph 8.
7. Performance evaluation. The committee shall establish whether any
incentive award shall be granted under the plan during the plan year based on
company results and a discretionary assessment as shown in these three success
categories:
- Ratepayer interests
- Shareholder interests
- Discretion
Ratepayer interests shall consist of one or more company performance
objectives directed at promoting the achievement of such considerations as
enhancing the efficiency of the company's operations, lowering the company's
cost of service, improving the company's cost standing against peer companies,
or other such company operational factors as approved by the committee. The
committee shall establish the plan year performance standards for threshold,
<PAGE>
target and maximum levels of achievement and the proportionate weight given to
each of the operational performance criteria. For the 1999 plan year the plan
shall utilize one ratepayer criterion: cost of service. Cost of service is
defined as the company's 3-year average operating expense per firm Mcf as a
ratio to company base revenue per Mcf. The ratepayer category shall constitute
twenty percent (20%) of a participant's target incentive award potential.
Shareholder interests shall consist of two company performance criteria
directed at achieving the company's net income objective and promoting a level
of total shareholder return which aligns with the company's stated objective, or
other such company criteria as established annually by the committee. The
committee shall establish the plan year performance standards for threshold,
target and maximum levels of achievement and the proportionate weight given to
each of the financial performance criteria. For the 1999 plan year the plan
shall utilize two performance criteria: the company's actual net income versus
budgeted net income (un-weather normalized) and annual company total shareholder
return versus the average total shareholder return of a peer group representing
11 investor-owned gas utilities (Appendix I). Each shareholder performance
criterion will be weighted as a percent of a participant's target Incentive
Award Potential. For the 1999 plan year the net income criterion will be
weighted thirty-five (35%) percent and the total shareholder return criterion
twenty-five (25%) percent of the participant's target award.
Discretion shall represent twenty (20%) percent of a participant's
incentive award potential during the plan year as established annually by the
committee. The committee shall exercise its discretion in determining what
portion, if any, of the discretionary component shall be awarded to the
president and CEO at the close of the plan year. The discretion component shall
consist of 3-5 key results specified for the participant for the plan year. The
president and CEO,
<PAGE>
subject to committee approval, shall establish what portion, if any, of the
discretionary component shall be awarded to other plan participants at the close
of the plan year. For the 1999 plan year Table 2 displays the performance
categories and their weightings.
<TABLE>
TABLE 2
1999 Plan Performance Categories
<CAPTION>
CATEGORY WEIGHT CRITERIA
<S> <C> <C>
Ratepayer 20% Cost of Service
Shareholder 35 Net Income
25 Total Shareholder Return
Discretion 20 Key Results
---
TOTAL 100%
</TABLE>
For plan year 1999 the threshold, target and maximum incentive percentages
are shown by level of participant (Appendix 2).
8. Shareholder protection. The grant of an incentive award under the plan
for the plan year shall be subject to the committee's determination that company
earnings available for common stock equal or exceed dividends declared on common
stock for the plan year. The committee will have discretion to make awards
outside the plan should the company's plan year earnings fall below the dividend
level.
9. Incentive award grants. Each participant's actual incentive award, if
any, will depend on the company's results relative to stated plan year ratepayer
and shareholder performance objectives and the discretionary rating. The
committee shall determine any earned awards relative to the company's actual
results for the plan year against the ratepayer and shareholder threshold,
<PAGE>
target and maximum standards and discretionary component. Results occurring
between performance standards for the ratepayer and shareholder criteria will be
found using interpolation.
(a) Incentive awards shall be payable in cash, or a combination of cash
and restricted common shares ("grant shares"), as the committee in its
sole discretion shall determine, provided however that no more than
two-thirds (67%) of any earned incentive award shall be payable in
cash unless modified by the committee. The proportion, if any, of a
participant's incentive award payable in cash shall be paid in a
lump-sum as soon as practical following the close of the plan year.
Grant shares will constitute up to one-third of a participants earned
award.
10. Terms and conditions of grant shares. Grant shares issued under this
plan shall be issued according to the terms and conditions which follow:
(a) Price. Grant shares shall be issued for no consideration.
(b) Number of shares. The number of grant shares issued to each
participant, if any, shall be determined by dividing the amount of a
participant's earned incentive award to be paid in grant shares by
the average closing price of the company's common stock during the
last five business days in September of the new fiscal year.
(c) Forfeiture of grant shares. Grant shares issued under this plan shall
be subject to vesting provisions specified in paragraph 10(f)(1).
(d) Non-Transferability. Any grant shares which are subject to the
vesting provisions in paragraph 10(f)(1) shall be non-transferable
by the participant, and may not be pledged, hypothecated or
otherwise encumbered. Notwithstanding the preceding sentence, grant
shares may with the consent of the committee, be registered in
the
<PAGE>
name of a personal, irrevocable trust established by such
participant; provided, however, that all of the terms of the
plan, including without limitation, the forfeiture provisions shall
be binding upon the trustee of any such trust.
(e) Withholding Taxes. Whenever payments under an incentive award are
made in cash, the company will withhold therefrom an amount
sufficient to satisfy all taxes required to be withheld by the
company. At the time of the issuance of grant shares to a
participant, and as a condition of the company's obligation to
deliver a certificate for such grant shares to the participant, the
participant shall pay to the company an amount equal to all taxes
required to be withheld by the company for the account of the
participant as a result of such issuance; or, in lieu of such
payment, the company may, at its sole option, accept the written
authorization of the participant to withhold such taxes from
compensation thereafter becoming payable to the participant by the
company. If the participant shall elect under Section 83 of the
Internal Revenue Code of 1986, as amended to accelerate the
recognition of income attributable to the receipt of grant shares,
the participant shall furnish the company with a copy of such
election concurrently with its filing with the Internal Revenue
Service and shall pay to the company the amount of taxes required to
be withheld for the account of the participant by reason of such
election.
(f) Vesting.
(1) The interest of a participant in grant shares shall vest on the
date three (3) years from the date such grant shares were issued
to the participant, except as provided in subparagraph (2) below,
provided,
<PAGE>
that the participant shall have remained employed by the company
and/or one of its subsidiaries during the three-year period
immediately following the date the grant shares were issued to
such participant. If the participant fails to complete such
three-year employment requirement and his or her interest in
grant shares is not otherwise vested under subparagraph (2),
below, the participant shall forfeit to the company all un-vested
grant shares theretofore issued to such participant and the
participant shall thereafter have no further rights with respect
to such grant shares.
(2) Notwithstanding the foregoing, a participant's interest in grant
shares may become vested at a date earlier than three years from
their date of issue for such good reason as may be specified by
the committee, in its sole discretion, at the time of or
subsequent to the award of such grant shares, and such interest
shall become immediately vested upon any of the following
occurrences:
(aa) The participant's employment by the company or any of its
subsidiaries terminated by reason of such participant's
death, disability (as defined in Section 72(m)(7) of the
Internal Revenue Code of 1986, as amended), or a
reorganization that eliminates the participant's position
and results in the participant's termination of employment;
or
(bb) There is a "change in control" of the company. A "change in
control" shall mean the occurrence of any of the following:
<PAGE>
(i) the acquisition by any individual, entity or group
(within the meaning of Section 13 (d) (3) or 14 (d) (2)
of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of twenty (20%) percent or more of the
combined voting power of the then outstanding voting
securities of the company entitled to vote generally in
the election of directors (the "Outstanding Company
Voting Securities"); provided, however, that for
purposes of this subsection (i), the following
acquisitions shall not constitute a change of control:
(A) any acquisition directly from the company, (B) any
acquisition by the company, (C) any acquisition by any
employee benefit plan (or related trust) sponsored or
maintained by the company or any company controlled by
the company or (D) any acquisition by any company
pursuant to a transaction that complies with clauses
(A), (B) and (C) of subsection (iii) below; or
(ii) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; provided,
however, that any individual becoming a director
subsequent to the date hereof whose election, or
nomination for election by the company's shareholders,
was approved by a vote of at least a majority of the
<PAGE>
directors then comprising the Incumbent Board shall be
considered as though such individual were a member of
the Incumbent Board, but excluding, for this purpose,
any such individual whose initial assumption of office
occurs as a result of an actual or threatened election
contest with respect to the election or removal of
directors or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other
than the Board; or
(iii)the approval by the shareholders of the company of a
reorganization, merger or consolidation or sale or
other disposition of all or substantially all of the
assets of the company ("Business Combination") or, if
consummation of such Business Combination is subject,
at the time of such approval by shareholders, to the
consent of any government or governmental agency, the
obtaining of such consent (either explicitly or
implicitly by consummation); excluding, however, such a
Business Combination pursuant to which (A) all or
substantially all of the individuals and entities who
were the beneficial owners of the Outstanding Company
Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly,
more than sixty (60%) percent of, respectively, the
then outstanding shares of common stock and the
combined voting power of the then outstanding voting
securities entitled to
<PAGE>
vote generally in the election of directors, as the
case may be, of the company resulting from such
resulting from such Business Combination (including,
without limitation, a company that as a result of such
transaction owns the company or all or substantially
all of the company's assets either directly or through
one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to
such Business Combination of the Outstanding Company
Voting Securities, (B) no Person (excluding any
employee benefit plan (or related trust) of the company
or such company resulting from such Business
Combination) beneficially owns, directly or indirectly
twenty (20%) percent or more of, respectively, the then
outstanding shares of common stock of the company
resulting from such Business Combination or the
combined voting power of the then outstanding voting
securities of such company except to the extent that
such ownership existed prior to the Business
Combination and (C) at least a majority of the members
of the Board of Directors of company resulting from
such Business Combination were members of the Incumbent
Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for
such Business Combination; or
(iv) approval by the shareholders of the company of a
complete
<PAGE>
liquidation or dissolution of the company.
(3) If a participant's employment by the company or one of its
subsidiaries terminates during the three-year employment period
described in paragraph 10(f)(1) by reason of his or her
retirement, and participant retires on or after attaining age 62,
the interest of the participant in any grant shares then subject
to forfeiture shall become fully vested at the time of
retirement. If the participant retires, as determined by the
committee, prior to attaining age 62, there shall be deemed
vested in his account an additional number of grant shares
determined by multiplying the number of shares subject to
forfeiture for each year in which grant shares were awarded
during the three-year employment period by a fraction the
numerator of which shall be the number of full months preceding
participant's retirement that shall have elapsed since the date
of the award of such shares and the denominator of which shall be
36. The committee may, in its discretion, specify that the
interest of the participant in any remaining grant shares then
subject to forfeiture shall become vested at that time, at a
future date, or upon the completion of such conditions as the
committee may provide.
11. Rights as a shareholder. Except as otherwise provided in paragraphs 10
and 14, a participant shall have all of the rights of a shareholder of the
company with respect to grant shares registered in his or her name, including
the right to vote such grant shares and receive dividends and other
distributions paid or made with respect to such grant shares.
12. Share dividends; share splits; share combinations; re-capitalizations.
The Board of Directors of the company may make appropriate adjustment in the
maximum number of shares subject to the plan to adjust for any share dividends,
share splits, share combinations,
<PAGE>
re-capitalizations and other similar changes in the capital structure of the
company. The provisions contained in the plan shall apply to any other shares of
capital stock of the company or other securities which may be acquired by the
participant as a result of a share dividend, share split, share combination, or
exchange for other securities resulting from any recapitalization,
reorganization or any other transaction affecting the grant shares.
13. No employment commitment. Nothing herein contained shall be deemed to
be or constitute an agreement or commitment by the company to continue the
participant in its employ or the employ of any subsidiary of the company.
14. Custody of grant shares. The grant shares shall be held in certificated
or uncertificated form as determined by the committee, by an escrow agent
designated by the committee. At the time all forfeiture provisions relating to
such grant shares shall terminate, the company will, upon the making of
arrangements under paragraph 10(e), deliver such certificate to the participant,
together with the assignment referred to above, without restrictions except for
such restrictions as may be required to ensure compliance with federal and state
securities laws. Any such restrictions may at the company's discretion be noted
or referred to conspicuously on such certificate prior to its delivery to the
participant.
15. Termination or amendment of plan.
(a) Except as provided in subparagraph (b), the Board of Directors
may at any time suspend, amend or terminate the plan, provided;
(1) that no such suspension, amendment or termination shall
adversely affect or impair the rights of a participant to any
then issued and outstanding grant shares without the consent
of such participant.
<PAGE>
(b) In the event of a change in control (as defined in paragraph
10(f)(2)(bb), the Board of Directors may neither terminate the
plan nor reduce benefits under the plan with respect to those
individuals who are participants as of the date of the change in
control.
16. Governing law. This plan shall be subject to and construed in
accordance with the laws of the state of Rhode Island.
17. Indemnification of committee. In addition to such other rights of
indemnification as they may have as members of the Board of Directors of the
company or as members of the committee, each member of the committee shall be
indemnified by the company against the reasonable expenses, including attorneys'
fees, actually and necessarily incurred in connection with the defense of any
action, suit or proceeding, or in connection with any appeal therein, to which
he or she may be a party by reason of any action taken or any failure to act
under or in connection with the plan, or any incentive award granted thereunder,
and against all amounts paid by him or her in settlement thereof (provided such
settlement is approved by independent legal counsel selected by the Board of
Directors), or paid by him or her in satisfaction of a judgment in any such
action, suit or proceeding in which such committee member has been determined to
be liable for misconduct in his/her duties; provided that within fifteen (15)
days after receipt of service or process in connection with any such action,
suit or proceeding the committee member shall in writing offer the company the
opportunity, at the company's expense, to defend the same on behalf of the
committee member.
<PAGE>
Appendix I
Gas Utility Peer Group
Bay State Gas Company
Berkshire Gas Company
Connecticut Energy Corporation
CTG Resources, Inc.
Delta Natural Gas
EnergyNorth, Inc.
Mobile Gas Service Corporation
Providence Energy Corporation
Roanoke Gas Corporation
Southeastern Michigan Energy Enterprises
Yankee Gas Services
N = 11 companies
i
<PAGE>
<TABLE>
Appendix II
<CAPTION>
Position Factor Weight Percent Control Point
Threshold Plan Excess
<S> <C> <C> <C> <C> <C>
President and CEO Net Income 35% 4.375 8.75 13.125
Total Shareholder Return 25% 3.125 6.25 9.375
Cost of Service 20% 2.50 5.00 7.50
Board of Discretion 20% 2.50 5.00 7.50
------ ----- ------
TOTALS 12.50 25.00 37.50
====== ===== ======
Senior Vice President Net Income 35% 3.50 7.00 10.50
Total Shareholder Return 25% 2.50 5.00 7.50
Cost of Service 20% 2.00 4.00 6.00
Board Discretion 20% 2.00 4.00 6.00
------ ----- ------
TOTALS 10.0 20.00 30.00
====== ===== ======
Vice President Net Income 35% 2.625 5.25 7.875
Total Shareholder Return 25% 1.875 3.75 5.625
Cost of Service 20% 1.50 3.00 4.50
Board of Discretion 20% 1.50 3.00 4.50
------ ----- ------
TOTALS 7.5 15.00 22.50
====== ===== ======
Asst. Vice President Net Income 35% 2.625 5.25 7.875
Total Shareholder Return 25% 1.875 3.75 5.625
Cost of Service 20% 1.50 3.00 4.50
Board Discretion 20% 1.50 3.00 4.50
------ ----- ------
TOTALS 7.5 15.0 22.50
===== ===== ======
</TABLE>
Exhibit 10.(d)
April 1, 1999
Mr. Alfred P. Degen
Chairman, President & CEO
Valley Resources, Inc.
1595 Mendon Road
Cumberland, RI 02864
Dear Mr. Degen:
Valley Resources, Inc. (which, together with its subsidiaries, is
hereinafter called "the Company") considers it essential to the best interests
of its stockholders to foster the continuous employment of key management
personnel. The Board of Directors of the Company (the "Board") recognizes that,
as is the case with many publicly held corporations, the possibility of a change
in control may exist and that such possibility, and the uncertainty and
questions which it may raise among management, may result in the departure or
distraction of management personnel to the detriment of the Company and its
stockholders.
The Board has determined that appropriate steps should be taken to
reinforce and encourage the continued attention and dedication of members of the
Company's management, including yourself, to their assigned duties without
distraction in the face of potentially disturbing circumstances arising from the
possibility of a change in control of the Company.
In order to induce you to remain in the employ of the Company and in
consideration of your agreeing to remain in the employ of the Company subject to
the terms and conditions set forth below, this letter agreement (the
"Agreement") sets forth the severance benefits which the Company agrees will be
provided to you in the event your employment with the Company is terminated
subsequent to a "change in control of the Company" (as defined in Section 2
hereof) under the circumstances described below.
<PAGE>
1. Term of Agreement. This Agreement shall commence on January 1, 1999 and
shall continue in effect through December 31, 1999; provided, however, that
commencing on January 1, 2000 and each January 1 thereafter, the term of this
Agreement shall automatically be extended for one (1) additional year unless,
not later than August 31 of the preceding year, the Company shall have given
notice that it does not wish to extend this Agreement; and provided further,
however, that notwithstanding any such notice by the Company not to extend, if a
change in control of the Company shall have occurred during the original or
extended term of this Agreement, this Agreement shall continue in effect for a
period of twenty-four (24) months from the occurrence of such change in control.
Notwithstanding the foregoing, the Company may terminate your employment at any
time, whether before or after a change in control, subject to providing such
benefits as shall be hereinafter specified.
2. Change in Control. (i) No benefits shall be payable hereunder unless
there shall have been a change in control of the Company, as set forth below,
and your employment by the Company shall thereafter have been terminated in
accordance with Section 3 below. For purposes of this Agreement, a "change in
control of the Company" shall mean a change in control of a nature that would be
required to be reported in response to Item 5(f) of Schedule 14A of Regulation
14A promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), whether or not the Company is then subject to such reporting
requirement; provided that, without limitation, such a change in control shall
be deemed to have occurred if (a) any "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act), other than a trustee or other fiduciary
holding securities under an employee benefit plan of the Company, is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing 20% or more of
the combined voting power
<PAGE>
of the Company's then outstanding securities; (b) during any period of two (2)
consecutive years (not including any period prior to the execution of this
Agreement), individuals who at the beginning of such period constitute the Board
and any new director whose election by the Board or nomination for election by
the Company's stockholders was approved by a vote of at least two thirds (2/3)
of the directors then still in office who either were directors at the beginning
of the period or whose election or nomination for election was previously so
approved, cease for any reason to constitute a majority thereof; or (c) the
business or businesses of the Company for which your services are principally
performed are disposed of by the Company pursuant to a partial or complete
liquidation of the Company, a sale of assets (including stock of a subsidiary)
of the Company, or otherwise.
(ii) For purposes of this Agreement, a "potential change in control of the
Company" shall be deemed to have occurred if (A) the Company enters
into an agreement, the consummation of which would result in the
occurrence of a change in control of the Company, (B) any person
publicly announces (including an announcement by the Company) an
intention to take actions which if consummated would constitute a
change in control of the Company; (C) any person publicly announces
(including an announcement by the Company) that it has become the
beneficial owner, directly or indirectly, of securities of the Company
representing 9.5% or more of the combined voting power of the
Company's then outstanding securities; or (D) the Board adopts a
resolution to the effect that, for purposes of this Agreement, a
potential change in control of the Company has occurred. You agree
that, subject to the terms and conditions of this Agreement, in the
event of a potential change in control of the Company, you will remain
in the employ of the Company for a period of six (6) months from the
occurrence of such potential change in control of the Company.
<PAGE>
3. Termination Following Change in Control. If any of the events described
in Subsection 2(i) hereof constituting a change in control of the Company shall
have occurred, you shall be entitled to the benefits provided in Subsection
4(iii) hereof upon the subsequent termination of your employment during the term
of this Agreement unless such termination is (A) because of your death,
Retirement or Disability, (B) by the Company for Cause or (C) by you other than
for Good Reason.
(i) Disability; Retirement. If, as a result of your incapacity due to
physical or mental illness, you shall have been absent from the
full-time performance of your duties with the Company for six (6)
consecutive months, your employment may be terminated for
"Disability." Termination of your employment based on "Retirement"
shall mean termination in accordance with the Company's retirement
policy generally applicable to its salaried employees or in accordance
with any retirement arrangement established with your consent with
respect to you.
(ii) Cause. Termination by the Company of your employment for "Cause" shall
mean termination upon (A) the willful and continued failure by you to
substantially perform your duties with the Company (other than any
such failure resulting from your incapacity due to physical or mental
illness or any such actual or anticipated failure after the occurrence
of circumstances giving rise to a Notice of Termination by you for
Good Reason) after a written demand for substantial performance is
delivered to you by the Board, which demand specifically identifies
the manner in which the Board believes that you have not substantially
performed your duties, or (B) the willful engaging by you in conduct
which is demonstrably and materially injurious to the Company,
monetarily or otherwise. For purposes of this Subsection, no act, or
failure to act, on your part shall be deemed "willful" unless done, or
omitted to be done, by you not in good faith and without reasonable
belief that your action or omission was in the best interest of the
Company.
<PAGE>
Notwithstanding the foregoing, you shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered
to you copy of a resolution duly adopted by the affirmative vote of
not less than three-quarters (3/4) of the entire membership of the
Board at a meeting of the Board called and held for such purpose
(after reasonable notice to you and an opportunity for you, together
with your counsel, to be heard before the Board), finding that in the
good faith opinion of the Board you were guilty of conduct set forth
above in clauses (A) or (B) of the first sentence of this Subsection
and specifying the particulars thereof in detail.
(iii)Good Reason. You shall be entitled to terminate your employment for
Good Reason. For purposes of this Agreement, "Good Reason" shall mean,
without your express written consent, any of the following:
(A) the assignment to you of any duties inconsistent with your status
as Chairman, President & CEO, or a substantial alteration in the
nature or status of your responsibilities from those in effect
immediately prior to a change in control of the Company;
(B) a reduction by the Company in your annual base salary as in
effect on the date of the occurrence of a change in control of
the Company or as the same may be increased from time to time
except for across-the-board salary reductions similarly affecting
all executives of the Company and all executives of any person in
control of the Company; or the failure of the Company to grant
increases in salary in accordance with the Company's regular
practices;
(C) the relocation of the Company's principal executive offices to a
location more than twenty-five (25) miles from your present
office location or the Company's
<PAGE>
requiring you to be based anywhere other than the Company's
principal executive offices except for required travel on the
Company's business to an extent substantially consistent with
your present business travel obligations;
(D) the failure by the Company to continue in effect any compensation
plan in which you participate, or any plan adopted prior to the
change in control of the Company, unless an equitable arrangement
(embodied in an ongoing substitute or alternative plan) has been
made with respect to such plan in connection with the change in
control of the Company, or the failure by the Company to continue
your participation therein on substantially the same basis, both
in terms of the amount of benefits provided and the level of your
participation relative to other participants, as existed at the
time of the change in control;
(E) the failure by the Company to continue to provide you with
benefits substantially similar to those enjoyed by you under any
of the Company's pension, life insurance, medical, health and
accident, or disability plans in which you were participating at
the time of a change in control of the Company, the taking of any
action by the Company which would directly or indirectly
materially reduce any of such benefits or deprive you of any
material fringe benefit enjoyed by you at the time of the change
in control of the Company, or the failure by the Company to
provide you with the number of paid vacation days to which you
are entitled on the basis of years of service with the Company in
accordance with the Company's normal vacation policy in effect at
the time of the change in control.
<PAGE>
(F) the failure by the Company without your consent to pay to you any
portion of your current compensation or to pay to you any
installment of deferred compensation at the time such installment
is due under any deferred compensation program of the Company;
(G) the failure of the Company to obtain a satisfactory agreement
from any successor to assume and agree to perform this Agreement,
as contemplated in Section 5 hereof; or
(H) any purported termination of your employment which is not
effected pursuant to a Notice of Termination satisfying the
requirements of Subsection (iv) below (and, if applicable, the
requirements of Subsection (ii) above); and for purposes of this
Agreement, no such purported termination shall be effective.
In addition to your right to terminate for Good Reason as stated above, and
not in substitution therefor, you shall have the option at your discretion to
terminate your employment at any time within fifteen (15) months after the later
of (a) a change in control of the Company or (b) the expiration of the six (6)
months period during which you agree to remain in the employ of the Company
under paragraph 2(ii) of this Agreement. Such termination shall be conclusively
deemed to be a termination for Good Reason, but shall not affect your right to
terminate for Good Reason under any of the provisions of subsection (iii) above.
Your right to terminate your employment pursuant to this Subsection shall
not be affected by your incapacity due to physical or mental illness.
<PAGE>
(iv) Notice of Termination. Any purported termination by the Company or by
you shall be communicated by written Notice of Termination to the
other party hereto in accordance with Section 6 hereof. For purposes
of this Agreement, a "Notice of Termination" shall mean a notice which
shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of your
employment under the provision so indicated.
(v) Date of Termination, Etc. "Date of Termination" shall mean (A) if your
employment is terminated for Disability, thirty (30) days after Notice
of Termination is given (provided that you have not returned to the
full-time performance of your duties during such period) (B) if your
employment is terminated pursuant to Subsection (ii) or (iii) above or
for any other reason (other than Disability), the date specified in
the Notice of Termination (which shall not be less than thirty (30)
days, and in the case of a termination pursuant to Subsection (iii)
above shall not be less than thirty (30) nor more than sixty (60)
days, respectively, from the date such Notice of Termination is
given); provided that if within thirty (30) days after any Notice of
Termination is given, the party receiving such Notice of Termination
notifies the other party that a dispute exists concerning the
termination, the Date of Termination shall be the date on which the
dispute is finally determined, either by mutual written agreement of
the parties, by a binding arbitration award, or by a final judgment,
order or decree of a court of competent jurisdiction (which is not
appealable or the time for appeal therefrom having expired and no
appeal having been perfected); provided further that the Date of
Termination shall be extended by a notice of dispute only if such
notice is given in good faith and the party giving such notice pursues
the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such
<PAGE>
dispute, the Company will continue to pay you your full compensation
in effect when the notice giving rise to the dispute was given
(including, but not limited to, base salary) and continue you as a
participant in all compensation, benefit and insurance plans in which
you were participating when the notice giving rise to the dispute was
given, until the dispute is finally resolved in accordance with this
Subsection. Amounts paid under this Subsection are in addition to all
other amounts due under this Agreement and shall not be offset against
or reduce any other amounts due under this Agreement except as
otherwise provided in paragraph (C) of Subsection 4 (iii).
4. Compensation Upon Termination. Following a change in control of the
Company, as defined by Subsection 2(i), upon termination of your employment you
shall be entitled to the following benefits:
(i) If your employment shall be terminated by the Company for Cause or by
you other than for Good Reason, the Company shall pay you your full
base salary through the Date of Termination at the rate in effect at
the time Notice of Termination is given plus any other amounts to
which you are entitled under any compensation plan of the Company, at
the time such payments are due, and the Company shall have no further
obligations to you under this Agreement.
(ii) If your employment shall be terminated by the Company or by you for
Retirement, or by reason of your death or for Disability, your
benefits shall be determined in accordance with the Company's
retirement and insurance program then in effect.
<PAGE>
(iii)If your employment by the Company shall be terminated (a) by the
Company other than for Cause, Retirement or Disability or (b) by you
for Good Reason, then you shall be entitled to the benefits provided
below:
(A) The Company shall pay you your full base salary through the Date
of Termination at the rate in effect at the time Notice of
Termination is given, plus any other amounts to which you are
entitled under any compensation plan of the Company, at the times
such payments are due;
(B) In lieu of any further salary payments to you for periods
subsequent to the Date of Termination, the Company shall pay as a
severance payment to you, not later than the fifth day following
the Date of Termination, a lump sum severance payment (the
"Severance Payment") equal to 3.00 times your Covered
Compensation. "Covered Compensation" is your annual salary as
determined by your salary rate at the date of the change in
control of the Company, plus the cash portion of your Executive
Incentive Compensation Plan award for the Plan year in which the
change in control of the Company occurs (provided, however, that
in the case of a termination at your option under that portion of
Section 3 (iii) giving you an option to terminate at your
discretion, your salary rate shall be the greater of the rate in
effect at the date of change in control of the Company or the
rate immediately prior to the issuance of the Notice of
Termination);
(C) For a period after such termination equal to the period actually
used in calculating severance pay due to you under Section
4(iii)(B), the Company shall provide you with life, disability,
accident and health insurance benefits substantially similar to
those
<PAGE>
which you are receiving immediately prior to the Notice of
Termination. Benefits otherwise receivable by you pursuant to
this Section 4(iii)(C) shall be reduced to the extent comparable
benefits are actually received by you during such period
following your termination, and any such benefits actually
received by you shall be reported to the Company;
(D) In addition to the retirement benefits to which you are entitled
under the Retirement Plan or any successor plan thereto, the
Company shall pay you in one lump sum in cash on the fifth day
following the Date of Termination, a sum equal to the actuarial
equivalent of the excess of (x) the retirement pension
(determined as a straight life annuity commencing at age 65)
which you would have accrued under the terms of the Retirement
Plan (without regard to any amendment to the Retirement Plan made
subsequent to a change in control of the Company and on or prior
to the Date of Termination, which amendment adversely affects in
any manner the computation of retirement benefits thereunder),
determined as if you were fully vested thereunder and had
accumulated (after the Date of Termination) that number of
additional months of service credit thereunder equal to the
number of months for which severance pay shall be due to you
under Section 4(iii)(B) hereof, at your highest annual rate of
compensation during the twelve (12) months immediately preceding
the Date of Termination (but in no event shall you be deemed to
have accumulated additional months of service credit after your
sixty-fifth (65th) birthday), and (y) the retirement pension
(determined as a straight-life annuity commencing at age 65)
which you had then accrued pursuant to the provisions of the
Retirement Plan. For purposes of clause (x), the term
"compensation" shall include amounts payable pursuant to Section
4(iii)(B) hereof. For purposes of this Subsection,
<PAGE>
"actuarial equivalent" shall be determined using the same methods
and assumptions utilized under the Retirement Plan immediately
prior to the change in control of the Company;
(iv) (A) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by the
Company to you or for your benefit (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement
or otherwise, but determined without regard to any additional payments
required under this Section 4(iv)) (a "Payment") would be subject to
the excise tax imposed by Section 4999 of the Code or any interest or
penalties are incurred by you with respect to such excise tax (such
excise tax, together with any such interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), then you
shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by you of all taxes
(including any interest or penalties imposed with respect to such
taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax
imposed upon the Gross-Up Payment, you retain an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
(B) Subject to the provisions of Section 4(iv)(C) below, all
determinations required to be made under this Section 4(iv), including
whether and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at
such determination, shall be made by the Company's independent audit
firm (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and to you within fifteen (15)
business days of the receipt of notice
<PAGE>
from you that there has been a Payment, or such earlier time as is
requested by the Company. In the event that the Accounting Firm is
serving as accountant or auditor for the individual, entity or group
effecting the Change of Control, you shall appoint another nationally
recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the
Accounting Firm hereunder). All fees and expenses of the Accounting
Firm shall be borne solely by the Company. Any Gross-Up Payment, as
determined pursuant to this Section 4(iv), shall be paid by the
Company to you within five (5) days of the receipt of the Accounting
Firm's determination. If the Accounting Firm determines that no Excise
Tax is payable by you , it shall furnish you with a written opinion
that failure to report the Excise Tax on your applicable federal
income tax return would not result in the imposition of a negligence
or similar penalty. Any determination by the Accounting Firm shall be
binding upon the Company and you. As a result of the uncertainty in
the application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that
the Gross-Up Payment made by the Company is less than the payment
which should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that the
Company exhausts its remedies pursuant to this Section 4(iv) and you
are thereafter required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that
has occurred and any such Underpayment shall be promptly paid by the
Company to you or for your benefit.
(C) You shall notify the Company in writing of any claim by the Internal
Revenue Service that, if successful, would require the payment by the
Company of the Gross-Up Payment. Such notification shall be given as
soon as practicable but no later
<PAGE>
than ten (10) business days after you are informed in writing of such
claim and shall apprise the Company of the nature of such claim and
the date on which such claim is requested to be paid. You shall not
pay such claim prior to the expiration of the 30-day period following
the date on which you give such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to
such claim is due). If the Company notifies you in writing prior to
the expiration of such period that it desires to contest such claim,
you shall:
(1) give the Company any information reasonably requested by the
Company relating to such claim,
(2) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by
the Company,
(3) cooperate with the Company in good faith in order to effectively
contest such claim, and
(4) permit the Company to participate in any proceedings relating to
such claim;
provided, however, that the Company shall bear and pay directly all
costs and expenses (including additional interest and penalties)
incurred in connection with such contest and shall indemnify and hold
you harmless, on an after-tax basis, for any Excise Tax or income tax
(including interest and penalties with respect thereto) imposed as a
result of such representation and payment of costs
<PAGE>
and expenses. Without limitation on the foregoing provisions of this
Section 4(iv), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or
forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and
may, at its sole option, either direct you to pay the tax claimed and
sue for a refund or contest the claim in any permissible manner, and
you agree to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one
or more appellate courts, as the Company shall determine; provided,
however, that if the Company directs you to pay such claim and sue for
a refund, the Company shall advance the amount of such payment to you,
on an interest-free basis, and shall indemnify and hold you harmless,
on an after-tax basis, from any Excise Tax or income tax (including
interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to
such advance; and further provided that any extension of the statute
of limitations relating to payment of taxes for your taxable year with
respect to which such contested amount is claimed to be due is limited
solely to such contested amount. Furthermore, the Company's control of
the contest shall be limited to issues with respect to which a
Gross-Up Payment would be payable hereunder, and you shall be entitled
to settle or contest, as the case may be, any other issue raised by
the Internal Revenue Service or any other taxing authority.
(D) If, after your receipt of an amount advanced by the Company
pursuant to this Section 4(iv), you become entitled to receive any
refund with respect to such claim, you shall (subject to the Company's
complying with the requirements of this Section 4(iv)) promptly pay to
the Company the amount of such refund (together with any interest paid
or credited thereon after taxes applicable thereto). If, after your
receipt of an amount advanced by the Company pursuant to this Section
4(iv), a determination is made that you
<PAGE>
shall not be entitled to any refund with respect to such claim and the
Company does not notify you in writing of its intent to contest such
denial of refund prior to the expiration of thirty (30) days after
such determination, then such advance shall be forgiven and shall not
be required to be repaid and the amount of such advance shall offset,
to the extent thereof, the amount of Gross-Up Payment required to be
paid.
(v) The Company shall also pay to you all legal fees and expenses
incurred by you as a result of such termination (including all
such fees and expenses, if any, incurred in contesting or
disputing any such right of benefit provided by this Agreement).
(vi) You shall not be required to mitigate the amount of any payment
provided for in this Section 4 by seeking other employment or
otherwise, nor shall the amount of any payment or benefit
provided for in this Section 4 be reduced by any compensation
earned by you as the result of employment by another employer
except as expressly provided herein.
(vii)In addition to all other amounts payable to you under this
Section 4, you shall be entitled to receive all benefits payable
to you under the Retirement Plan and any other plan or agreement
relating to retirement benefits.
5. Successors; Binding Agreement. (i) The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. Failure of the Company to obtain such
assumption and agreement prior to the effectiveness of any such succession shall
be a breach of
<PAGE>
this Agreement and shall entitle you to compensation from the Company in the
same amount and on the same terms as you would be entitled hereunder if you
terminate your employment for Good Reason following a change in control of the
Company, except that for purposes of implementing the foregoing, the date on
which any such succession becomes effective shall be deemed the Date of
Termination. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of law
or otherwise.
(ii) This Agreement shall inure to the benefit of and be enforceable
by your personal or legal representatives, executors,
administrators, successors, assigns, heirs, distributees,
devisees and legatees. If you should die while any amount would
still be payable to you hereunder if you had continued to live,
all such amounts, unless otherwise provided herein, shall be paid
in accordance with the terms of this Agreement to your devisees,
legatees, or other designee or if there is no such designee, to
your estate.
(iii)This Agreement supersedes your prior change in control
agreement, which was effective January 1, 1995.
6. Notice. For the purposes of this Agreement, notices and all other
communications shall be in writing and shall be deemed to have been duly given
when delivered or mailed by United States certified or registered mail, return
receipt requested, postage prepaid, addressed to the respective addresses set
forth on the first page of this Agreement, provided that all notices to the
Company shall be directed to the attention of the Board with a copy to the
Secretary of the Company, or to such other address as either party may have
furnished to the other in writing in accordance herewith, except that notice of
change of address shall be effective only upon receipt.
<PAGE>
7. Miscellaneous. No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing
and signed by you and such officer as may be specifically designated by the
Board. No waiver by either party hereto at any time of any breach by the other
party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Rhode Island. All references to sections of the
Exchange Act or the Code shall be deemed also to refer to any successor
provisions to such sections.
8. Validity. The invalidity or unenforceability or any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
9. Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
10. Arbitration. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in Providence,
Rhode Island, in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator's award in
any court having jurisdiction; provided, however, that you shall be
<PAGE>
entitled to seek specific performance of your right to be paid until the Date of
Termination during the pendency of any dispute or controversy arising under or
in connection with this Agreement.
If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to the Company the enclosed copy of this letter which
will then constitute our agreement on this subject.
Sincerely,
VALLEY RESOURCES, INC.
By s/Don A. Deangelis
---------------------------------------
Name: Don A. DeAngelis
Title: Chairman, Compensation Committee
Agreed to this 29th day
----
of July, 1999
----
s/Alfred P. Degen
- -----------------
Alfred P. Degen
Exhibit 10.(e)
June 15, 1999
Sharon Partridge
Vice President, Chief Financial Officer,
Secretary and Treasurer
Valley Resources, Inc.
1595 Mendon Road
Cumberland, RI 02864
Dear Ms. Partridge:
Valley Resources, Inc. (which, together with its subsidiaries, is
hereinafter called "the Company") considers it essential to the best interests
of its stockholders to foster the continuous employment of key management
personnel. The Board of Directors of the Company (the "Board") recognizes that,
as is the case with many publicly held corporations, the possibility of a change
in control may exist that such possibility, and the uncertainty and questions
which it may raise among management, may result in the departure or distraction
of management personnel to the detriment of the Company and its stockholders.
The Board has determined that appropriate steps should be taken to
reinforce and encourage the continued attention and dedication of members of the
Company's management, including yourself, to their assigned duties without
distraction in the face of potentially disturbing circumstances arising from the
possibility of a change in control of the Company.
In order to induce you to remain in the employ of the Company and in
consideration of your agreeing to remain in the employ of the Company subject to
the terms and conditions set forth below, this letter agreement (the
"Agreement") sets forth the severance benefits which the Company agrees will be
provided to you in the event your employment with the Company is
<PAGE>
terminated subsequent to a "change in control of the Company" (as defined in
Section 2 hereof) under the circumstances described below.
1. Term of Agreement. This Agreement shall commence on June 15, 1999 and
shall continue in effect through December 31, 1999; provided, however, that
commencing on January 1, 2000 and each January 1 thereafter, the term of this
Agreement shall automatically be extended for one (1) additional year unless,
not later than August 31 of the preceding year, the Company shall have given
notice that it does not wish to extend this Agreement; and provided further,
however, that notwithstanding any such notice by the Company not to extend, if a
change in control of the Company shall have occurred during the original or
extended term of this Agreement, this Agreement shall continue in effect for a
period of twenty-four (24) months from the occurrence of such change in control.
Notwithstanding the foregoing, the Company may terminate your employment at any
time, whether before or after a change in control, subject to providing such
benefits as shall be hereinafter specified.
2. Change in Control. (i) No benefits shall be payable hereunder unless
there shall have been a change in control of the Company, as set forth below,
and your employment by the Company shall thereafter have been terminated in
accordance with Section 3 below. For purposes of this Agreement, a "change in
control of the Company" shall mean a change in control of a nature that would be
required to be reported in response to Item 5(f) of Schedule 14A of Regulation
14A promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), whether or not the Company is then subject to such reporting
requirement; provided that, without limitation, such a change in control shall
be deemed to have occurred if (a) any "person" (as such term is used in Sections
<PAGE>
13(d) and 14(d) of the Exchange Act), other than a trustee or other fiduciary
holding securities under an employee benefit plan of the Company, is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing 20% or more of
the combined voting power of the Company's then outstanding securities; (b)
during any period of two (2) consecutive years (not including any period prior
to the execution of this Agreement), individuals who at the beginning of such
period constitute the Board and any new director whose election by the Board or
nomination for election by the Company's stockholders was approved by a vote of
at least two thirds (2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election or nomination for
election was previously so approved, cease for any reason to constitute a
majority thereof; or (c) the business or businesses of the Company for which
your services are principally performed are disposed of by the Company pursuant
to a partial or complete liquidation of the Company, a sale of assets (including
stock of a subsidiary) of the Company, or otherwise.
(ii) For purposes of this Agreement, a "potential change in control of
the Company" shall be deemed to have occurred if (A) the Company
enters into an agreement, the consummation of which would result in
the occurrence of a change in control of the Company, (B) any
person publicly announces (including an announcement by the
Company) an intention to take actions which if consummated would
constitute a change in control of the Company; (C) any person
publicly announces (including an announcement by the Company) that
it has become the beneficial owner, directly or indirectly, of
securities of the Company representing 9.5% or more of the combined
voting power of the Company's then outstanding
<PAGE>
securities; or (D) the Board adopts a resolution to the effect
that, for purposes of this Agreement, a potential change in control
of the Company has occurred. You agree that, subject to the terms
and conditions of this Agreement, in the event of a potential
change in control of the Company, you will remain in the employ of
the Company for a period of six (6) months from the occurrence of
such potential change in control of the Company.
3. Termination Following Change in Control. If any of the events described
in Subsection 2(i) hereof constituting a change in control of the Company shall
have occurred, you shall be entitled to the benefits provided in Subsection 4
(iii) hereof upon the subsequent termination of your employment during the term
of this Agreement unless such termination is (A) because of your death,
Retirement or Disability, (B) by the Company for Cause or (C) by you other than
for Good Reason.
(i) Disability; Retirement. If, as a result of your incapacity due to
physical or mental illness, you shall have been absent from the
full-time performance of your duties with the Company for six (6)
consecutive months, your employment may be terminated for
"Disability." Termination of your employment based on "Retirement"
shall mean termination in accordance with the Company's retirement
policy generally applicable to its salaried employees or in
accordance with any retirement arrangement established with your
consent with respect to you.
(ii) Cause. Termination by the Company of your employment for "Cause"
shall mean termination upon (A) the willful and continued failure
by you to substantially perform your duties with the Company (other
than any such failure resulting from your incapacity due to
physical or mental illness or any such actual or anticipated
failure after the occurrence of
<PAGE>
circumstances giving rise to a Notice of Termination by you for
Good Reason) after a written demand for substantial performance is
delivered to you by the Board, which demand specifically identifies
the manner in which the Board believes that you have not
substantially performed your duties, or (B) the willful engaging by
you in conduct which is demonstrably and materially injurious to
the Company, monetarily or otherwise. For purposes of this
Subsection, no act, or failure to act, on your part shall be deemed
"willful" unless done, or omitted to be done, by you not in good
faith and without reasonable belief that your action or omission
was in the best interest of the Company. Notwithstanding the
foregoing, you shall not be deemed to have been terminated for
Cause unless and until there shall have been delivered to you a
copy of a resolution duly adopted by the affirmative vote of not
less than three-quarters (3/4) of the entire membership of the
Board at a meeting of the Board called and held for such purpose
(after reasonable notice to you and an opportunity for you,
together with your counsel, to be heard before the Board), finding
that in the good faith opinion of the Board you were guilty of
conduct set forth above in clauses (A) or (B) of the first sentence
of this Subsection and specifying the particulars thereof in
detail.
(iii)Good Reason. You shall be entitled to terminate your employment
for Good Reason. For purposes of this Agreement, "Good Reason"
shall mean, without your express written consent, any of the
following:
(A) the assignment to you of any duties inconsistent with your
status as Vice President, Chief Financial Officer, Secretary &
Treasurer or a substantial alteration in the nature or status
of your responsibilities from those in effect immediately
prior to a change in control of the Company;
<PAGE>
(B) a reduction by the Company in your annual base salary as in
effect on the date of the occurrence of a change in control of
the Company or as the same may be increased from time to time
except for across-the-board salary reductions similarly
affecting all executives of the Company and all executives of
any person in control of the Company; or the failure of the
Company to grant increases in salary in accordance with the
Company's regular practices;
(C) the relocation of the Company's principal executive offices to
a location more than twenty-five (25) miles from your present
office location or the Company's requiring you to be based
anywhere other than the Company's principal executive offices
except for required travel on the Company's business to an
extent substantially consistent with your present business
travel obligations;
(D) the failure by the Company to continue in effect any
compensation plan in which you participate, or any plan
adopted prior to the change in control of the Company, unless
an equitable arrangement (embodied in an ongoing substitute or
alternative plan) has been made with respect to such plan in
connection with the change in control of the Company, or the
failure by the Company to continue your participation therein
on substantially the same basis, both in terms of the amount
of benefits provided and the level of your participation
relative to other participants, as existed at the time of the
change in control;
<PAGE>
(E) the failure by the Company to continue to provide you with
benefits substantially similar to those enjoyed by you under
any of the Company's pension, life insurance, medical, health
and accident, or disability plans in which you were
participating at the time of a change in control of the
Company, the taking of any action by the Company which would
directly or indirectly materially reduce any of such benefits
or deprive you of any material fringe benefit enjoyed by you
at the time of the change in control of the Company, or the
failure by the Company to provide you with the number of paid
vacation days to which you are entitled on the basis of years
of service with the Company in accordance with the Company's
normal vacation policy in effect at the time of the change in
control.
(F) the failure by the Company without your consent to pay to you
any portion of your current compensation or to pay to you any
installment of deferred compensation at the time such
installment is due under any deferred compensation program of
the Company;
(G) the failure of the Company to obtain a satisfactory agreement
from any successor to assume and agree to perform this
Agreement, as contemplated in Section 5 hereof; or
(H) any purported termination of your employment which is not
effected pursuant to a Notice of Termination satisfying the
requirements of Subsection (iv) below (and, if applicable, the
requirements of Subsection (ii) above); and for purposes of
this Agreement, no such purported termination shall be
effective.
<PAGE>
In addition to your right to terminate for Good Reason as stated
above, and not in substitution therefor, you shall have the option
at your discretion to terminate your employment at any time within
fifteen (15) months after the later of (a) a change in control of
the Company or (b) the expiration of the six (6) months period
during which you agree to remain in the employ of the Company under
paragraph 2(ii) of this Agreement. Such termination shall be
conclusively deemed to be a termination for Good Reason, but shall
not affect your right to terminate for Good Reason under any of the
provisions of subsection (iii) above.
Your right to terminate your employment pursuant to this Subsection
shall not be affected by your incapacity due to physical or mental
illness.
(iv) Notice of Termination. Any purported termination by the Company or
by you shall be communicated by written Notice of Termination to
the other party hereto in accordance with Section 6 hereof. For
purposes of this Agreement, a "Notice of Termination" shall mean a
notice which shall indicate the specific termination provision in
this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for
termination of your employment under the provision so indicated.
(v) Date of Termination, Etc. "Date of Termination" shall mean (A) if
your employment is terminated for Disability, thirty (30) days
after Notice of Termination is given (provided that you have not
returned to the full-time performance of your duties during such
period) (B) if your employment is terminated pursuant to Subsection
(ii) or (iii) above or for any other reason (other than
Disability), the date specified in the Notice of Termination (which
<PAGE>
shall not be less than thirty (30) days, and in the case of a
termination pursuant to Subsection (iii) above shall not be less
than thirty (30) nor more than sixty (60) days, respectively, from
the date such Notice of Termination is given); provided that if
within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other
party that a dispute exists concerning the termination, the Date of
Termination shall be the date on which the dispute is finally
determined, either by mutual written agreement of the parties, by a
binding arbitration award, or by a final judgment, order or decree
of a court of competent jurisdiction (which is not appealable or
the time for appeal therefrom having expired and no appeal having
been perfected); provided further that the Date of Termination
shall be extended by a notice of dispute only if such notice is
given in good faith and the party giving such notice pursues the
resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Company will
continue to pay you your full compensation in effect when the
notice giving rise to the dispute was given (including, but not
limited to, base salary) and continue you as a participant in all
compensation, benefit and insurance plans in which you were
participating when the notice giving rise to the dispute was given,
until the dispute is finally resolved in accordance with this
Subsection. Amounts paid under this Subsection are in addition to
all other amounts due under this Agreement and shall not be offset
against or reduce any other amounts due under this Agreement except
as otherwise provided in paragraph (C) of Subsection 4 (iii).
4. Compensation Upon Termination. Following a change in control of the
Company, as defined by Subsection 2(i), upon termination of your employment you
shall be entitled to the following benefits:
<PAGE>
(i) If your employment shall be terminated by the Company for Cause or
by you other than for Good Reason, the Company shall pay you your
full base salary through the Date of Termination at the rate in
effect at the time Notice of Termination is given plus any other
amounts to which you are entitled under any compensation plan of
the Company, at the time such payments are due, and the Company
shall have no further obligations to you under this Agreement.
(ii) If your employment shall be terminated by the Company or by you for
Retirement, or by reason of your death or for Disability, your
benefits shall be determined in accordance with the Company's
retirement and insurance program then in effect.
(iii)If your employment by the Company shall be terminated (a) by the
Company other than for Cause, Retirement or Disability or (b) by
you for Good Reason, then you shall be entitled to the benefits
provided below:
(A) The Company shall pay you your full base salary through the
Date of Termination at the rate in effect at the time Notice
of Termination is given, plus any other amounts to which you
are entitled under any compensation plan of the Company, at
the times such payments are due;
(B) In lieu of any further salary payments to you for periods
subsequent to the Date of Termination, the Company shall pay
as a severance payment to you, not later than the fifth day
following the Date of Termination, a lump sum severance
payment (the "Severance
<PAGE>
Payment") equal to 2.00 times your Covered Compensation.
"Covered Compensation" is your annual salary as determined by
your salary rate at the date of the change in control of the
Company, plus the cash portion of your Executive Incentive
Compensation Plan award for the Plan year in which the change
in control of the Company occurs (provided, however, that the
case of a termination at your option under the portion of
Section 3(iii) giving you an option to terminate at your
discretion, your salary rate shall be greater of the rate in
effect at the date of change in control of the Company or the
rate immediately prior to the issuance of the Notice of
Termination);
(C) For a period after such termination equal to the period
actually used in calculating severance pay due to you under
Section 4(iii)(B), the Company shall provide you with life,
disability, accident and health insurance benefits
substantially similar to those which you are receiving
immediately prior to the Notice of Termination. Benefits
otherwise receivable by you pursuant to this Section 4(iii)
(C) shall be reduced to the extent comparable benefits are
actually received by you during such period following your
termination, and any such benefits actually received by you
shall be reported to the Company;
(D) In addition to the retirement benefits to which you are
entitled under the Retirement Plan or any successor plan
thereto, the Company shall pay you in one lump sum in cash on
the fifth day
<PAGE>
following the Date of Termination, a sum equal to the
actuarial equivalent of the excess of (x) the retirement
pension (determined as a straight life annuity commencing at
age 65) which you would have accrued under the terms of the
Retirement Plan (without regard to any amendment to the
Retirement Plan made subsequent to a change in control of the
Company and on or prior to the Date of Termination, which
amendment adversely affects in any manner the computation of
retirement benefits thereunder), determined as if you were
fully vested thereunder and had accumulated (after the Date of
Termination) that number of additional months of service
credit thereunder equal to the number of months for which
severance pay shall be due to you under Section 4 (iii) (B)
hereof, at your highest annual rate of compensation during the
twelve (12) months immediately preceding the Date of
Termination (but in no event shall you be deemed to have
accumulated additional months of service credit after your
sixty-fifth (65th) birthday), and (y) the retirement pension
(determined as a straight-life annuity commencing at age 65)
which you had then accrued pursuant to the provisions of the
Retirement Plan. For purposes of clause (x), the term
"compensation" shall include amounts payable pursuant to
Section 4 (iii) (B) hereof. For purposes of this Subsection,
"actuarial equivalent" shall be determined using the same
methods and
<PAGE>
assumptions utilized under the Retirement Plan immediately
prior to the change in control of the Company;
(iv) (A) Anything in this Agreement to the contrary notwithstanding, in
the event it shall be determined that any payment or
distribution by the Company to you or for your benefit
(whether paid or payable of distributed or distributable
pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required
under this Section 4(iv)) (a "Payment") would be subject to
the excise tax imposed by Section 4999 of the Code or any
interest or penalties are incurred by you with respect to such
excise tax (such excise tax, together with any such interest
and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then you shall be entitled to receive an
additional payment (a "Gross-Up Payment") in an amount such
that after payment by you of all taxes (including any interest
or penalties imposed with respect to such taxes), including,
without limitation, any income taxes (and any interest and
penalties imposed with respect thereto) and Excise Tax imposed
upon the Gross-Up Payment, you retain an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the
Payments.
(B) Subject to the provisions of Section 4(iv)(C) below, all
determinations required to be made under this Section 4(iv),
including whether and when a Gross-Up Payment is required and
the
<PAGE>
amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination, shall be made by
the Company's independent audit firm (the "Accounting Firm"
which shall provide detailed supporting calculations both to
the Company and to you within fifteen (15) business days of
the receipt of notice from you that there has been a Payment,
or such earlier time as is requested by the Company. In the
event that the Accounting Firm is serving as accountant or
auditor for the individual, entity or group effecting the
Change of Control, you shall appoint another nationally
recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as
the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any
Gross-Up Payment, as determined pursuant to this Section
4(iv), shall be paid by the Company to you within five (5)
days of the receipt of the Accounting Firm's determination. If
the Accounting Firm determines that no Excise Tax is payable
by you, it shall furnish you with a written opinion that
failure to report the Excise Tax on your applicable federal
income tax return would not result in the imposition of a
negligence or similar penalty. Any determination by the
Accounting Firm shall be binding upon the Company and you. As
a result of the uncertainty in the application of Section 4999
of the Code at the time of the initial determination by the
Accounting
<PAGE>
Firm hereunder, it is possible that the Gross-Up Payment made
by the Company is less than the payment which should have been
made ("Underpayment"), consistent with the calculations
required to be made hereunder. In the event that the Company
exhausts its remedies pursuant to this Section 4(iv) and you
are thereafter required to make a payment of any Excise Tax,
the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall
be promptly paid by the Company to you or for your benefit.
(C) You shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require
the payment by the Company of the Gross-Up Payment. Such
notification shall be given as soon as practicable but no
later than ten (10) business days after you are informed in
writing of such claim and shall apprise the Company of the
nature of such claim and the date on which such claim is
requested to be paid. You shall not pay such claim prior to
the expiration of the 30-day period following the date on
which you give such notice to the Company (or such shorter
period ending on the date that any payment of taxes with
respect to such claim is due). If the Company notifies you in
writing prior to the expiration of such period that it desires
to contest such claim, you shall:
<PAGE>
(1) give the Company any information reasonably requested by
the Company relating to such claim,
(2) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from
time to time, including, without limitation, accepting
legal representation with respect to such claim by an
attorney reasonably selected by the Company,
(3) cooperate with the Company in good faith in order to
effectively contest such claim, and
(4) permit the Company to participate in any proceedings
relating to such claim; provided, however, that the
Company shall bear and pay directly all costs and
expenses (including additional interest and penalties)
incurred in connection with such contest and shall
indemnify and hold you harmless, on an after-tax basis,
for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of
such representation and payment of costs and expenses.
Without limitation on the foregoing provisions of this
Section 4(iv), the Company shall control all proceedings
taken in connection with such contest and, at its sole
option, may pursue or forgo any and all administrative
appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its
sole option, either direct you to pay
<PAGE>
the tax claimed and sue for a refund or contest the claim
in any permissible manner, and you agree to prosecute
such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one
or more appellate courts, as the Company shall determine;
provided, however, that if the Company directs you to pay
such claim and sue for a refund, the Company shall
advance the amount of such payment to you on an
interest-free basis, and shall indemnify and hold you
harmless, on an after-tax basis, from any Excise Tax or
income tax (including interest or penalties with respect
thereto) imposed with respect to such advance or with
respect to any imputed income with respect to such
advance; and further provided that any extension of the
statute of limitations relating to payment of taxes for
your taxable year with respect to which such contested
amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of
the contest shall be limited to issues with respect to
which a Gross-Up Payment would be payable hereunder, and
you shall be entitled to settle or contest, as the case
may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(D) If, after your receipt of an amount advanced by the Company
pursuant to this Section 4(iv), you become entitled to receive
any refund with respect to such claim, you shall (subject to
the
<PAGE>
Company's complying with the requirements of this Section
4(iv)) promptly pay to the Company the amount of such refund
(together with any interest paid or credited thereon after
taxes applicable thereto). If, after your receipt of an amount
advanced by the Company pursuant to this Section 4(iv), a
determination is made that you shall not be entitled to any
refund with respect to such claim and the Company does not
notify you in writing of its intent to contest such denial of
refund prior to the expiration of thirty (30) days after such
determination, then such advance shall be forgiven and shall
not be required to be repaid and the amount of such advance
shall offset, to the extent thereof, the amount of Gross-Up
Payment required to be paid.
(v) The Company shall also pay to you all legal fees and expenses
incurred by you as a result of such termination (including all such
fees and expenses, if any, incurred in contesting or disputing any
such right of benefit provided by this Agreement).
(vi) You shall not be required to mitigate the amount of any payment
provided for in this Section 4 by seeking other employment or
otherwise, nor shall the amount of any payment or benefit provided
for in this Section 4 be reduced by any compensation earned by you
as the result of employment by another employer except as expressly
provided herein.
<PAGE>
(vii)In addition to all other amounts payable to you under this Section
4, you shall be entitled to receive all benefits payable to you
under the Retirement Plan and any other plan or agreement relating
to retirement benefits.
5. Successors; Binding Agreement. (i) The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. Failure of the Company to obtain such
assumption and agreement prior to the effectiveness of any such succession shall
be a breach of this Agreement and shall entitle you to compensation from the
Company in the same amount and on the same terms as you would be entitled
hereunder if you terminate your employment for Good Reason following a change in
control of the Company, except that for purposes of implementing the foregoing,
the date on which any such succession becomes effective shall be deemed the Date
of Termination. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of law
or otherwise.
(ii) This Agreement shall inure to the benefit of and be enforceable by
your personal or legal representatives, executors, administrators,
successors, assigns, heirs, distributees, devisees and legatees. If
you should die while any amount would still be payable to you
hereunder if you had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to your devisees, legatees, or other
designee or if there is no such designee, to your estate.
<PAGE>
(iii)This Agreement supersedes your prior change in control agreement,
which was effective January 1, 1999.
6. Notice. For the purposes of this Agreement, notices and all other
communications shall be in writing and shall be deemed to have been duly given
when delivered or mailed by United States certified or registered mail, return
receipt requested, postage prepaid, addressed to the respective addresses set
forth on the first page of this Agreement, provided that all notices to the
Company shall be directed to the attention of the Board with a copy to the
Secretary of the Company, or to such other address as either party may have
furnished to the other in writing in accordance herewith, except that notice of
change of address shall be effective only upon receipt.
7. Miscellaneous. No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing
and signed by you and such officer as may be specifically designated by the
Board. No waiver by either party hereto at any time of any breach by the other
party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Rhode Island. All references to sections of the
Exchange Act or the Code shall be deemed also to refer to any successor
provisions to such sections.
8. Validity. The invalidity or unenforceability or any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
<PAGE>
9. Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
10. Arbitration. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in Providence,
Rhode Island, in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator's award in
any court having jurisdiction; provided, however, that you shall be entitled to
seek specific performance of your right to be paid until the Date of Termination
during the pendency of any dispute or controversy arising under or in connection
with this Agreement.
If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to the Company the enclosed copy of this letter which
will then constitute our agreement on this subject.
Sincerely,
VALLEY RESOURCES, INC.
By s/Alfred P. Degen
-------------------------------------------
Name: Alfred P. Degen
Title: President & Chief Executive Officer
Agreed to this 27th day
----
of August, 1999
------
s/S. Partridge
- ------------------------------
Sharon Partridge
Exhibit 10.(f)
April 1, 1999
Mr. Charles K. Meunier
Vice President Operations
Valley Resources, Inc.
1595 Mendon Road
Cumberland, RI 02864
Dear Mr. Meunier:
Valley Resources, Inc. (which, together with its subsidiaries, is
hereinafter called "the Company") considers it essential to the best interests
of its stockholders to foster the continuous employment of key management
personnel. The Board of Directors of the Company (the "Board") recognizes that,
as is the case with many publicly held corporations, the possibility of a change
in control may exist and that such possibility, and the uncertainty and
questions which it may raise among management, may result in the departure or
distraction of management personnel to the detriment of the Company and its
stockholders.
The Board has determined that appropriate steps should be taken to
reinforce and encourage the continued attention and dedication of members of the
Company's management, including yourself, to their assigned duties without
distraction in the face of potentially disturbing circumstances arising from the
possibility of a change in control of the Company.
In order to induce you to remain in the employ of the Company and in
consideration of your agreeing to remain in the employ of the Company subject to
the terms and conditions set forth below, this letter agreement (the
"Agreement") sets forth the severance benefits which the Company agrees will be
provided to you in the event your employment with the Company is terminated
subsequent to a "change in control of the Company" (as defined in Section 2
hereof) under the circumstances described below.
<PAGE>
1. Term of Agreement. This Agreement shall commence on January 1, 1999 and
shall continue in effect through December 31, 1999; provided, however, that
commencing on January 1, 2000 and each January 1 thereafter, the term of this
Agreement shall automatically be extended for one (1) additional year unless,
not later than August 31 of the preceding year, the Company shall have given
notice that it does not wish to extend this Agreement; and provided further,
however, that notwithstanding any such notice by the Company not to extend, if a
change in control of the Company shall have occurred during the original or
extended term of this Agreement, this Agreement shall continue in effect for a
period of twenty-four (24) months from the occurrence of such change in control.
Notwithstanding the foregoing, the Company may terminate your employment at any
time, whether before or after a change in control, subject to providing such
benefits as shall be hereinafter specified.
2. Change in Control. (i) No benefits shall be payable hereunder unless
there shall have been a change in control of the Company, as set forth below,
and your employment by the Company shall thereafter have been terminated in
accordance with Section 3 below. For purposes of this Agreement, a "change in
control of the Company" shall mean a change in control of a nature that would be
required to be reported in response to Item 5(f) of Schedule 14A of Regulation
14A promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), whether or not the Company is then subject to such reporting
requirement; provided that, without limitation, such a change in control shall
be deemed to have occurred if (a) any "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act), other than a trustee or other fiduciary
holding securities under an employee benefit plan of the Company, is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing 20% or more of
the combined voting power
<PAGE>
of the Company's then outstanding securities; (b) during any period of two (2)
consecutive years (not including any period prior to the execution of this
Agreement), individuals who at the beginning of such period constitute the Board
and any new director whose election by the Board or nomination for election by
the Company's stockholders was approved by a vote of at least two thirds (2/3)
of the directors then still in office who either were directors at the beginning
of the period or whose election or nomination for election was previously so
approved, cease for any reason to constitute a majority thereof; or (c) the
business or businesses of the Company for which your services are principally
performed are disposed of by the Company pursuant to a partial or complete
liquidation of the Company, a sale of assets (including stock of a subsidiary)
of the Company, or otherwise.
(ii) For purposes of this Agreement, a "potential change in control of
the Company" shall be deemed to have occurred if (A) the Company
enters into an agreement, the consummation of which would result in
the occurrence of a change in control of the Company, (B) any
person publicly announces (including an announcement by the
Company) an intention to take actions which if consummated would
constitute a change in control of the Company; (C) any person
publicly announces (including an announcement by the Company) that
it has become the beneficial owner, directly or indirectly, of
securities of the Company representing 9.5% or more of the combined
voting power of the Company's then outstanding securities; or (D)
the Board adopts a resolution to the effect that, for purposes of
this Agreement, a potential change in control of the Company has
occurred. You agree that, subject to the terms and conditions of
this Agreement, in the event of a potential change in control of
the Company, you will remain in the employ of the Company for a
period of six (6) months from the occurrence of such potential
change in control of the Company.
<PAGE>
3. Termination Following Change in Control. If any of the events described
in Subsection 2(i) hereof constituting a change in control of the Company shall
have occurred, you shall be entitled to the benefits provided in Subsection
4(iii) hereof upon the subsequent termination of your employment during the term
of this Agreement unless such termination is (A) because of your death,
Retirement or Disability, (B) by the Company for Cause or (C) by you other than
for Good Reason.
(i) Disability; Retirement. If, as a result of your incapacity due to
physical or mental illness, you shall have been absent from the
full-time performance of your duties with the Company for six (6)
consecutive months, your employment may be terminated for
"Disability." Termination of your employment based on "Retirement"
shall mean termination in accordance with the Company's retirement
policy generally applicable to its salaried employees or in
accordance with any retirement arrangement established with your
consent with respect to you.
(ii) Cause. Termination by the Company of your employment for "Cause"
shall mean termination upon (A) the willful and continued failure
by you to substantially perform your duties with the Company (other
than any such failure resulting from your incapacity due to
physical or mental illness or any such actual or anticipated
failure after the occurrence of circumstances giving rise to a
Notice of Termination by you for Good Reason) after a written
demand for substantial performance is delivered to you by the
Board, which demand specifically identifies the manner in which the
Board believes that you have not substantially performed your
duties, or (B) the willful engaging by you in conduct which is
demonstrably and materially injurious to the Company, monetarily or
otherwise. For purposes of this Subsection, no act, or failure to
act, on your part shall be deemed "willful" unless done, or omitted
to be done, by you not in good faith and without reasonable belief
that your action or omission was in the best interest of the
Company.
<PAGE>
Notwithstanding the foregoing, you shall not be deemed to have been
terminated for Cause unless and until there shall have been
delivered to you copy of a resolution duly adopted by the
affirmative vote of not less than three-quarters (3/4) of the
entire membership of the Board at a meeting of the Board called and
held for such purpose (after reasonable notice to you and an
opportunity for you, together with your counsel, to be heard before
the Board), finding that in the good faith opinion of the Board you
were guilty of conduct set forth above in clauses (A) or (B) of the
first sentence of this Subsection and specifying the particulars
thereof in detail.
(iii)Good Reason. You shall be entitled to terminate your employment
for Good Reason. For purposes of this Agreement, "Good Reason"
shall mean, without your express written consent, any of the
following:
(A) the assignment to you of any duties inconsistent with your
status as Vice President Operations, or a substantial
alteration in the nature or status of your responsibilities
from those in effect immediately prior to a change in control
of the Company;
(B) a reduction by the Company in your annual base salary as in
effect on the date of the occurrence of a change in control of
the Company or as the same may be increased from time to time
except for across-the-board salary reductions similarly
affecting all executives of the Company and all executives of
any person in control of the Company; or the failure of the
Company to grant increases in salary in accordance with the
Company's regular practices;
(C) the relocation of the Company's principal executive offices to
a location more than twenty-five (25) miles from your present
office location or the Company's
<PAGE>
requiring you to be based anywhere other than the Company's
principal executive offices except for required travel on the
Company's business to an extent substantially consistent with
your present business travel obligations;
(D) the failure by the Company to continue in effect any
compensation plan in which you participate, or any plan
adopted prior to the change in control of the Company, unless
an equitable arrangement (embodied in an ongoing substitute or
alternative plan) has been made with respect to such plan in
connection with the change in control of the Company, or the
failure by the Company to continue your participation therein
on substantially the same basis, both in terms of the amount
of benefits provided and the level of your participation
relative to other participants, as existed at the time of the
change in control;
(E) the failure by the Company to continue to provide you with
benefits substantially similar to those enjoyed by you under
any of the Company's pension, life insurance, medical, health
and accident, or disability plans in which you were
participating at the time of a change in control of the
Company, the taking of any action by the Company which would
directly or indirectly materially reduce any of such benefits
or deprive you of any material fringe benefit enjoyed by you
at the time of the change in control of the Company, or the
failure by the Company to provide you with the number of paid
vacation days to which you are entitled on the basis of years
of service with the Company in accordance with the Company's
normal vacation policy in effect at the time of the change in
control.
<PAGE>
(F) the failure by the Company without your consent to pay to you
any portion of your current compensation or to pay to you any
installment of deferred compensation at the time such
installment is due under any deferred compensation program of
the Company;
(G) the failure of the Company to obtain a satisfactory agreement
from any successor to assume and agree to perform this
Agreement, as contemplated in Section 5 hereof; or
(H) any purported termination of your employment which is not
effected pursuant to a Notice of Termination satisfying the
requirements of Subsection (iv) below (and, if applicable, the
requirements of Subsection (ii) above); and for purposes of
this Agreement, no such purported termination shall be
effective.
In addition to your right to terminate for Good Reason as stated above, and
not in substitution therefor, you shall have the option at your discretion to
terminate your employment at any time within fifteen (15) months after the later
of (a) a change in control of the Company or (b) the expiration of the six (6)
months period during which you agree to remain in the employ of the Company
under paragraph 2(ii) of this Agreement. Such termination shall be conclusively
deemed to be a termination for Good Reason, but shall not affect your right to
terminate for Good Reason under any of the provisions of subsection (iii) above.
Your right to terminate your employment pursuant to this Subsection shall
not be affected by your incapacity due to physical or mental illness.
<PAGE>
(iv) Notice of Termination. Any purported termination by the Company or
by you shall be communicated by written Notice of Termination to
the other party hereto in accordance with Section 6 hereof. For
purposes of this Agreement, a "Notice of Termination" shall mean a
notice which shall indicate the specific termination provision in
this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for
termination of your employment under the provision so indicated.
(v) Date of Termination, Etc. "Date of Termination" shall mean (A) if
your employment is terminated for Disability, thirty (30) days
after Notice of Termination is given (provided that you have not
returned to the full-time performance of your duties during such
period) (B) if your employment is terminated pursuant to Subsection
(ii) or (iii) above or for any other reason (other than
Disability), the date specified in the Notice of Termination (which
shall not be less than thirty (30) days, and in the case of a
termination pursuant to Subsection (iii) above shall not be less
than thirty (30) nor more than sixty (60) days, respectively, from
the date such Notice of Termination is given); provided that if
within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other
party that a dispute exists concerning the termination, the Date of
Termination shall be the date on which the dispute is finally
determined, either by mutual written agreement of the parties, by a
binding arbitration award, or by a final judgment, order or decree
of a court of competent jurisdiction (which is not appealable or
the time for appeal therefrom having expired and no appeal having
been perfected); provided further that the Date of Termination
shall be extended by a notice of dispute only if such notice is
given in good faith and the party giving such notice pursues the
resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such
<PAGE>
dispute, the Company will continue to pay you your full
compensation in effect when the notice giving rise to the dispute
was given (including, but not limited to, base salary) and continue
you as a participant in all compensation, benefit and insurance
plans in which you were participating when the notice giving rise
to the dispute was given, until the dispute is finally resolved in
accordance with this Subsection. Amounts paid under this Subsection
are in addition to all other amounts due under this Agreement and
shall not be offset against or reduce any other amounts due under
this Agreement except as otherwise provided in paragraph (C) of
Subsection 4 (iii).
4. Compensation Upon Termination. Following a change in control of the
Company, as defined by Subsection 2(i), upon termination of your employment you
shall be entitled to the following benefits:
(i) If your employment shall be terminated by the Company for Cause or
by you other than for Good Reason, the Company shall pay you your
full base salary through the Date of Termination at the rate in
effect at the time Notice of Termination is given plus any other
amounts to which you are entitled under any compensation plan of
the Company, at the time such payments are due, and the Company
shall have no further obligations to you under this Agreement.
(ii) If your employment shall be terminated by the Company or by you for
Retirement, or by reason of your death or for Disability, your
benefits shall be determined in accordance with the Company's
retirement and insurance program then in effect.
<PAGE>
(iii)If your employment by the Company shall be terminated (a) by the
Company other than for Cause, Retirement or Disability or (b) by
you for Good Reason, then you shall be entitled to the benefits
provided below:
(A) The Company shall pay you your full base salary through the
Date of Termination at the rate in effect at the time Notice
of Termination is given, plus any other amounts to which you
are entitled under any compensation plan of the Company, at
the times such payments are due;
(B) In lieu of any further salary payments to you for periods
subsequent to the Date of Termination, the Company shall pay
as a severance payment to you, not later than the fifth day
following the Date of Termination, a lump sum severance
payment (the "Severance Payment") equal to 2.00 times your
Covered Compensation. "Covered Compensation" is your annual
salary as determined by your salary rate at the date of the
change in control of the Company, plus the cash portion of
your Executive Incentive Compensation Plan award for the Plan
year in which the change in control of the Company occurs
(provided, however, that in the case of a termination at your
option under that portion of Section 3 (iii) giving you an
option to terminate at your discretion, your salary rate shall
be the greater of the rate in effect at the date of change in
control of the Company or the rate immediately prior to the
issuance of the Notice of Termination);
(C) For a period after such termination equal to the period
actually used in calculating severance pay due to you under
Section 4(iii)(B), the Company shall provide you with life,
disability, accident and health insurance benefits
substantially similar to those
<PAGE>
which you are receiving immediately prior to the Notice of
Termination. Benefits otherwise receivable by you pursuant to
this Section 4(iii)(C) shall be reduced to the extent
comparable benefits are actually received by you during such
period following your termination, and any such benefits
actually received by you shall be reported to the Company;
(D) In addition to the retirement benefits to which you are
entitled under the Retirement Plan or any successor plan
thereto, the Company shall pay you in one lump sum in cash on
the fifth day following the Date of Termination, a sum equal
to the actuarial equivalent of the excess of (x) the
retirement pension (determined as a straight life annuity
commencing at age 65) which you would have accrued under the
terms of the Retirement Plan (without regard to any amendment
to the Retirement Plan made subsequent to a change in control
of the Company and on or prior to the Date of Termination,
which amendment adversely affects in any manner the
computation of retirement benefits thereunder), determined as
if you were fully vested thereunder and had accumulated (after
the Date of Termination) that number of additional months of
service credit thereunder equal to the number of months for
which severance pay shall be due to you under Section
4(iii)(B) hereof, at your highest annual rate of compensation
during the twelve (12) months immediately preceding the Date
of Termination (but in no event shall you be deemed to have
accumulated additional months of service credit after your
sixty-fifth (65th) birthday), and (y) the retirement pension
(determined as a straight-life annuity commencing at age 65)
which you had then accrued pursuant to the provisions of the
Retirement Plan. For purposes of clause (x), the term
"compensation" shall include amounts payable pursuant to
Section 4(iii)(B) hereof. For purposes of this Subsection,
<PAGE>
"actuarial equivalent" shall be determined using the same
methods and assumptions utilized under the Retirement Plan
immediately prior to the change in control of the Company;
(iv) (A) Anything in this Agreement to the contrary notwithstanding, in
the event it shall be determined that any payment or distribution
by the Company to you or for your benefit (whether paid or payable
or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any
additional payments required under this Section 4(iv)) (a
"Payment") would be subject to the excise tax imposed by Section
4999 of the Code or any interest or penalties are incurred by you
with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred
to as the "Excise Tax"), then you shall be entitled to receive an
additional payment (a "Gross-Up Payment") in an amount such that
after payment by you of all taxes (including any interest or
penalties imposed with respect to such taxes), including, without
limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the
Gross-Up Payment, you retain an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments.
(B) Subject to the provisions of Section 4(iv)(C) below, all
determinations required to be made under this Section 4(iv),
including whether and when a Gross-Up Payment is required and
the amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination, shall be made by
the Company's independent audit firm (the "Accounting Firm")
which shall provide detailed supporting calculations both to
the Company and to you within fifteen (15) business days of
the receipt of notice
<PAGE>
from you that there has been a Payment, or such earlier time
as is requested by the Company. In the event that the
Accounting Firm is serving as accountant or auditor for the
individual, entity or group effecting the Change of Control,
you shall appoint another nationally recognized accounting
firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm
shall be borne solely by the Company. Any Gross-Up Payment, as
determined pursuant to this Section 4(iv), shall be paid by
the Company to you within five (5) days of the receipt of the
Accounting Firm's determination. If the Accounting Firm
determines that no Excise Tax is payable by you , it shall
furnish you with a written opinion that failure to report the
Excise Tax on your applicable federal income tax return would
not result in the imposition of a negligence or similar
penalty. Any determination by the Accounting Firm shall be
binding upon the Company and you. As a result of the
uncertainty in the application of Section 4999 of the Code at
the time of the initial determination by the Accounting Firm
hereunder, it is possible that the Gross-Up Payment made by
the Company is less than the payment which should have been
made ("Underpayment"), consistent with the calculations
required to be made hereunder. In the event that the Company
exhausts its remedies pursuant to this Section 4(iv) and you
are thereafter required to make a payment of any Excise Tax,
the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall
be promptly paid by the Company to you or for your benefit.
(C) You shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require
the payment by the Company of the Gross-Up Payment. Such
notification shall be given as soon as practicable but no
later
<PAGE>
than ten (10) business days after you are informed in writing
of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be
paid. You shall not pay such claim prior to the expiration of
the 30-day period following the date on which you give such
notice to the Company (or such shorter period ending on the
date that any payment of taxes with respect to such claim is
due). If the Company notifies you in writing prior to the
expiration of such period that it desires to contest such
claim, you shall:
(1) give the Company any information reasonably requested by
the Company relating to such claim,
(2) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from
time to time, including, without limitation, accepting
legal representation with respect to such claim by an
attorney reasonably selected by the Company,
(3) cooperate with the Company in good faith in order to
effectively contest such claim, and
(4) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay
directly all costs and expenses (including additional interest
and penalties) incurred in connection with such contest and
shall indemnify and hold you harmless, on an after-tax basis,
for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such
representation and payment of costs
<PAGE>
and expenses. Without limitation on the foregoing provisions
of this Section 4(iv), the Company shall control all
proceedings taken in connection with such contest and, at its
sole option, may pursue or forgo any and all administrative
appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole
option, either direct you to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and you
agree to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction
and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs you
to pay such claim and sue for a refund, the Company shall
advance the amount of such payment to you, on an interest-free
basis, and shall indemnify and hold you harmless, on an
after-tax basis, from any Excise Tax or income tax (including
interest or penalties with respect thereto) imposed with
respect to such advance or with respect to any imputed income
with respect to such advance; and further provided that any
extension of the statute of limitations relating to payment of
taxes for your taxable year with respect to which such
contested amount is claimed to be due is limited solely to
such contested amount. Furthermore, the Company's control of
the contest shall be limited to issues with respect to which a
Gross-Up Payment would be payable hereunder, and you shall be
entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other
taxing authority.
(D) If, after your receipt of an amount advanced by the Company
pursuant to this Section 4(iv), you become entitled to receive
any refund with respect to such claim, you shall (subject to
the Company's complying with the requirements of this Section
4(iv)) promptly pay to the Company the amount of such refund
(together with any interest paid or credited thereon after
taxes applicable thereto). If, after your receipt of an amount
advanced by the Company pursuant to this Section 4(iv), a
determination is made that you
<PAGE>
shall not be entitled to any refund with respect to such claim
and the Company does not notify you in writing of its intent
to contest such denial of refund prior to the expiration of
thirty (30) days after such determination, then such advance
shall be forgiven and shall not be required to be repaid and
the amount of such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid.
(v) The Company shall also pay to you all legal fees and expenses
incurred by you as a result of such termination (including all such
fees and expenses, if any, incurred in contesting or disputing any
such right of benefit provided by this Agreement).
(vi) You shall not be required to mitigate the amount of any payment
provided for in this Section 4 by seeking other employment or
otherwise, nor shall the amount of any payment or benefit provided
for in this Section 4 be reduced by any compensation earned by you
as the result of employment by another employer except as expressly
provided herein.
(vii)In addition to all other amounts payable to you under this Section
4, you shall be entitled to receive all benefits payable to you
under the Retirement Plan and any other plan or agreement relating
to retirement benefits.
5. Successors; Binding Agreement. (i) The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. Failure of the Company to obtain such
assumption and agreement prior to the effectiveness of any such succession shall
be a breach of
<PAGE>
this Agreement and shall entitle you to compensation from the Company in the
same amount and on the same terms as you would be entitled hereunder if you
terminate your employment for Good Reason following a change in control of the
Company, except that for purposes of implementing the foregoing, the date on
which any such succession becomes effective shall be deemed the Date of
Termination. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of law
or otherwise.
(ii) This Agreement shall inure to the benefit of and be enforceable by
your personal or legal representatives, executors, administrators,
successors, assigns, heirs, distributees, devisees and legatees. If
you should die while any amount would still be payable to you
hereunder if you had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to your devisees, legatees, or other
designee or if there is no such designee, to your estate.
(iii)This Agreement supersedes your prior change in control agreement,
which was effective January 1, 1997.
6. Notice. For the purposes of this Agreement, notices and all other
communications shall be in writing and shall be deemed to have been duly given
when delivered or mailed by United States certified or registered mail, return
receipt requested, postage prepaid, addressed to the respective addresses set
forth on the first page of this Agreement, provided that all notices to the
Company shall be directed to the attention of the Board with a copy to the
Secretary of the Company, or to such other address as either party may have
furnished to the other in writing in accordance herewith, except that notice of
change of address shall be effective only upon receipt.
<PAGE>
7. Miscellaneous. No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing
and signed by you and such officer as may be specifically designated by the
Board. No waiver by either party hereto at any time of any breach by the other
party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Rhode Island. All references to sections of the
Exchange Act or the Code shall be deemed also to refer to any successor
provisions to such sections.
8. Validity. The invalidity or unenforceability or any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
9. Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
10. Arbitration. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in Providence,
Rhode Island, in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator's award in
any court having jurisdiction; provided, however, that you shall be
<PAGE>
entitled to seek specific performance of your right to be paid until the Date of
Termination during the pendency of any dispute or controversy arising under or
in connection with this Agreement.
If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to the Company the enclosed copy of this letter which
will then constitute our agreement on this subject.
Sincerely,
VALLEY RESOURCES, INC.
By s/A. P. Degen
------------------------------------------
Name: Alfred P. Degen
Title: President & Chief Executive Officer
Agreed to this 5th day
---
of April, 1999
-----
s/C. K. Meunier
- ------------------
Charles K. Meunier
Exhibit 10.(g)
April 1, 1999
Mr. Richard G. Drolet
Vice President Information Systems & Corporate Planning
Valley Resources, Inc.
1595 Mendon Road
Cumberland, RI 02864
Dear Mr. Drolet:
Valley Resources, Inc. (which, together with its subsidiaries, is
hereinafter called "the Company") considers it essential to the best interests
of its stockholders to foster the continuous employment of key management
personnel. The Board of Directors of the Company (the "Board") recognizes that,
as is the case with many publicly held corporations, the possibility of a change
in control may exist and that such possibility, and the uncertainty and
questions which it may raise among management, may result in the departure or
distraction of management personnel to the detriment of the Company and its
stockholders.
The Board has determined that appropriate steps should be taken to
reinforce and encourage the continued attention and dedication of members of the
Company's management, including yourself, to their assigned duties without
distraction in the face of potentially disturbing circumstances arising from the
possibility of a change in control of the Company.
In order to induce you to remain in the employ of the Company and in
consideration of your agreeing to remain in the employ of the Company subject to
the terms and conditions set forth below, this letter agreement (the
"Agreement") sets forth the severance benefits which the Company agrees will be
provided to you in the event your employment with the Company is terminated
subsequent to a "change in control of the Company" (as defined in Section 2
hereof) under the circumstances described below.
<PAGE>
1. Term of Agreement. This Agreement shall commence on January 1, 1999 and
shall continue in effect through December 31, 1999; provided, however, that
commencing on January 1, 2000 and each January 1 thereafter, the term of this
Agreement shall automatically be extended for one (1) additional year unless,
not later than August 31 of the preceding year, the Company shall have given
notice that it does not wish to extend this Agreement; and provided further,
however, that notwithstanding any such notice by the Company not to extend, if a
change in control of the Company shall have occurred during the original or
extended term of this Agreement, this Agreement shall continue in effect for a
period of twenty-four (24) months from the occurrence of such change in control.
Notwithstanding the foregoing, the Company may terminate your employment at any
time, whether before or after a change in control, subject to providing such
benefits as shall be hereinafter specified.
2. Change in Control. (i) No benefits shall be payable hereunder unless
there shall have been a change in control of the Company, as set forth below,
and your employment by the Company shall thereafter have been terminated in
accordance with Section 3 below. For purposes of this Agreement, a "change in
control of the Company" shall mean a change in control of a nature that would be
required to be reported in response to Item 5(f) of Schedule 14A of Regulation
14A promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), whether or not the Company is then subject to such reporting
requirement; provided that, without limitation, such a change in control shall
be deemed to have occurred if (a) any "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act), other than a trustee or other fiduciary
holding securities under an employee benefit plan of the Company, is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing 20% or more of
the combined voting power
<PAGE>
of the Company's then outstanding securities; (b) during any period of two (2)
consecutive years (not including any period prior to the execution of this
Agreement), individuals who at the beginning of such period constitute the Board
and any new director whose election by the Board or nomination for election by
the Company's stockholders was approved by a vote of at least two thirds (2/3)
of the directors then still in office who either were directors at the beginning
of the period or whose election or nomination for election was previously so
approved, cease for any reason to constitute a majority thereof; or (c) the
business or businesses of the Company for which your services are principally
performed are disposed of by the Company pursuant to a partial or complete
liquidation of the Company, a sale of assets (including stock of a subsidiary)
of the Company, or otherwise.
(ii) For purposes of this Agreement, a "potential change in control of
the Company" shall be deemed to have occurred if (A) the Company
enters into an agreement, the consummation of which would result in
the occurrence of a change in control of the Company, (B) any
person publicly announces (including an announcement by the
Company) an intention to take actions which if consummated would
constitute a change in control of the Company; (C) any person
publicly announces (including an announcement by the Company) that
it has become the beneficial owner, directly or indirectly, of
securities of the Company representing 9.5% or more of the combined
voting power of the Company's then outstanding securities; or (D)
the Board adopts a resolution to the effect that, for purposes of
this Agreement, a potential change in control of the Company has
occurred. You agree that, subject to the terms and conditions of
this
<PAGE>
Agreement, in the event of a potential change in control of the
Company, you will remain in the employ of the Company for a period
of six (6) months from the occurrence of such potential change in
control of the Company.
3. Termination Following Change in Control. If any of the events described
in Subsection 2(i) hereof constituting a change in control of the Company shall
have occurred, you shall be entitled to the benefits provided in Subsection
4(iii) hereof upon the subsequent termination of your employment during the term
of this Agreement unless such termination is (A) because of your death,
Retirement or Disability, (B) by the Company for Cause or (C) by you other than
for Good Reason.
(i) Disability; Retirement. If, as a result of your incapacity due to
physical or mental illness, you shall have been absent from the
full-time performance of your duties with the Company for six (6)
consecutive months, your employment may be terminated for
"Disability." Termination of your employment based on "Retirement"
shall mean termination in accordance with the Company's retirement
policy generally applicable to its salaried employees or in
accordance with any retirement arrangement established with your
consent with respect to you.
(ii) Cause. Termination by the Company of your employment for "Cause"
shall mean termination upon (A) the willful and continued failure
by you to substantially perform your duties with the Company (other
than any such failure resulting from your incapacity due to
physical or mental illness or any such actual or anticipated
failure after the occurrence of circumstances
<PAGE>
giving rise to a Notice of Termination by you for Good Reason)
after a written demand for substantial performance is delivered to
you by the Board, which demand specifically identifies the manner
in which the Board believes that you have not substantially
performed your duties, or (B) the willful engaging by you in
conduct which is demonstrably and materially injurious to the
Company, monetarily or otherwise. For purposes of this Subsection,
no act, or failure to act, on your part shall be deemed "willful"
unless done, or omitted to be done, by you not in good faith and
without reasonable belief that your action or omission was in the
best interest of the Company. Notwithstanding the foregoing, you
shall not be deemed to have been terminated for Cause unless and
until there shall have been delivered to you copy of a resolution
duly adopted by the affirmative vote of not less than
three-quarters (3/4) of the entire membership of the Board at a
meeting of the Board called and held for such purpose (after
reasonable notice to you and an opportunity for you, together with
your counsel, to be heard before the Board), finding that in the
good faith opinion of the Board you were guilty of conduct set
forth above in clauses (A) or (B) of the first sentence of this
Subsection and specifying the particulars thereof in detail.
(iii)Good Reason. You shall be entitled to terminate your employment
for Good Reason. For purposes of this Agreement, "Good Reason"
shall mean, without your express written consent, any of the
following:
<PAGE>
(A) the assignment to you of any duties inconsistent with your
status as Vice President Information Systems & Corporate
Planning, or a substantial alteration in the nature or status
of your responsibilities from those in effect immediately
prior to a change in control of the Company;
(B) a reduction by the Company in your annual base salary as in
effect on the date of the occurrence of a change in control of
the Company or as the same may be increased from time to time
except for across-the-board salary reductions similarly
affecting all executives of the Company and all executives of
any person in control of the Company; or the failure of the
Company to grant increases in salary in accordance with the
Company's regular practices;
(C) the relocation of the Company's principal executive offices to
a location more than twenty-five (25) miles from your present
office location or the Company's requiring you to be based
anywhere other than the Company's principal executive offices
except for required travel on the Company's business to an
extent substantially consistent with your present business
travel obligations;
(D) the failure by the Company to continue in effect any
compensation plan in which you participate, or any plan
adopted prior to the change in control of the Company, unless
an equitable arrangement
<PAGE>
(embodied in an ongoing substitute or alternative plan) has
been made with respect to such plan in connection with the
change in control of the Company, or the failure by the
Company to continue your participation therein on
substantially the same basis, both in terms of the amount of
benefits provided and the level of your participation relative
to other participants, as existed at the time of the change in
control;
(E) the failure by the Company to continue to provide you with
benefits substantially similar to those enjoyed by you under
any of the Company's pension, life insurance, medical, health
and accident, or disability plans in which you were
participating at the time of a change in control of the
Company, the taking of any action by the Company which would
directly or indirectly materially reduce any of such benefits
or deprive you of any material fringe benefit enjoyed by you
at the time of the change in control of the Company, or the
failure by the Company to provide you with the number of paid
vacation days to which you are entitled on the basis of years
of service with the Company in accordance with the Company's
normal vacation policy in effect at the time of the change in
control.
(F) the failure by the Company without your consent to pay to you
any portion of your current compensation or to pay to you any
<PAGE>
installment of deferred compensation at the time such
installment is due under any deferred compensation program of
the Company;
(G) the failure of the Company to obtain a satisfactory agreement
from any successor to assume and agree to perform this
Agreement, as contemplated in Section 5 hereof; or
(H) any purported termination of your employment which is not
effected pursuant to a Notice of Termination satisfying the
requirements of Subsection (iv) below (and, if applicable, the
requirements of Subsection (ii) above); and for purposes of
this Agreement, no such purported termination shall be
effective.
In addition to your right to terminate for Good Reason as stated above, and
not in substitution therefor, you shall have the option at your discretion to
terminate your employment at any time within fifteen (15) months after the later
of (a) a change in control of the Company or (b) the expiration of the six (6)
months period during which you agree to remain in the employ of the Company
under paragraph 2(ii) of this Agreement. Such termination shall be conclusively
deemed to be a termination for Good Reason, but shall not affect your right to
terminate for Good Reason under any of the provisions of subsection (iii) above.
Your right to terminate your employment pursuant to this Subsection shall
not be affected by your incapacity due to physical or mental illness.
<PAGE>
(iv) Notice of Termination. Any purported termination by the Company or
by you shall be communicated by written Notice of Termination to
the other party hereto in accordance with Section 6 hereof. For
purposes of this Agreement, a "Notice of Termination" shall mean a
notice which shall indicate the specific termination provision in
this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for
termination of your employment under the provision so indicated.
(v) Date of Termination, Etc. "Date of Termination" shall mean (A) if
your employment is terminated for Disability, thirty (30) days
after Notice of Termination is given (provided that you have not
returned to the full-time performance of your duties during such
period) (B) if your employment is terminated pursuant to Subsection
(ii) or (iii) above or for any other reason (other than
Disability), the date specified in the Notice of Termination (which
shall not be less than thirty (30) days, and in the case of a
termination pursuant to Subsection (iii) above shall not be less
than thirty (30) nor more than sixty (60) days, respectively, from
the date such Notice of Termination is given); provided that if
within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other
party that a dispute exists concerning the termination, the Date of
Termination shall be the date on which the dispute is finally
determined, either by mutual written agreement of the parties, by a
<PAGE>
binding arbitration award, or by a final judgment, order or decree
of a court of competent jurisdiction (which is not appealable or
the time for appeal therefrom having expired and no appeal having
been perfected); provided further that the Date of Termination
shall be extended by a notice of dispute only if such notice is
given in good faith and the party giving such notice pursues the
resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Company will
continue to pay you your full compensation in effect when the
notice giving rise to the dispute was given (including, but not
limited to, base salary) and continue you as a participant in all
compensation, benefit and insurance plans in which you were
participating when the notice giving rise to the dispute was given,
until the dispute is finally resolved in accordance with this
Subsection. Amounts paid under this Subsection are in addition to
all other amounts due under this Agreement and shall not be offset
against or reduce any other amounts due under this Agreement except
as otherwise provided in paragraph (C) of Subsection 4 (iii).
4. Compensation Upon Termination. Following a change in control of the
Company, as defined by Subsection 2(i), upon termination of your employment you
shall be entitled to the following benefits:
(i) If your employment shall be terminated by the Company for Cause or
by you other than for Good Reason, the Company shall pay you your
full base salary through the Date of Termination at the rate in
effect at the time
<PAGE>
Notice of Termination is given plus any other amounts to which you
are entitled under any compensation plan of the Company, at the
time such payments are due, and the Company shall have no further
obligations to you under this Agreement.
(ii) If your employment shall be terminated by the Company or by you for
Retirement, or by reason of your death or for Disability, your
benefits shall be determined in accordance with the Company's
retirement and insurance program then in effect.
(iii)If your employment by the Company shall be terminated (a) by the
Company other than for Cause, Retirement or Disability or (b) by
you for Good Reason, then you shall be entitled to the benefits
provided below:
(A) The Company shall pay you your full base salary through the
Date of Termination at the rate in effect at the time Notice
of Termination is given, plus any other amounts to which you
are entitled under any compensation plan of the Company, at
the times such payments are due;
(B) In lieu of any further salary payments to you for periods
subsequent to the Date of Termination, the Company shall pay
as a severance payment to you, not later than the fifth day
following the Date of Termination, a lump sum severance
payment (the "Severance Payment") equal to 2.00 times your
Covered Compensation.
<PAGE>
"Covered Compensation" is your annual salary as determined by
your salary rate at the date of the change in control of the
Company, plus the cash portion of your Executive Incentive
Compensation Plan award for the Plan year in which the change
in control of the Company occurs (provided, however, that in
the case of a termination at your option under that portion of
Section 3 (iii) giving you an option to terminate at your
discretion, your salary rate shall be the greater of the rate
in effect at the date of change in control of the Company or
the rate immediately prior to the issuance of the Notice of
Termination);
(C) For a period after such termination equal to the period
actually used in calculating severance pay due to you under
Section 4(iii)(B), the Company shall provide you with life,
disability, accident and health insurance benefits
substantially similar to those which you are receiving
immediately prior to the Notice of Termination. Benefits
otherwise receivable by you pursuant to this Section 4(iii)(C)
shall be reduced to the extent comparable benefits are
actually received by you during such period following your
termination, and any such benefits actually received by you
shall be reported to the Company;
(D) In addition to the retirement benefits to which you are
entitled under the Retirement Plan or any successor plan
thereto, the Company shall pay you in one lump sum in cash on
the fifth day
<PAGE>
following the Date of Termination, a sum equal to the
actuarial equivalent of the excess of (x) the retirement
pension (determined as a straight life annuity commencing at
age 65) which you would have accrued under the terms of the
Retirement Plan (without regard to any amendment to the
Retirement Plan made subsequent to a change in control of the
Company and on or prior to the Date of Termination, which
amendment adversely affects in any manner the computation of
retirement benefits thereunder), determined as if you were
fully vested thereunder and had accumulated (after the Date of
Termination) that number of additional months of service
credit thereunder equal to the number of months for which
severance pay shall be due to you under Section 4(iii)(B)
hereof, at your highest annual rate of compensation during the
twelve (12) months immediately preceding the Date of
Termination (but in no event shall you be deemed to have
accumulated additional months of service credit after your
sixty-fifth (65th) birthday), and (y) the retirement pension
(determined as a straight-life annuity commencing at age 65)
which you had then accrued pursuant to the provisions of the
Retirement Plan. For purposes of clause (x), the term
"compensation" shall include amounts payable pursuant to
Section 4(iii)(B) hereof. For purposes of this Subsection,
"actuarial equivalent" shall be determined using the same
methods and
<PAGE>
assumptions utilized under the Retirement Plan immediately
prior to the change in control of the Company;
(iv) (A) Anything in this Agreement to the contrary notwithstanding, in
the event it shall be determined that any payment or
distribution by the Company to you or for your benefit
(whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required
under this Section 4(iv)) (a "Payment") would be subject to
the excise tax imposed by Section 4999 of the Code or any
interest or penalties are incurred by you with respect to such
excise tax (such excise tax, together with any such interest
and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then you shall be entitled to receive an
additional payment (a "Gross-Up Payment") in an amount such
that after payment by you of all taxes (including any interest
or penalties imposed with respect to such taxes), including,
without limitation, any income taxes (and any interest and
penalties imposed with respect thereto) and Excise Tax imposed
upon the Gross-Up Payment, you retain an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the
Payments.
<PAGE>
(B) Subject to the provisions of Section 4(iv)(C) below, all
determinations required to be made under this Section 4(iv),
including whether and when a Gross-Up Payment is required and
the amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination, shall be made by
the Company's independent audit firm (the "Accounting Firm")
which shall provide detailed supporting calculations both to
the Company and to you within fifteen (15) business days of
the receipt of notice from you that there has been a Payment,
or such earlier time as is requested by the Company. In the
event that the Accounting Firm is serving as accountant or
auditor for the individual, entity or group effecting the
Change of Control, you shall appoint another nationally
recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as
the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any
Gross-Up Payment, as determined pursuant to this Section
4(iv), shall be paid by the Company to you within five (5)
days of the receipt of the Accounting Firm's determination. If
the Accounting Firm determines that no Excise Tax is payable
by you , it shall furnish you with a written opinion that
failure to report the Excise Tax on your applicable federal
income tax return would not result in the imposition of a
negligence or similar penalty. Any
<PAGE>
determination by the Accounting Firm shall be binding upon the
Company and you. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the
initial determination by the Accounting Firm hereunder, it is
possible that the Gross-Up Payment made by the Company is less
than the payment which should have been made ("Underpayment"),
consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies
pursuant to this Section 4(iv) and you are thereafter required
to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and
any such Underpayment shall be promptly paid by the Company to
you or for your benefit.
<PAGE>
(C) You shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require
the payment by the Company of the Gross-Up Payment. Such
notification shall be given as soon as practicable but no
later than ten (10) business days after you are informed in
writing of such claim and shall apprise the Company of the
nature of such claim and the date on which such claim is
requested to be paid. You shall not pay such claim prior to
the expiration of the 30-day period following the date on
which you give such notice to the Company (or such shorter
period ending on the date that any payment of taxes with
respect to such claim is due). If the Company notifies you in
writing prior to the expiration of such period that it desires
to contest such claim, you shall:
(1) give the Company any information reasonably requested by
the Company relating to such claim,
(2) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from
time to time, including, without limitation, accepting
legal representation with respect to such claim by an
attorney reasonably selected by the Company,
<PAGE>
(3) cooperate with the Company in good faith in order to
effectively contest such claim, and
(4) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay
directly all costs and expenses (including additional interest
and penalties) incurred in connection with such contest and
shall indemnify and hold you harmless, on an after-tax basis,
for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without
limitation on the foregoing provisions of this Section 4(iv),
the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo
any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim
and may, at its sole option, either direct you to pay the tax
claimed and sue for a refund or contest the claim in any
permissible manner, and you agree to prosecute such contest to
a determination before any administrative tribunal, in a court
of initial jurisdiction and in one or more appellate courts,
as the Company shall determine; provided, however, that if the
Company directs you to pay such claim and sue for a refund,
the Company shall advance the amount of such
<PAGE>
payment to you, on an interest-free basis, and shall indemnify
and hold you harmless, on an after-tax basis, from any Excise
Tax or income tax (including interest or penalties with
respect thereto) imposed with respect to such advance or with
respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of
limitations relating to payment of taxes for your taxable year
with respect to which such contested amount is claimed to be
due is limited solely to such contested amount. Furthermore,
the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be
payable hereunder, and you shall be entitled to settle or
contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.
(D) If, after your receipt of an amount advanced by the Company
pursuant to this Section 4(iv), you become entitled to receive
any refund with respect to such claim, you shall (subject to
the Company's complying with the requirements of this Section
4(iv)) promptly pay to the Company the amount of such refund
(together with any interest paid or credited thereon after
taxes applicable thereto). If, after your receipt of an amount
advanced by the Company pursuant to this Section 4(iv), a
determination is made that you shall not be entitled to any
refund with respect to such claim and the Company does not
notify you in writing of its intent
<PAGE>
to contest such denial of refund prior to the expiration of
thirty (30) days after such determination, then such advance
shall be forgiven and shall not be required to be repaid and
the amount of such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid.
(v) The Company shall also pay to you all legal fees and expenses
incurred by you as a result of such termination (including all such
fees and expenses, if any, incurred in contesting or disputing any
such right of benefit provided by this Agreement).
(vi) You shall not be required to mitigate the amount of any payment
provided for in this Section 4 by seeking other employment or
otherwise, nor shall the amount of any payment or benefit provided
for in this Section 4 be reduced by any compensation earned by you
as the result of employment by another employer except as expressly
provided herein.
(vii)In addition to all other amounts payable to you under this Section
4, you shall be entitled to receive all benefits payable to you
under the Retirement Plan and any other plan or agreement relating
to retirement benefits.
5. Successors; Binding Agreement. (i) The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to
<PAGE>
perform it if no such succession had taken place. Failure of the Company to
obtain such assumption and agreement prior to the effectiveness of any such
succession shall be a breach of this Agreement and shall entitle you to
compensation from the Company in the same amount and on the same terms as you
would be entitled hereunder if you terminate your employment for Good Reason
following a change in control of the Company, except that for purposes of
implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the Date of Termination. As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and any successor to
its business and/or assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law or otherwise.
(ii) This Agreement shall inure to the benefit of and be enforceable by
your personal or legal representatives, executors, administrators,
successors, assigns, heirs, distributees, devisees and legatees. If
you should die while any amount would still be payable to you
hereunder if you had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to your devisees, legatees, or other
designee or if there is no such designee, to your estate.
(iii)This Agreement supersedes your prior change in control agreement,
which was effective January 1, 1997.
6. Notice. For the purposes of this Agreement, notices and all other
communications shall be in writing and shall be deemed to have been duly given
when delivered or mailed by United States certified or registered mail, return
receipt requested, postage prepaid, addressed to the respective addresses set
forth on the first page of this Agreement, provided that all notices to
<PAGE>
the Company shall be directed to the attention of the Board with a copy to the
Secretary of the Company, or to such other address as either party may have
furnished to the other in writing in accordance herewith, except that notice of
change of address shall be effective only upon receipt.
7. Miscellaneous. No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing
and signed by you and such officer as may be specifically designated by the
Board. No waiver by either party hereto at any time of any breach by the other
party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Rhode Island. All references to sections of the
Exchange Act or the Code shall be deemed also to refer to any successor
provisions to such sections.
8. Validity. The invalidity or unenforceability or any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
9. Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
<PAGE>
10. Arbitration. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in Providence,
Rhode Island, in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator's award in
any court having jurisdiction; provided, however, that you shall be entitled to
seek specific performance of your right to be paid until the Date of Termination
during the pendency of any dispute or controversy arising under or in connection
with this Agreement.
If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to the Company the enclosed copy of this letter which
will then constitute our agreement on this subject.
Sincerely,
VALLEY RESOURCES, INC.
By s/Alfred P. Degen
-----------------------------------------
Name: Alfred P. Degen
Title: President & Chief Executive Officer
Agreed to this 8th day
---
of April, 1999
-----
s/R. G. Drolet
- -----------------
Richard G. Drolet
Exhibit 10.(h)
April 1, 1999
Mr. Jeffrey P. Polucha
Vice President Marketing & Development
Valley Resources, Inc.
1595 Mendon Road
Cumberland, RI 02864
Dear Mr. Polucha:
Valley Resources, Inc. (which, together with its subsidiaries, is
hereinafter called "the Company") considers it essential to the best interests
of its stockholders to foster the continuous employment of key management
personnel. The Board of Directors of the Company (the "Board") recognizes that,
as is the case with many publicly held corporations, the possibility of a change
in control may exist and that such possibility, and the uncertainty and
questions which it may raise among management, may result in the departure or
distraction of management personnel to the detriment of the Company and its
stockholders.
The Board has determined that appropriate steps should be taken to
reinforce and encourage the continued attention and dedication of members of the
Company's management, including yourself, to their assigned duties without
distraction in the face of potentially disturbing circumstances arising from the
possibility of a change in control of the Company.
In order to induce you to remain in the employ of the Company and in
consideration of your agreeing to remain in the employ of the Company subject to
the terms and conditions set forth below, this letter agreement (the
"Agreement") sets forth the severance benefits which the Company agrees will be
provided to you in the event your employment with the Company is terminated
subsequent to a "change in control of the Company" (as defined in Section 2
hereof) under the circumstances described below.
<PAGE>
1. Term of Agreement. This Agreement shall commence on January 1, 1999 and
shall continue in effect through December 31, 1999; provided, however, that
commencing on January 1, 2000 and each January 1 thereafter, the term of this
Agreement shall automatically be extended for one (1) additional year unless,
not later than August 31 of the preceding year, the Company shall have given
notice that it does not wish to extend this Agreement; and provided further,
however, that notwithstanding any such notice by the Company not to extend, if a
change in control of the Company shall have occurred during the original or
extended term of this Agreement, this Agreement shall continue in effect for a
period of twenty-four (24) months from the occurrence of such change in control.
Notwithstanding the foregoing, the Company may terminate your employment at any
time, whether before or after a change in control, subject to providing such
benefits as shall be hereinafter specified.
2. Change in Control. (i) No benefits shall be payable hereunder unless
there shall have been a change in control of the Company, as set forth below,
and your employment by the Company shall thereafter have been terminated in
accordance with Section 3 below. For purposes of this Agreement, a "change in
control of the Company" shall mean a change in control of a nature that would be
required to be reported in response to Item 5(f) of Schedule 14A of Regulation
14A promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), whether or not the Company is then subject to such reporting
requirement; provided that, without limitation, such a change in control shall
be deemed to have occurred if (a) any "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act), other than a trustee or other fiduciary
holding securities under an employee benefit plan of the Company, is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing 20% or more of
the combined voting power
<PAGE>
of the Company's then outstanding securities; (b) during any period of two (2)
consecutive years (not including any period prior to the execution of this
Agreement), individuals who at the beginning of such period constitute the Board
and any new director whose election by the Board or nomination for election by
the Company's stockholders was approved by a vote of at least two thirds (2/3)
of the directors then still in office who either were directors at the beginning
of the period or whose election or nomination for election was previously so
approved, cease for any reason to constitute a majority thereof; or (c) the
business or businesses of the Company for which your services are principally
performed are disposed of by the Company pursuant to a partial or complete
liquidation of the Company, a sale of assets (including stock of a subsidiary)
of the Company, or otherwise.
(ii) For purposes of this Agreement, a "potential change in control of
the Company" shall be deemed to have occurred if (A) the Company
enters into an agreement, the consummation of which would result in
the occurrence of a change in control of the Company, (B) any
person publicly announces (including an announcement by the
Company) an intention to take actions which if consummated would
constitute a change in control of the Company; (C) any person
publicly announces (including an announcement by the Company) that
it has become the beneficial owner, directly or indirectly, of
securities of the Company representing 9.5% or more of the combined
voting power of the Company's then outstanding securities; or (D)
the Board adopts a resolution to the effect that, for purposes of
this Agreement, a potential change in control of the Company has
occurred. You agree that, subject to the terms and conditions of
this Agreement, in the event of a potential change in control of
the Company, you will remain in the employ of the Company for a
period of six (6) months from the occurrence of such potential
change in control of the Company.
<PAGE>
3. Termination Following Change in Control. If any of the events described
in Subsection 2(i) hereof constituting a change in control of the Company shall
have occurred, you shall be entitled to the benefits provided in Subsection
4(iii) hereof upon the subsequent termination of your employment during the term
of this Agreement unless such termination is (A) because of your death,
Retirement or Disability, (B) by the Company for Cause or (C) by you other than
for Good Reason.
(i) Disability; Retirement. If, as a result of your incapacity due to
physical or mental illness, you shall have been absent from the
full-time performance of your duties with the Company for six (6)
consecutive months, your employment may be terminated for
"Disability." Termination of your employment based on "Retirement"
shall mean termination in accordance with the Company's retirement
policy generally applicable to its salaried employees or in
accordance with any retirement arrangement established with your
consent with respect to you.
(ii) Cause. Termination by the Company of your employment for "Cause"
shall mean termination upon (A) the willful and continued failure
by you to substantially perform your duties with the Company (other
than any such failure resulting from your incapacity due to
physical or mental illness or any such actual or anticipated
failure after the occurrence of circumstances giving rise to a
Notice of Termination by you for Good Reason) after a written
demand for substantial performance is delivered to you by the
Board, which demand specifically identifies the manner in which the
Board believes that you have not substantially performed your
duties, or (B) the willful engaging by you in conduct which is
demonstrably and materially injurious to the Company, monetarily or
otherwise. For purposes of this Subsection, no act, or failure to
act, on your part shall be deemed "willful" unless done, or omitted
to be done, by you not in good faith and without reasonable belief
that your action or omission was in the best interest of the
Company.
<PAGE>
Notwithstanding the foregoing, you shall not be deemed to have been
terminated for Cause unless and until there shall have been
delivered to you copy of a resolution duly adopted by the
affirmative vote of not less than three-quarters (3/4) of the
entire membership of the Board at a meeting of the Board called and
held for such purpose (after reasonable notice to you and an
opportunity for you, together with your counsel, to be heard before
the Board), finding that in the good faith opinion of the Board you
were guilty of conduct set forth above in clauses (A) or (B) of the
first sentence of this Subsection and specifying the particulars
thereof in detail.
(iii)Good Reason. You shall be entitled to terminate your employment
for Good Reason. For purposes of this Agreement, "Good Reason"
shall mean, without your express written consent, any of the
following:
(A) the assignment to you of any duties inconsistent with your
status as Vice President Marketing & Development, or a
substantial alteration in the nature or status of your
responsibilities from those in effect immediately prior to a
change in control of the Company;
(B) a reduction by the Company in your annual base salary as in
effect on the date of the occurrence of a change in control of
the Company or as the same may be increased from time to time
except for across-the-board salary reductions similarly
affecting all executives of the Company and all executives of
any person in control of the Company; or the failure of the
Company to grant increases in salary in accordance with the
Company's regular practices;
(C) the relocation of the Company's principal executive offices to
a location more than twenty-five (25) miles from your present
office location or the Company's
<PAGE>
requiring you to be based anywhere other than the Company's
principal executive offices except for required travel on the
Company's business to an extent substantially consistent with
your present business travel obligations;
(D) the failure by the Company to continue in effect any
compensation plan in which you participate, or any plan
adopted prior to the change in control of the Company, unless
an equitable arrangement (embodied in an ongoing substitute or
alternative plan) has been made with respect to such plan in
connection with the change in control of the Company, or the
failure by the Company to continue your participation therein
on substantially the same basis, both in terms of the amount
of benefits provided and the level of your participation
relative to other participants, as existed at the time of the
change in control;
(E) the failure by the Company to continue to provide you with
benefits substantially similar to those enjoyed by you under
any of the Company's pension, life insurance, medical, health
and accident, or disability plans in which you were
participating at the time of a change in control of the
Company, the taking of any action by the Company which would
directly or indirectly materially reduce any of such benefits
or deprive you of any material fringe benefit enjoyed by you
at the time of the change in control of the Company, or the
failure by the Company to provide you with the number of paid
vacation days to which you are entitled on the basis of years
of service with the Company in accordance with the Company's
normal vacation policy in effect at the time of the change in
control.
<PAGE>
(F) the failure by the Company without your consent to pay to you
any portion of your current compensation or to pay to you any
installment of deferred compensation at the time such
installment is due under any deferred compensation program of
the Company;
(G) the failure of the Company to obtain a satisfactory agreement
from any successor to assume and agree to perform this
Agreement, as contemplated in Section 5 hereof; or
(H) any purported termination of your employment which is not
effected pursuant to a Notice of Termination satisfying the
requirements of Subsection (iv) below (and, if applicable, the
requirements of Subsection (ii) above); and for purposes of
this Agreement, no such purported termination shall be
effective.
In addition to your right to terminate for Good Reason as stated above, and
not in substitution therefor, you shall have the option at your discretion to
terminate your employment at any time within fifteen (15) months after the later
of (a) a change in control of the Company or (b) the expiration of the six (6)
months period during which you agree to remain in the employ of the Company
under paragraph 2(ii) of this Agreement. Such termination shall be conclusively
deemed to be a termination for Good Reason, but shall not affect your right to
terminate for Good Reason under any of the provisions of subsection (iii) above.
Your right to terminate your employment pursuant to this Subsection shall
not be affected by your incapacity due to physical or mental illness.
<PAGE>
(iv) Notice of Termination. Any purported termination by the Company or
by you shall be communicated by written Notice of Termination to
the other party hereto in accordance with Section 6 hereof. For
purposes of this Agreement, a "Notice of Termination" shall mean a
notice which shall indicate the specific termination provision in
this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for
termination of your employment under the provision so indicated.
(v) Date of Termination, Etc. "Date of Termination" shall mean (A) if
your employment is terminated for Disability, thirty (30) days
after Notice of Termination is given (provided that you have not
returned to the full-time performance of your duties during such
period) (B) if your employment is terminated pursuant to Subsection
(ii) or (iii) above or for any other reason (other than
Disability), the date specified in the Notice of Termination (which
shall not be less than thirty (30) days, and in the case of a
termination pursuant to Subsection (iii) above shall not be less
than thirty (30) nor more than sixty (60) days, respectively, from
the date such Notice of Termination is given); provided that if
within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other
party that a dispute exists concerning the termination, the Date of
Termination shall be the date on which the dispute is finally
determined, either by mutual written agreement of the parties, by a
binding arbitration award, or by a final judgment, order or decree
of a court of competent jurisdiction (which is not appealable or
the time for appeal therefrom having expired and no appeal having
been perfected); provided further that the Date of Termination
shall be extended by a notice of dispute only if such notice is
given in good faith and the party giving such notice pursues the
resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such
<PAGE>
dispute, the Company will continue to pay you your full
compensation in effect when the notice giving rise to the dispute
was given (including, but not limited to, base salary) and continue
you as a participant in all compensation, benefit and insurance
plans in which you were participating when the notice giving rise
to the dispute was given, until the dispute is finally resolved in
accordance with this Subsection. Amounts paid under this Subsection
are in addition to all other amounts due under this Agreement and
shall not be offset against or reduce any other amounts due under
this Agreement except as otherwise provided in paragraph (C) of
Subsection 4 (iii).
4. Compensation Upon Termination. Following a change in control of the
Company, as defined by Subsection 2(i), upon termination of your employment you
shall be entitled to the following benefits:
(i) If your employment shall be terminated by the Company for Cause or
by you other than for Good Reason, the Company shall pay you your
full base salary through the Date of Termination at the rate in
effect at the time Notice of Termination is given plus any other
amounts to which you are entitled under any compensation plan of
the Company, at the time such payments are due, and the Company
shall have no further obligations to you under this Agreement.
(ii) If your employment shall be terminated by the Company or by you for
Retirement, or by reason of your death or for Disability, your
benefits shall be determined in accordance with the Company's
retirement and insurance program then in effect.
<PAGE>
(iii)If your employment by the Company shall be terminated (a) by the
Company other than for Cause, Retirement or Disability or (b) by
you for Good Reason, then you shall be entitled to the benefits
provided below:
(A) The Company shall pay you your full base salary through the
Date of Termination at the rate in effect at the time Notice
of Termination is given, plus any other amounts to which you
are entitled under any compensation plan of the Company, at
the times such payments are due;
(B) In lieu of any further salary payments to you for periods
subsequent to the Date of Termination, the Company shall pay
as a severance payment to you, not later than the fifth day
following the Date of Termination, a lump sum severance
payment (the "Severance Payment") equal to 2.00 times your
Covered Compensation. "Covered Compensation" is your annual
salary as determined by your salary rate at the date of the
change in control of the Company, plus the cash portion of
your Executive Incentive Compensation Plan award for the Plan
year in which the change in control of the Company occurs
(provided, however, that in the case of a termination at your
option under that portion of Section 3 (iii) giving you an
option to terminate at your discretion, your salary rate shall
be the greater of the rate in effect at the date of change in
control of the Company or the rate immediately prior to the
issuance of the Notice of Termination);
(C) For a period after such termination equal to the period
actually used in calculating severance pay due to you under
Section 4(iii)(B), the Company shall provide you with life,
disability, accident and health insurance benefits
substantially similar to those
<PAGE>
which you are receiving immediately prior to the Notice of
Termination. Benefits otherwise receivable by you pursuant to
this Section 4(iii)(C) shall be reduced to the extent
comparable benefits are actually received by you during such
period following your termination, and any such benefits
actually received by you shall be reported to the Company;
(D) In addition to the retirement benefits to which you are
entitled under the Retirement Plan or any successor plan
thereto, the Company shall pay you in one lump sum in cash on
the fifth day following the Date of Termination, a sum equal
to the actuarial equivalent of the excess of (x) the
retirement pension (determined as a straight life annuity
commencing at age 65) which you would have accrued under the
terms of the Retirement Plan (without regard to any amendment
to the Retirement Plan made subsequent to a change in control
of the Company and on or prior to the Date of Termination,
which amendment adversely affects in any manner the
computation of retirement benefits thereunder), determined as
if you were fully vested thereunder and had accumulated (after
the Date of Termination) that number of additional months of
service credit thereunder equal to the number of months for
which severance pay shall be due to you under Section
4(iii)(B) hereof, at your highest annual rate of compensation
during the twelve (12) months immediately preceding the Date
of Termination (but in no event shall you be deemed to have
accumulated additional months of service credit after your
sixty-fifth (65th) birthday), and (y) the retirement pension
(determined as a straight-life annuity commencing at age 65)
which you had then accrued pursuant to the provisions of the
Retirement Plan. For purposes of clause (x), the term
"compensation" shall include amounts payable pursuant to
Section 4(iii)(B) hereof. For purposes of this Subsection,
<PAGE>
"actuarial equivalent" shall be determined using the same
methods and assumptions utilized under the Retirement Plan
immediately prior to the change in control of the Company;
(iv) (A) Anything in this Agreement to the contrary notwithstanding, in
the event it shall be determined that any payment or distribution
by the Company to you or for your benefit (whether paid or payable
or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any
additional payments required under this Section 4(iv)) (a
"Payment") would be subject to the excise tax imposed by Section
4999 of the Code or any interest or penalties are incurred by you
with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred
to as the "Excise Tax"), then you shall be entitled to receive an
additional payment (a "Gross-Up Payment") in an amount such that
after payment by you of all taxes (including any interest or
penalties imposed with respect to such taxes), including, without
limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the
Gross-Up Payment, you retain an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments.
(B) Subject to the provisions of Section 4(iv)(C) below, all
determinations required to be made under this Section 4(iv),
including whether and when a Gross-Up Payment is required and
the amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination, shall be made by
the Company's independent audit firm (the "Accounting Firm")
which shall provide detailed supporting calculations both to
the Company and to you within fifteen (15) business days of
the receipt of notice
<PAGE>
from you that there has been a Payment, or such earlier time
as is requested by the Company. In the event that the
Accounting Firm is serving as accountant or auditor for the
individual, entity or group effecting the Change of Control,
you shall appoint another nationally recognized accounting
firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm
shall be borne solely by the Company. Any Gross-Up Payment, as
determined pursuant to this Section 4(iv), shall be paid by
the Company to you within five (5) days of the receipt of the
Accounting Firm's determination. If the Accounting Firm
determines that no Excise Tax is payable by you , it shall
furnish you with a written opinion that failure to report the
Excise Tax on your applicable federal income tax return would
not result in the imposition of a negligence or similar
penalty. Any determination by the Accounting Firm shall be
binding upon the Company and you. As a result of the
uncertainty in the application of Section 4999 of the Code at
the time of the initial determination by the Accounting Firm
hereunder, it is possible that the Gross-Up Payment made by
the Company is less than the payment which should have been
made ("Underpayment"), consistent with the calculations
required to be made hereunder. In the event that the Company
exhausts its remedies pursuant to this Section 4(iv) and you
are thereafter required to make a payment of any Excise Tax,
the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall
be promptly paid by the Company to you or for your benefit.
(C) You shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require
the payment by the Company of the Gross-Up Payment. Such
notification shall be given as soon as practicable but no
later
<PAGE>
than ten (10) business days after you are informed in writing
of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be
paid. You shall not pay such claim prior to the expiration of
the 30-day period following the date on which you give such
notice to the Company (or such shorter period ending on the
date that any payment of taxes with respect to such claim is
due). If the Company notifies you in writing prior to the
expiration of such period that it desires to contest such
claim, you shall:
(1) give the Company any information reasonably requested by
the Company relating to such claim,
(2) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from
time to time, including, without limitation, accepting
legal representation with respect to such claim by an
attorney reasonably selected by the Company,
(3) cooperate with the Company in good faith in order to
effectively contest such claim, and
(4) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay
directly all costs and expenses (including additional interest
and penalties) incurred in connection with such contest and
shall indemnify and hold you harmless, on an after-tax basis,
for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such
representation and payment of costs
<PAGE>
and expenses. Without limitation on the foregoing provisions
of this Section 4(iv), the Company shall control all
proceedings taken in connection with such contest and, at its
sole option, may pursue or forgo any and all administrative
appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole
option, either direct you to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and you
agree to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction
and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs you
to pay such claim and sue for a refund, the Company shall
advance the amount of such payment to you, on an interest-free
basis, and shall indemnify and hold you harmless, on an
after-tax basis, from any Excise Tax or income tax (including
interest or penalties with respect thereto) imposed with
respect to such advance or with respect to any imputed income
with respect to such advance; and further provided that any
extension of the statute of limitations relating to payment of
taxes for your taxable year with respect to which such
contested amount is claimed to be due is limited solely to
such contested amount. Furthermore, the Company's control of
the contest shall be limited to issues with respect to which a
Gross-Up Payment would be payable hereunder, and you shall be
entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other
taxing authority.
(D) If, after your receipt of an amount advanced by the Company
pursuant to this Section 4(iv), you become entitled to receive
any refund with respect to such claim, you shall (subject to
the Company's complying with the requirements of this Section
4(iv)) promptly pay to the Company the amount of such refund
(together with any interest paid or credited thereon after
taxes applicable thereto). If, after your receipt of an amount
advanced by the Company pursuant to this Section 4(iv), a
determination is made that you
<PAGE>
shall not be entitled to any refund with respect to such claim
and the Company does not notify you in writing of its intent
to contest such denial of refund prior to the expiration of
thirty (30) days after such determination, then such advance
shall be forgiven and shall not be required to be repaid and
the amount of such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid.
(v) The Company shall also pay to you all legal fees and expenses
incurred by you as a result of such termination (including all such
fees and expenses, if any, incurred in contesting or disputing any
such right of benefit provided by this Agreement).
(vi) You shall not be required to mitigate the amount of any payment
provided for in this Section 4 by seeking other employment or
otherwise, nor shall the amount of any payment or benefit provided
for in this Section 4 be reduced by any compensation earned by you
as the result of employment by another employer except as expressly
provided herein.
(vii)In addition to all other amounts payable to you under this Section
4, you shall be entitled to receive all benefits payable to you
under the Retirement Plan and any other plan or agreement relating
to retirement benefits.
5. Successors; Binding Agreement. (i) The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. Failure of the Company to obtain such
assumption and agreement prior to the effectiveness of any such succession shall
be a breach of
<PAGE>
this Agreement and shall entitle you to compensation from the Company in the
same amount and on the same terms as you would be entitled hereunder if you
terminate your employment for Good Reason following a change in control of the
Company, except that for purposes of implementing the foregoing, the date on
which any such succession becomes effective shall be deemed the Date of
Termination. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of law
or otherwise.
(ii) This Agreement shall inure to the benefit of and be enforceable by
your personal or legal representatives, executors, administrators,
successors, assigns, heirs, distributees, devisees and legatees. If
you should die while any amount would still be payable to you
hereunder if you had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to your devisees, legatees, or other
designee or if there is no such designee, to your estate.
(iii)This Agreement supersedes your prior change in control agreement,
which was effective January 1, 1997.
6. Notice. For the purposes of this Agreement, notices and all other
communications shall be in writing and shall be deemed to have been duly given
when delivered or mailed by United States certified or registered mail, return
receipt requested, postage prepaid, addressed to the respective addresses set
forth on the first page of this Agreement, provided that all notices to the
Company shall be directed to the attention of the Board with a copy to the
Secretary of the Company, or to such other address as either party may have
furnished to the other in writing in accordance herewith, except that notice of
change of address shall be effective only upon receipt.
<PAGE>
7. Miscellaneous. No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing
and signed by you and such officer as may be specifically designated by the
Board. No waiver by either party hereto at any time of any breach by the other
party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Rhode Island. All references to sections of the
Exchange Act or the Code shall be deemed also to refer to any successor
provisions to such sections.
8. Validity. The invalidity or unenforceability or any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
9. Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
10. Arbitration. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in Providence,
Rhode Island, in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator's award in
any court having jurisdiction; provided, however, that you shall be
<PAGE>
entitled to seek specific performance of your right to be paid until the Date of
Termination during the pendency of any dispute or controversy arising under or
in connection with this Agreement.
If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to the Company the enclosed copy of this letter which
will then constitute our agreement on this subject.
Sincerely,
VALLEY RESOURCES, INC.
By s/A. P. Degen
------------------------------------------
Name: Alfred P. Degen
Title: President & Chief Executive Officer
Agreed to this 5th day
---
of April, 1999
-----
s/J. P. Polucha
- ------------------
Jeffrey P. Polucha
Cover Page
satisfaction
customer needs
initiative
teamwork
performance
(Photo appears here)
Valley Resources, Inc. Annual Report 1999
<PAGE>
Inside Front Cover
The Face of Performance
Fiscal 1999 brought us face to face with yet another set of risks,
responses and rewards. Once again, our diversified structure enabled us to
generate ore than a quarter of our revenues and net income from business units
operating outside of traditional, utility markets.
As we near the threshold of a new millennium replete with evolving energy
market expectations, Valley is well positioned to take advantage of our
expertise in meeting customer needs.
This report takes an up close look at the people and events of the last
year which have made an impact on the performance of Valley, and perhaps most
importantly, on the experiences of the customers we serve.
(Photo appears here)
<PAGE>
Overview and Financial Highlights
Corporate Overview
Valley Resources, Inc. has six active subsidiaries. Valley Gas Company and
Bristol & Warren Gas Company (collectively, the "Utilities") are natural gas
distribution companies regulated by the Rhode Island Public Utilities
Commission; Valley Appliance and Merchandising Company (VAMCO) merchandises and
rents appliances, energy conservation equipment and residential water filtration
equipment and offers appliance service contracts; Valley Propane, Inc. (Valley
Propane) sells propane at both retail and wholesale; and Morris Merchants, Inc.
(Morris) is a wholesale distributor of franchised lines in plumbing and heating
contractor supply and other energy related businesses. Alternate Energy
Corporation (AEC), 80 percent owned, designs and installs natural gas vehicle
conversion systems and refueling facilities, is an authorized representative of
the ONSI fuel cell, and holds patents for a natural gas/diesel co-firing system
and a device to control the flow of fuel on dual-fuel equipment.
<TABLE>
Financial Highlights
<CAPTION>
For the year ended August 31 (in thousands) 1999 1998 1997
- ------------------------------------------- ---- ---- ----
<S> <C> <C> <C>
Operating revenues ............................. $81,710 $81,589 $87,484
Operation expenses, maintenance and depreciation 68,925 69,781 75,302
Operating income before taxes .................. 12,785 11,808 12,182
Taxes - other than Federal income .............. 4,117 4,120 4,243
Taxes - Federal income ......................... 1,772 1,330 1,335
Other income - net of taxes .................... 299 289 423
Interest charges ............................... 3,008 3,041 3,368
Net income ..................................... $ 4,187 $ 3,606 $ 3,659
Basic and diluted earnings per share ........... $ 0.84 $ 0.73 $ 0.86
Dividends declared per common share ............ $ 0.75 $ 0.745 $ 0.735
Net utility plant (thousands) .................. $52,334 $51,310 $50,447
Capital expenditures (thousands) ............... $ 4,483 $ 4,534 $ 4,293
Average number of common shares outstanding .... 4,979,508 4,966,270 4,267,038
</TABLE>
(Photo appears here)
Photo tag: Left to right: Valley Resources, Inc. corporate offices; Bristol &
Warren Gas Company offices; Walter F. Morris Company offices; AEC
Natural Gas Vehicle refueling station in Cumberland.
1
<PAGE>
Message to Shareholders
Dear Fellow Shareholders,
This year marks the 20th anniversary of the incorporation of Valley
Resources as a holding company. The vision of the Corporation's management team
and Board of Directors at the time was critical in providing Valley with the
flexibility and corporate structure required to take advantage of non-regulated
business opportunities. This strategy has served Valley and its' shareholders
well throughout the years. During these past 20 years Valley has grown both its
regulated and non-regulated businesses through acquisition and internal growth.
Our utility business continues to offer a stable, relatively predictable
earnings stream for the Corporation. Our non-regulated activities provide a
level of diversity and the opportunity for growth at a pace above the usual
utility return.
Fiscal year 1999 provided more than its' share of challenges for the
Corporation. The weather in 1999 was again significantly warmer than normal. As
measured by degree days, the weather was nine percent warmer than normal which
approximated the weather experienced in fiscal year 1998. This past year the
Corporation purchased a weather insurance product designed to minimize the
effect on earnings from significant weather swings. This financial strategy
resulted in a positive impact on earnings for the year.
Despite the warmer than normal weather Valley's financial results were
strong. Earnings for the year were $4,186,600 or $0.84 per share, an increase of
16 percent over the prior year. Continued cost controls, the impacts of the
weather insurance product, and solid results from our propane operation were
primarily responsible for this improvement. Total shareholder return for the
year was 21 percent including stock appreciation and dividends. The
Corporation's balance sheet remains strong, leaving Valley well positioned to
pursue growth opportunities.
Our utility business continued to benefit from strong regional economic
activity. Combined, new housing construction and conversions from other fuels
resulted in the addition of over 800 new customers. Commercial development also
contributed to increased gas sales. In Highland Corporate Park, a major business
park in Cumberland,
2
<PAGE>
Message to Shareholders
the first two buildings were completed and occupied during this past year. Other
indicators of economic vitality in northern Rhode Island include the development
of a new hotel complex in Woonsocket and plans for a major renovation of the
Lincoln Mall. In the Bristol & Warren Gas service area, continued expansion of
the campus at Roger Williams University and new residential construction are
responsible for additional gas load.
On a broader scale, the energy business in New England will benefit from
increased pipeline capacity. Two new pipeline projects are scheduled to be on
line before the forthcoming winter season, bringing additional natural gas to
the region. These projects will bring gas supplies from western Canada and
offshore production from the Canadian Maritimes to the New England market. No
longer will the natural gas industry in New England be constrained by limited
capacity. Another significant infrastructure development was recently completed
as a liquefied natural gas (LNG) export facility in Trinidad and Tobago was
brought on line. This project will provide an additional source of LNG for New
England, thus enhancing supply security for this valuable peaking resource.
The results for Valley's non-regulated businesses approximated the prior
year's levels. VAMCO had another solid year in 1999. Major installation and
conversion projects in the commercial and institutional area contributed to
VAMCO's success. The appliance rental business also continued to be strong. A
renewed marketing focus also
(Photo appears here)
Photo tag: A Facelift for a
Landmark
McCoy Stadium, home of our local heroes, the Pawtucket Red Sox (AAA
affiliate team of the Major League Baseball Boston Red Sox) received a
major renovation this past year, as both public and private sector funding
was used to expand seating, construct additional on site facilities and
parking. The existing field was reconstructed with home plate pushed
eleven feet out from its former position. McCoy is located in Pawtucket,
the birthplace of Valley Gas Company.
3
<PAGE>
Message to Shareholders
produced positive results in the number of customers participating in the
ServGuard appliance repair contract program. Valley Propane, although adversely
affected by the warm weather during the critical heating season, experienced an
increase in gallons sold and earnings compared to the prior year. Morris
Merchants results were influenced in part by a labor stoppage experienced by one
of their major manufacturers which reduced production and availability for a
portion of the year. Additional resources were provided to AEC to enhance
marketing efforts. During the year, AEC completed construction of two compressed
natural gas refueling stations for the State of Rhode Island. Work was nearly
completed on the first fuel cell installation by AEC, at South County Hospital
in Wakefield, Rhode Island. AEC also recently received patent approval for its'
Passport System, which is a fuel system designed to control precisely the amount
of fuel used in dual fuel installations, which should have a positive impact on
the users' overall energy costs. AEC has a number of exciting projects currently
in process.
This past year we continued our commitment to involve employees from all
levels of the organization in process improvement efforts. For example, employee
work teams developed a new service order format which went into use in 1999.
This change should improve customer service and
(Photo appears here)
Photo tag: The Changing Face
of Downtown
The new Blackstone Valley Heritage Corridor Commission Tourist Center
is located in Pawtucket at the site of a former department store across the
street from Slater Mill, the birthplace of the American Industrial
Revolution. This center features a scale floor map of the Blackstone
Valley, a theater featuring seating and fixtures from Pawtucket's famed
Leroy Theater, a Rhode Island Public Transit Authority bus station, the
Slater Mill gift shop and gallery, and assorted retail spaces. The center
stands in the heart of Pawtucket's refurbished downtown area, adjacent to
the Blackstone River.
4
<PAGE>
Message to Shareholders
reduce operating expenses. A cross-functional team representing areas across the
organization was responsible for the success of this effort.
This December, Eleanor M. McMahon will be retiring as a member of the Board
of Directors after more than 15 years of outstanding service to the Corporation.
Dr. McMahon's wise counsel will be greatly missed.
As we look back on another year in the history of a business which started
nearly 150 years ago, I am confident that Valley is well positioned to continue
to provide solid returns for our shareholders, opportunities for our employees,
a working partnership with the communities we serve and outstanding customer
service. On behalf of the Board of Directors, I thank you for your continued
support and confidence.
s/A. P. Degen
- -----------------------------------------------
Alfred P. Degen
Chairman, President, & Chief Executive Officer
(Photo appears here)
Photo tag: Chairman, President, & CEO, Alfred P. Degen was elected
chairman of the New England Gas Association at the NEGA annual
meeting in March. The program content for the annual meeting was
geared toward the conference theme, " Exploring New England's
Changing Marketplace." In the months since, Al has presided over
the activities of the trade association.
5
<PAGE>
Summary of
Annual Earnings and Dividends
Summary of Annual Earnings
Consolidated net income is derived from the operations of the Corporation's
six active subsidiaries: Valley Gas Company, Bristol & Warren Gas Company,
Valley Appliance and Merchandising Company, Valley Propane, Inc., Morris
Merchants, Inc., and Alternate Energy Corporation. Consolidated net income for
fiscal 1999 was $4,186,609 or $0.84 per average common share outstanding, as
compared to $3,605,961 or $0.73 per share in fiscal 1998.
Valley Gas and Bristol & Warren, the utility subsidiaries, contributed
$3,037,900 to consolidated net income, an increase of $404,800 over fiscal 1998.
Utility earnings were positively affected by an increase in firm transportation,
decreased operating expenses and slightly lower interest expense. Weather, as
measured on a degree day basis, was less than one percent warmer than the
previous year and 9.1 percent warmer than normal.
In fiscal 1999, the contribution of the nonutility operating companies to
consolidated earnings was $1,148,700 compared to $972,900 for fiscal 1998.
Nonutility operations experienced earnings increases as a result of the
Corporation's weather insurance product and propane operations, offset by
declines in wholesale operations and AEC. The weather insurance product helped
mitigate the effects of the warmer than normal weather conditions experienced
during this past winter. Propane earnings reflect the ability to control margin
in a highly competitive environment resulting in increased gallons sold by
offering innovative solutions to customers. Retail and wholesale operations
experienced increased sales but were hindered by increased operating costs. The
operations of AEC generated a net loss in fiscal 1999 as a result of increased
staffing. New staffing levels have contributed to an increase in work in
progress.
<TABLE>
Dividends and Market Data
<CAPTION>
Cash Market Price
1999 Dividend High Low
<S> <C> <C> <C>
First Quarter $.1875 $13.38 $11.00
Second Quarter .1875 13.00 12.13
Third Quarter .1875 13.00 10.50
Fourth Quarter .1875 16.50 11.00
1998
First Quarter $.1850 $11.50 $10.25
Second Quarter .1850 12.38 10.63
Third Quarter .1875 12.13 11.13
Fourth Quarter .1875 12.13 11.13
</TABLE>
6
<PAGE>
(Charts appear here)
<TABLE>
<CAPTION>
Book Value/
Market Price
Book Value Market Price
<S> <C> <C>
FY 95 6.10 10.750
FY 96 6.33 11.875
FY 97 7.00 11.000
FY 98 7.05 11.625
FY 99 7.17 13.375
</TABLE>
<TABLE>
<CAPTION>
Weather Variance
from Normal
Actual Sales
Effective Normal
Degree Days Degree Days % Change
<S> <C> <C> <C>
FY 95 5821 6339 -8.2%
FY 96 6369 6339 0.5%
FY 97 6190 6339 -2.4%
FY 98 5797 6339 -8.6%
FY 99 5763 6339 -9.1%
</TABLE>
<TABLE>
<CAPTION>
Net Income
Utility Nonutility
<S> <C> <C>
FY 95 1,665,400 889,500
FY 96 3,206,400 792,000
FY 97 2,607,500 1,051,800
FY 98 2,633,100 972,900
FY 99 3,037,900 1,148,700
</TABLE>
<TABLE>
<CAPTION>
MMcf Sales
Mcf Transported
Natural Gas Volumes
Firm Interruptible
<S> <C> <C>
1995 7,369 5,717
1996 8,255 4,292
1997 7,994 6,152
1998 7,764 5,543
1999 7,787 5,134
</TABLE>
7
<PAGE>
(Photo appears here)
Photo tag: Marie Amaral, a customer service representative for Bristol & Warren
Gas Company and eighteen-year veteran of the company, recently
received her United States citizenship at a ceremony held at Bishop
McVinney Auditorium in Providence. Marie was born in the Azores and
emigrated to the United States May 25, 1969. The many Portuguese-
speaking customers of Bristol & Warren rely on Marie, who is
bilingual, to communicate information regarding their gas service.
8
<PAGE>
The Year in Review
Changing Roles in Robust Markets
During fiscal 1999, the Corporation continued to reap the benefits of a
healthy regional economy which brought increased demand for natural gas and
energy-related products and services. The Utilities' contribution to Valley
Resources financial performance benefited from increases in construction of new
housing, commercial and industrial occupancy and very competitive rates versus
other energy sources.
Natural gas is the fuel of choice as it continues to enjoy dominant market
share in new construction. The Utilities were prepared to handle this increase
in demand in new construction through our focus on process improvement.
Streamlined contacts with building contractors and developers have shortened the
lead time for getting natural gas service installed in new residential
developments. This process change has improved business relationships with
contractors and other energy specifiers.
This year our commercial and industrial marketing professionals capitalized
on the flexibility and competitiveness of the Utilities' rate structure which
brought numerous opportunities to expand the use of natural gas. We continue to
find ourselves working in advisory capacities in order to help customers
understand and maximize opportunities in a deregulated marketplace. This has led
customers, such as Heritage Kayaks, to seek assistance from our knowledgeable
marketing representatives in determining the appropriate energy solutions.
Additionally, the Utilities enjoyed a continued expansion into markets
which generate revenues from the transportation of natural gas. Greater numbers
of commercial and industrial customers have chosen to select their natural gas
suppliers and at the same time increase the volumes of gas used. The Utilities
benefited from the transportation of larger volumes of gas.
In order to mitigate the impact of warm weather trends on the Utilities and
the propane company and to stabilize earnings, the Corporation purchased a
weather insurance product for the winter heating season consisting of the months
November 1998 through March 1999. This product provided a collar of 2.7 percent
variance above and below normal weather. In the face of a warmer than normal
winter, the policy resulted in a positive impact on fiscal 1999 earnings.
(Photo appears here)
Photo tag: The Face of Industry
In the Bristol & Warren Gas service area, known to Rhode Islanders as
the "East Bay", marine manufacturing is a core industry and one which
utilizes clean natural gas for many production processes. Here, Patricia
Abbruzzi of Heritage Kayaks in Bristol is busy producing "SeaDarts", one of
the many models in the company's unique line of open cockpit self baling
kayaks. Heritage uses natural gas ovens to heat the cast aluminum molds
used in the rotational molding process.
9
<PAGE>
(Photo appears here)
Photo tag: Michele Amaral, Cathy Puget and Judy Tomlinson are three of our
customer service representatives who participated in a program
tailored toward providing rewards to customer contact personnel for
generating incremental sales of the company's service plan,
ServGuard. The company increased sales of ServGuard plans as
compared with the previous year, the result of making the effort to
qualify the appliances and equipment in place in individual
customers' homes, and using their marketing training to sell
customers on the benefits of the company's warranty protection plan.
10
<PAGE>
The Year in Review
Improving Processes For
Greater Responsiveness
Valley's continued commitment to making change happen through processes
which deliver quality, provide for continuous learning, and foster personal
development led to the implementation of a new service order process. This
effort included training for personnel involved in all aspects of customer
service administration and delivery. This cross-functional team effort was
created in response to customer demands for information, including customer
service, credit, information systems, and appliance service. The completed
service order has enjoyed widespread acceptance and an improvement in the
quality of service rendered by making better information available to customer
service representatives and technicians.
Streamlining the protocols through which service technicians communicate
with customers and other key audiences was a priority during the past year. The
implementation of wireless phone technology in functional areas with customer
contact employees provides direct communication among customers and service
personnel, resulting in improved service levels, more efficient inventory and
parts management and greater diagnostic accuracy in service calls.
In addition, an extensive customer service training program was initiated
to improve customer service, increase revenues, and reduce expenses. Customer
contact employees from our call center, credit and collections areas, and meter
reading teams attended monthly training sessions designed to improve results and
individual core competencies. These performance enhancements in tandem with the
development of a comprehensive customer service department business plan have
resulted in significant benefits. Efforts to increase revenues and decrease
costs in the customer contact areas have resulted in marked improvements in
measures such as average contact handling time, accuracy in call handling, meter
reading, information collection and ancillary product and service sales. Both
the Utilities and the nonregulated subsidiaries are generating increased
revenues from the various efforts focusing on using customer contact personnel
to increase customers' awareness of the products and services marketed by the
Corporation.
(Photo appears here)
Photo tag: The Face of Community
In April, a celebration was held to recognize the ten-year
partnership between the ARC (Association for Retarded Citizens) of
Northern Rhode Island and Valley Resources. The ARC has been
operating the food service function since 1989. Here, Barbara Kelly,
a RIARC client, prepares luncheon specialties in the cafeteria.
11
<PAGE>
(Photo appears here)
Photo tag: As more homeowners are counting on clean, versatile,
environmentally friendly natural gas, area homebuilders like Phil
Garcia (L) of Milestone Homes know they can depend on Dan Charest
(R), Service Installation Coordinator, to work closely with them in
the field to coordinate the installation of natural gas service to
new homes. Phil Garcia specifies natural gas for heating, water
heating, cooking, drying, and fireplace logs in the quality homes
Milestone is known for.
12
<PAGE>
The Year in Review
Collaboration Among Subsidiaries
The Corporation continues to benefit from the collaborative effort of its
subsidiaries to generate increased revenues. VAMCO continued to build on its
recent series of successes in commercial heating, water heating, and air
conditioning systems markets within the Utilities' franchised service area. This
year it continued a long term relationship with Roger Williams University in
Bristol, as clean natural gas energy was specified for both new installations
and upgrades of existing energy systems and equipment. This was another example
of the "win-win" experience for both customers and the Corporation, the result
of a custom approach which draws from our collective energy product and service
experience. The result was a comprehensive energy management project, for which
VAMCO provided design, engineering, installation, financing, and general
contracting services for the conversion of facilities from oil to natural gas,
at Roger Williams.
Included among the various projects which VAMCO completed in fiscal 1999
and in which the Utilities also benefited, was the renovation of the heating and
air conditioning systems in the offices of the Rhode Island Department of
Children Youth and Families facility, located in Pawtucket.
In the residential market, VAMCO and Morris work closely together to
capitalize on synergies which offer Morris indirect access to other wholesale
channels of distribution and provides VAMCO with a variety of quality lines of
heating, water heating, water filtration and other home comfort products. VAMCO
continued its line expansions in the residential consumer markets this year,
with the addition of new lines of water filtration products and services,
boilers, furnaces, space heaters and the gas industry's fastest growing segment,
hearth products, which includes gas logs, fireplaces, and cast iron stoves.
Valley Propane and VAMCO collaborated on several unique projects this year.
In particular, at Crestwood Country Club, a local golf course, Valley Propane
developed a creative storage solution for discreetly camouflaging four 1,000
gallon propane tanks underground under a landscaped flower bed. Barely visible
are the tank covers, concealed by shrubs and plantings. In addition to this
creative solution, Valley Propane signed a three-year supply contract for all of
the club's propane, and VAMCO coordinated the sale and installation of the
heating equipment.
At Stonehenge Condominiums in Smithfield, Valley Propane performed
conversions of condominium units from electric water heating to propane, with
VAMCO marketing new high efficiency propane fired water heating systems. In
addition, Valley Propane signed many new propane delivery customers in the
development under fixed price contracts.
(Photo appears here)
Photo tag: The Face Behind
Customer Satisfaction
John Jackson, Commercial & Industrial Project Manager, VAMCO, has
worked closely with Roger Williams University to ensure that the many
energy projects the company is managing are working smoothly and
efficiently. John is deeply committed to success in this ongoing customer
relationship, and his efforts continue to be rewarded with repeat business.
13
<PAGE>
(Photo appears here)
Photo tag: Christine Carpenter, Alan Ladieu and Gladys Sarji are among the
many dedicated customer service contact persons behind the scene who
make sure each customer we speak with has a positive experience and
is greeted with a "voice with a smile" when they call. Gladys,
Christine, and Alan have embarked on a program of continuous
learning and personal development, and to date customers agree that
this training effort is a worthwhile endeavor.
14
<PAGE>
The Year in Review
New Products and Services
VAMCO has enhanced its offerings in the areas of general commercial and
industrial contracting including relatively new specialties such as water piping
and sprinkler system retrofitting. These new services will provide VAMCO with
continued growth in the commercial and industrial markets.
Morris continues to build on its relationship with customers and suppliers.
A new line of safety products has been added to its mix to complement its lines
of plumbing and water heating equipment.
Valley Propane enjoyed an increase in gallons sold and its earnings were
positively impacted by offering fixed price contracts which allowed customers to
lock in pricing to protect against future price increases. Valley Propane also
implemented a new electronic delivery ticket system which has resulted in
improved inventory management and cost control. These innovative approaches
contributed to earnings improvements for this subsidiary.
During fiscal 1999 AEC was awarded a United States Patent to protect its
proprietary Passport FMS Multi Fuel Management System. This system is designed
to provide control of the natural gas utilized in firm or interruptible
applications.
The Passport also facilitates transfer from and to natural gas and other
fuels including fuel oil and propane, based upon consumption and curtailment
requirements. This new product offering was developed to satisfy customer needs
which have evolved as a result of natural gas unbundling.
Clean Energy Solutions
Construction of alternate fuel refueling stations continues to be a key
market segment for AEC. Two natural gas refueling stations were sold to the
State of Rhode Island and installed at a Department of Transportation facility
in Middletown and at The University of Rhode Island in South Kingstown. These
stations are being used to accommodate the fast growing number of natural gas
powered vehicles operated by the various state agencies and departments in Rhode
Island.
AEC also began the process of designing and installing its first fuel cell
project, consisting of an ONSI PC-25 fuel cell at South County Hospital in
Wakefield, Rhode Island. AEC is providing the design and installation expertise
for this 200 kilowatt fuel cell which will provide premium power for this health
care facility. It is expected that this project will be completed during the
first quarter of fiscal 2000.
(Photo appears here)
Photo tag: The Face Behind
Achievement
At this year's New England Gas Association annual conference, Dennis
Francis, Manager of Safety & Training, accepted another safety award citing
the Utilities' exemplary safety achievement as evidenced by our record of
improvement in employee safety among new England gas utilities with less
than 300 employees.
15
<PAGE>
The Year in Review
Facing the Millennium
In 1996 we initiated our Year 2000 Readiness Plan. Our Y2K Project Team has
been working diligently ever since to ensure the safe and reliable delivery of
products and services on and after January 1, 2000. As of July, we believe all
of our systems and protocols were addressed and remediated where necessary.
In February we provided a comprehensive overview of our Y2K preparedness
activities to the Rhode Island Public Utilities Commission. In April and May we
conducted similar presentations through public forums in our utility service
areas, as part of an overall public information campaign coordinated by the
Rhode Island Year 2000 Program Office and the Rhode Island Emergency Management
Agency.
The year 2000 will also mark the 150th anniversary of Valley Resources. The
Corporation began as the Pawtucket Gas Company, the form through which we began
our tradition of excellence in energy products and services in 1850.
Summary
The fiscal 1999 results are a reflection of the people whose drive and
commitment have furthered the Corporation's success. Valley Resources has the
talent and initiative to face and capitalize on the opportunities and challenges
brought about by the deregulated natural gas industry.
(Photo appears here)
Photo tag: The Face Behind
Y2K Readiness
Robert Ricciardi of Information Systems is a lead member of our Y2K
project team. Through his and others' efforts in remediating Y2K-sensitive
hardware, software, and other protocols, we've completed our Y2K review and
we're confident in our ability to ensure the safe and reliable delivery of
products and service on January 1, 2000 and beyond.
16
<PAGE>
Financial Information
Consolidated Statements of Earnings...........................................18
Consolidated Statements of Cash Flows.........................................19
Consolidated Balance Sheets...................................................20
Consolidated Statements of Changes in Common Stock Equity.....................22
Consolidated Statements of Capitalization.....................................22
Notes to Consolidated Financial Statements....................................23
Report of Independent Certified Public Accountants............................32
Management's Discussion and Analysis..........................................33
Summary of Consolidated Operations............................................38
Gas Operating Statistics......................................................39
Corporate Information.........................................................40
Directors......................................................Inside Back Cover
Officers.......................................................Inside Back Cover
17
<PAGE>
<TABLE>
Consolidated Statements of Earnings
<CAPTION>
For the year ended August 31 1999 1998 1997
- ---------------------------- ---- ---- ----
<S> <C> <C> <C>
Operating revenues:
Utility gas revenues ................... $58,529,386 $59,343,603 $66,230,787
Nonutility revenues .................... 23,180,791 22,245,293 21,253,190
----------- ----------- -----------
Total .............................. 81,710,177 81,588,896 87,483,977
----------- ----------- -----------
Operating expenses:
Cost of gas sold ....................... 30,493,570 31,437,159 37,843,842
Cost of sales - nonutility ............. 15,787,006 15,516,609 14,790,835
Operations ............................. 17,557,983 17,880,673 17,890,281
Maintenance ............................ 1,689,664 1,671,829 1,633,671
Depreciation ........................... 3,397,598 3,274,513 3,143,719
Taxes - other than Federal income ...... 4,116,642 4,119,808 4,242,841
- Federal income ................. 1,772,370 1,330,045 1,334,677
----------- ----------- -----------
Total .............................. 74,814,833 75,230,636 80,879,866
----------- ----------- -----------
Operating income .......................... 6,895,344 6,358,260 6,604,111
Other income - net of tax ................. 299,205 288,464 423,476
----------- ----------- -----------
Total income before interest .............. 7,194,549 6,646,724 7,027,587
----------- ----------- -----------
Interest charges:
Long-term debt ......................... 2,388,817 2,482,840 1,957,052
Other .................................. 619,123 557,923 1,411,222
----------- ----------- -----------
Total .............................. 3,007,940 3,040,763 3,368,274
----------- ----------- -----------
Net income available for common stock ..... $ 4,186,609 $ 3,605,961 $ 3,659,313
=========== =========== ===========
Average number of common shares outstanding 4,979,508 4,966,270 4,267,038
Basic and diluted earnings per share ...... $ 0.84 $ 0.73 $ 0.86
The accompanying Notes are an integral part of these statements.
</TABLE>
18
<PAGE>
<TABLE>
Consolidated Statements of Cash Flows
<CAPTION>
For the year ended August 31 1999 1998 1997
- ---------------------------- ---- ---- ----
<S> <C> <C> <C>
Increase (decrease) in cash:
Cash flows from operating activities:
Net income ...................................... $ 4,186,609 $ 3,605,961 $ 3,659,313
Adjustments to reconcile net income to net cash:
Depreciation .................................. 3,397,598 3,274,513 3,143,719
Provision for uncollectibles .................. 1,247,842 1,912,813 1,603,597
Deferred Federal income taxes ................. 274,752 773,217 441,638
Amortization of investment tax credits ........ (47,688) (48,402) (49,090)
Change in assets and liabilities:
Accounts receivable ........................... (1,380,511) (413,842) (2,841,404)
Deferred fuel costs ........................... 911,178 (1,277,658) 1,620,252
Unbilled gas costs ............................ 6,104 1,702 (1,140)
Fuel and other inventories .................... (140,622) 301,688 (71,908)
Prepayments ................................... (157,965) (63,281) 119,631
Common stock held for dividend reinvestment plan (21,472) 230,552 (220,829)
Prepaid pensions .............................. (1,564,044) (1,728,432) (924,745)
Accounts payable .............................. 1,110,923 (23,435) (944,778)
Security deposits ............................. (9,155) (57,230) (61,952)
Taxes accrued ................................. 173,400 73,554 171,730
Other ......................................... 118,264 548,114 520,799
------------ ------------ ------------
Total adjustments ............................... 3,918,604 3,503,873 2,505,520
------------ ------------ ------------
Net cash provided by operating activities ......... 8,105,213 7,109,834 6,164,833
------------ ------------ ------------
Cash flows from investing activities:
Utility capital expenditures .................... (3,841,768) (3,555,028) (3,599,752)
Nonutility capital expenditures ................. (640,849) (978,538) (693,229)
Other investments ............................... (103,422) (44,924) (81,222)
------------ ------------ ------------
Net cash used by investing activities ............. (4,586,039) (4,578,490) (4,374,203)
------------ ------------ ------------
Cash flows from financing activities:
Dividends paid .................................. (3,723,724) (3,698,155) (3,130,413)
Common stock transactions ....................... (54,870) 869,155 6,450,861
Issuance of long-term debt, net of issuance cost -0- -0- 9,655,515
Issuance of revolving credit arrangement ........ -0- 100,000 100,000
Retirement of long-term debt .................... (2,303,875) (209,200) (1,553,395)
Increase (decrease) in notes payable ............ 2,500,000 400,000 (13,000,000)
------------ ------------ ------------
Net cash used by financing activities ............. (3,582,469) (2,538,200) (1,477,432)
------------ ------------ ------------
Net (decrease) increase in cash ................... (63,295) (6,856) 313,198
Cash, beginning ................................... 813,155 820,011 506,813
------------ ------------ ------------
Cash, ending ...................................... $ 749,860 $ 813,155 $ 820,011
============ ============ ============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest ...................................... $ 2,932,870 $ 2,788,390 $ 3,378,894
============ ============ ============
Federal income taxes .......................... $ 1,341,309 $ 500,000 $ 861,140
============ ============ ============
Supplemental disclosures of noncash activity:
Capital lease obligations incurred .............. $ 30,297 $ 832,026 $ 388,139
============ ============ ============
The accompanying Notes are an integral part of these statements.
</TABLE>
19
<PAGE>
<TABLE>
Consolidated Balance Sheets
<CAPTION>
August 31 1999 1998
- --------- ---- ----
<S> <C> <C>
Assets:
Utility plant, at cost ........................................... $ 86,445,703 $ 82,964,897
Less: Accumulated provision for depreciation .................... 34,111,279 31,655,080
------------ ------------
Net utility plant ................................................ 52,334,424 51,309,817
------------ ------------
Leased property-less accumulated amortization of $4,604,837
and $4,007,748 ................................................. 1,555,855 2,302,601
------------ ------------
Nonutility property-less accumulated provision for depreciation of
$4,510,553 and $4,315,566 ...................................... 4,162,601 4,106,232
------------ ------------
Other investments ................................................ 1,740,028 1,636,606
------------ ------------
Current assets:
Cash ........................................................... 749,860 813,155
Accounts receivable-less allowance for uncollectibles of
$1,309,410 and $928,279 ...................................... 9,816,986 9,684,317
Deferred fuel costs ............................................ -0- 484,418
Deferred unbilled gas costs .................................... 432,228 438,332
Fuel and other inventories ..................................... 5,959,289 5,818,667
Prepayments .................................................... 1,510,917 1,352,952
Common stock held for dividend reinvestment plan ............... 142,568 121,096
------------ ------------
Total current assets ......................................... 18,611,848 18,712,937
------------ ------------
Deferred debits:
Recoverable postretirement benefit ............................. -0- 230,974
Recoverable vacations accrued .................................. 610,798 632,966
Recoverable deferred Federal income taxes ...................... 6,062,414 6,108,997
Recoverable transition obligation .............................. 10,700 21,300
Unamortized debt discount and expense .......................... 1,643,382 1,711,815
Prepaid pensions ............................................... 10,388,058 8,824,014
Other .......................................................... 3,102,418 2,882,349
------------ -----------
Total deferred debits ........................................ 21,817,770 20,412,415
------------ ------------
Total assets ................................................. $100,222,526 $ 98,480,608
============ ============
The accompanying Notes are an integral part of these statements.
</TABLE>
20
<PAGE>
<TABLE>
Consolidated Balance Sheets
<CAPTION>
August 31 1999 1998
- --------- ---- ----
<S> <C> <C>
Capitalization and liabilities:
Capitalization ............................. $ 65,278,234 $64,860,725
------------ -----------
Revolving credit arrangement ............... 2,400,000 2,400,000
------------ -----------
Obligations under capital leases ........... 775,132 1,527,655
------------ -----------
Current liabilities:
Current maturities of long-term debt ..... 150,000 2,288,937
Obligations under capital leases ......... 780,723 774,946
Notes payable ............................ 4,800,000 2,300,000
Accounts payable ......................... 5,385,917 4,274,994
Security deposits ........................ 968,410 977,565
Taxes accrued ............................ 608,709 435,309
Deferred fuel costs ...................... 426,760 -0-
Accrued interest ......................... 760,848 793,732
Other .................................... 716,594 740,971
------------ -----------
Total current liabilities .................. 14,597,961 12,586,454
------------ -----------
Commitments and contingencies
Deferred credits:
Unamortized investment tax credit ........ 578,508 626,196
Transition obligation .................... 10,700 21,300
Unfunded deferred Federal income taxes ... 1,802,439 1,849,022
Postretirement benefit obligation ........ -0- 230,974
Other .................................... 1,911,733 1,785,230
------------ -----------
Total deferred credits ................. 4,303,380 4,512,722
------------ -----------
Deferred Federal income taxes .............. 12,867,819 12,593,052
------------ -----------
Total liabilities ...................... 34,944,292 33,619,883
------------ -----------
Total capitalization and liabilities ... $100,222,526 $98,480,608
============ ===========
The accompanying Notes are an integral part of these statements.
</TABLE>
21
<PAGE>
<TABLE>
Consolidated Statements of Changes
in Common Stock Equity
<CAPTION>
Common Shares Issued Paid in Retained
& Outstanding Capital Earnings
---------------------- ------- --------
Number Amount
------ ------
<S> <C> <C> <C> <C>
Balance, August 31, 1996 ........ 4,280,028 $4,280,028 $18,204,063 $ 7,750,406
--------- ---------- ----------- -----------
Add (deduct):
Net income ................... 3,659,313
Cash dividends on common stock (3,130,413)
Issuance of common stock ..... 620,000 620,000 5,893,100
Other ........................ (62,239)
--------- ---------- ----------- -----------
Balance, August 31, 1997 ........ 4,900,028 4,900,028 24,034,924 8,279,306
--------- ---------- ----------- -----------
Add (deduct):
Net income ................... 3,605,961
Cash dividends on common stock (3,698,155)
Issuance of common stock ..... 93,000 93,000 795,296
Other ........................ (19,141)
--------- ---------- ----------- -----------
Balance, August 31, 1998 ........ 4,993,028 4,993,028 24,811,079 8,187,112
--------- ---------- ----------- -----------
Add (deduct):
Net income ................... 4,186,609
Cash dividends on common stock (3,723,724)
Other ........................ (54,870)
--------- ---------- ----------- -----------
Balance, August 31, 1999 ........ 4,993,028 $4,993,028 $24,756,209 $ 8,649,997
========= ========== =========== ===========
The accompanying Notes are an integral part of these statements.
</TABLE>
<TABLE>
Consolidated Statements of Capitalization
<CAPTION>
August 31 1999 1998
- --------- ---- ----
<S> <C> <C>
Common stock equity:
Common stock, $1 par value
Authorized 20,000,000 shares
Issued and outstanding 4,993,028 shares ..................... $ 4,993,028 $ 4,993,028
Paid in capital ............................................... 24,756,209 24,811,079
Retained earnings ............................................. 8,649,997 8,187,112
----------- -----------
38,399,234 37,991,219
Less: Accounts receivable from Valley Resources, Inc. 401(k)
Employee Stock Ownership Plan ............................... 2,593,911 2,768,343
----------- -----------
Total common stock equity ............................... 35,805,323 35,222,876
----------- -----------
Long-term debt:
8% First Mortgage Bonds, due 2022 ............................. 20,029,000 20,039,000
7.7% Debentures, due 2027 ..................................... 7,000,000 7,000,000
9% Notes Payable, due 1999 .................................... -0- 2,138,937
Note payable, due 2007 ........................................ 2,593,911 2,748,849
----------- -----------
Total ................................................... 29,622,911 31,926,786
Less: Current maturities ...................................... 150,000 2,288,937
----------- -----------
Total long-term debt .................................... 29,472,911 29,637,849
----------- -----------
Total capitalization .................................... $65,278,234 $64,860,725
=========== ===========
The accompanying Notes are an integral part of these statements.
</TABLE>
22
<PAGE>
Notes to Consolidated Financial Statements
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
1999, 1998 and 1997 was 2.91%. Depreciation provisions for other subsidiary
companies are provided on the straight-line and accelerated methods at rates
ranging from 2.86% to 34%.
OTHER ASSETS - Included in other assets is goodwill which is amortized on the
straight-line basis over forty years. The Corporation continually evaluates the
carrying value of goodwill. Any impairments would be recognized when the
expected undiscounted future operating cash flows derived from goodwill is less
than the carrying value.
UNAMORTIZED DEBT EXPENSE - Costs incurred to obtain debt financing are amortized
over the expected term of the related debt. Amortization of deferred financing
costs is recorded as interest expense.
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.
23
<PAGE>
Notes to Consolidated Financial Statements
PENSION PLANS - The Utilities maintain two non-contributory defined benefit
pension plans covering substantially all of their employees which provide
benefits based on compensation and years of service. The Utilities fund pension
costs that are deductible for Federal income tax purposes (see Note H).
On January 1, 1997, the Valley Gas Company 401(k) plan and the Valley Gas
Employee Stock Ownership Plan ("ESOP") were merged into the Valley Resources
401(k) Employee Stock Ownership Plan ("KSOP"). The KSOP covers all Corporate
employees, if eligible (see Note D). The expense of these plans, in fiscal 1999,
1998 and 1997 was $173,300, $144,000, and $160,800, 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 1999, 1998, and 1997 profit sharing expense was $53,500, $72,000, and
$64,600, respectively.
NEW ACCOUNTING STANDARDS - In June of 1998, the FASB issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS 133
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at its fair value, it also requires that changes in the derivative's
fair value be recognized currently in earnings unless specific hedge accounting
criteria are met. Special accounting for qualifying hedges allows a derivative's
gains and losses to offset related results on the hedged item in the income
statement, and requires that a company must formally document, designate, and
assess the effectiveness of transactions that receive hedge accounting. The new
standard is effective for fiscal years beginning after June 15, 2000. Adoption
of SFAS No. 133 will not affect the Corporation's financial condition or results
of operations.
INVENTORIES - Fuel and other inventories at August 31, are as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Fuels (at average cost) .............................. $3,462,277 $3,542,932
Merchandise and other (at average cost) .............. 1,234,326 1,241,224
Merchandise (at LIFO) ................................ 1,262,686 1,034,511
---------- ----------
$5,959,289 $5,818,667
========== ==========
</TABLE>
Merchandise (at LIFO), if valued at current cost, would have been greater by
$205,000 in fiscal 1999 and $246,300 in fiscal 1998.
Note B: Common Stock and Rights
On August 26, 1997, the Corporation issued 620,000 shares of Common Stock.
The net proceeds of this offering were used to reduce the short-term debt of the
Utilities, to make loans to nonutility subsidiaries to repay short-term debt and
for working capital requirements. On September 24, 1997, the Underwriters of the
stock offering exercised their over-allotment option and 93,000 additional
common shares were issued.
Pursuant to the Corporation's direct stock purchase 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. All shares issued pursuant to the plan in fiscal 1999 and 1998 were
open-market purchases. On August 31, 1999 and 1998, 10,019 and 10,116 shares,
respectively, were held by the Corporation for issuance to the plan.
On August 31, 1999, 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 direct stock purchase plan.
Each share of common stock of the Corporation includes one preferred stock
purchase Right which entitles the holder to purchase one one-hundredth of a
share of Cumulative Participating Junior Preferred Stock, par value $100, at a
price of $35 per one one-hundredth of a share subject to adjustment. The Rights
are not currently exercisable, and trade automatically with the common stock.
The Rights will generally become exercisable and separate certificates
representing the Rights will be distributed, upon occurrence of certain events
in excess of a stipulated percentage of ownership.
The Rights should not interfere with any merger or business combination
approved by the Board of Directors because, prior to the Rights becoming
exercisable, the Rights may be redeemed by the Corporation at $0.01 per Right.
The Rights have no dilutive effect and will not affect reported earnings per
share.
24
<PAGE>
Notes to Consolidated Financial Statements
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 1999, 1998, and 1997 amounted to
$105,900, $106,800 and $110,000, respectively. There are no legal restrictions
on withdrawal of compensating balances.
A detail of short-term borrowings for fiscal 1999, 1998, and 1997 is as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
At year end
Weighted average interest rate .. 5.4% 5.7% 5.7%
Unused lines of credit .......... $24,200,000 $34,700,000 $35,100,000
For the year ended
Weighted average interest rate .. 5.5% 5.8% 5.7%
Average borrowings .............. $ 4,162,500 $ 2,433,300 $16,800,000
Maximum month-end borrowings .... $ 7,400,000 $ 6,200,000 $22,000,000
Month of maximum borrowings ..... December 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 1999 are: 2000, $930,700; 2001, $2,904,800; 2002, $383,400;
2003, $224,600 and 2004, $212,600, 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, $10,000, $51,000, and $122,000 of the bonds
were redeemed by holders in fiscal 1999, 1998, and 1997, 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, 1999.
Regulatory treatment allows payments under capital leases to be recorded as
rental expenses. Rental expenses for all leases in fiscal 1999, 1998, and 1997,
were $1,028,700, $1,218,600, and $1,169,500, 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 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
the KSOP. The receivable from the KSOP has been shown as a reduction of common
stock equity. The financing by the KSOP is secured by the common stock of two
unregulated subsidiaries and the unallocated shares held by the KSOP.
The Corporation's common stock purchased by the KSOP with the borrowed
money is held by the KSOP trustee in a "suspense account." As the Corporation
matches employee 401(k) contributions and makes discretionary 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.
Note E: Restriction on Retained Earnings
On August 31, 1999, $1,751,400 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.
25
<PAGE>
Notes to Consolidated Financial Statements
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. On
August 31, 1999, the Corporation has a liability of $6,062,400 on the
Consolidated Balance Sheets as recoverable deferred income taxes and a
corresponding recoverable deferred charge. The liability represents the tax
effect of timing differences for which deferred income taxes had not been
provided, increased in accordance with SFAS 109 for the tax effect of future
revenue requirements. The Utilities are recovering unfunded deferred taxes from
utility customers over the remaining book life of utility property.
Federal income tax expense has been calculated based on filing a
consolidated corporate tax return and is comprised of the following:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Current income tax expense:
Operating expense ................. $1,497,618 $ 556,828 $ 893,039
Nonoperating expense .............. (4,279) 57,482 103,200
---------- ---------- ----------
1,493,339 614,310 996,239
---------- ---------- ----------
Deferred income tax expense:
Accelerated depreciation .......... 303,332 316,197 332,771
Pensions .......................... 531,775 587,667 314,413
Deferred fuel costs ............... (111,946) 99,941 (229,039)
Uncollectibles .................... (126,488) (36,985) (23,830)
Directors' fees and interest ...... (47,438) (42,525) (36,845)
Bond premium ...................... (6,240) (6,240) (6,240)
Rate case expenses ................ (11,926) (61,308) (97,257)
Capitalization of inventory costs . (8,748) 1,155 28,869
Consulting contracts .............. (19,920) (19,920) 30,570
Software amortization ............. (140,332) (86,136) 140,856
Alternative minimum tax ........... -0- 96,359 -0-
Excess VEBA contribution .......... (78,532) (78,532) (78,532)
Other ............................. (8,785) 3,544 65,902
274,752 773,217 441,638
---------- ---------- ----------
Total ............................. $1,768,091 $1,387,527 $1,437,877
========== ========== ==========
</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>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Statutory Federal rate ............................. 34% 34% 34%
Maintenance costs capitalized for book purposes .... (4) (4) (4)
Cost of removal .................................... (1) (1) (1)
ESOP dividends ..................................... (1) (1) (1)
Prior year over accrual ............................ -0- (2) -0-
Other .............................................. 2 2 -0-
--- --- ---
Total .............................................. 30% 28% 28%
=== === ===
</TABLE>
26
<PAGE>
Notes to Consolidated Financial Statements
Temporary differences which gave rise to the following deferred tax assets
and liabilities at August 31, 1999 and 1998 are:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Unbilled revenues ................... $ 262,737 $ 266,652
Directors' fees and interest ........ 342,285 294,847
Other ............................... 793,234 568,055
------------ ------------
Total deferred tax assets ........ 1,398,256 1,129,554
------------ ------------
Accelerated depreciation ............ (9,499,234) (9,195,902)
Pensions ............................ (3,550,626) (3,018,851)
Software amortization ............... (450,450) (590,782)
Deferred fuel costs ................. (52,757) (164,703)
Other ............................... (713,008) (752,368)
------------ ------------
Total deferred tax liabilities ... (14,266,075) (13,722,606)
------------ ------------
Total deferred taxes ................ $(12,867,819) $(12,593,052)
============ ============
</TABLE>
The Corporation's nonutility operations are subject to state income taxes.
For fiscal 1999, 1998, and 1997, state income taxes totaled $93,800, $124,100,
and $170,700, respectively.
Note G: Regulatory Matters
On June 1, 1997, the Utilities received approval to redesign their rates
and offer transportation services to large commercial and industrial customers.
Note H: Commitments and Contingencies
PENSION PLANS - The Utilities have two non-contributory defined benefit pension
plans covering substantially all of their employees and a supplemental pension
plan covering certain officers. Net periodic pension cost (income) is comprised
of the following components:
<TABLE>
<CAPTION>
For the year ended August 31 1999 1998 1997
- ---------------------------- ---- ---- ----
<S> <C> <C> <C>
Service cost ................................... $ 704,892 $ 640,994 $ 543,241
Interest cost on projected benefit obligation .. 1,448,757 1,360,031 1,337,602
Expected return on plan assets ................. (3,373,477) (3,245,272) (2,579,914)
Recognition of actuarial gain .................. (280,738) (400,878) (142,367)
Net amortization and deferral .................. (63,478) (83,307) (83,307)
----------- ----------- -----------
Net periodic pension income .................... $(1,564,044) $(1,728,432) $ (924,745)
=========== =========== ===========
</TABLE>
Assumptions used in actuarial calculations were as follows:
<TABLE>
<CAPTION>
For the year ended August 31 1999 1998 1997
- ---------------------------- ---- ---- ----
<S> <C> <C> <C>
Weighted average discount rate .................. 7.00% 7.00% 7.25%
Future compensation increases ................... 5.50 5.50 5.50
Expected long-term rate of return on assets ..... 9.00 9.00 9.00
</TABLE>
27
<PAGE>
Notes to Consolidated Financial Statements
The following tables set forth the reconciliation of the plans' benefit
obligation and fair value of assets as follows:
<TABLE>
<CAPTION>
For the year ended August 31 1999 1998
- ---------------------------- ---- ----
<S> <C> <C>
Reconciliation of benefit obligation:
Obligation at September 1 ....................................... $ 21,240,659 $ 19,266,157
Service cost .................................................... 704,892 640,994
Interest cost ................................................... 1,448,757 1,360,031
Amendments ...................................................... -0- 297,429
Actuarial (gain) loss ........................................... (598,721) 716,918
Benefit payments ................................................ (1,118,340) (1,040,870)
------------ ------------
Obligation at August 31 ......................................... $ 21,677,247 $ 21,240,659
============ ============
Reconciliation of fair value of plan assets:
Fair value of plan assets at September 1 ........................ $ 38,027,205 $ 36,565,680
Actual return on plan assets .................................... 3,327,389 2,502,395
Benefit payments ................................................ (1,118,340) (1,040,870)
------------ ------------
Fair value of plan assets at August 31 .......................... $ 40,236,254 $ 38,027,205
============ ============
</TABLE>
The funded status of the plans is as follows:
<TABLE>
<CAPTION>
August 31 1999 1998
- --------- ---- ----
<S> <C> <C>
Plan assets at fair value:
Projected benefit obligation less than (in excess of) plan assets $ 20,401,395 $ 18,802,795
Unrecognized net gain ........................................... (10,609,146) (10,511,112)
Unrecognized transition amount .................................. (381,660) (529,184)
Unrecognized prior service cost ................................. 977,469 1,061,515
------------ ------------
Prepaid pension costs ........................................... $ 10,388,058 $ 8,824,014
============ ============
</TABLE>
Assets of the employee benefit plans are invested in domestic and international
equities, domestic and international fixed income securities and other
short-term debt instruments.
POSTRETIREMENT LIFE AND HEALTH BENEFIT PLAN - Valley Gas sponsors a
postretirement benefit plan that covers substantially all of its employees
except for nonunion employees hired on or after September 1, 1993 and union
employees hired on or after April 1, 1994. 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 20
years. Valley Gas' cost under this plan for fiscal 1999, 1998 and 1997 was
$701,000, $725,000, and $775,600, 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.
28
<PAGE>
Notes to Consolidated Financial Statements
The following table sets forth the reconciliation of the plans' benefit
obligation and fair value of plan assets as follows:
<TABLE>
<CAPTION>
For the year ended August 31 1999 1998
- ---------------------------- ---- ----
<S> <C> <C>
Reconciliation of benefit obligation:
Obligation at September 1 ...................... $ 6,523,627 $ 6,057,989
Service cost ................................... 144,363 147,852
Interest cost .................................. 443,516 426,588
Actuarial loss ................................. 418,504 184,606
Benefit payments ............................... (311,095) (293,408)
----------- -----------
Obligation at August 31 ........................ $ 7,218,915 $ 6,523,627
=========== ===========
Reconciliation of fair value of plan assets:
Fair value of plan assets at September 1 ....... $ 2,351,191 $ 1,699,662
Actual return on plan assets ................... 97,620 (40,980)
Employer contributions ......................... 1,242,884 985,917
Benefit payments ............................... (311,095) (293,408)
----------- -----------
Fair value of plan assets at August 31 ......... $ 3,380,600 $ 2,351,191
=========== ===========
</TABLE>
The following table sets forth the plan's funded status reconciled with the
amounts recognized in the company's financial statements is as follows:
<TABLE>
<CAPTION>
August 31 1999 1998
- --------- ---- ----
<S> <C> <C>
Accumulated postretirement benefit obligation in excess of plan assets .. $(3,838,315) $(4,172,436)
Unrecognized net loss (gain) from past experience different from that
assumed and from changes in assumptions ............................... 208,257 (277,466)
Unrecognized transition obligation ...................................... 3,888,824 4,166,598
----------- -----------
Prepaid (accrued) postretirement benefit cost ........................... $ 258,766 $ (283,304)
=========== ===========
</TABLE>
Net periodic postretirement benefit cost consisted of the following:
<TABLE>
<CAPTION>
For the year ended August 31 1999 1998 1997
- ---------------------------- ---- ---- ----
<S> <C> <C> <C>
Service cost - benefits attributable to service during the period ... $ 144,363 $ 147,852 $ 136,372
Interest cost on accumulated postretirement benefit obligation ...... 443,516 426,588 419,246
Expected return on plan assets ...................................... (147,746) (105,934) (55,569)
Net amortization and deferral ....................................... 277,774 277,774 277,774
Recognition of net actuarial gain ................................... (17,093) (21,232) (23,414)
--------- --------- ---------
Net periodic postretirement benefit cost ............................ $ 700,814 $ 725,048 $ 754,409
========= ========= =========
</TABLE>
For measurement purposes, a 9% (4.5% for dental costs) annual rate of increase
in the per capita cost of covered health care benefits was assumed for 1999; the
rate of increase for medical costs was assumed to decrease gradually to 5% by
fiscal 2002 and to remain at that level thereafter. 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 one percentage point in
each year would increase the accumulated postretirement benefit obligation at
August 31, 1999 by $534,000 and the aggregate of the service and the interest
cost components of net periodic postretirement benefit cost for the year then
ended by $54,000. The weighted average discount rate used in determining the
accumulated postretirement benefit obligation was 7.0%, 7.0% and 7.25% for
fiscal 1999, 1998 and 1997, respectively. The expected long-term rate of return
on plan assets was 8.50% for fiscal 1999, 1998 and 1997.
29
<PAGE>
Notes to Consolidated Financial Statements
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 unbundled their supply,
storage and transportation services. This unbundling caused the interstate
pipeline companies to incur substantial costs in order to comply with Order 636.
These transition costs include four types: (1) unrecovered gas costs (gas costs
that have been incurred but not yet recovered by the pipelines when they were
providing bundled service to local distribution companies); (2) gas supply
realignment costs (the cost of renegotiating existing gas supply contracts with
producers); (3) stranded costs (unrecovered costs of assets that cannot be
assigned to customers of unbundled services); and (4) new facilities costs
(costs of new facilities required to physically implement Order 636).
Pipelines are expected to be allowed to recover prudently incurred
transition costs from customers primarily through a demand charge, after
approval by FERC. The Utilities' pipeline suppliers began direct billing these
costs in fiscal 1994 as a component of demand charges. The Utilities estimate
their remaining portion of transition costs to be $10,700 and have recognized a
liability for these costs as of August 31, 1999. The RIPUC has allowed the
recovery of transition costs through the PGPA. Under the provisions of SFAS 71,
regulatory assets totaling $10,700 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 LIABILITIES - 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 cleanup
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 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 letters of responsibility from the Rhode Island
Department of Environmental Management ("DEM") with respect to releases from
coal waste on its properties that were the site of the former Tidewater gas
manufacturing plant in Pawtucket, Rhode Island and the former Hamlet Avenue gas
manufacturing plant in Woonsocket, Rhode Island. Valley Gas and Blackstone have
submitted site investigation reports to DEM relating to certain releases on
these sites. Management cannot determine the future cash flow impact, if any, of
these claims and related expenses. As noted above, management takes the position
that it is indemnified by Blackstone for any such expenses. Management intends
to seek recovery from Blackstone and any insurance carriers deemed to be at risk
during the relevant periods. Remediation of sites such as the former Tidewater
plant and the Hamlet Avenue plant are governed by a regulatory framework which
now permits more flexibility in methods of remediation and in property reuse.
Note I: Segment Information
The Corporation adopted SFAS 131, "Disclosure about Segments of an
Enterprise and Related Information," during fiscal 1999. SFAS 131 established
standards for reporting information about operating segments ("business
segments") in annual financial statements and requires selected information in
interim financial statements. Business segments are defined as components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker, or decision making
group, to make decisions on how to allocate resources and to assess performance.
The Corporation's chief operating decision making group is the Chief Executive
Officer ("CEO") and certain other executive officers that report directly to the
CEO. The operating segments are organized and managed separately because each
segment offers different products or services. The Corporation evaluates the
performance of its business segments based on the operating income generated.
Operating income does not include income taxes, interest expense, extraordinary
charges, and non-operating income and expense items.
30
<PAGE>
Notes to Consolidated Financial Statements
Under SFAS 131, an operating segment that does not exceed certain
quantitative levels is not considered a reportable segment. Instead, the results
of all segments that do not exceed the quantitative thresholds are combined and
reported as one segment and referred to as "all other." The Corporation's
subsidiaries VAMCO, Valley Propane and AEC business segments did not meet these
quantitative thresholds and have been grouped into the "all other" category.
The accounting policies of the operating segments are the same as those
described in Note A except the intercompany transactions have not been
eliminated in determining individual segment results.
The following information is presented relative to the gas, contract sales
and other operations of the Corporation.
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Gas Operations
Operating revenues ............................. $58,529,386 $59,343,603 $66,230,787
Operating income before Federal income taxes ... 6,991,106 6,178,629 6,465,007
Identifiable assets at August 31 ............... 95,121,383 89,713,540 88,927,776
Depreciation ................................... 2,817,161 2,692,326 2,594,712
Capital expenditures ........................... 3,841,768 3,555,028 3,599,752
Contract Sales
Operating revenues ............................. $15,291,428 $15,104,272 $14,243,778
Operating income before Federal income taxes ... 549,041 646,303 612,744
Identifiable assets at August 31 ............... 3,959,667 3,993,215 3,749,762
Depreciation ................................... 44,866 45,703 51,704
Capital expenditures ........................... 9,255 30,704 21,703
All Other Operations, including Corporate &
Eliminations
Operating revenues ............................. $ 7,889,363 $ 7,141,021 $ 7,009,412
Operating income before Federal income taxes ... 1,127,567 863,373 861,037
Identifiable assets at August 31 ............... 1,141,476 4,773,853 5,019,599
Depreciation ................................... 535,571 536,484 497,303
Capital expenditures ........................... 631,594 947,834 671,526
Total Corporation
Operating revenues ............................. $81,710,177 $81,588,896 $87,483,977
Operating income before Federal income taxes ... 8,667,714 7,688,305 7,938,788
Federal income tax expense ..................... (1,772,370) (1,330,045) (1,334,677)
Nonoperating income-net ........................ 299,205 288,464 423,476
Interest expense ............................... (3,007,940) (3,040,763) (3,368,274)
Net income ..................................... 4,186,609 3,605,961 3,659,313
Identifiable assets at August 31 ............... 100,222,526 98,480,608 97,697,137
Depreciation ................................... 3,397,598 3,274,513 3,143,719
Capital expenditures ........................... 4,482,617 4,533,566 4,292,981
</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.
Segment Information at August 31, 1998 and 1997 has been restated to
conform with the presentation of SFAS 131 at August 31, 1999.
31
<PAGE>
Notes to Consolidated Financial Statements
Note J: Summarized Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
Three months ended
(in thousands, except as to basic and
diluted earnings (loss) per share) November February May August
- ------------------------------------- -------- -------- --- ------
<S> <C> <C> <C> <C>
Fiscal 1999
Total operating revenues ..................... $15,270 $29,201 $23,581 $13,658
Income (loss) before Federal income taxes .... $(1,091) $ 5,057 $ 3,228 $(1,287)
Net income (loss) ............................ $ (637) $ 3,292 $ 2,320 $ (789)
Basic and diluted earnings (loss) per share .. $ (0.13) $ 0.66 $ 0.47 $ (0.16)
Fiscal 1998
Total operating revenues ..................... $15,824 $30,428 $22,587 $12,750
Income (loss) before Federal income taxes .... $(1,288) $ 4,818 $ 2,692 $(1,229)
Net income (loss) ............................ $ (761) $ 3,232 $ 1,828 $ (693)
Basic and diluted earnings (loss) per share .. $ (0.15) $ 0.65 $ 0.37 $ (0.14)
</TABLE>
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, 1999 and 1998 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, 1999.
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, 1999 and 1998 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended August 31, 1999, in conformity with generally
accepted accounting principles.
S/Grant Thornton LLP
--------------------
Grant Thornton LLP
Boston, Massachusetts
September 27, 1999
32
<PAGE>
Management's Discussion and Analysis of the Results
of Operations and Financial Condition
OVERVIEW
The discussion and analysis that follows reflect the operations of the
Corporation and its six active subsidiaries: Valley Gas and Bristol & Warren
(collectively the "Utilities"), 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, designs and installs
natural gas refueling facilities, natural gas conversion systems and energy use
control devices.
Operating results are derived from three major business segments - Gas
Operations, Contract Sales and All Other Operations. Gas Operations consist of
utility earnings generated from the sale and transportation of natural gas.
Contract Sales, included in nonutility earnings, consists of the Morris
Merchants operations. All Other Operations is comprised of VAMCO, Valley
Propane, AEC, Corporate and Eliminations and are also included in nonutility
earnings (See footnote I Business Segments).
Natural gas sales and transportation to customers, on a year-round basis,
for heating, water heating, cooking and processing are the primary source of
firm utility revenues for gas operations. Firm customers can be residential,
commercial or industrial. Revenues from firm 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 firm sales customers changes in gas costs from those included in the
regulated tariffs, and an adjustment to collect post-retirement benefits.
Utility revenues also include seasonal and dual-fuel sales. These sales,
which are made when excess gas supplies are available and gas prices are
competitive with alternative fuel markets, 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. The Utilities also provide
interruptible transportation services through their distribution systems.
Morris Merchants generates nonutility revenues through wholesale sales of
franchised business lines of plumbing and heating equipment.
Vamco generates its revenues through the sales and installation of heating
equipment and appliances. VAMCO, also, generates revenues from appliance
rentals, service contract repair program and water filtration sales. Valley
Propane sells propane at both wholesale and retail and provides service to
propane customers in Rhode Island and southeastern Massachusetts. AEC generates
revenues through the design and installation of natural gas refueling facilities
and through the conversion of vehicles and stationary engines to natural gas.
The Corporation owned an 80% interest in AEC during fiscal 1999. The Corporation
received an additional 10% interest from AEC's current management on September
1, 1999 and has the obligation to acquire the remaining 10% in 2001.
RESULTS OF OPERATIONS
Fiscal 1999 versus 1998
GAS OPERATIONS
Utility gas revenues in fiscal 1999 totaled $58,529,400, a decrease of 1.4%
from fiscal 1998. This decrease was attributable to a weather related decline in
firm gas sales, and a decrease of $137,900 in gas costs recovered through the
PGPA which were, offset slightly by an increase in transportation revenues. The
PGPA does not impact operating income as it effectuates a dollar for dollar
recovery of gas costs. The transfer of customers to transportation does not
affect margins although it does produce less revenues.
Firm gas throughput, firm gas sales and transportation was 7,786,900 Mcf in
fiscal 1999, an increase of less than one percent over fiscal 1998. The slight
increase was primarily the result of increased firm transportation service
mitigating the effect of decreased firm gas sales. Firm gas sales declined as a
result of weather, which was less than one percent warmer than the prior year
and 9.1% warmer than a normal year, and the transfer of sales customers to firm
transportation. Firm gas sales were primarily impacted by weather related
declines during the critical heating period, December through February. During
this period weather was 3.2% warmer than the prior year and 10.6% warmer than a
normal year.
Throughput to interruptible customers in fiscal 1999 decreased 7.4% as
compared to fiscal 1998 due to the lower price of competing fuels. Interruptible
throughput includes sales to seasonal and dual-fuel customers and the
transportation of customer-owned natural gas to interruptible and off-peak
customers. Interruptible sales and transportation, excluding off-peak, are
dependent on the availability of natural gas and the cost of competitive fuels.
Profits on seasonal sales are returned to firm sales customers through the PGPA
and do not impact operating income. Interruptible transportation revenues
decreased $5,700 from the prior year.
33
<PAGE>
Management's Discussion and Analysis of the Results
of Operations and Financial Condition
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 in fiscal 1999 in gas costs
for utility operations are passed through to firm sales customers through the
PGPA. Therefore, changes in gas costs do not impact the profitability of the
Utilities.
Other operation expenses in fiscal 1999 totaled $12,759,500, a decline of
6.2% from fiscal 1998. A decrease in uncollectible accounts and labor cost
savings associated with the warmer weather caused the decline.
Maintenance expenses increased in fiscal 1999 by 2.0% over the prior fiscal
year to $1,627,600. The slight increase was the result of normal wage and
inflation costs.
Taxes - other than Federal income taxes totaled $3,840,400, a less than one
percent increase over the prior fiscal year. The slight increase over the prior
fiscal period was the result of increased property taxes offset by decreased
gross receipts tax on lower utility revenues.
Other income - net of tax was $25,900 in fiscal 1999 and $75,300 in fiscal
1998. A decrease in earnings from other investments was responsible for the
reduction.
Fiscal 1999 interest expense was $2,788,900, a decrease of less than one
percent when compared to the prior fiscal year. A slight reduction in long-term
debt interest expense was offset slightly by increased interest expense on an
increase in average short-term debt outstanding.
CONTRACT SALES
Contract Sales revenues totaled $15,291,400, an increase of 1.2% over
fiscal 1998. Revenues generated from wholesale operations increased over the
prior year through continued emphasis on sales of existing products and an
improvement in economic conditions.
Cost of sales - nonutility includes the cost of goods sold for wholesale
merchandise sold. Fiscal 1999 cost of sales increased 1.9% over fiscal 1998 due
to increased sales.
Other operation expenses in fiscal 1999 totaled $2,342,100, a 2.9% increase
over fiscal 1998. Increased commissions, wages and selling expenses were
responsible for the increase.
Other income - net of tax declined $10,600 when compared to fiscal 1998.
Other income is derived primarily from interest on temporary cash investments
and rebates offered from manufacturers.
ALL OTHER OPERATIONS
The nonutiltiy revenues associated with this segment were $7,889,400, a
10.5% increase over the prior fiscal year. The increase was the result of
increased sales by VAMCO and the Corporation's weather insurance product.
VAMCO's commitment to the commercial and industrial markets continued to
contribute to increased revenues. An increase in the number of customers
participating in the service contract and rental programs also contributed to an
improvement in retail revenues. The Corporation's weather insurance product
produced revenues as a result of the warmer than normal weather experienced
during the measurement period of November through March of fiscal 1999.
Propane revenues experienced a slight decline due to price competition and
the warmer than normal winter weather, despite an increase in gallons sold.
Propane revenues are derived from the sale of liquid propane gas to both retail
and wholesale customers for the use of cooking, heating, hot water and clothes
drying. Although price competition effects the revenue component of this
segment, the focus on margin retention through inventory management and
marketing strategy was responsible for the increased gallons sold. Gallons sold
increased 2.5% over fiscal 1998 as a result of offering customers fixed price
contracts. AEC revenues remained flat when compared to fiscal 1998.
Cost of goods sold for VAMCO and AEC and the purchase, storage and delivery
of liquid propane gas for Valley Propane is included in cost of sales -
nonutility. Fiscal 1999 cost of sales for this segment increased 1.1% when
compared to fiscal 1998. The increase was directly attributable to the increase
in sales of VAMCO.
Other operation expenses in fiscal 1999 totaled $2,456,400, a 22.9%
increase over fiscal 1998. Increased repairs in the rental program, additional
personnel and normal wage and general operating expense increases were
responsible for the increase over the prior fiscal year.
Taxes - other than Federal income taxes totaled $208,900, a 1.8% increase
over fiscal 1998. The increase over the prior fiscal year was the result of
increased property tax values and assessments.
34
<PAGE>
Management's Discussion and Analysis of the Results
of Operations and Financial Condition
Fiscal 1998 versus 1997
GAS OPERATIONS
Utility gas revenues in fiscal 1998 totaled $59,343,600, a decrease of
10.4% from fiscal 1997. The decrease in revenues from the prior year was
attributable to a weather-related decline in firm gas sales, a decrease of
$2,518,000 in gas costs recovered through the PGPA, and the transfer of
customers from sales to transportation.
Firm gas throughput, firm gas sales and transportation, was 7,763,400 Mcf
in fiscal 1998, a decrease of 2.9% from fiscal 1997. The primary contributor to
the decline in gas throughput was weather which was 8.5% warmer than a normal
year and 6.4% warmer than the prior year.
Throughput to interruptible customers in fiscal 1998 decreased 9.9% as
compared to fiscal 1997 due to the lower price of competitive fuels. Margins
earned from seasonal sales are returned to firm customers through the PGPA and
do not impact the profitability of the Utilities. Interruptible transportation
revenues decreased $206,100 from the prior year.
Cost of gas sold includes the costs of all commodity, storage,
transportation and peak shave fuel requirements to serve utility sales
customers. The average cost per Mcf of natural gas distributed in fiscal 1998
was $4.02 versus $4.07 in fiscal 1997.
Other operation expenses in fiscal 1998 totaled $13,606,400, a decrease of
1.4% from fiscal 1997. Other operation expenses declined as a result of a
decrease in administrative and general expenses due to an additional $803,700 of
net periodic pension income. This decrease was partially offset by increased
uncollectible expense and wages.
Maintenance expenses increased for fiscal 1998 by less than one percent
when compared to fiscal 1997. Normal wage and inflation was primarily
responsible for the increase.
Taxes - other than Federal income taxes totaled $3,833,400, a decrease of
2.7% when compared to fiscal 1997. The impact of gross receipts tax on lower
utility revenues was responsible for the decrease.
Other income - net of tax was $103,600 less than fiscal 1997 as a result of
lower earnings from other investments.
Interest expense for fiscal 1998 was $2,790,800 a decrease of 13.5% from
fiscal 1997. The decrease was the result of the net proceeds of the Valley
Resources debt and equity offerings in August 1997 reducing the short-term
borrowings of utility operations.
CONTRACT SALES
Contract Sales revenues totaled $15,104,200, an increase of 6.0% over
fiscal 1997. Revenues generated from wholesale operations increased over the
prior year through emphasis on existing products and a new approach to marketing
these products.
Cost of sales - nonutility for wholesale merchandise operations for fiscal
1998 was $12,055,200, a 5.9% increase over fiscal 1997. The increase was the
direct result of increased sales.
Other operation expenses in fiscal 1998 totaled $2,275,800, an 8.0%
increase over fiscal 1997. Increased commissions, wages and selling expenses
were responsible for the increase.
Other income - net of tax declined $15,200 for fiscal 1998 when compared
with the prior fiscal year. The decline was the result of decreased income from
manufacturer rebates.
ALL OTHER OPERATIONS
The nonutility revenues associated with this segment were $7,141,000, a
1.9% increase over the prior fiscal year. The increase was the result of
increased residential and commercial retail sales, offset by a decline in
propane and AEC revenues. VAMCO's commitment to the commercial and industrial
market, as well as continued efforts in the residential heating replacement
market, contributed to increased revenues. An increase in the number of
customers participating in the service contract and rental programs was also
responsible for improvement in retail revenues. Despite an increase in gallons
of propane sold and increased customers, revenues from the propane operation
declined from the prior year. A decrease in revenues from AEC also impacted
nonutility revenues.
Cost of sales - nonutility for other operations increased 1.6% in 1998 when
compared with the prior fiscal year The increase in cost of sales is directly
attributable to the increase in retail sales partially offset by a decrease in
the cost of propane gas sold.
Other operation expenses in fiscal 1998 totaled $1,998,400, an increase of
less than one percent over fiscal 1997. Normal wage increases were responsible
for the increase.
Maintenance expenses totaled $76,200, an increase of $23,400 over fiscal
1997. Repairs to a propane delivery vehicle was responsible for the increased
expense.
Taxes - other than Federal income taxes totaled $208,900, a 1.8% increase
over fiscal 1997. The increase over the prior fiscal year was the result of
increased property tax values and assessments.
35
<PAGE>
Management's Discussion and Analysis of the Results
of Operations and Financial Condition
LIQUIDITY AND CAPITAL RESOURCES
Cash is generated through the distribution and sale of natural gas, propane
and merchandise. Additional revenues are collected through the rental and
service contract programs. Operations, external financing and investments are
also used to meet corporate cash needs. Short-term financing under existing
lines of credit are available to meet working capital requirements. When deemed
appropriate by management, long-term and intermediate financing and equity
issues have been used to refinance short-term debt.
Utility operations are subject to seasonality. The bulk of firm sales and
transportation are made during the months ending in February and May. Most
capital expenditures occur 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. The need for short-term borrowing
arises when internally generated funds are not sufficient to cover all capital
and operating requirements, particularly in the summer and fall. Short-term
borrowings utilized for construction expenditures generally are replaced by
permanent financing when it becomes economical and practical to do so and where
appropriate to maintain an acceptable relationship between borrowed and equity
resources.
The requirement to inventory supplemental gas supplies and the timing of
inventory acquisitions to meet the peak winter demand of the Utilities
negatively impact the cash flow of the Corporation. Supplemental gas inventories
are filled primarily in the summer period for use during the winter period.
Warmer than normal weather in fiscal 1999 resulted in decreased gas sales
and a negative impact on cash flow. Interest costs and the timing of Federal and
state tax payments also impact liquidity.
The Corporation received a payment from its weather insurance product which
positively impacted cash flow. The weather insurance product was paid to the
Corporation as a result of the weather during the measurement period of November
1998 through March 1999 being 6% warmer than normal, based on degree days.
Cash flow was negatively impacted by the maturity of the $2,138,900, 9%
notes which were due April 1, 1999. The Corporation used short-term borrowings
to retire this debt.
Funding requirements are met through short-term borrowings under existing
lines of credit. On August 31, 1999, the Corporation had $24,200,000 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 financing are sufficient to meet
cash requirements for the foreseeable future.
A lawsuit has been filed against Valley Gas and other parties by Blackstone
Valley Electric Company ("Blackstone") seeking contribution towards a judgment
against Blackstone's share of total clean-up costs of approximately $6,000,000
at the Mendon Road site in Attleboro, Massachusetts. The expenses relate to a
site to which oxide waste was transported in the 1930's prior to the
incorporation of Valley Gas. Management is of the opinion the Corporation will
prevail as a result of the indemnification provisions included in the agreement
entered into when Valley Gas acquired its 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 letters of responsibility from the Rhode Island
Department of Environmental Management ("DEM") with respect to releases from
coal waste on its properties that were the site of the former Tidewater gas
manufacturing plant in Pawtucket, Rhode Island and the former Hamlet Avenue gas
manufacturing plant in Woonsocket, Rhode Island. Valley Gas and Blackstone have
submitted site investigation reports to DEM relating to certain releases on
these sites. Management cannot determine the future cash flow impact, if any, of
these claims and related expenses. As noted above, management takes the position
that it is indemnified by Blackstone for any such expenses. Management intends
to seek recovery from Blackstone and any insurance carriers deemed to be at risk
during the relevant periods. Remediation of sites such as the former Tidewater
plant and the Hamlet Avenue plant are governed by a regulatory framework which
now permits more flexibility in methods of remediation and in property reuse.
The Corporation's net cash from operating activities in fiscal 1999 was
$8,105,200 versus $7,109,800 in fiscal 1998 and $6,164,800 in fiscal 1997.
Investing activities used cash primarily for capital expenditures in the amounts
of $4,586,000 in fiscal 1999, $4,578,500 in fiscal 1998 and $4,374,200 in fiscal
1997. Financing activities in fiscal 1999 used cash of $3,582,500 primarily for
the payment of dividends and the payment of the 9% notes due in this fiscal
36
<PAGE>
Management's Discussion and Analysis of the Results
of Operations and Financial Condition
period, offset by increased short-term borrowings. Fiscal 1998 financing
activities used cash of $2,538,200 primarily for the payment of dividends.
Fiscal 1997 financing activities used cash of $1,477,400 which is the result of
proceeds from the Corporation's issuance of common equity and long-term debt
that were used to reduce short-term debt and from the payment of dividends.
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 1999, capital expenditures were $4,482,600 compared with $4,533,600 in
fiscal 1998 and $4,293,000 in fiscal 1997. Fiscal 2000 capital expenditures are
estimated to be $8,036,300 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.
YEAR 2000 ISSUES
Software applications currently in use by the Corporation are certified to
be Year 2000 compliant by the software vendors from whom the applications were
purchased. The Corporation has modified, replaced or upgraded those applications
which were not Year 2000 compliant and based on its testing of its systems,
management believes its systems are Year 2000 compliant. The Corporation
compiled cost estimates of the effort involved to perform those modifications,
replacements and upgrades and to date Year 2000 related costs have not been
material to the Corporation.
The Corporation has inquired of third parties; i. e., vendors, suppliers
and customers, which have a material relationship with the Corporation as to the
status of their Year 2000 readiness. The Corporation continues to work with
critical vendors, suppliers and customers to gain assurance of their readiness
for Year 2000 and has developed contingency plans to mitigate anticipated
shortcomings in their readiness. The Corporation cannot guarantee that the
systems of other companies on which the Corporation's systems rely will be
timely converted, or that a failure to convert by another company, or a
conversion that is incompatible with the Corporation's systems, would not have a
material adverse impact on the Corporation.
The Corporation expects that its Year 2000 plan will be adequate to address
its Year 2000 issues and has developed contingency plans to further assure that
vital functions of the Corporation dependent on third parties will continue
uninterrupted. Contingency plans include existence of short-term in house
capabilities (i.e. back up power generation), alternate communications equipment
and increased inventory of critical material and supplies. There can be no
assurance as to whether the contingency plans will successfully address all
contingencies that may arise.
FORWARD LOOKING STATEMENTS; RISK AND UNCERTAINTIES
Statements contained in this report that are not historical facts are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. In addition, words such as
"believes," "anticipates," "expects" and similar expressions are intended to
identify forward looking statements. Certain factors that could cause the actual
results to differ materially from those projected in these forward-looking
statements include, but are not limited to: variations in weather, changes in
the regulatory environment, customers' preferences on energy sources, general
economic conditions, increased competition and other uncertainties all of which
are difficult to predict, and many of which are beyond the control of the
Corporation.
NEW ACCOUNTING STANDARD
In June of 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" . SFAS 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. It
also requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and requires
that a company must formally document, designate, and assess the effectiveness
of transactions that receive hedge accounting. The new standard is effective for
fiscal years beginning after June 15, 2000. Adoption of SFAS No. 133 will not
effect the Corporation's financial condition or results of operations.
37
<PAGE>
<TABLE>
Summary of Consolidated Operations
<CAPTION>
August 31 (in thousands) 1999 1998 1997 1996 1995
- ------------------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Assets
Utility plant - net ................. $ 52,334 $51,310 $50,447 $49,442 $47,411
Leased property - net ............... 1,556 2,303 2,377 2,945 2,014
Nonutility plant - net .............. 4,163 4,106 3,712 3,568 3,547
Current assets ...................... 18,612 18,713 20,205 19,307 18,409
Other assets ........................ 23,558 22,049 20,956 21,427 20,957
-------- ------- ------- ------- -------
Total .......................... $100,223 $98,481 $97,697 $96,689 $92,338
======== ======= ======= ======= =======
Capitalization and liabilities
Capitalization
Common equity ....................... $ 35,805 $35,223 $34,307 $27,092 $25,993
Long-term debt
(less current maturities) ......... 29,473 29,638 31,986 23,256 24,616
-------- ------- ------- ------- -------
Total .......................... 65,278 64,861 66,293 50,348 50,609
======== ======= ======= ======= =======
Revolving credit arrangement ........ 2,400 2,400 2,300 2,200 -0-
Obligations under capital leases .... 775 1,528 1,541 2,134 1,255
Current liabilities ................. 14,598 12,586 10,612 24,005 23,932
Other liabilities ................... 17,172 17,106 16,951 18,002 16,542
-------- ------- ------- ------- -------
Total .......................... $100,223 $98,481 $97,697 $96,689 $92,338
======== ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
For the year ended August 31
(in thousands, except as to share
and per share data) 1999 1998 1997 1996 1995
- --------------------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operating revenues .................... $ 81,710 $81,589 $87,484 $80,360 $74,870
Operating expenses:
Cost of gas sold .................... 30,494 31,437 37,844 31,951 30,229
Cost of sales - nonutility .......... 15,787 15,517 14,791 13,689 13,190
Other operation and maintenance ..... 19,246 19,553 19,524 19,379 18,288
Depreciation ........................ 3,398 3,274 3,143 2,956 2,685
Taxes - other than Federal income ... 4,117 4,120 4,243 4,091 4,002
- Federal income .............. 1,772 1,330 1,335 1,444 732
-------- ------- ------- ------- -------
Total .......................... 74,814 75,231 80,880 73,510 69,126
======== ======= ======= ======= =======
Operating income ...................... 6,896 6,358 6,604 6,850 5,744
Other income - net .................... 299 289 423 460 115
Total interest charges ................ 3,008 3,041 3,368 3,312 3,304
-------- ------- ------- ------- -------
Net income ............................ $ 4,187 $ 3,606 $ 3,659 $ 3,998 $ 2,555
======== ======= ======= ======= =======
Shares outstanding - average .......... 4,979,508 4,966,270 4,267,038 4,258,877 4,222,662
Shares outstanding - year-end ......... 4,993,028 4,993,028 4,900,028 4,280,028 4,260,797
Basic and diluted earnings per share .. $0.84 $0.73 $0.86 $0.94 $0.61
Dividends declared per share .......... $0.75 $0.745 $0.735 $0.725 $0.71
Year-end book value per share ......... $7.17 $7.05 $7.00 $6.33 $6.10
</TABLE>
38
<PAGE>
<TABLE>
Gas Operating Statistics
<CAPTION>
For the year ended August 31 1999 1998 1997 1996 1995
- ---------------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gas utility revenues (in thousands):
Residential ......................... $35,323 $35,733 $37,340 $34,678 $30,606
Commercial .......................... 14,735 14,792 16,267 14,891 13,212
Industrial - firm ................... 5,174 5,697 8,156 7,314 8,011
Industrial - seasonal ............... 1,934 2,072 3,605 3,335 3,507
Transportation ...................... 1,139 882 684 382 507
Other ............................... 224 167 179 173 170
------- ------- ------- ------- -------
Total .......................... $58,529 $59,343 $66,231 $60,773 $56,013
======= ======= ======= ======= =======
Gas sold and transported-MMcf:
Residential ......................... 4,165 4,225 4,393 4,612 4,078
Commercial .......................... 2,054 2,060 2,161 2,252 1,953
Industrial - firm.................... 1,024 1,133 1,440 1,391 1,338
Industrial - seasonal ............... 692 648 1,110 1,047 1,298
Transportation - firm ............... 543 346 -0- -0- -0-
Transportation - seasonal ........... 4,442 4,895 5,043 3,273 4,419
------- ------- ------- ------- -------
Total throughput ............... 12,920 13,307 14,147 12,575 13,086
Company use and losses .............. 136 91 179 198 128
------- ------- ------- ------- -------
Total .......................... 13,056 13,398 14,326 12,773 13,214
======= ======= ======= ======= =======
Gas received-MMcf:
Liquid propane gas .................. -0- -0- 17 70 -0-
Liquefied natural gas ............... 807 848 805 992 378
Natural gas stored underground ...... 980 1,009 1,373 1,348 1,156
Pipeline natural gas ................ 6,259 6,304 7,088 7,090 7,261
Transportation gas .................. 5,010 5,237 5,043 3,273 4,419
------- ------- ------- ------- -------
Total .......................... 13,056 13,398 14,326 12,773 13,214
======= ======= ======= ======= =======
Average number of customers:
Residential ......................... 57,249 57,001 56,048 55,676 55,186
Commercial .......................... 5,651 5,626 5,448 5,333 5,212
Industrial - firm.................... 209 228 230 237 241
Industrial - seasonal ............... 49 51 51 54 59
Transportation ...................... 14 4 3 2 2
------- ------- ------- ------- -------
Total .......................... 63,172 62,910 61,780 61,302 60,700
======= ======= ======= ======= =======
Average revenue per
residential customer ................ $617 $627 $666 $623 $555
Average use per
residential customer-Mcf ............ 73 74 78 84 74
Maximum daily throughput-Mcf .......... 71,152 69,564 72,675 70,904 65,619
Sales degree days ..................... 5,763 5,797 6,191 6,369 5,820
</TABLE>
39
<PAGE>
Corporate Information
Annual Meeting and Proxies
The Annual Meeting of Stockholders will be held in Cumberland, Rhode Island, on
December 14, 1999. Notice of the meeting and form of proxy along with this
report are being mailed by the management to each holder of record of common
stock on October 26, 1999.
Form 10-K
The Corporation is required to file an annual report on Form 10-K with the
Securities and Exchange Commission which includes additional information
concerning the Corporation and its operations. A copy of this report will be
forwarded to you upon written request to Ms. Sharon Partridge, Vice President,
Chief Financial Officer, Secretary & Treasurer, Valley Resources, Inc., 1595
Mendon Road, P. O. Box 7900, Cumberland, Rhode Island 02864-0700. Telephone:
(401) 334-1188.
Certified Public Accountants
Grant Thornton LLP
98 North Washington Street
Boston, Massachusetts 02114
Registrar & Transfer Agent
The Bank of New York
1-888-269-8845
Address Shareholder Inquiries To:
Shareholder Relations Department - 11E
P. O. Box 11258
Church Street Station
New York, NY 10286
E-Mail Address: [email protected]
The Bank of New York's Stock Transfer Website:
http://stock.bankofny.com
Send Certificates For Transfer and Address Changes To:
Receive and Deliver Department - 11W
P. O. Box 11002
Church Street Station
New York, NY 10286
Stock Listing
The common stock of Valley Resources, Inc. is listed on the American Stock
Exchange under the symbol VR and on the Boston Stock Exchange. Quotes of Valley
Resources, Inc. common stock are listed in The Wall Street Journal and many
daily newspapers among the AMEX stocks traded for the day.
40
<PAGE>
Inside Back Cover
Directors Officers of the Corporation Other Offices
- --------- --------------------------- -------------
Ernest N. Agresti Alfred P. Degen David L. Hickerson
Retired Partner, Chairman, President & President,
Edwards & Angell, Chief Executive Officer Morris Merchants,
Providence, Rhode Island Inc.
Richard G. Drolet
Melvin G. Alperin Vice President, Richard C. Hadfield
President, Information Systems & Executive Vice
Brewster Industries, Corporate Planning President,
Pawtucket, Rhode Island Morris Merchants,
Charles K. Meunier Inc.
C. Hamilton Davison Vice President,
President & Chief Operations Rosemary Platt
Executive Officer, Controller,
Paramount Cards, Inc., Sharon Partridge Morris Merchants,
Pawtucket, Rhode Island Vice President, Inc.
Chief Financial Officer,
Don A. DeAngelis Secretary & Treasurer Thomas A. Aubee
Vice Chairman & Chief President
Executive Officer, Murdock Jeffrey P. Polucha Alternate Energy
Webbing Company, Inc., Vice President, Marketing Corp.
Central Falls, Rhode Island & Development
Alfred P. Degen James P. Carney
Chairman, President & Assistant Vice President,
Chief Executive Officer, Human Resources
Valley Resources, Inc.,
Cumberland, Rhode Island William D. Mullin
Assistant Vice President,
James M. Dillon Operations
Retired Director of Development, (effective October 1, 1999)
The Roman Catholic Diocese,
Bridgeport, Connecticut Alan H. Roy
Assistant Vice President
Jonathan K. Farnum Gas Supply
Chairman & President,
Wardwell Braiding Robert A. Young
Machine Company, Assistant Vice President
Central Falls, Rhode Island & Chief Engineer
John F. Guthrie, Jr. Thomas E. Philbin
Vice President, Controller
The New England,
Boston, Massachusetts Patricia A. Morrison
Assistant Secretary
Eleanor M. McMahon, Ed.D. Clerk, Morris Merchants, Inc.
Distinguished Visiting Professor,
A. Alfred Taubman Center for
Public Policy, Brown University,
Providence, Rhode Island
(Photo appears here)
Photo tag: The Directors, officers, and employees of Valley Resources, Inc. &
Subsidiaries wish to formally express our deep and genuine gratitude
to Eleanor M. McMahon, Ed.D. for her valuable advice and wise
counsel during her 15 years as a member of the Board of Directors.
<PAGE>
Back Cover
Logo and Address
Valley Resources, Inc. & Subsidiaries
1595 Mendon Road
P. O. Box 7900
Cumberland, Rhode Island 02864-0700
(401) 334-1188
http://www.valleyresources.com
Exhibit 23
Consent of Independent Certified Public Accountants
We have issued our reports dated September 27, 1999, 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, 1999. We hereby consent to the inclusion and
incorporation by reference of said reports in the Registration Statements of
Valley Resources, Inc. and subsidiaries on Form S-3 (File No. 333-41277) and
Form S-8 (File No. 333-19259).
GRANT THORNTON LLP
Boston, Massachusetts
November 26, 1999
<TABLE> <S> <C>
<ARTICLE> UT
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-END> AUG-31-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 52,334,424
<OTHER-PROPERTY-AND-INVEST> 7,458,484
<TOTAL-CURRENT-ASSETS> 18,611,848
<TOTAL-DEFERRED-CHARGES> 21,817,770
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 100,222,526
<COMMON> 4,993,028
<CAPITAL-SURPLUS-PAID-IN> 24,756,209
<RETAINED-EARNINGS> 8,649,997
<TOTAL-COMMON-STOCKHOLDERS-EQ> 35,805,323
0
0
<LONG-TERM-DEBT-NET> 27,029,000
<SHORT-TERM-NOTES> 4,800,000
<LONG-TERM-NOTES-PAYABLE> 2,443,911
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 150,000
0
<CAPITAL-LEASE-OBLIGATIONS> 775,132
<LEASES-CURRENT> 780,723
<OTHER-ITEMS-CAPITAL-AND-LIAB> 28,438,437
<TOT-CAPITALIZATION-AND-LIAB> 100,222,526
<GROSS-OPERATING-REVENUE> 81,710,177
<INCOME-TAX-EXPENSE> 1,772,370
<OTHER-OPERATING-EXPENSES> 73,042,463
<TOTAL-OPERATING-EXPENSES> 74,814,833
<OPERATING-INCOME-LOSS> 6,895,344
<OTHER-INCOME-NET> 299,205
<INCOME-BEFORE-INTEREST-EXPEN> 7,194,549
<TOTAL-INTEREST-EXPENSE> 3,007,940
<NET-INCOME> 4,186,609
0
<EARNINGS-AVAILABLE-FOR-COMM> 4,186,609
<COMMON-STOCK-DIVIDENDS> 3,723,724
<TOTAL-INTEREST-ON-BONDS> 2,388,817
<CASH-FLOW-OPERATIONS> 8,105,213
<EPS-BASIC> 0.84
<EPS-DILUTED> 0.84
</TABLE>
