<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 18, 1997.
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
FALL RIVER GAS COMPANY
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
MASSACHUSETTS 04-1298780
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
155 NORTH MAIN STREET
FALL RIVER, MASSACHUSETTS 02722
508-675-7811
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
------------------------------
PETER H. THANAS
SENIOR VICE PRESIDENT, TREASURER AND CHIEF FINANCIAL OFFICER
FALL RIVER GAS COMPANY
155 NORTH MAIN STREET
FALL RIVER, MASSACHUSETTS 02722
508-675-7811
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
ERIC J. KRATHWOHL, ESQ. JONATHAN A. KOFF, ESQ.
Rich, May, Bilodeau & Flaherty, P.C. STATHY DARCY, ESQ.
294 Washington Street Chapman and Cutler
Boston, MA 02108 111 West Monroe Street
(617) 482-1360 Chicago, IL 60603-4080
(312) 845-3000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
------------------------
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If the Registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this Form, check the following box. / /
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration number for
the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. /X/
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED BE REGISTERED PER SHARE* OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock,
$0.83- 1/3 par value....................... 391,000 shares $13.25 $5,180,750 $1,570
</TABLE>
* Used only for the purpose of calculating the amount of the registration fee
pursuant to Rule 457(b), based upon the average of the reported bid and
asked prices of such securities on September 15, 1997.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 18, 1997
340,000 SHARES
FALL RIVER GAS COMPANY
COMMON STOCK
($0.83 1/3 PAR VALUE)
All of the shares of Common Stock offered hereby are being sold by Fall River
Gas Company (the "Company"). The Common Stock of the Company is traded in the
over-the-counter market on the OTC Bulletin Board and is quoted under the symbol
"FALL." On September 15, 1997, the closing bid price of the Common Stock on the
OTC Bulletin Board was $12 3/4. See "Common Stock Dividends and Price Range".
Application has been made to list the Company's Common Stock on the American
Stock Exchange under the symbol "FAL".
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR CERTAIN INFORMATION WHICH SHOULD BE
CAREFULLY CONSIDERED BEFORE PURCHASING SHARES OF COMMON STOCK OFFERED HEREBY.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS
PUBLIC COMMISSIONS (1) TO COMPANY (2)
<S> <C> <C> <C>
Per Share.............................................. $ $ $
Total (3).............................................. $ $ $
</TABLE>
(1) Does not reflect additional compensation payable to the Representative of
the Underwriters by the Company in the form of a non-accountable expense
allowance of $50,000. The Company has agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended. See "Underwriting".
(2) Before deduction of expenses payable by the Company estimated at $145,600.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 51,000 shares solely to cover over-allotments, if any. If such
option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting" for a discussion
of certain reimbursements that may be made by the Company to the
Underwriters in the event the over-allotment option is exercised.
The shares of Common Stock are offered by the several Underwriters, subject to
prior sale, when, as and if delivered to and accepted by them, subject to the
right of the Underwriters to reject any order in whole or in part and certain
other conditions. It is expected that delivery of the certificates for such
shares will be made in Boston, Massachusetts on or about , 1997.
------------------------
FIRST ALBANY CORPORATION
The date of this Prospectus is , 1997
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF THE SHARES OF COMMON
STOCK. SUCH TRANSACTIONS MAY INCLUDE STABILIZING, THE PURCHASE OF COMMON STOCK
TO COVER SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549; and at the Commission's Regional Offices
in Chicago (500 West Madison Street, Suite 1400, Chicago, Illinois 60661) and in
New York (7 World Trade Center, Suite 1300, New York, New York 10048). Copies of
such materials can be obtained at prescribed rates from the Public Reference
Section of the Commission at the Washington, D.C. address given above. The
Commission maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission, including the Company. The address of such Web site is
http://www.sec.gov.
This prospectus constitutes a part of a registration statement on Form S-2
(herein, together with all exhibits thereto, referred to as the "Registration
Statement") filed by the Company with the Commission under the Securities Act of
1933, as amended (the "Securities Act"), with respect to the securities offered
hereby. This Prospectus does not contain all of the information set forth or
incorporated by reference in the Registration Statement, as permitted by the
rules and regulations of the Commission. For further information with respect to
the Company and the securities offered hereby, reference is made to the
Registration Statement, including the exhibits filed or incorporated by
reference as a part thereof. Copies of the Registration Statement and the
exhibits thereto are on file at the offices of the Commission and may be
obtained upon payment of the prescribed fee or may be examined without charge at
the public reference facilities of the Commission described above. Statements
contained herein concerning the provisions of documents filed with, or
incorporated by reference in, the Registration Statement as exhibits are
necessarily summaries of such documents and each such statement is qualified in
its entirety by reference to the copy of the applicable document filed with the
Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed with the Commission pursuant to the
Exchange Act are incorporated herein by reference: (a) the Company's Annual
Report on Form 10-K for the year ended September 30, 1996, File No. 0-449 and
(b) the Company's Quarterly Reports on Form 10-Q for the quarters ended December
31, 1996, March 31, 1997 and June 30, 1997, File No. 0-449.
Any statement contained in a document incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein modifies or supersedes such statement.
THE COMPANY HEREBY UNDERTAKES TO PROVIDE, WITHOUT CHARGE, TO EACH PERSON TO WHOM
THIS PROSPECTUS IS DELIVERED, UPON THE ORAL OR WRITTEN REQUEST OF ANY SUCH
PERSON, A COPY OF ANY OR ALL OF THE FOREGOING DOCUMENTS (OTHER THAN EXHIBITS TO
SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE
THEREIN). REQUESTS SHOULD BE DIRECTED TO PETER H. THANAS, SR. VICE PRESIDENT AND
TREASURER, FALL RIVER GAS COMPANY, 155 NORTH MAIN STREET, FALL RIVER,
MASSACHUSETTS 02722--TELEPHONE (508) 675-7811.
2
<PAGE>
PROSPECTUS SUMMARY
THE INFORMATION SET FORTH BELOW SHOULD BE READ IN CONJUNCTION WITH AND IS
QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION AND FINANCIAL
STATEMENTS CONTAINED ELSEWHERE IN THIS PROSPECTUS OR INCORPORATED HEREIN BY
REFERENCE. UNLESS OTHERWISE INDICATED, ALL INFORMATION HEREIN HAS BEEN ADJUSTED
FOR THE TWO-FOR-ONE STOCK SPLIT EFFECTIVE JANUARY 14, 1994 AND ASSUMES THAT THE
UNDERWRITERS' OVER-ALLOTMENT OPTION WILL NOT BE EXERCISED.
THE COMPANY
The Company is a regulated public utility primarily engaged in the distribution,
transportation and sale of natural gas for use by residential, commercial and
industrial customers. The Company currently serves approximately 47,000 natural
gas customers in southeastern Massachusetts. Of the Company's revenues from
regulated gas operations, approximately 71% was derived from residential
customers and 29% was derived from commercial and industrial customers,
including transportation customers, during the nine months ended June 30, 1997.
The Company obtains its primary supply of natural gas under a long-term contract
with a natural gas marketer.
Through its wholly-owned subsidiary, Fall River Gas Appliance Company, Inc.,
(the "Appliance Company"), the Company is also engaged in certain unregulated
activities, including leasing and selling gas burning equipment (primarily for
use by the Company's residential customers), including water heaters and
conversion burners. For the nine months ended June 30, 1997, net income
contributed by the Company's unregulated operations comprised approximately 29%
of the Company's total net income.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered hereby................ 340,000 shares
Common Stock to be outstanding after this
offering(1).............................. 2,127,261 shares
Indicated annualized dividend(2)........... $0.96 per share of Common Stock. See "Common
Stock Dividends and Price Range".
Use of proceeds............................ To repay short-term indebtedness primarily
incurred for the funding of additions to
property, plant and equipment. See "Use of
Proceeds".
Over-the-counter market trading symbol..... "FALL"
Range of high and low bid prices of Common
Stock (October 1, 1996 through September
15, 1997)................................ $18 1/4-$12 3/4
Closing Bid Price on September 15, 1997.... $12 3/4
Proposed American Stock Exchange symbol.... "FAL"
Share Owner Dividend Reinvestment and Stock
Purchase Plan............................ Offered by means of a separate prospectus.
</TABLE>
- ------------------------
(1) Based on the number of shares of Common Stock outstanding as of June 30,
1997.
(2) Based on the quarterly dividend of $0. per share declared by the Board
of Directors at its regularly scheduled meeting held September 30, 1997.
Such dividend will be payable on November 15, 1997 to shareholders of record
on November 1, 1997. Shares of Common Stock offered hereby and issued on or
prior to November 1, 1997, will be entitled to receive such dividend.
3
<PAGE>
SELECTED FINANCIAL INFORMATION
(In thousands, except per share data)
<TABLE>
<CAPTION>
NINE MONTHS FISCAL YEAR NINE MONTHS
ENDED ENDED ENDED
JUNE 30, SEPTEMBER 30, SEPTEMBER 30,
-------------------- ------------------------------------------ -------------
1997 1996 1996 1995 1994 1993 1992(1)
--------- --------- --------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
INCOME STATEMENT DATA:
Gas operating revenues..................... $ 41,354 $ 44,141 $ 48,966 $ 44,418 $ 48,331 $ 44,819 $ 36,047
Operating income........................... 2,965 2,513 2,342 2,306 2,777 2,904 2,212
Earnings of Fall River Gas Appliance
Company, Inc............................. 585 549 779 753 799 683 539
Net income................................. 1,996 1,799 1,424 1,617 2,491 2,352 1,819
Earnings per share......................... 1.12 1.01 0.80 0.91 1.40 1.32 1.02
Dividends per share........................ 0.72 0.72 0.96 0.96 0.98 0.97 0.92
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
----------------------------------------------
<S> <C> <C> <C> <C>
ACTUAL AS ADJUSTED (2)
---------------------- ----------------------
<CAPTION>
AMOUNT PERCENTAGE AMOUNT PERCENTAGE
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
CAPITALIZATION:
Common shareholders' equity........................................ $ 13,455 49.9% 17,380 47.1%
Long-term debt..................................................... 13,500 50.1 19,500 52.9
--------- ----- --------- -----
Total capitalization............................................... $ 26,955 100.0% $ 36,880 100.0%
--------- ----- --------- -----
--------- ----- --------- -----
Total short-term debt.............................................. $ 11,200 $ 1,275
OTHER BALANCE SHEET DATA:
Utility plant--net................................................. $ 38,708
Total assets....................................................... 51,385
Book value per share of Common Stock............................... 7.53
</TABLE>
- ------------------------
(1) 1992 data is for the nine-month period ended September 30, 1992 due to
change in the Company's fiscal year.
(2) Adjusted to reflect the receipt and application of (i) the estimated net
proceeds from the sale of the shares of Common Stock offered hereby
estimated at $3,925,000, assuming an offering price of $12.75 per share, and
(ii) the estimated net proceeds of approximately $6,000,000 from the
proposed sale of $6,000,000 aggregate principal amount of First Mortgage
Bonds anticipated to occur by the end of the first quarter of fiscal 1998.
See "Use of Proceeds" and "Capitalization".
4
<PAGE>
THE COMPANY
The Company is a regulated public utility primarily engaged in the distribution,
transportation and sale of natural gas for use by residential, commercial and
industrial customers. The Company currently serves approximately 47,000 natural
gas customers in southeastern Massachusetts. Of the Company's revenues from
regulated gas operations, approximately 71% was derived from residential
customers and 29% was derived from commercial and industrial customers,
including transportation customers, during the nine months ended June 30, 1997.
The Company obtains its primary supply of natural gas under a long-term contract
with a natural gas marketer.
Through its wholly-owned subsidiary, Fall River Gas Appliance Company, Inc.,
(the "Appliance Company"), the Company is also engaged in certain unregulated
activities, including leasing and selling gas burning equipment (primarily for
use by the Company's residential customers), including water heaters and
conversion burners. For the nine months ended June 30, 1997, net income
contributed by the Company's unregulated operations comprised approximately 29%
of the Company's total net income.
Earnings from the Appliance Company are primarily the result of revenues from
the rental of water heaters and conversion burners, which allow oil-fired
heating systems to use natural gas primarily for residential and small
commercial applications. As of June 30, 1997, the water heater program had
14,830 rentals in service and the conversion burner program had 4,746 rentals in
service. The Appliance Company also derives revenues from the sale of central
heating and air-conditioning systems and water heaters.
SERVICE TERRITORY
[LOGO]
5
<PAGE>
RISK FACTORS
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT,
PARTICULARLY IN THE "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--LIQUIDITY AND CAPITAL RESOURCES" AND "BUSINESS"
SECTIONS. FORWARD-LOOKING STATEMENTS ARE GENERALLY IDENTIFIED WITH THE FOLLOWING
PHRASES: "BELIEVES", "EXPECTS", AND "ANTICIPATES", OR WORDS OF SIMILAR IMPORT.
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED IN SUCH
FORWARD-LOOKING STATEMENTS AS A RESULT OF THE RISK FACTORS SET FORTH BELOW AND
OTHER INFORMATION CONTAINED ELSEWHERE IN THE PROSPECTUS. IN ADDITION TO THE
OTHER INFORMATION CONTAINED AND INCORPORATED BY REFERENCE IN THIS PROSPECTUS,
THE FOLLOWING FACTORS SHOULD BE CAREFULLY CONSIDERED IN EVALUATING THE COMPANY
AND ITS BUSINESS BEFORE PURCHASING THE SECURITIES OFFERED HEREBY.
SPECIAL FACTORS AFFECTING THE NATURAL GAS DISTRIBUTION INDUSTRY
The natural gas industry is subject to numerous legislative and regulatory
requirements, standards and restrictions, which are subject to change and which
affect the Company to varying degrees. Significant industry factors that have
affected or may affect the Company from time to time include the following: (i)
fluctuations in demand for natural gas attributable to weather; (ii) difficulty
in obtaining rate increases from regulatory authorities in adequate amounts and
on a timely basis; (iii) difficulty in earning the authorized return on invested
capital; (iv) competition from alternative fuels for industrial and other
significant customers and fluctuations in the prices of oil, which can make oil
less costly than natural gas; (v) volatility in the supply and price of natural
gas; (vi) increasing competition with alternative gas sources caused by recent
deregulation in the natural gas industry; (vii) uncertainty in projected energy
requirements of the Company's customers; and (viii) potential costs of
compliance with environmental regulations. See also "Business--Competition" and
"Business--Rates and Regulation".
GAS SUPPLY
The Company currently obtains approximately 90% of its gas supplies from a
single source. Although the Company believes that such supplier is reliable and
is likely to be able to fulfill its contractual obligations to the Company,
should that supplier fail to deliver all natural gas supplies under contract,
the Company might have difficulties in arranging promptly for an economical
replacement supply. Though the Company would likely be able to obtain required
supplies on the spot market, there would be an increased risk concerning full
recovery of such costs, which could have a material adverse effect on the
Company's results of operations.
PRIOR LIMITED TRADING MARKET
There is currently a limited public trading market for the Company's Common
Stock. Although application has been made to list the Company's Common Stock on
the American Stock Exchange under the symbol "FAL", there can be no assurance
that such application will be approved or, if approved, that an active trading
market will develop after the offering.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock offered
hereby, estimated to be $3,925,000 ($4,525,000 if the Underwriters'
over-allotment option is exercised in full) will be used to repay short-term
indebtedness. At August 31, 1997, the Company had $15,200,000 in short-term debt
outstanding, with a weighted average interest rate of 6.53%. Such indebtedness
was primarily incurred for funding of additions to property, plant and
equipment. In addition, the net proceeds of the proposed issuance of $6,000,000
aggregate principal amount of First Mortgage Bonds (anticipated to occur by the
end of the first quarter of fiscal 1998) will be applied to reduce short-term
indebtedness.
The Company continually replaces gas mains and services to maintain and improve
the reliability and capacity of its gas distribution system and will extend gas
mains to serve new customers if potential returns on the investments made to
serve these customers are adequate. The Company's capital expenditures totalled
approximately $3,000,000 in the twelve months ended June 30, 1997. Capital
expenditures for the twelve months ending June 30, 1998 are estimated to be
approximately $3,000,000.
6
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of the
Company on a consolidated basis as of June 30, 1997 and as adjusted as of such
date to give effect to the receipt and application of (i) the estimated net
proceeds from the sale of the shares of Common Stock offered hereby, and (ii)
the estimated net proceeds from the proposed sale of $6,000,000 aggregate
principal amount of First Mortgage Bonds anticipated to occur by the end of the
first quarter of fiscal 1998. See "Use of Proceeds." The information included in
the table below should be read in conjunction with the Consolidated Financial
Statements and Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
------------------------------------------------------
<S> <C> <C> <C> <C>
ACTUAL AS ADJUSTED
-------------------------- --------------------------
<CAPTION>
AMOUNT PERCENTAGE AMOUNT PERCENTAGE
------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Common Equity:
Common Stock............................................. $ 1,834,445 $ 1,834,445
Capital in excess of par value........................... 1,440,511 4,219,166
Retained earnings(1)..................................... 11,576,051 11,576,051
Treasury stock(2)........................................ (1,396,088) (249,743)
------------- ----- ------------- -----
Total Common Equity................................ 13,454,919 49.9% 17,379,919 47.1%
Long-term Debt:
First Mortgage Bonds
9.44% series, due 2020................................. 6,500,000 6,500,000
7.99% series, due 2026................................. 7,000,000 7,000,000
Proposed % series, due ..................... 0 6,000,000
------------- ----- ------------- -----
Total long-term debt................................... 13,500,000 50.1 19,500,000 52.9
Less amounts due within one year.......................
------------- ----- ------------- -----
Total capitalization............................... $ 26,954,919 100.0% $ 36,879,919 100.0%
------------- ----- ------------- -----
------------- ----- ------------- -----
Total short-term debt.............................. $ 11,200,000 $ 1,275,000
</TABLE>
- ------------------------
(1) The Company's use of retained earnings is subject to restrictions contained
in the Company's Indenture of First Mortgage, as amended. As of June 30,
1997, $4,426,791 of retained earnings was unrestricted and available for the
payment of dividends.
(2) The Common Stock offered hereby will be issued from Common Stock currently
held in treasury. Upon the issuance of the Common Stock, Treasury stock will
be reduced by the average price at which the Treasury stock is carried,
multiplied by the number of shares sold. The excess of the offering price
over the average price at which the Treasury stock is carried will be
credited to capital in excess of par value.
7
<PAGE>
COMMON STOCK DIVIDENDS AND PRICE RANGE
The holders of Common Stock are entitled to receive such dividends as may be
declared by the Board of Directors. The Company has paid dividends to
shareholders for 117 consecutive years. The Company currently intends to
continue its practice of declaring cash dividends on a quarterly basis, although
the declaration and amount of any future dividends will necessarily depend upon
future earnings, cash flow, the financial condition of the Company and other
factors. See "Description of Capital Stock" for a description of certain
limitations on the future payment of dividends. At its regularly scheduled
meeting held September 30, 1997, the Board of Directors of the Company declared
a dividend of $. per share, payable on November 15, 1997 to shareholders of
record on November 1, 1997. Shares of Common Stock offered hereby and issued on
or prior to November 1, 1997 will be entitled to receive such dividend.
The Company's Common Stock historically has been traded in the over-the-counter
market on the OTC Bulletin Board and quoted under the symbol "FALL". Application
has been made to list the Company's Common Stock on the American Stock Exchange
under the symbol "FAL".
The following table shows the high and low bid prices, as well as cash dividends
declared per share of the Common Stock for the periods indicated. The quotations
reflect inter-dealer prices, without retail markup, markdown or commission and
may not necessarily represent actual transactions. As of June 30, 1997, there
were approximately 1,100 holders of record of the Company's Common Stock.
<TABLE>
<CAPTION>
CASH
DIVIDENDS
FISCAL YEAR LOW BID HIGH BID PER SHARE
- ---------------------------------------------------------------------------------- ----------- ----------- -------------
<S> <C> <C> <C>
October 1, 1994 through September 30, 1995
First Quarter................................................................... $ 25 1/4 $ 25 3/4 $ .24
Second Quarter.................................................................. 25 25 1/2 .24
Third Quarter................................................................... 25 25 .24
Fourth Quarter.................................................................. 24 25 .24
October 1, 1995 through September 30, 1996
First Quarter................................................................... 21 1/4 24 .24
Second Quarter.................................................................. 20 3/4 21 3/4 .24
Third Quarter................................................................... 18 21 .24
Fourth Quarter.................................................................. 18 18 1/4 .24
October 1, 1996 through September 30, 1997
First Quarter................................................................... 16 18 1/4 .24
Second Quarter.................................................................. 16 16 1/2 .24
Third Quarter................................................................... 13 16 .24
Fourth Quarter (through September 15)........................................... 12 3/4 13 1/4 .24
</TABLE>
The Company's Share Owner Dividend Reinvestment and Stock Purchase Plan ("DRP")
provides holders of record of its Common Stock with the option to invest cash
dividends and/or optional cash payments (up to $5,000 per quarter) in newly
issued shares of the Company's Common Stock at current market prices, less a
three percent discount, without the payment of any brokerage commission or
service charge. Such shares are offered only by means of a separate prospectus,
which is available upon request from the Company.
8
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth certain financial data of the Company for the
five years ended September 30, 1996 and the nine months ended June 30, 1997 and
1996. The selected consolidated financial data as of and for the five fiscal
years ended September 30, 1996 was derived from the audited consolidated
financial statements of the Company, certain of which are included elsewhere
herein. The selected consolidated financial data as of and for the nine months
ended June 30, 1997 and 1996 was derived from unaudited consolidated financial
statements of the Company which, in the opinion of management, contain all
adjustments (consisting of normal recurring adjustments) necessary for a fair
presentation thereof. The results of operations for the nine months ended June
30, 1997 are not necessarily indicative of the results that may be expected for
the full year. The selected financial information is qualified by reference to
the Financial Statements and Notes thereto and other information and data set
forth elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF OR FOR AS OF OR FOR AS OF OR FOR
NINE MONTHS FISCAL YEAR ENDED NINE MONTHS ENDED
ENDED JUNE 30, SEPTEMBER 30, SEPTEMBER 30,
-------------------- ------------------------------------------ -------------------
1997 1996 1996 1995 1994 1993 1992(1)
--------- --------- --------- --------- --------- --------- -------------------
(UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Assets
Utility plant--net.................. $ 38,708 $ 37,561 $ 38,653 $ 36,209 $ 33,213 $ 30,726 $ 29,291
Non-utility plant--net.............. 2,948 2,724 2,762 2,613 2,327 2,022 1,828
Current assets...................... 7,386 7,596 8,449 9,934 12,150 12,275 5,170
Other assets........................ 2,343 2,081 2,688 2,201 1,936 1,462 1,394
--------- --------- --------- --------- --------- --------- ----------
Total......................... $ 51,385 $ 49,962 $ 52,552 $ 50,957 $ 49,626 $ 46,485 $ 37,683
--------- --------- --------- --------- --------- --------- ----------
--------- --------- --------- --------- --------- --------- ----------
Capitalization and liabilities
Capitalization
Common equity..................... $ 13,455 $ 13,439 $ 12,637 $ 12,922 $ 13,014 $ 12,268 $ 11,634
Long-term debt (less current
maturities)..................... 13,500 6,500 13,500 6,500 7,380 7,560 7,680
--------- --------- --------- --------- --------- --------- ----------
Total......................... 26,955 19,939 26,137 19,422 20,394 19,828 19,314
Current liabilities................. 16,747 22,638 18,848 24,165 22,419 20,481 12,455
Other liabilities................... 7,683 7,385 7,567 7,370 6,813 6,176 5,914
--------- --------- --------- --------- --------- --------- ----------
Total......................... $ 51,385 $ 49,962 $ 52,552 $ 50,957 $ 49,626 $ 46,485 $ 37,683
--------- --------- --------- --------- --------- --------- ----------
--------- --------- --------- --------- --------- --------- ----------
INCOME STATEMENT DATA:
Gas operating revenues................ $ 41,354 $ 44,141 $ 48,966 $ 44,418 $ 48,331 $ 44,819 $ 36,047
Operating expenses:
Cost of gas sold.................... 23,810 28,601 31,133 28,097 31,162 28,053 23,772
Other operation and maintenance..... 10,693 9,680 12,257 10,992 10,953 10,617 7,617
Depreciation........................ 1,886 1,515 1,609 1,499 1,392 1,304 939
Taxes--other than Federal income.... 1,322 1,225 1,348 1,139 1,233 1,132 888
-Federal income..................... 678 607 277 385 814 809 619
--------- --------- --------- --------- --------- --------- ----------
Total......................... 38,389 41,628 46,624 42,112 45,554 41,915 33,835
--------- --------- --------- --------- --------- --------- ----------
Operating income...................... 2,965 2,513 2,342 2,306 2,777 2,904 2,212
Other income--net of tax.............. 606 548 790 772 815 691 555
Total interest charges................ 1,575 1,262 1,708 1,461 1,101 1,243 948
--------- --------- --------- --------- --------- --------- ----------
Net income............................ $ 1,996 $ 1,799 $ 1,424 $ 1,617 $ 2,491 $ 2,352 $ 1,819
--------- --------- --------- --------- --------- --------- ----------
--------- --------- --------- --------- --------- --------- ----------
Shares outstanding--average........... 1,783,547 1,780,542 1,780,542 1,780,542 1,780,542 1,780,542 1,780,542
Earnings per share.................... $ 1.12 $ 1.01 $ 0.80 $ 0.91 $ 1.40 $ 1.32 $ 1.02
Dividends declared per share.......... $ 0.72 $ 0.72 $ 0.96 $ 0.96 $ 0.98 $ 0.97 $ 0.69
Appliance Company net income.......... $ 585 $ 549 $ 779 $ 753 $ 799 $ 683 $ 539
</TABLE>
- ------------------------------
(1) 1992 data is for the nine-month period ended September 30, 1992 due to the
change in the Company's fiscal year.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Operating results are derived from two major classifications - utility and
non-utility. Utility revenues are generated from the operations of the regulated
natural gas distribution company and include the sale and distribution, as well
as the transportation, of natural gas to firm and interruptible customers.
Non-utility revenues are almost entirely from the rental of water heaters and
conversion burners.
The sale and distribution, as well as the transportation, of natural gas to
customers on a year-round basis for heating, water heating, cooking and
processing are the sources of firm utility revenues, as described below. Firm
customers can be residential, commercial or industrial. The revenues from firm
sales customers are determined by regulated tariff schedules and through
Massachusetts Department of Public Utilities ("MDPU") approved commodity charge
factors. These factors include the Cost of Gas Adjustment clause ("CGAC"), which
requires the Company to collect from or return to customers changes in gas cost
from those included in the regulated tariffs, on a semi-annual basis. The CGAC
also provides for collection of: (i) carrying costs on gas purchases; (ii)
pipeline transition costs; (iii) costs, incentives and lost base revenues
associated with demand side management, (DSM) programs; and (iv) certain costs
of compliance with environmental regulations. In accordance with the Company's
approved CGAC, increases or decreases in the cost of gas sold continue to be
passed directly to firm customers, dollar for dollar.
On October 16, 1996 the MDPU authorized a $3,200,000 increase in the Company's
annual rates. At the same time, the MDPU approved the "unbundling" of the
Company's commercial and industrial tariffs. As a result, customers can choose
to buy gas from the Company or purchase their own gas supply from a third party
and have that supply transported up to and into the Company's distribution
system. These new rates are effective for gas sold on or after December 1, 1996.
Sales to other utilities ("off-system sales") and to dual-fuel customers
("interruptible sales") are made when excess gas supplies are available and
prices are competitive. Interruptible sales are generally made in non-winter
months and can be interrupted by the Company at any time.
Transportation, the delivery of gas purchased by customers from marketers and
other third parties through the Company's distribution system, has recently
become a growing portion of the Company's business. With the restructuring of
the natural gas pipeline industry and the development of the state-level policy
of unbundling of delivery and commodity sales functions, the Company's largest
customers have moved first from firm tariffed sales service to firm sales
service under special contracts and more recently to transportation service. The
movement to the Company's transportation service occurred primarily after
implementation of new rates on December 1, 1996. Under these rates, the Company
earns the same margins on transportation service as it does on bundled commodity
sales and delivery. Accordingly, the Company is generally indifferent as to
whether customers take bundled sales and delivery or unbundled transportation
service only. To date, only the Company's largest customers have moved to
transportation service, although it is likely that additional customers will as
well. Such movement to transportation results in reduced gas operating revenues,
because no commodity is bought from the Company for such customers.
Correspondingly, cost of gas sold is reduced. Consequently, there is no impact
on earnings because the Company, like all other Massachusetts gas companies,
earns no margin on the sale of natural gas itself. See "Business - Competition
and - Rates and Regulation".
The Appliance Company generates non-utility revenues primarily from the rental
of hot water heaters and conversion burners. The Appliance Company also sells
such equipment and other gas-burning appliances such as central heating and air
conditioning systems and water heaters. Such rentals and sales are made to the
Company's gas customers and thereby assist the utility sales efforts. For income
statement purposes, the net earnings of the Appliance Company are shown under
"Other Income." A breakdown of the revenue and expenses of the Appliance Company
is found in the Notes to Consolidated Financial Statements.
10
<PAGE>
SEASONALITY
The nature of the Company's business is highly seasonal and
temperature-sensitive. As a result, the Company's operating results in any given
period reflect, in addition to other matters, the impact of the weather, with
colder temperatures resulting in increased sales and transportation by the
Company. The substantial impact of this sensitivity to seasonal conditions is
reflected in the Company's results of operations and the Company anticipates
that it will continue to be so reflected in future periods.
Short-term borrowing requirements vary according to the seasonal nature of sales
and expense activities of the Company. Accordingly, 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.
RESULTS OF OPERATIONS
NINE MONTHS ENDED JUNE 30, 1997 AND 1996
Gas operating revenues fell $2,787,000, or 6.3% from $44,141,000 recorded in
1996 to $41,354,000, mainly due to a decrease in firm sales volume. Firm sales
volume for the nine months ended June 30, 1997 was 5,390,124 Mcf(1) as compared
to the 5,749,248 Mcf reported in 1996, a 6.2% decrease. Somewhat offsetting such
decrease was an increase in total volumes attributable to special contract,
interruptible and transportation customers. Such volumes were 1,398,769 Mcf in
1997 and 1,148,951 Mcf in 1996. Temperature change was not a factor affecting
operating revenues and firm sales volume. Such decreases resulted from the
migration of several large customers from sales service to transportation
service. Degree Days(2) in the nine-month comparison increased slightly from
6,115 in the 1996 period to 6,131 in the 1997 period.
The most significant operation expense--cost of gas sold--decreased by
$4,791,000 for the nine-month comparison primarily due to a reduction in the
1997 period of $3,000,000 in gas costs and interest deferred in prior periods
through the CGAC, and $1,800,000 due to a 700,000 Mcf decrease in firm sales
volumes (including special contract volumes).
Depreciation expense increased $370,703, or 24.0%, due to increased depreciation
accrual rates authorized by the MDPU in an order dated October 16, 1996. Other
operation expenses including health benefits, payroll, materials and supplies,
and regulatory commission expense increased by $916,000, or 11.0%.
Total operating expenses, excluding Federal and state income taxes, decreased
8.1% from $40,891,000 to $37,566,000, a decrease of $3,325,000.
Other income increased to $585,000 from $549,000 in the 1996 period, a result of
increased net earnings of the Appliance Company attributable to increased
merchandise sales and appliance rental revenues.
Interest expense increased by $314,000, 24.9%, for the nine month comparison due
to increased interest cost on Long-term Debt related to the issuance of
$7,000,000 of 30 year First Mortgage Bonds with a 7.99% coupon rate, offset by
lower interest cost on reduced short-term borrowings. The proceeds from the
issue were used to reduce the Company's short-term debt.
- ------------------------
(1) An Mcf is a volumetric measurement of quantity of gas, specifically one
thousand cubic feet. Other volumetric units commonly referenced include
"MMcf", or one thousand Mcf. Quantities of natural gas are also measured in
millions of cubic feet (MMcf) and are measured on a thermal (energy content)
basis. One Mcf is approximately equivalent to one million BTU's ("MMBtu").
(2) A degree day is a means of measuring temperature over some period.
Specifically, the number of degree days is the multiple of the difference
between the lowest number of degrees (Fahrenheit) on a given day and 65 DEG.
Fahrenheit, and the number of days in which the temperature was less than
65 DEG. Fahrenheit.
11
<PAGE>
Net income increased to $1,996,000 during the nine months ended June 30, 1997
compared to $1,800,000 for the same period in 1996. Earnings per share for the
nine months ended June 30, 1997 were $1.12 compared to $1.01 in 1996. Of the
$196,000 increase in net income, $36,000 related to increased income in the
Appliance Company primarily due to increased merchandise sales and appliance
rentals.
FISCAL 1996 VERSUS FISCAL 1995
Gas operating revenues in fiscal 1996 totalled $48,966,000, an increase of 10.2%
over fiscal 1995. Revenues from sales to firm customers increased 12.8% over the
prior year, primarily as a result of higher gas sales due in large part to
weather which was 9.8% colder than the prior year. Included in the increased
revenues was an increase of $3,675,000 in gas costs recovered by the Company's
CGAC. Gas sales volumes to firm customers totalled 6,222,000 Mcf, an increase of
11.8% over fiscal 1995.
Cost of gas sold includes costs for gas operation including supplemental fuels,
such as propane, liquefied natural gas ("LNG"), and storage, which are used to
augment the Company's primary supply of natural gas during periods of peak
usage. The average cost of gas per Mcf in fiscal 1996 and fiscal 1995 was $4.10
and $3.88, respectively. The increase in gas costs was primarily due to colder
temperatures, as higher priced supplemental sources were required to serve
customers' needs.
Other operations expenses increased 14.1% over fiscal 1995, primarily due to
wage increases, escalating health care costs, and inflation.
Taxes, other than Federal income, increased to $807,000 in fiscal 1996, an
increase of 31.3% over fiscal 1995. Increased construction and increases in
local tax rates over the years has resulted in increased property taxes. The
Company's effective local tax rate increased from $19.83 per $1,000 assessed
value in 1995 to $22.08 per $1,000 assessed value in 1996. Federal income taxes
decreased due to lower taxable income.
Other income totalled $791,000 in fiscal 1996, compared to $773,000 in fiscal
1995. This increase is primarily attributable to the increased earnings of the
Appliance Company, to $779,000 in fiscal 1996 from $753,000 in fiscal 1995,
primarily a result of increased rental revenue.
Interest expense in fiscal 1996 was $1,708,000, an increase of 16.9% over 1995.
Increased short-term borrowing for additions to property, plant and equipment
was primarily responsible for this increase. The Company's average daily balance
of short-term credit lines increased to $17,900,000 from $14,586,000, while the
weighted average interest rate decreased to 6.1% from 6.4%. In addition, on
September 20, 1996 the Company issued $7,000,000 of thirty year First Mortgage
Bonds with a 7.99 % coupon rate.
Net income in fiscal 1996 was $1,426,000 compared to $1,616,000 in fiscal 1995.
Earnings per share for fiscal 1996 were $0.80 compared with $0.91 in fiscal
1995.
FISCAL 1995 VERSUS FISCAL 1994
Gas operating revenues totalled $44,418,000 in fiscal 1995, representing an 8.1%
decrease from fiscal 1994. Revenues from sales to firm customers decreased 12.1%
from 1994 because of decreased gas sales due to warmer weather and lower gas
prices, which resulted in a $4,286,000 reduction in gas costs recovered through
the CGAC. Special contract sales, made to certain large customers in place of
bundled tariff sales, totalled $1,853,000 in fiscal 1995 and $248,000 in fiscal
1994, offsetting a portion of the firm gas sales decrease.
The average cost of gas during fiscal 1995 was $3.88 per Mcf compared to $4.86
the prior fiscal year. The decrease in gas costs was primarily due to warmer
weather and consequently less use of higher cost supplemental gas supplies.
Operation expenses decreased by 1.9% during fiscal 1995. Normal wage increases
and inflation in other areas were offset by decreases in the Company's reserve
for bad debts and the cost of health insurance.
Maintenance expense in fiscal 1995 was $1,994,000, an increase of 11.9% over the
prior fiscal year. Expenses related to the Company's distribution system were
primarily responsible for this increase.
12
<PAGE>
Other income in fiscal 1995 was $772,000 a decrease of $42,000 or 5.5% from
fiscal 1994. This decrease was primarily attributable to lower Appliance Company
earnings largely due to decreased merchandise sales.
Interest expense in fiscal 1995 totalled $1,460,000, an increase of 32.7% over
fiscal 1994. During fiscal 1995 the Company's average daily balance of
short-term borrowing increased to $14,586,000 from $13,052,000, and the weighted
average interest rate rose to 6.4% from 4.3%.
Earnings per share for fiscal 1995 were $0.91 compared with $1.40 in fiscal
1994. Net income in fiscal 1995 was $1,616,000 compared to $2,491,000 in fiscal
1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company's major capital requirements result from upgrading the efficiency of
existing plant and expanding plant to serve additional customers. Such capital
expenditures are primarily for expansion and improvements of the Company's
distribution system. For the nine months ended June 30, 1997, capital
expenditures totalled approximately $1,800,000. For fiscal 1996, 1995 and 1994,
capital expenditure totals were: $3,780,000, $4,294,000 and $3,711,000,
respectively.
Capital expenditures and accounts receivable balances were financed by
internally generated funds and supplemented by short-term borrowings. During
fiscal 1996 gas cost billings were higher than the Company's cost of gas,
thereby having a positive effect on cash flow of approximately $2,600,000.
Higher gas cost billings also reduced the Company's deferred gas balance to
$200,000 in fiscal 1996 from $2,800,000 in fiscal 1995.
The Company's net cash generated from operating activities in fiscal 1996 was
$1,215,000 compared to $5,507,000 and $6,784,000 in fiscal years 1995 and 1994,
respectively. The Company had capital expenditures for utility and non-utility
operations in the amounts of $4,247,000, $4,883,000, and $4,303,000 in fiscal
years 1996, 1995, and 1994, respectively. As is customary in the utility
industry, cash for construction requirements in excess of internally generated
funds were provided through short-term borrowing that is eventually repaid with
the proceeds of long-term debt as deemed appropriate by management. On September
20, 1996 the Company issued $7,000,000 of thirty year First Mortgage Bonds with
a 7.99 % coupon rate. The proceeds from the issue were used to reduce the
Company's short-term debt.
The Company currently has four short-term credit lines with an aggregate limit
of $25,000,000 at rates based upon prevailing short-term interest rates. At
September 1, 1997 the Company had $15,200,000 of short-term borrowings
outstanding under its lines of credit. After application of funds to be received
from this offering and a proposed issuance of $6,000,000 of First Mortgage Bonds
during the first quarter of fiscal 1998, the Company's remaining outstanding
short-term debt will approximate $5,275,000. The Company believes that
internally generated funds, along with available credit lines, will be adequate
to meet its capital requirements over the next fiscal year.
Cash flow patterns reflect the seasonality of the Company's business. Sales of
natural gas are seasonal, generating approximately seventy percent of the
Company's annual revenues between November 1 and March 31. The greatest demand
for cash is in the late fall and winter as construction projects are brought to
completion and accounts receivable balances rise. See "Management's Discussion
and Analysis-- Seasonality".
The Company anticipates utility construction expenditures over the next fiscal
year to be approximately $3,000,000 and non-utility capital expenditures to be
approximately $450,000 over the same period. The Company expects that funds for
these capital needs will come from internal cash generation and short-term
borrowings. See "Use of Proceeds".
13
<PAGE>
BUSINESS
GENERAL
The Company, organized as a Massachusetts corporation on September 25, 1880, is
an investor-owned public utility company that sells, distributes and transports
natural gas (mixed with propane and liquefied natural gas during winter months)
at retail through a pipeline distribution system in the City of Fall River and
the towns of Somerset, Swansea and Westport, all located within the southeastern
portion of the Commonwealth of Massachusetts. The principal markets served by
the Company are (1) residential customers using gas for heating, cooking and
water heating, (2) industrial customers using gas for processing items such as
textile and metal goods, (3) commercial customers using gas for cooking and
heating, and (4) federal and state housing projects using gas for heating,
cooking and water heating.
The Company is engaged in only one line of business as described above, and in
activities incidental thereto. The Company has one wholly-owned subsidiary, Fall
River Gas Appliance Company, Inc., a Massachusetts corporation, which rents
water heaters and conversion burners (primarily for residential use) in the
Company's gas service area. Earnings from the Appliance Company are primarily
the result of revenues from the rental of water heaters and conversion burners.
As of June 30, 1997, the water heater program had 14,830 rentals in service and
the conversion burner program had 4,746 rentals in service. The Appliance
Company also derives revenues from the sale of central heating and
air-conditioning systems and water heaters.
SALES AND TRANSPORTATION
The Company's service territory is approximately 50 square miles in the area
surrounding the City of Fall River, Massachusetts. The Company had an average of
47,427 sales customers during the nine months ended June 30, 1997, of which
approximately 94% were residential and 6% were commercial and industrial. For
the nine months ended June 30, 1997 approximately 71% of the Company's gas
operating revenues were derived from sales to residential customers and 29% were
derived from sales or transportation to commercial and industrial customers. At
June 30, 1997 the Company had 10 commercial and industrial transportation
customers, which, in the aggregate, accounted for 21% of the total gas carried
over the Company's pipeline system ("throughput") and approximately 3% of gas
operating revenues for the nine months ended June 30, 1997. The Company's
tariffs currently do not allow for residential transportation service. The
Company's residential customers take service only under firm sales tariffs and
use natural gas for heating, cooking and water heating, of which heating use
constitutes most of such consumption. Commercial customers (such as stores,
restaurants and offices) generally use gas for cooking and heating. Under
currently effective tariffs, commercial customers may take the Company's
transportation service and purchase their own gas. At this time, however, most
commercial customers take firm sales service from the Company. Industrial
customers primarily use natural gas in manufacturing and processing
applications, such as for metal or textile goods. Such firm industrial sales and
transportation load is fairly level throughout the year because generally a
small part of those customers' usage is for heating. Certain of the Company's
industrial customers also take interruptible service-- either on a sales or
transportation basis. These customers are subject to service discontinuance on
short notice as system firm requirements may demand. Such customers generally
use interruptible natural gas service for boiler or plant heating and are able
to change to an alternate fuel when there are supply constraints (generally
during the heating season). Also, the prices of alternative sources of energy
impact the interruptible markets. Prices for these customers are based on the
price of the customers' alternative fuel.
14
<PAGE>
The following table shows the Company's throughput during each of the periods
shown below in millions of cubic feet ("MMcf"):
<TABLE>
<CAPTION>
FOR THE NINE FOR THE FISCAL
MONTHS ENDED YEAR ENDED
JUNE 30, SEPTEMBER 30,
---------------------- ------------------------------------------
1997 1996 1996 1995 1994 1993
----------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Residential........................................... 3,779 4,046 4,351 3,858 4,309 4,212
Commercial............................................ 1,276 1,334 1,454 1,262 1,327 1,250
Industrial--- firm.................................... 335 369 418 443 850 1,041
Industrial----interruptible........................... 5 46 71 430 317 350
Special Contracts..................................... 0 414 498 441 78 0
Transportation........................................ 1,394 690 1,101 818 716 514
----- --------- --------- --------- --------- ---------
TOTAL................................................. 6,789 6,899 7,893 7,252 7,597 7,367
----- --------- --------- --------- --------- ---------
----- --------- --------- --------- --------- ---------
<CAPTION>
FOR THE NINE
MONTHS ENDED
SEPTEMBER 30,
---------------
1992
---------------
<S> <C>
Residential........................................... 3,230
Commercial............................................ 928
Industrial--- firm.................................... 790
Industrial----interruptible........................... 369
Special Contracts..................................... 0
Transportation........................................ 303
-----
TOTAL................................................. 5,620
-----
-----
</TABLE>
The Company's utility sales business is seasonal. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Seasonality".
RATES AND REGULATION
The Company is subject to the regulatory authority of the MDPU with respect to
various matters, including the rates it charges for services, financings,
certain gas supply contracts and planning and safety matters.
The Company's principal firm sales rate classifications are residential,
commercial and industrial. The Company also provides transportation service and,
from time to time subject to specific MDPU approval, may provide service under
special contracts. As of September 1, 1997, the Company had no special
contracts. The Company's rate structure is based on the cost of providing
service to each class of customer. The Company's firm rate structure is based on
generally seasonal rates, whereby base rates are higher in the winter (November
through April) and lower in the summer (May through October). In addition to its
base rates, the Company has a seasonal cost of gas adjustment rate schedule (the
"CGAC"), which provides for the recovery from firm customers of all purchased
gas costs. Through the CGAC, the Company also imposes charges, subject to MDPU
approval, that are estimated semi-annually and include credits for gas pipeline
refunds and profit margins applicable to interruptible sales. Actual gas costs
are reconciled annually and any difference is included as an adjustment in the
calculation of the CGAC charges for the two subsequent six-month periods.
Charges under the CGAC rate schedule are added to the base rates and are
designed generally to recover higher costs in the winter and refund lower gas
costs in the summer. Pursuant to MDPU approvals, the Company has collected all
FERC Order 636 transition costs billed to it (constituting most of its total
exposure to such costs) and is collecting the remaining FERC Order 636
transition costs from its customers through the CGAC on a current basis, as
billed.
On May 17, 1996 the Company filed revised tariffs with the MDPU to unbundle its
commercial and industrial service classes and to increase annual revenues. By
order dated October 16, 1996, the MDPU authorized the Company to increase its
rates for sales of gas effective December 1, 1996. The amount of this increase
on an annualized basis was $3,200,000. That MDPU order also approved various
changes to the Company's commercial and industrial rates to facilitate the
ability of customers on such rates to choose between purchasing their gas
supplies from the Company on a "bundled" basis or purchasing from third parties
and having the Company transport and deliver such supplies. Such rates were also
designed to make the Company economically indifferent to a customer's choice of
bundled sales service or transportation service.
The regulation of prices, terms and conditions of interstate pipeline
transportation and sales of natural gas is subject to the jurisdiction of the
Federal Energy Regulatory Commission ("FERC"). Although the
15
<PAGE>
Company is not under the direct jurisdiction of FERC, the Company monitors, and
periodically participates in, proceedings before FERC that affect the Company's
pipeline gas transporters, the Company's operations and other matters pertinent
to the Company's business.
The Company is also subject to standards prescribed by the Secretary of
Transportation under the Natural Gas Pipeline Safety Act of 1968 with respect to
the design, installation, testing, construction and maintenance of pipeline
facilities. The enforcement of these standards has been delegated to the MDPU.
GAS SUPPLY AND STORAGE
For several decades, until 1993, the Company primarily relied upon a single
supplier, Algonquin Gas Transmission Company ("Algonquin"), for its gas supply
needs. In its merchant role, Algonquin provided all the Company's
pipeline-supplied natural gas and storage, as well as transported such pipeline
and storage supplies to the Company's system. This supply paradigm changed,
however, in 1993 following FERC's issuance of Order 636. Order 636 was intended
to encourage more competition among natural gas suppliers and required
interstate pipelines to unbundle or separate gas sales, transportation and
storage services. With the implementation of Order 636, most pipeline companies
(including Algonquin) discontinued their traditional merchant function. Order
636 allowed pipeline companies to recover from their customers, gas distribution
companies such as the Company, costs associated with the service unbundling and
discontinuation of merchant service. This resulted in each local distribution
company becoming responsible for obtaining all of its gas supply in the open
market. While unbundling of these services allows a local distribution company,
such as the Company, more flexibility in selecting and managing the type of
services required to provide its customers with the lowest possible priced gas
while maintaining a reliable gas supply, it also places additional
responsibility on a distribution company to obtain its natural gas supply in the
open market on a timely basis to fulfill commitments during peak demand periods.
With the advent of FERC Order 636, which was implemented on June 1, 1993, the
Company assumed the full responsibility for aggregating, gathering and arranging
for the transmission of all required pipeline gas supplies to its distribution
system.
The pipelines serving the Company, Algonquin and its affiliate Texas Eastern
Transmission Company ("Texas Eastern"), have made the required compliance
filings of tariff sheets and have fully implemented the provisions of Order 636.
The primary related issue of the billing by Algonquin and Texas Eastern of
transition costs has been resolved. The Company has made appropriate
arrangements for supplies to replace the sales service formerly provided by
Algonquin, or "Conversion Supplies").
The Company is required to obtain the approval of the MDPU for gas supplies that
are to be purchased over a period in excess of one year, including any
Conversion Supplies. Through its arrangements for the Conversion Supplies, the
Company has contracted for a "city gate management service", which includes the
provision of transportation, sales and storage services by a third party. The
Company expects to maintain reliability and flexibility of service through this
arrangement at a cost very competitive with any other combination of unbundled
services, but with much less administrative risk and costs than would pertain to
alternatives. Approximately 90% of the Company's Conversion Supplies are
provided under a multi-year contract with CNG Energy Services Corporation
("CNG") in quantities described below. In June 1995, the MDPU approved the
Company's contract with CNG. The Company also has short-term arrangements in
place for supplemental supplies for the 1997-1998 winter heating season. The
Company is currently analyzing the proper amount of such supply for future
years.
The Company has contracted with CNG for the purchase of all pipeline commodity
supplies for delivery to the Company's distribution system, as well as storage
services, management of Company-owned pipeline and storage capacity and
provision of significant amounts of back-up deliveries from a different gas
production area. CNG's firm, year-round contract deliveries to the Company
provide for an annual contract quantity of 5,219,255 Mcf delivered to the
Company's facilities ("City Gate") on a 365--day basis and for deliveries into
storage for the Company in an annual amount of 841,355 Mcf. The maximum daily
16
<PAGE>
quantity ("MDQ") of City Gate deliveries are 17,461 Mcf and the storage MDQ is
11,441 Mcf with 7,124 Mcf of that total MDQ available for City Gate deliveries
from November 16 through April 15 as winter service supplies delivered via
Algonquin.
The remainder of the MDQ is available each day of the year. All commodity
deliveries are priced at an index price reflective of the market price. This
type of pricing mechanism is designed to allow the Company to obtain its gas
supply at competitive prices. The CNG supply contract includes a mechanism
whereby alternative market indices may be used in conjunction with the futures
market to fix the price of all or part of the gas supplied if the market is such
that additional price security is deemed prudent. The CNG contract commenced on
June 1, 1993 and continues for 6 years.
In addition to the supplemental gas supplies described below, the Company has
requirements for a supply of approximately 1,328,000 Mcf during the 1997-1998
heating season (November through March). To fulfill this portion of its supply
portfolio, the Company has obtained bids from several potential suppliers and
has entered into a supply contract with a term encompassing that period with
Distrigas of Massachusetts Corporation. ("DOMAC")
The Company has a renewable one-year Firm Liquid Contract with DOMAC for 225,000
MMBTU of liquefied natural gas ("LNG"), to be delivered by truck to the
Company's storage tank for use in "peak shaving" operations which supplement
pipeline volumes in peak requirement situations.
In addition to the LNG peak shaving facilities, the Company also maintains
storage and send out facilities for liquefied propane gas ("LPG") that provide
an additional 88,000 MMBTU of sendout capacity when needed. The Company's
projected peak day requirements are 63,800 Mcf for the 1997-1998 heating season
compared to the Company's peak day capacity of 64,859 Mcf.
The Company's peak day capacity is comprised of 29,859 Mcf of pipeline
deliveries pursuant to the CNG contracts to the City Gate; 9,000 Mcf of DOMAC
gas, delivered by pipeline; vaporization of Company stored liquid propane ("LP")
into gas for injection (all by Company-owned equipment) into the Company's
distribution system in daily amounts of about 6,000 Mcf; and vaporization of
Company-stored LNG and injection into the distribution system in daily amounts
of about 20,000 Mcf.
COMPETITION
Historically, the Company was not subject to competition from any other gas
public utility or gas marketers, but rather only from electricity, oil, coal and
other fuels for heating, water heating, cooking, air conditioning and other
purposes. The principal considerations in the competition between the Company
and other suppliers of fuel or energy include price, equipment operational
efficiencies and ease of delivery. In addition, the type of equipment already
installed in the businesses and residences significantly affects the customer's
choice of fuel or energy source.
The price of natural gas currently compares favorably to electricity but is
generally higher than fuel oil, especially the grade of oil used by certain
commercial and industrial customers. As price is generally considered the most
significant factor affecting competition among the various energy sources, there
is always uncertainty in the continuing competition among such energy sources,
due to variations in price. Equipment operational efficiencies and ease of
delivery give natural gas advantages over oil and also makes natural gas
comparable to electricity in these respects. Because of the environmental
advantages associated with natural gas and the efficiency and security of its
supply, the demand for natural gas is expected to continue to increase. Also,
manufacturing, processing and other equipment requirements are such that the use
of gas rather than another fuel is virtually a necessity for certain large
commercial and industrial customers. Heating, water heating and other domestic
or commercial equipment is generally designed for a particular energy source,
and especially with respect to heating equipment, the cost of conversion is a
disincentive for individuals and businesses to change their energy source.
Currently, the
17
<PAGE>
Company estimates that its gas heating saturation in areas in which it has been
in active service is approximately 89%.
While the Company has been subject to competition from electricity, oil,
propane, coal and other fuels, the regulatory changes brought about by Order 636
have created competition among existing and new suppliers or brokers of natural
gas. Also, regulatory changes at the state level have led to increased
competition in retail sales of natural gas. As a result, marketers are currently
selling natural gas to several large volume end-users to whom the Company has
historically made sales. Marketers can be expected to seek to provide an
increasing volume of sales services to end-users located within the Company's
service territory. At the current time, for all third-party commodity sales that
are occurring in the Company's service territory, the Company transports those
gas supplies within the Company's service territory and delivers the supplies to
the customers. The margins earned by the Company for such transportation
services are the same as margins earned on bundled supply/delivery sales to the
same end-users. Similar opportunities may exist for the Company to broker gas to
new or existing customers, whether or not located within the Company's service
territory, although the Company has not done so to date.
For all of these reasons, the Company believes that competition from other fuel
sources, as well as from natural gas brokers and marketers, will intensify in
the future.
LEGAL PROCEEDINGS/ENVIRONMENTAL MATTERS
In January 1990 the Company received notification from the Massachusetts
Department of Environmental Protection ("DEP") that it is one of numerous
"potentially responsible parties" under Massachusetts laws in connection with
two sites in Massachusetts which were the subject of alleged releases of
hazardous materials, including lead, by a company which had purchased scrap
meters from various utilities including the Company. The Company has entered
into an agreement with a group of other potentially responsible parties ( the
"Group") to respond jointly and to share costs associated with the DEP's
investigation. The Group negotiated an agreement with the DEP to conduct limited
response actions at one of the sites without admission of liability at a cost of
about $100,000 to the entire Group, pursuant to which members of the Group would
be released from any further liability at the site. Remedial actions were
commenced September 5, 1995 and are substantially complete, subject to final DEP
approval of the action taken. The investigation of the second site is in the
early stages and potential remediation costs at the second site and the
Company's degree of responsibility have not been determined. The Company does
not expect its allocated share of costs of response actions at the first site or
of any response actions which it may take or which may be required at the second
site to be significant.
Although the Company is not involved in any material litigation at this time, it
may from time to time be involved in litigation in the ordinary course of its
business.
PROPERTIES
The Company owns approximately 635 miles of distribution mains, the major
portion of which are constructed of coated steel, plastic or cast iron. The
Company owns and operates LP vaporizing equipment with an approximate daily
capacity of 14,000 Mcf and six LP storage tanks with a total capacity of
approximately 320,000 gallons. The Company also owns and operates an LNG storage
tank with a capacity of 45,000 barrels, equivalent to approximately 157,000 Mcf
of vaporized gas, as well as and LNG vaporization equipment with a daily
vaporization rate of approximately 20,000 Mcf. The Company has three gate
stations receiving gas from the Algonquin pipeline. The Company also owns four
office and operations buildings in the service area.
All of the principal properties of the Company are owned in fee, subject to the
lien of the mortgage securing the Company's First Mortgage Bonds (the "Indenture
of First Mortgage"), and further subject to covenants, restrictions, easements,
leases, rights-of-way and other similar minor encumbrances common to properties
of comparable size and character, and none of which, in the opinion of the
Company's
18
<PAGE>
management, materially interferes with the Company's use of its properties for
the conduct of its business. The Company's gas mains are primarily located under
public highways and streets. Where they are under private property, the Company
has obtained easements or rights-of-way from the record holders of title. These
easements and rights are deemed by the Company to be adequate for the purpose
for which they are being used.
EMPLOYEES
The Company employed 172 full-time and 12 part-time employees as of June 30,
1997. Of those employees, 75 are represented by the Utility Workers Union of
America, AFL-CIO, Local No. 431. The Company and its union employees currently
have a contract through April 30, 1999. The Company believes that it enjoys
generally good labor relations.
19
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to the Company with
respect to beneficial ownership of the Company's Common Stock as of September 1,
1997 by (i) each shareholder who is known by the Company to own beneficially
more than 5% of the Common Stock, (ii) each of the Company's directors, (iii)
each of the Company's executive officers and (iv) all directors and executive
officers of the Company as a group. Except as otherwise indicated, the Company
believes that the beneficial owners of the Common Stock listed below, based on
information furnished by such owners, have sole investment and voting power with
respect such shares, subject to community property laws where applicable.
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK PERCENT
NAME OF BENEFICIALLY OF
BENEFICIAL OWNER OWNED(1) CLASS
- ----------------------------------------------------------------------------- -------------------- -----------
<S> <C> <C>
Barbara N. Jarabek........................................................... 295,710(2) 16.5 %
Ronald J. Ferris............................................................. 145,059(3) 8.1
Cindy L.J. Audette........................................................... 13,910(4) *
Thomas K. Barry.............................................................. 1,200 *
Thomas H. Bilodeau, Jr....................................................... 7,746(5) *
John F. Fanning.............................................................. 0 *
Bradford J. Faxon............................................................ 40,306(6) 2.3
Raymond H. Faxon............................................................. 57,370(7) 3.2
Wallace E. Fletcher.......................................................... 0 *
Jack R. McCormick............................................................ 4,754(8) *
Gilbert C. Oliveira, Jr...................................................... 12,529(9) *
Donald R. Patnode............................................................ 1,750 *
Robert J. Pollock............................................................ 5,140 *
Peter H. Thanas.............................................................. 2,699(10) *
All directors and executive officers as a group (13 persons) 292,463 16.33
</TABLE>
- ------------------------
* Less than one percent.
(1) As used herein, "beneficial ownership" means direct or indirect, sole or
shared power to vote, or to direct the voting of, and/or investment power to
dispose of, or to direct the disposition of, shares of the Common Stock of
the Company. Except as otherwise indicated, the listed beneficial owners
hold direct and sole voting and investment power with respect to the stated
shares.
(2) The address of Mrs. Jarabek is 103 South Washington Drive, Sarasota,
Florida. Consists of shares held in two trusts for which Barbara N. Jarabek
is trustee, and with respect to which Mrs. Jarabek possesses sole power to
vote and sole investment power.
(3) The business address of Mr. Ferris is c/o Venus De Milo, Inc. (a restaurant
banquet facility), 75 GAR Highway, Swansea, Massachusetts. Includes 5,852
shares owned jointly with Dale Ferris, 4,000 shares owned jointly with
children of Mr. Ferris, 36,990 shares owned by Lee's River Realty, Inc.,
3,926 shares held in trusts for the children of Mr. Ferris, and 53,594
shares owned by the Swansea Lounge, Inc. Pension Trust for which Mr. Ferris
is a co-trustee. Mr. Ferris has shared voting and investment power with
respect to all shares beneficially owned by him except for 40,697 shares
owned directly and of record by him, with respect to which he has sole
voting and investment power. Mr. Ferris disclaims beneficial ownership with
respect to the 3,926 shares held in trust for his children and the 53,594
shares owned by the Swansea Lounge, Inc. Pension Trust.
(4) Includes 660 shares held jointly with spouse (with shared voting and
investment power).
(5) Includes 7,746 shares held in trust for Thomas H. Bilodeau's children.
(6) Includes 5,233 shares held as custodian for Bradford J. Faxon's children.
(7) Comprised of 57,370 shares held in trust, for which Raymond H. Faxon is a
trustee.
(8) Includes 1,154 shares held jointly with spouse (with shared voting and
investment power).
(9) Comprised of 12,529 shares held by Mr. Oliveira's spouse as custodian for a
minor child of Mr. Oliveira.
(10) Includes 936 shares held jointly with spouse (with shared voting and
investment power).
20
<PAGE>
MANAGEMENT
All officers are either elected or appointed at the Directors' Meeting following
the annual Stockholders' meeting. Their terms of office are to be for one year
or until their successors have been duly elected or appointed.
DIRECTORS
Cindy L. J. Audette, 35, A Director since 1992. Chair of the Compensation
Committee and member of the Audit and Executive Committees. Sister-in-law of
Gilbert C. Oliveira, Jr., a Director of the Company.
Thomas K. Barry, 52, President and Chief Executive Officer of Corning Natural
Gas Corporation since 1984. A Director since 1992. Member of the Audit
Committee. Director also of Corning Natural Gas Corporation.
Thomas H. Bilodeau, 55, Vice President-Finance, Medical & Environmental Coolers,
Inc., a medical equipment provider since 1990; formerly, Partner, R. A. Kingrey
Co., 1988-1990. A Director since 1987. Member of the Pension Committee. Director
also of Corning Natural Gas Corporation.
Bradford J. Faxon, 59, Chairman of the Board of Directors, President and a
Director of the Company. His current business function is Chief Executive
Officer. Positions held with the Company for the past five years are as follows:
12/1/78 to Present--Director; 8/1/86 to Present--President; 1/1/94 to Present--
Chairman of the Board of Directors. He is the son of Raymond H. Faxon. His
principal occupation for the past five years has been employment with the
Company. Chairman of the Pension Committee and a member of both the Audit and
Executive Committees.
Raymond H. Faxon, 89, Vice Chairman of the Board of Directors and Assistant
Treasurer of the Company. Positions held for the past five years are as follows:
1/1/88 - 12/31/93--Chairman of the Board of Directors and Assistant Treasurer;
1/1/94 to Present--Vice Chairman of the Board of Directors and Assistant
Treasurer. His principal occupation for the past five years has been employment
with the Company. Chairman of the Executive Committee and a member of the
Pension Committee. Mr. Faxon is the father of Bradford J. Faxon.
Ronald J. Ferris, 55, President of Venus de Milo, Inc., a restaurant banquet
facility, Interstate Motel Corp. and Ferris Realty since prior to 1988. A
Director since 1984. A member of both the Pension and Compensation Committees.
Jack R. McCormick, 73, financial consultant to the Company. Previously served as
President of the Company, 1973-1986. A Director since 1974. Chairman of the
Audit Committee and a member of the Compensation Committee. Director also of
Corning Natural Gas Corporation.
Gilbert C. Oliveira, Jr., 41, Vice President, Gilbert C. Oliveira Insurance
Agency, and President, G. Curt Oliveira Insurance Agency since 1988. A Director
since 1992. Member of the Pension and Compensation Committees. Brother-in-law of
Cindy L. J. Audette, a Director of the Company.
Donald R. Patnode, 69, Retired. Formerly, Business Consultant; President of
Industrial Filters & Equipment Corporation, 1989-1994; President of North East
Water Service, 1957-1989. A Director since 1984. A member of both the Audit and
Executive Committees. Director also of Corning Natural Gas Corporation.
EXECUTIVE OFFICERS:
Peter H. Thanas, 53, Senior Vice President and Treasurer of the Company. His
current business function is Chief Financial and Accounting Officer of the
Company. Positions held for the past five years are as follows: 8/ 1/86 to
9/19/94--Financial Vice President and Treasurer; 9/20/94 to Present--Senior Vice
President and Treasurer.
21
<PAGE>
John F. Fanning, 50, Vice President of Production and Gas Supply. His current
business function is Vice President of Production and Gas Supply of the Company.
Positions held with the Company for the past five years are as follows: 7/ 1/87
- -12/31/89--Manager of Gas Supply; 1/ 1/90 - 9/20/93--Superintendent of
Production and Gas Supply; 9/21/93 to Present--Vice President of Production and
Gas Supply.
Wallace E. Fletcher, 63, Comptroller and Assistant Treasurer. His current
business function is Comptroller and Assistant Treasurer of the Company.
Positions held with the Registrant for the past five years are as follows:
5/27/92 to Present--Comptroller and Assistant Treasurer.
22
<PAGE>
DESCRIPTION OF CAPITAL STOCK
As of June 30, 1997 the authorized capital stock of the Company consisted of
2,201,334 shares of Common Stock, $0.83 1/3 par value, of which 1,787,261 were
issued and outstanding, and 414,073 shares were held in the Company's treasury.
All of the shares being offered hereby will be issued directly from the
Company's treasury.
DIVIDEND RIGHTS
The holders of Common Stock shall be entitled to receive such dividends as may
be declared by the Board of Directors. The Company currently intends to continue
its practice of declaring cash dividends on a quarterly basis, although the
declaration and amount of any future dividends will necessarily depend upon
future earnings, cash flow, the financial condition of the Company and other
factors.
LIMITATION ON PAYMENT OF DIVIDENDS ON COMMON STOCK
The provisions of the Indenture impose certain restrictions on the payment of
cash dividends on, or repurchases of, Common Stock. Under the most restrictive
of these provisions, $4,426,791 of retained earnings was unrestricted at June
30, 1997.
VOTING RIGHTS
Except as provided by law or otherwise provided below, the holders of Common
Stock have the sole voting rights and are entitled to one vote for each share
held of record. In addition, holders of fractional shares are permitted a vote
equal to their fractional interest. The Company's Board of Directors is
classified into three classes of three directors serving staggered three-year
terms. Because there are no cumulative voting rights in the election of
directors, holders of a majority of the Common Stock voting at any election can
elect the three directors of the class whose term then expires.
The Company's Charter and By-laws contain provisions specifying the shareholder
vote necessary to take certain actions. The approval of a business combination
(e.g. a consolidation or merger with another corporation) not approved by
two-thirds vote of the Board of Directors requires an affirmative vote of 75%
the outstanding shares of Common Stock. The approval of Charter amendments
removing or altering the foregoing provision and provisions concerning
classification of directors, filling vacancies in the Board of Directors and
notice requirements for stockholder meetings requires an affirmed vote of 75% of
the outstanding shares of Common Stock.
LIQUIDATION RIGHTS
The Common Stock is entitled to receive all net assets in liquidation after
repayment of the Company's indebtedness.
CHARTER PROVISIONS THAT MAY AFFECT ATTEMPTS TO CHANGE CONTROL OF THE COMPANY
The Company's Charter and By-Laws contain provisions that may have the effect of
delaying or deterring a change in control of the Company by requiring a vote of
the holders of 75% of outstanding shares of the Company's Common Stock for
approval of certain business combinations of the Company and another entity,
which the Company's Board of Directors has not approved by a two-thirds vote.
Other provisions concerning classification of the Board, filling vacancies on
the Board and notice requirements may have such an effect, but those provisions
operate regardless of whether or not extraordinary corporate transactions are
proposed.
MISCELLANEOUS
The Common Stock has no conversion rights and is not subject to redemption. The
outstanding shares of Common Stock are, and the shares offered hereby, will,
when issued and paid for, be fully paid and non-assessable.
The transfer agent of the Company's Common Stock is State Street Bank and Trust
Company, Boston, Massachusetts.
23
<PAGE>
UNDERWRITING
The underwriters of this offering of Common Stock (the "Underwriters"), for whom
First Albany Corporation ("First Albany") is serving as representative (the
"Representative"), have agreed, severally and not jointly, subject to the terms
and conditions of the Underwriting Agreement (the form of which is filed as an
exhibit to the Registration Statement of which this Prospectus is a part) to
purchase, and the Company has agreed to sell to them, the number of shares of
Common Stock set forth opposite their respective names below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
UNDERWRITER COMMON STOCK
- ---------------------------------------------------------------------------- ----------------
<S> <C>
First Albany Corporation
-------
Total....................................................................... 340,000
-------
-------
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters to
purchase shares of Common Stock are subject to certain conditions, and that if
any of the shares of Common Stock are purchased by the Underwriters pursuant to
the Underwriting Agreement, all shares of Common Stock agreed to be purchased by
the Underwriters pursuant to the Underwriting Agreement must be so purchased.
The Company has been advised that the Underwriters propose to offer the shares
of Common Stock directly to the public initially at the initial public offering
price set forth on the cover page of this Prospectus, and to certain selected
dealers (who may include the Underwriters) at such public offering price less a
concession not in excess of $. per share. The Underwriters may allow, and the
selected dealers may reallow, a concession not in excess of $. per share to
certain other brokers and dealers. After the initial public offering, the public
offering price, the concession to selected dealers and the reallowance to other
dealers may be changed by the Underwriters.
The Company has granted to the Underwriters an option to purchase up to an
additional 51,000 shares of Common Stock, at the public offering price, less the
underwriting discounts and commissions shown on the cover page of this
Prospectus, solely to cover over-allotments, if any, made in connection with
this offering. The option may be exercised at any time up to 30 days after the
date of this Prospectus. To the extent that the Underwriters exercise such
option, each of the Underwriters will be committed, severally and not jointly,
subject to certain conditions, to purchase a number of option shares
proportionate to such Underwriter's initial commitment. As to additional shares
purchased by the Underwriters to cover over-allotments, the Company has agreed
to reimburse the Underwriters in an amount equal to the $. per share
dividend declared on the Common Stock which is payable on November 15, 1997, to
the extent such additional shares are delivered to the Underwriters subsequent
to the record date (November 1, 1997) for such dividend. In addition, the
Underwriting Agreement provides for a payment by the Company of the $50,000
non-accountable expense allowance to the Representative.
In connection with the offering, the rules of the Commission permit the
Representative to engage in certain transactions that stabilize the price of the
Common Stock. Such transactions consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of the Common Stock.
If the Underwriters create a short position in the Common Stock in connection
with the offering, i.e., if they sell more shares of Common Stock than are set
forth on the cover page of this Prospectus, the Representative may reduce that
short position by purchasing Common Stock in the open market. The
24
<PAGE>
Representative may also elect to reduce any short position by exercising all or
part of the over-allotment option described above. The Representative may also
impose a penalty bid on certain Underwriters and selling group members. This
means that if the Representative purchases shares of Common Stock in the open
market to reduce the Underwriters' short position or to stabilize the price of
the Common Stock, they may reclaim the amount of the selling concession from the
selling group members who sold those shares as part of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security. Neither the Company nor the Underwriters
make any representation or prediction as to the direction or magnitude of any
effect that the transactions described above may have on the price of the Common
Stock. In addition, neither the Company nor the Underwriters make any
representation that the Representative will engage in such transactions or that
such transactions, once commenced, will not be discontinued without notice.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, or to
contribute to payments that the Underwriters may be required to make in respect
thereof.
All of the executive officers, directors and principal shareholders of the
Company have agreed that for a period of 180 days after the date of this
Prospectus, they will not, without the prior written consent of the
Representative: (1) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, sell any right or
warrant to purchase, or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock (whether such shares or any such
securities were then owned or are acquired after the date of such agreement) or
(2) enter into any swap or other arrangement that transfers to another, in whole
or in part, any of the economic consequences of ownership of the Common Stock,
whether any such transaction is described in clause (1) or (2) above is to be
settled by delivery of Common Stock or such other securities, in cash or
otherwise. The Company has also agreed to the foregoing, except that the Company
may continue to sell shares of Common Stock directly to its shareholders, in
accordance with the Share Owner Dividend Reinvestment and Stock Purchase Plan.
The Representative has been retained by the Company to act as placement agent in
connection with the Company's private placement of $6,000,000 aggregate
principal amount of First Mortgage Bonds expected to be issued during the first
quarter of the Company's 1998 fiscal year and will receive compensation
therefor.
LEGAL OPINIONS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Rich, May, Bilodeau & Flaherty, P.C., Boston, Massachusetts. Certain
legal matters will be passed upon for the Underwriter by Chapman and Cutler,
Chicago, Illinois, counsel to the Underwriters. Chapman and Cutler will rely
upon the opinion of Rich, May, Bilodeau & Flaherty, P.C. as to all matters
governed by the law of the Commonwealth of Massachusetts.
EXPERTS
The audited financial statements and schedules of the Company included in this
Prospectus and elsewhere in this Registration Statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon their
authority as experts in accounting and auditing in giving said reports.
25
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Auditors............................................................................. F-2
Consolidated Statements of Income and Retained Earnings for the Nine-Months Ended June 30, 1997 and 1996
and the three years ended September 30, 1996.............................................................. F-3
Consolidated Balance Sheets at June 30, 1997 and September 30, 1996 and 1995............................... F-4
Consolidated Statements of Cash Flows for the Nine-Months Ended June 30, 1997 and 1996 and the three years
ended September 30, 1996.................................................................................. F-5
Notes to Financial Statements.............................................................................. F-6
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Fall River Gas Company:
We have audited the accompanying consolidated balance sheets of FALL RIVER GAS
COMPANY (a Massachusetts corporation) and subsidiary as of September 30, 1996
and 1995 and the related consolidated statements of income, retained earnings
and cash flows for each of the three years in the period ended September 30,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Fall River Gas Company and
subsidiary as of September 30, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1996, in conformity with generally accepted accounting principles.
[LOGO]
Boston, Massachusetts
November 19, 1996
F-2
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
FALL RIVER GAS COMPANY AND SUBSIDIARY
FOR THE 9-MONTH PERIODS ENDED JUNE 30, 1997 AND
1996 AND THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
NINE MONTHS
ENDED JUNE 30
----------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(unaudited)
GAS OPERATING REVENUES (Note 1)............... $41,353,963 $44,140,731 $48,965,547 $44,418,114 $48,330,933
OPERATING EXPENSES:
Operations --
Cost of gas sold (Note 1)................. 23,810,156 28,600,804 31,132,828 28,097,557 31,161,990
Other..................................... 9,132,313 8,216,575 10,268,772 8,998,223 9,170,829
Maintenance................................. 1,560,588 1,463,226 1,987,782 1,994,445 1,781,601
Depreciation (Note 1)....................... 1,886,094 1,515,391 1,608,641 1,498,948 1,391,981
Taxes --
Local property and other.................. 1,321,526 1,225,033 1,283,389 1,052,756 1,058,539
Federal and state income (Note 4)......... 678,394 607,171 341,432 471,421 988,466
---------- ---------- ---------- ---------- ----------
38,389,071 41,628,200 46,622,844 42,113,350 45,553,406
---------- ---------- ---------- ---------- ----------
OPERATING INCOME.............................. 2,964,892 2,512,531 2,342,703 2,304,764 2,777,527
OTHER INCOME (EXPENSE):
Earnings of Fall River Gas Appliance Company
Inc. (Note 3)............................. 585,431 549,481 778,813 752,913 799,326
Interest income............................. 14,489 15,059 15,944
Other....................................... 21,066 (613) (2,505) 4,397 (417)
---------- ---------- ---------- ---------- ----------
INCOME BEFORE INTEREST EXPENSE................ 3,571,389 3,061,399 3,133,500 3,077,133 3,592,380
---------- ---------- ---------- ---------- ----------
INTEREST EXPENSE:
Long-term debt............................ 879,675 514,450 683,387 697,600 711,163
Other..................................... 695,981 747,157 1,024,405 763,327 390,117
---------- ---------- ---------- ---------- ----------
1,575,656 1,261,607 1,707,792 1,460,927 1,101,280
---------- ---------- ---------- ---------- ----------
NET INCOME.................................... $1,995,733 $1,799,792 $1,425,708 $1,616,206 $2,491,100
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
(Note 2).................................... 1,783,547 1,780,542 1,780,542 1,780,542 1,780,542
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
EARNINGS PER AVERAGE COMMON SHARE (Note 2).... $ 1.12 $ 1.01 $ 0.80 $ 0.91 $ 1.40
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
FOR THE 9-MONTH PERIODS ENDED JUNE 30, 1997 AND
1996 AND THE YEARS ENDED SEPTEMBER 30, 1996,
1995, AND 1994
<TABLE>
<CAPTION>
NINE MONTHS
ENDED JUNE 30
----------------------
1997 1996 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(unaudited)
BALANCE AT BEGINNING OF PERIOD................ $10,865,648 11,149,260 $11,149,260 $11,242,375 $10,496,206
Net Income.................................... 1,995,731 1,799,792 1,425,708 1,616,206 2,491,100
---------- ---------- ---------- ---------- ----------
Total................................... 12,861,379 12,949,052 12,574,968 12,858,581 12,987,306
Dividends declared............................ 1,285,328 1,281,990 1,709,320 1,709,321 1,744,931
---------- ---------- ---------- ---------- ----------
BALANCE AT END OF PERIOD...................... $11,576,051 11,667,062 $10,865,648 $11,149,260 $11,242,375
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
CONSOLIDATED BALANCE SHEETS
FALL RIVER GAS COMPANY AND SUBSIDIARY
JUNE 30, 1997 AND SEPTEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
JUNE
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
ASSETS (unaudited)
PROPERTY, PLANT AND EQUIPMENT, at original cost:
Gas...................................................................... $57,786,995 $56,156,164 $52,770,211
Nonutility, principally rented gas appliances............................ 5,014,220 4,911,102 4,852,644
---------- ---------- ----------
62,801,215 61,067,266 57,622,855
Less-Accumulated depreciation (Note 1)................................... 21,145,050 19,651,954 18,801,699
---------- ---------- ----------
41,656,165 41,415,312 38,821,156
CURRENT ASSETS:
Cash..................................................................... 436,524 393,935 315,309
Accounts receivable, less allowance for doubtful account of $1,101,000,
$670,000, $687,000 in 1997, 1996 and 1995 respectively................. 3,411,843 2,676,322 2,159,170
Inventories, at average cost --
Liquefied natural gas, propane, and natural gas in storage............... 2,358,402 3,242,688 2,754,655
Materials and supplies................................................. 1,351,573 1,387,077 1,386,242
Deferred gas costs (Note 1)............................................ (835,193) 201,265 2,808,882
Prepaid and Deferred Taxes............................................. 252,243 555,983 0
Prepayments and other.................................................. 676,719 630,938 510,001
---------- ---------- ----------
7,652,111 9,088,208 9,934,259
---------- ---------- ----------
DEFERRED CHARGES:
Regulatory asset (Notes 1 and 7)......................................... 600,775 1,204,420 771,853
Other.................................................................... 1,742,018 1,483,213 1,429,239
---------- ---------- ----------
2,342,793 2,687,633 2,201,092
---------- ---------- ----------
$51,651,069 $53,191,153 $50,956,507
---------- ---------- ----------
---------- ---------- ----------
CAPITALIZATION:
Stockholders' investment
Common stock, par value $.83- 1/3 per share, 2,201,334 shares authorized
and issued (Note 2).................................................... $1,834,445 $1,834,445 $1,834,445
Premium paid-in on common stock.......................................... 1,440,511 1,356,043 1,356,043
Retained earnings (Note 5)............................................... 11,576,051 10,865,648 11,149,260
---------- ---------- ----------
14,851,007 14,056,136 14,339,748
Less--420,792 shares in 1996 and 1995 of common stock held in treasury,
at cost (Note 2)....................................................... 1,396,088 1,418,743 1,418,743
---------- ---------- ----------
13,454,919 12,637,393 12,921,005
Long-term debt, less current sinking fund requirements (Note 5).......... 13,500,000 13,500,000 6,500,000
---------- ---------- ----------
Total capitalization............................................... 26,954,919 26,137,393 19,421,005
---------- ---------- ----------
CURRENT LIABILITIES:
Current sinking fund requirements (Note 5)............................... 0 0 880,000
Notes payable to banks (Note 5).......................................... 11,200,000 14,300,000 15,600,000
Dividends payable........................................................ 429,142 427,330 427,330
Accounts payable......................................................... 3,613,845 3,554,624 3,585,300
Gas supplier refunds due customers....................................... 0 0 1,367,969
Accrued taxes............................................................ 0 0 838,617
Other.................................................................... 2,297,590 1,732,241 1,993,043
---------- ---------- ----------
17,540,577 20,014,195 24,692,259
---------- ---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 8)
DEFERRED CREDITS:
Accumulated deferred income taxes (Note 4)............................... 4,123,986 4,123,986 3,905,117
Unamortized investment tax credits (Note 4).............................. 539,227 567,695 605,653
Other.................................................................... 2,069,700 1,925,224 1,832,385
Regulatory liability (Note 4)............................................ 422,660 422,660 500,088
---------- ---------- ----------
7,155,573 7,039,565 6,843,243
---------- ---------- ----------
$51,651,069 $53,191,153 $50,956,507
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FALL RIVER GAS COMPANY AND SUBSIDIARY
FOR THE 9-MONTH PERIODS ENDED JUNE 30, 1997
AND 1996 AND THE YEARS ENDED SEPTEMBER 30, 1996,
1995 AND 1994
<TABLE>
<CAPTION>
NINE MONTHS
ENDED JUNE 30
----------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Provided by (Used for)
Operating Activities:
Net Income............................................... $1,995,731 $1,799,792 $1,425,708 $1,616,206 $2,491,100
Items not requiring (providing) cash:
Depreciation........................................... 2,086,978 1,786,080 1,807,808 1,695,854 1,587,278
Deferred income taxes.................................. 91,260 95,517 218,869 274,184 (734,131)
Investment tax credits, net............................ (28,468) (28,467) (37,958) (38,049) (38,445)
Change in working capital.............................. 2,135,313 (748,509) (1,573,387) 2,180,393 2,961,892
Other sources, net..................................... 323,289 (165,718) (626,514) (221,380) 515,933
---------- ---------- ---------- ---------- ----------
Net cash provided by operating activities............ 6,604,103 2,738,695 1,214,526 5,507,208 6,783,627
---------- ---------- ---------- ---------- ----------
Investing Activities:
Additions to utility property, plant and equipment....... (1,804,632) (2,700,025) (3,779,718) (4,294,225) (3,711,116)
Additions to nonutility property......................... (373,367) (368,269) (466,862) (589,172) (591,939)
---------- ---------- ---------- ---------- ----------
Net cash used for investing activities................. (2,177,999) (3,068,294) (4,246,580) (4,883,397) (4,303,055)
---------- ---------- ---------- ---------- ----------
Financing Activities:
Cash dividends paid on common stock...................... (1,283,516) (1,281,990) (1,709,320) (1,709,320) (1,736,028)
Retirement of long-term debt through sinking fund........ 0 (880,000) (880,000) (160,000) (140,000)
Proceeds from 7.99% Debt Issue........................... 0 0 7,000,000 0 0
Increase(decrease) in notes payable to banks, net........ (3,100,000) 2,500,000 (1,300,000) 1,200,000 (600,000)
---------- ---------- ---------- ---------- ----------
Net cash provided by (used for) financing
activities......................................... (4,383,516) 338,010 3,110,680 (669,320) (2,476,028)
Increase (decrease) in cash.................................. 42,588 8,411 78,626 (45,509) 4,544
Cash, beginning of period.................................... 393,935 315,309 315,309 360,818 356,274
---------- ---------- ---------- ---------- ----------
Cash, end of period.......................................... $ 436,523 $ 323,720 $ 393,935 $ 315,309 $ 360,818
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Changes in Components of Working Capital (excluding cash):
(Increase) decrease in current assets:
Accounts receivable.................................... (735,520) (1,867,636) $ (517,152) $ 492,836 $ (612,385)
Inventories............................................ 919,789 357,290 (488,868) (37,438) 800,611
Prepayments and other.................................. 290,016 9,174 (676,920) (72,874) (36,207)
Deferred gas cost...................................... 1,036,458 3,900,182 2,607,617 1,787,937 (5,633)
Increase (decrease) in current liabilities:..............
Accounts payable....................................... 59,222 (1,362,265) (30,676) 311,467 1,168,353
Gas supplier refunds due customers..................... 0 (1,448,964) (1,367,969) 237,366 (390,890)
Accrued taxes.......................................... 0 (504,261) (838,617) (660,616) 1,499,233
Other.................................................. 565,348 167,971 (260,802) 121,715 538,810
---------- ---------- ---------- ---------- ----------
Change in Working Capital............................ $2,135,313 $ (748,509) $(1,573,387) $2,180,393 $2,961,892
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Supplemental Disclosure of Cash Flow Information:
Cash paid for:
Interest............................................... $1,236,119 $1,188,338 $1,743,878 $1,695,329 $1,632,681
Income taxes........................................... 786,299 1,446,259 2,111,259 813,052 1,513,114
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
FALL RIVER GAS COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIOD)
1) ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The Consolidated financial statements include the accounts of Fall River Gas
Company and subsidiary (the Company), Fall River Gas Appliance Company, Inc. The
Company's principal business is the operation of a regulated gas distribution
company in southeastern Massachusetts, while its wholly-owned subsidiary rents
gas appliances. All significant intercompany accounts and transactions have been
eliminated in consolidation.
REGULATION
The Company's rates, operations, accounting and certain other practices are
subject to the regulatory authority of the Massachusetts Department of Public
Utilities (MDPU). The Company's accounting policies conform to generally
accepted accounting principles applicable to rate regulated enterprises and
reflect the effects of the rate making process in accordance with statement of
Financial Accounting Standards No. 71, "Accounting For Certain Type of
Regulations."
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting, principles requires the Company to make estimates and
assumptions that affect the reporting and disclosure of assets and liabilities,
including those that are of a contingent nature, at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
DEPRECIATION AND AMORTIZATION
Depreciation of property, plant and equipment is provided using the
straight-line method at rates designed to amortize the cost of these assets over
their estimated useful lives. The composite depreciation rate for gas plant is
3%. Rented gas appliances have estimated useful lives of 10 to 20 years.
Installation costs of rented appliances are amortized over the estimated life of
the lease period.
GAS OPERATING REVENUES AND COST OF GAS SOLD
Gas operating revenues are recorded based on meter readings made on a cycle
basis throughout the month. Accordingly, in any period, the actual volume of gas
supplied to customers may be more or less than the usage for which the customers
have been billed.
The Company's approved rate tariffs include a cost of gas adjustment (CGAC)
factor allowing dollar-for-dollar recovery of the cost of gas sendout to firm
customers. Actual costs incurred at the end of any period may differ from
amounts recovered through application of the CGAC. Any excess or deficiency in
amounts billed as compared to costs is deferred and either refunded to, or
recovered from, the customers over a subsequent period.
REGULATORY ASSETS
Regulatory assets relate to unrecovered SFAS 106 expenses, unrecovered
Conservation and Load Management expenses and other unrecovered regulatory
costs. These regulatory assets do not earn a return on investment.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Because of the short maturity of certain assets, which include cash and
temporary cash investments and accounts receivable, and certain liabilities,
which include accounts payable and notes payable to banks, these instruments are
stated at amounts which approximate fair value.
F-6
<PAGE>
FALL RIVER GAS COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIOD)
1) ACCOUNTING POLICIES (CONTINUED)
The fair market value of the Company'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 Company for debt of the same remaining maturities. Management
believes the carrying value of the debt approximates its fair value at September
30, 1996.
2) STOCK SPLIT
On September 21, 1993 the stockholders of Fall River Gas Company authorized a
two-for-one common stock split. As a result, one additional share of common
stock was issued on January 14, 1994 and for each share of common stock held on
the close of business on December 31, 1993.
3) FALL RIVER GAS APPLIANCE COMPANY, INC.
The earnings of the Fall River Gas Appliance Company, Inc. are shown as Other
Income in the accompanying Consolidated Statements of Income. Condensed
operating information of the Appliance Company for the years ended September 30,
1996, 1995, and 1994 and the nine months ended June 30, 1997 and 1996 is as
follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED JUNE 30
--------------------------
1997 1996 1996 1995 1994
------------ ------------ ------------ ------------ ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Operating revenues............................... $ 2,299,083 $ 2,133,711 $ 2,941,885 $ 2,680,609 $ 2,629,591
Costs and expenses............................... 1,312,729 1,207,773 1,629,693 1,412,244 1,285,120
------------ ------------ ------------ ------------ ------------
Income before income taxes................... 986,354 925,938 1,312,192 1,268,365 1,344,471
Income tax expense............................... 400,923 376,457 533,379 515,452 545,145
------------ ------------ ------------ ------------ ------------
Net income................................... $ 585,431 $ 549,481 $ 778,813 $ 752,913 $ 799,326
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
4) INCOME TAXES
The Company and its subsidiary file a consolidated Federal income tax return.
Each company provides Federal income taxes on a separate company basis. The
following is a summary of the provision for Federal and State income taxes:
<TABLE>
<CAPTION>
1996 1995 1994
---------------------- ---------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
FEDERAL STATE FEDERAL STATE FEDERAL STATE
---------- ---------- ---------- ---------- ------------ ----------
Current........................................ $ 535,480 $ 159,195 $ 583,815 $ 167,951 $ 1,024,154 $ 260,342
Deferred....................................... 181,356 37,513 227,763 46,421 239,018 47,902
Investment tax credits......................... (37,958) -- (38,049) -- (38,445) --
---------- ---------- ---------- ---------- ------------ ----------
Total provision............................ $ 678,878 $ 196,708 $ 773,529 $ 214,372 $ 1,224,727 $ 308,244
---------- ---------- ---------- ---------- ------------ ----------
---------- ---------- ---------- ---------- ------------ ----------
Provision for income taxes included in:
Operating expenses........................... $ 277,028 $ 64,404 $ 384,950 $ 86,471 $ 814,223 $ 174,243
Other income-Fall River Gas Appliance
Company.................................... 401,207 132,172 387,725 127,727 411,035 134,110
Other........................................ 643 132 854 174 (531) (109)
---------- ---------- ---------- ---------- ------------ ----------
Total provision............................ $ 678,878 $ 196,708 $ 773,529 $ 214,372 $ 1,224,727 $ 308,244
---------- ---------- ---------- ---------- ------------ ----------
---------- ---------- ---------- ---------- ------------ ----------
</TABLE>
F-7
<PAGE>
FALL RIVER GAS COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIOD)
4) INCOME TAXES (CONTINUED)
On October 1, 1993, the Company adopted Statement of Financial Accounting
Standards ("SFAS") 109, "Accounting for Income Taxes". SFAS 109 requires
adjustments of deferred tax assets and liabilities to reflect the future tax
consequences, at currently enacted tax laws and rates, of items already
reflected in the financial statements. The implementation of SFAS 109 resulted
in the recognition of a regulatory liability of approximately $412,000 for the
tax benefit of unamortized investment tax credits, which SFAS 109 requires to be
treated as a temporary difference. This benefit is being passed on to customers
over the lives of the property giving rise to the investment tax credit. Also, a
regulatory liability of approximately $88,000 was established for the excess
reserves for deferred taxes for pre-July 1987 deferred income taxes that were
recorded in excess of the current Federal statutory income tax rate.
The tax effect of the cumulative differences that gave rise to the deferred tax
liabilities and deferred tax assets for the year ended September 30, 1996 and
1995 are detailed below:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Deferred Tax Assets:
Allowance for doubtful accounts..................................................... $ 250,917 $ 267,794
Unamortized investment tax credits.................................................. 221,401 236,205
Contributions in aid of construction................................................ 188,611 198,765
Unbilled revenue.................................................................... 443,497 308,759
Deferred pension.................................................................... 202,786 202,786
Deferred compensation............................................................... 235,461 235,461
Regulatory liability................................................................ 195,035 195,035
Other............................................................................... 399,738 254,267
------------ ------------
Total Deferred Tax Assets............................................................. 2,137,446 1,899,072
Deferred Tax Liabilities:
Property related.................................................................... 4,964,711 5,044,529
Deferred gas costs.................................................................. 78,493 1,095,464
Other............................................................................... 442,460 161,693
------------ ------------
Total Deferred Tax Liabilities........................................................ 5,485,664 6,301,686
------------ ------------
Net Deferred Tax Liability............................................................ $ 3,348,218 $ 4,402,614
------------ ------------
------------ ------------
</TABLE>
The combined Federal and State income tax provision set forth above represents
approximately 38% of income taxes in 1996 and 39% in 1995 and 1994. The combined
statutory rate for Federal and State income tax was approximately 39% in 1996,
1995, and 1994. The difference between the effective income tax rate and
statutory rate results primarily from the amortization of investment tax
credits.
Investment tax credits are amortized over the life of the property giving rise
to the credits.
F-8
<PAGE>
FALL RIVER GAS COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIOD)
5) LONG-TERM DEBT AND NOTES PAYABLE TO BANKS
Long-term debt consists of:
<TABLE>
<CAPTION>
AMOUNTS OUTSTANDING
----------------------------
<S> <C> <C> <C> <C>
AMOUNTS JUNE 30, SEPT 30, SEPT. 30,
AUTHORIZED 1997 1996 1995
------------- ------------- ------------- ------------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
FIRST MORTGAGE BONDS:
8.75% Series, due 1996.............................. $ 3,200,000 $ 0 $ 0 $ 880,000
9.44% Series, due 2020.............................. 6,500,000 6,500,000 6,500,000 6,500,000
7.99% Series, due 2026.............................. 7,000,000 7,000,000 7,000,000 0
------------- ------------- ------------
13,500,000 13,500,000 7,380,000
Less--Current sinking fund requirements and
maturities.......................................... 0 0 880,000
------------- ------------- ------------
$ 13,500,000 $ 13,500,000 $ 6,500,000
------------- ------------- ------------
------------- ------------- ------------
</TABLE>
There are no aggregate maturities and sinking fund requirements for the next
five years applicable to the issues outstanding at September 30, 1996. The First
Mortgage Bonds are secured by a lien on substantially all of the Company's gas
plant. Under the terms of the most restrictive supplemental indenture, retained
earnings of $7,149,260 were restricted against payment of dividends at June 30,
1997.
The Company maintains lines of credit with various banks under which it may
borrow up to $25,000,000. These lines are reviewed periodically by the various
banks and may be renewed or cancelled. The Company pays a commitment fee on the
lines of credit at rates ranging from 5/16 of 1% to 3/8 of 1%. At August 31,
1997, there were $15,100,000 borrowings under these lines of credit.
The following table summarizes certain information related to the Company's
short-term borrowings for the years ended September 30, 1996, and 1995:
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Average daily balance outstanding for the period................................... $ 17,900,000 $ 14,586,000
Weighted average interest rate for the period...................................... 6.1% 6.4%
Maximum amount outstanding during the period based on month-end balances........... $ 20,400,000 $ 17,900,000
Weighted average interest rate at end of period.................................... 6.6% 7.5%
</TABLE>
6) EMPLOYEES' PENSION PLANS
The Company has defined benefit plans covering substantially all of its
employees. The benefits under these plans are based on years of service and
employees' compensation levels. The Company's policy is to fund pension costs
accrued including amortization of past service costs.
The following table sets forth the funding status of the pension plan as of
September 30, 1996 and 1995:
F-9
<PAGE>
FALL RIVER GAS COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIOD)
6) EMPLOYEES' PENSION PLANS (CONTINUED)
Actuarial present value of benefit obligations:
<TABLE>
<CAPTION>
1996 1995
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
UNION SALARIED UNION SALARIED
------------- ------------- ------------- -------------
Vested.............................................. $ (5,743,317) $ (5,236,341) $ (5,119,504) $ (4,449,398)
Nonvested........................................... (14,534) (27,096) (9,224) (70,461)
------------- ------------- ------------- -------------
Total accumulated benefit obligation................ $ (5,757,851) $ (5,263,437) $ (5,128,728) $ (4,519,859)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Projected benefit obligation........................ $ 6,256,298 $ 6,756,755 $ (5,508,398) $ (5,822,854)
Plan assets at fair value............................. 6,400,940 5,205,804 6,037,834 4,293,447
------------- ------------- ------------- -------------
Projected benefit obligation (in excess) or less than
plan assets......................................... 144,642 (1,550,951) 529,436 (1,529,407)
Unrecognized net gain................................. (462,279) (521,690) (1,046,210) (804,592)
Unrecognized prior service cost due to plan
amendment........................................... 0 1,299,360 0 1,417,484
Unrecognized net obligation........................... 449,424 169,321 524,328 197,540
------------- ------------- ------------- -------------
Prepaid pension cost (pension liability) recognized on
the consolidated balance sheet $ 131,787 $ (603,960) $ 7,554 $ (718,975)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -----------
<S> <C> <C> <C>
Net Pension cost included the following components:
Service cost......................................................... $ 365,511 $ 375,838 $ 408,466
Interest cost........................................................ 906,500 866,021 837,690
Return on assets..................................................... (1,320,522) (1,287,810) (56,166)
Net deferral and amortization........................................ 520,684 757,372 (463,664)
------------- ------------- -----------
Net periodic pension cost............................................ $ 472,173 $ 711,421 $ 726,326
------------- ------------- -----------
------------- ------------- -----------
</TABLE>
Assumptions used to determine the projected benefit obligation were:
<TABLE>
<CAPTION>
1996 1995
----- -----
<S> <C> <C>
Discount rate....................................................................................... 8.0% 8.0%
Rate of increase in future compensation levels...................................................... 3.0% 4.0%
Expected long-term rate of return on assets......................................................... 9.0% 8.0%
</TABLE>
7) OTHER POST-EMPLOYMENT BENEFITS
In addition to providing pension benefits, the Company provides certain health
care and life insurance benefits to qualified retired employees.
In 1994, the Company adopted Statement of Financial Accounting Standards No. 106
"Employers' Accounting for Postretirement Benefits Other Than Pensions" (SFAS
106). Prior to 1994, expense was recognized when benefits were paid. In
accordance with SFAS 106, the Company began recording the Cost
F-10
<PAGE>
FALL RIVER GAS COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIOD)
7) OTHER POST-EMPLOYMENT BENEFITS (CONTINUED)
for this plan on an accrual basis for 1994. As permitted by SFAS 106, the
Company is recording the transition obligation over a twenty year period.
The following table sets forth the status of the plans at September 30, 1996 and
1995:
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees.......................................................................... $ (1,150,310) $ (871,487)
Fully eligible active plan participants........................................... (109,934) (110,362)
Other active plan participants.................................................... (875,107) (949,071)
------------- -------------
(2,135,351) (1,930,920)
Plan assets......................................................................... 200,786 0
Unrecognized transition obligation.................................................. 2,403,554 2,544,938
Unrecognized past service costs..................................................... 123,494 134,600
Unrecognized (Gain)................................................................. (1,042,080) (1,275,643)
------------- -------------
Accrued postretirement benefit cost................................................. $ (449,597) $ (527,025)
------------- -------------
------------- -------------
</TABLE>
Net periodic postretirement benefit cost for fiscal 1996 and 1995 included the
following components:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Service Costs-benefits attributable to service during the period............. $ 80,022 $ 66,601 $ 144,234
Interest cost on accumulated postretirement benefit obligation............... 140,210 107,320 219,734
Net amortization and deferral................................................ 141,385 141,385 141,385
Recognized past service...................................................... 11,106 11,106 --
Recognized (Gain)............................................................ (59,909) (79,353) --
---------- ---------- ----------
312,814 247,059 505,353
Regulatory asset............................................................. 123,358 183,735 343,290
---------- ---------- ----------
Net expense.................................................................. $ 189,456 $ 63,324 $ 162,063
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
For measurement purposes, a 7% annual rate of increase in the per capita cost of
covered health care benefits was assumed for 1996. The rate was assumed to
decrease gradually to 4% by fiscal 2005, and to remain at that level thereafter.
The healthcare cost trend rate assumption has a significant effect on the
amounts reported. To illustrate, increasing the assumed health care cost trend
by 1% in each year would increase the accumulated postretirement benefit
obligation as of September 30, 1996 by $604,881 and the aggregate of the service
and the interest cost components of net periodic postretirement benefit cost
(NPPBC) for the year by $89,398. The discount rate was 7% for the development of
the NPPBC and for disclosure.
Included in the regulatory asset of $1,204,420, as of September 30, 1996, the
Company has a regulatory asset amounting to $650,383 related to unrecovered SFAS
106 expenses. On October 16, 1996 the MDPU approved a settlement agreement
between the Company and intervenors for an increase in rates effective December
1, 1996. As part of the settlement agreement, the Company was allowed recovery
of annual
F-11
<PAGE>
FALL RIVER GAS COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIOD)
7) OTHER POST-EMPLOYMENT BENEFITS (CONTINUED)
SFAS 106 expenses, as well as, amounts recorded as regulatory assets during the
three year period ended September 30, 1996.
8) COMMITMENTS AND CONTINGENCIES
In January 1990, the Company received notification from the Massachusetts
Department of Environmental Protection that it is one of several "potentially
responsible parties" under Massachusetts law in connection with a site operated
by a company which purchased scrap meters from various utilities including the
Company. The investigation is in the discovery stage and the cost to clean up
the site and the Company's degree of responsibility has not yet been determined.
However, management does not expect the costs to be significant.
9) UNAUDITED QUARTERLY FINANCIAL INFORMATION
The following is unaudited quarterly information for the fiscal years ended
September 30, 1996 and 1995. Quarterly variations between periods are caused
primarily by the seasonal nature of the gas distribution business.
<TABLE>
<CAPTION>
QUARTER ENDED QUARTER ENDED
------------------------------------------ ------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30
--------- --------- --------- --------- --------- --------- --------- ---------
<CAPTION>
(THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating Revenues................... $ 11,455 $ 22,373 $ 10,313 $ 4,825 $ 9,990 $ 19,483 $ 9,858 $ 5,087
Operating Income (Loss).............. 338 1,874 301 (170) 429 1,667 375 (166)
Net Income (Loss).................... 94 1,615 91 (374) 263 1,449 233 (329)
Net Income (Loss) per Share.......... 0.05 0.91 0.05 (0.21) 0.15 0.81 0.13 (0.18)
</TABLE>
F-12
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR BY THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THOSE TO WHICH IT RELATES
IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE ANY SUCH OFFER OR
SOLICITATION IN SUCH STATE. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT
IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Available Information........................... 2
Incorporation of Certain Documents by
Reference..................................... 2
Prospectus Summary.............................. 3
The Company..................................... 5
Risk Factors.................................... 6
Use of Proceeds................................. 6
Capitalization.................................. 7
Common Stock Dividends and Price Range.......... 8
Selected Financial Data......................... 9
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 10
Business........................................ 14
Security Ownership of Certain Beneficial Owners
and Management................................ 20
Management...................................... 21
Description of Capital Stock.................... 23
Underwriting.................................... 24
Legal Opinions.................................. 25
Experts......................................... 25
Index to Financial Statements................... F-1
</TABLE>
[LOGO]
FALL
RIVER
- ---------------
GAS
COMPANY
340,000 SHARES
THE FALL RIVER GAS
COMPANY
COMMON STOCK
---------------------
PROSPECTUS
---------------------
FIRST ALBANY
CORPORATION
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses in connection with the proposed issuance and distribution
of the common stock are set forth below:
<TABLE>
<S> <C>
Registration Fee.................................................................. $ 1,570
Printing.......................................................................... 10,000
Accounting Fees................................................................... 10,000
Legal Fees........................................................................ 65,000
NASD Filing Fee................................................................... 1,018
Transfer Agent Fee................................................................ 1,000
Blue Sky Fees and Expenses........................................................ 2,000
Representative's Non-accountable Expense Allowance................................ 50,000
Miscellaneous Expenses............................................................ 5,012
Total (estimated)......................................................... $ 145,600
</TABLE>
II-1
<PAGE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
INDEMNIFICATION
The Company's By-Laws permit the Company's directors and officers (and persons
who occupy such positions in other companies at the request of the Company) to
be indemnified for liabilities arising in connection with any action, suit or
proceeding prosecuted to a final determination on the merits (except any costs
or expenses as to which such person shall be finally adjudged to be liable), and
any action, suit or proceeding which is settled with the approval of the court
having jurisdiction thereof, but only in such amount (which shall not include
any sum ordered to be paid by him to the Company) as such court shall determine
to be fair and reasonable under the circumstances. Indemnification payments
properly authorized may include reimbursement for the amount of the claim or
judgment and expenses of defense, including legal fees. Massachusetts law allows
such indemnification, but limits provision of indemnification where a person is
adjudicated not to have acted in good faith in the reasonable belief that such
action was in the best interest of the corporation. Indemnification is also
available to officers and directors in connection with certain actions taken by
them in reliance upon governmental regulations, rules, orders and
determinations. Certain liabilities arising under the Securities Act of 1933 may
be covered by this indemnification provision, although the By-Laws provide that
indemnification of liabilities arising under such Act shall be available only to
the extent that such rights of indemnification may be determined to be valid by
a court of competent jurisdiction. Massachusetts law also allows a corporation
to purchase and maintain insurance on behalf of such persons against any
liabilities incurred in the capacity of director or officer and the Company has
such insurance.
The Company's Articles of Organization provide that, to the fullest extent that
the General Laws of the Commonwealth of Massachusetts permit the limitation or
elimination of the liability of directors, no director of the Company shall be
personally liable to the Company or its shareholders for monetary damages for
breach of fiduciary duty, notwithstanding any provision of law imposing such
liability. No amendment to or repeal of this provision shall apply to or have
any effect on the liability or alleged liability of any director of the Company
with respect to any acts or omissions of such director occurring prior to such
amendment or repeal.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is therefore unenforceable.
ITEM 16. LIST OF EXHIBITS
See Exhibit Index at page II-5.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by
II-2
<PAGE>
ITEM 17. UNDERTAKINGS (CONTINUED)
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Fall River,
Massachusetts, on the 18th day of September, 1997.
<TABLE>
<S> <C> <C>
FALL RIVER GAS COMPANY
By: /s/ BRADFORD J. FAXON
-----------------------------------------
(Bradford J. Faxon, President)
</TABLE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Bradford J. Faxon and Peter H. Thanas, and each of
them, his/her true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any Registration Statement filed
pursuant to Rule 462(b) relating thereto, and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about said matters
as fully to all intents and purposes as he might or could do in person, thereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, or their or his substitutes or substitute, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed below by the following persons and in the capacities
indicated on September 18, 1997.
<TABLE>
<C> <S>
(i) Principal Executive Officer:
/s/ BRADFORD J. FAXON
------------------------------------------
President
(Bradford J. Faxon)
(ii) Principal Financial Officer
and
Principal Accounting Officer:
/s/ PETER H. THANAS Senior Vice President and
------------------------------------------
Treasurer
(Peter H. Thanas)
(iii) Directors
/s/ CINDY L.J. AUDETTE
------------------------------------------
(Cindy L.J. Audette)
/s/ THOMAS K. BARRY
------------------------------------------
(Thomas K. Barry)
/s/ THOMAS H. BILODEAU
------------------------------------------
(Thomas H. Bilodeau)
/s/ BRADFORD J. FAXON
------------------------------------------
(Bradford J. Faxon)
</TABLE>
<PAGE>
<TABLE>
<C> <S>
/s/ RAYMOND H. FAXON
------------------------------------------
(Raymond H. Faxon)
/s/ RONALD J. FERRIS
------------------------------------------
(Ronald J. Ferris)
/s/ JACK R. MCCORMICK
------------------------------------------
(Jack R. McCormick)
/s/ GILBERT C. OLIVEIRA, JR.
------------------------------------------
(Gilbert C. Oliveira, Jr.)
/s/ DONALD R. PATNODE
------------------------------------------
(Donald R. Patnode)
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS SEQUENTIAL DESCRIPTION OF EXHIBIT PAGE NUMBER
- --------- ---------------------------------------------------------------------------------------------- -----------
<C> <S> <C>
*1 Form of Underwriting Agreement.
4(a) Instruments defining the rights of security holders, including indentures. Filed as Exhibit 4
to Report on Form 10-K, File No. 0-449, for calendar year ended December 31, 1982 and
incorporated herein by reference.
4(b) Eleventh Supplemental Indenture, dated as of December 15, 1989, between the Company and First
National Bank of Boston (Trustee). Filed as Exhibit 4(b) to the Company's Registration
Statement, File No. 333-13995 and incorporated herein by reference.
4(c) Twelfth Supplemental Indenture, dated as of December 20, 1989, between the Company and First
National Bank of Boston (Trustee). Filed as Exhibit 4(c) to the Company's Registration
Statement, File No. 333-13995 and incorporated herein by reference.
4(d) Thirteenth Supplemental Indenture, dated as of September 19, 1996, between the Company and
State Street Bank and Trust Company (Trustee), as Successor in interest to First National Bank
of Boston. Filed as Exhibit 4(c) to the Company's Registration Statement, File No. 333-13995
and incorporated herein by reference.
*5 Opinion of Rich, May, Bilodeau & Flaherty, P.C.
10(a) Employment and Consulting Agreement dated as of September 18, 1984, between the Company and
Jack R. McCormick. Filed as, Exhibit 10(d) to Report on Form 10-K, File No. 0-449, for
calendar year ended December 31, 1984 and incorporated herein by reference.
10(b) Employment and Consulting Agreement dated as of September 18, 1984, between the Company and
Bradford J. Faxon. Filed as Exhibit 10(e) to Report on Form 10-K, File No. 0-449, for calendar
year ended December 31, 1984 and incorporated herein by reference.
10(c) Employment and Consulting Agreement dated as of September 18, 1984, between the Company and
Norman J. Meyer. Filed as Exhibit 10(f) to Report on Form 10-K, File No. 0-449, for calendar
year ended December 31, 1984 and incorporated herein by reference.
10(d) Agreement, Combined Supplementary Agreement, and Amendment to Agreement for Employment and
Consulting Services between the Company and Raymond H. Faxon. Filed as Exhibit 10(h) to Report
on Form 10-K, File No. 0-449, for calendar year ended December 31, 1984 and incorporated
herein by reference.
10(e) Amendment to Employment and Consulting Agreement dated January 1, 1987 between the Company and
Bradford J. Faxon. Filed as Exhibit 10(i) to Report on Form 10-K, File No. 0-449, for calendar
year ended December 31, 1986 and incorporated herein by reference.
10(f) Amendment to Employment and Consulting Agreement dated January 1, 1987 between the Company and
Norman J. Meyer. Filed as Exhibit 10(j) to Report on Form 10-K, File No. 0-449, for calendar
year ended December 31, 1986 and incorporated herein by reference.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS SEQUENTIAL DESCRIPTION OF EXHIBIT PAGE NUMBER
- --------- ---------------------------------------------------------------------------------------------- -----------
<C> <S> <C>
10(g) Employment and Consulting Agreement dated as of August 1, 1986 between the Company and Peter
H. Thanas. Filed as Exhibit 10(k) to Report on Form 10-K, File No. 0-449, for calendar year
ended December 31, 1986 and incorporated herein by reference.
10(h) Amendment to Employment and Consulting Agreement dated January 1, 1987 between the Company and
Peter H. Thanas. Filed as Exhibit 10(l) to Report on Form 10-K, File No. 0-449, for calendar
year ended December 31, 1986 and incorporated herein by reference.
10(i) Service Agreement for Firm Liquid Service between Distrigas and Company. Filed as Exhibit
10(p) to Report on Form 10-K, File No. 0-449, for calendar year ended December 31, 1988 and
incorporated herein by reference.
10(j) Service Agreement for Interruptible Vapor Service between Distrigas and Company. Filed as
Exhibit 10(q) to Report on Form 10-K, File No. 0-449, for calendar year ended December 31,
1988 and incorporated herein by reference.
10(k) Service Agreement for Firm Vapor Service between Distrigas and Company. Filed as Exhibit 10(r)
to Report on Form 10-K, File No. 0-449, for calendar year ended December 31, 1988 and
incorporated herein by reference.
10(l) Deferred Compensation Agreement with Bradford J. Faxon. Filed as Exhibit 10(s) to Report on
Form 10-K, File No. 0-449, for calendar year ended December 31, 1989 and incorporated herein
by reference.
10(m) Deferred Compensation Agreement with Peter H. Thanas. Filed as Exhibit 10(t) to Report on Form
10-K, File No. 0-449, for calendar year ended December 31, 1989 and incorporated herein by
reference.
10(n) Employment Contract with Bradford J. Faxon. Filed as Exhibit 10(n) to Report on Form 10-K,
File No. 0-449, for calendar year ended December 31, 1991 and incorporated herein by
reference.
10(o) Employment Contract with Peter H. Thanas. Filed as Exhibit 10(w) to Report on Form 10-K, File
No. 0-449, for calendar year ended December 31, 1991 and incorporated herein by reference.
10(p) Contract between the Company and Utility Workers Union of America, AFL-CIO and Local 431,
dated May 1, 1995. Filed as Exhibit 10(x) to Report on Form 10-K, File No. 0-449, for calendar
year ended September 30, 1995 and incorporated herein by reference.
*10(q) Gas Sales Agreement between CNG Energy Services Corporation (formerly known as CNG Gas
Services Corporation) and Fall River Gas Company dated as of June 1, 1993.
*24(a) Consent of Arthur Andersen LLP, independent certified public accountants.
*24(b) Consent of Rich, May, Bilodeau & Flaherty, P.C. (included in opinion filed as Exhibit 5 to
this Registration Statement).
*25(a) Power of Attorney (set forth on page II-4 of this Registration Statement).
</TABLE>
- ------------------------
* Filed herewith
<PAGE>
Fall River Gas Company
340,000 Shares Common Stock (*)
Underwriting Agreement
, 1997
--------------
First Albany Corporation
As Representative of the Several
Underwriters Named in Schedule A
c/o First Albany Corporation
Corporate Finance Department
53 State Street
Boston, Massachusetts 02109
Ladies and Gentlemen:
Section 1. Introductory. Fall River Gas Company ("Company") a
Massachusetts corporation, has an authorized capital stock consisting of
2,201,334 shares, $.83 1/3 par value, of Common Stock ("Common Stock"), of
which 1,787,261 shares were outstanding and 414,073 shares were held in the
Company's treasury as of __________, 1997. The Company proposes to issue and
sell 340,000 shares directly out of the Company's treasury ("Firm Shares") to
the several underwriters named in Schedule A as it may be amended by the
Pricing Agreement hereinafter defined ("Underwriters"), who are acting
severally and not jointly. In addition, the Company proposes to grant to the
Underwriters an option to purchase up to 51,000 additional shares of Common
Stock ("Option Shares") as provided in Section 4 hereof. The Firm Shares
and, to the extent such option is exercised, the Option Shares, are
hereinafter collectively referred to as the "Shares."
You have advised the Company that the Underwriters propose to make a
public offering of their respective portions of the Shares as soon as you
deem advisable after the registration statement hereinafter referred to
becomes effective, if it has not yet become effective, and the Pricing
Agreement hereinafter defined has been executed and delivered.
Prior to the purchase and public offering of the Shares by the several
Underwriters, the Company and the Representative, acting on behalf of the
several Underwriters, shall enter into an agreement substantially in the form
of Exhibit A hereto (the "Pricing Agreement"). The Pricing Agreement may
take the form of an exchange of any standard form of written
telecommunication between the Company and the Representative and shall
specify such applicable information as is indicated in Exhibit A hereto. The
offering of the Shares will be governed by this Agreement, as supplemented by
the Pricing Agreement.
- ----------------
(*)Plus an option to acquire up to 51,000 additional shares to cover
overallotments.
<PAGE>
From and after the date of the execution and delivery of the Pricing
Agreement, this Agreement shall be deemed to incorporate the Pricing
Agreement.
The Company hereby confirms its agreement with the Underwriters as follows:
Section 2. Representations and Warranties of the Company. The
Company represents and warrants to the several Underwriters that:
(a) A registration statement on Form S-2 (File No. 333-_____) and a
related preliminary prospectus with respect to the Shares have been
prepared and filed with the Securities and Exchange Commission
("Commission") by the Company in conformity with the requirements of the
Securities Act of 1933, as amended, and the rules and regulations of the
Commission thereunder (collectively, the "1933 Act;" all references herein
to specific rules are rules promulgated under the 1933 Act); and the
Company has so prepared and has filed such amendments thereto, if any, and
such amended preliminary prospectuses as may have been required to the date
hereof. If the Company has elected not to rely upon Rule 430A, the Company
has prepared and will promptly file an amendment to the registration
statement and an amended prospectus. If the Company has elected to rely
upon Rule 430A, it will prepare and file a prospectus pursuant to Rule
424(b) that discloses the information previously omitted from the
prospectus in reliance upon Rule 430A. There have been or will promptly be
delivered to you one signed copy of such registration statement and
amendments, together with one copy of all documents incorporated by
reference therein, one copy of each exhibit filed therewith, and conformed
copies of such registration statement and amendments (but without exhibits)
and of the related preliminary prospectus or prospectuses and final forms
of prospectus for each of the Underwriters.
Such registration statement (as amended, if applicable) at the
time it becomes effective and the prospectus constituting a part thereof
(including the information, if any, deemed to be part thereof pursuant to
Rule 430A(b) and/or Rule 434), as from time to time amended or
supplemented, are hereinafter referred to as the "Registration Statement,"
and the "Prospectus," respectively, except that if any revised prospectus
shall be provided to the Underwriters by the Company for use in connection
with the offering of the Shares which differs from the Prospectus on file
at the Commission at the time the Registration Statement became or becomes
effective (whether or not such revised prospectus is required to be filed
by the Company pursuant to Rule 424(b)), the term Prospectus shall refer to
such revised prospectus from and after the time it was provided to the
Underwriters for such use. If the Company elects to rely on Rule 434 of
the 1933 Act, all references to "Prospectus" shall be deemed to include,
without limitation, the form of prospectus and the term sheet, taken
together, provided to the Underwriters by the Company in accordance with
Rule 434 of the 1933 Act ("Rule 434 Prospectus"). Any registration
statement (including any amendment or supplement thereto or information
which is deemed part thereof) filed by the Company under Rule 462(b) ("Rule
462(b) Registration Statement") shall be deemed to be part of the
"Registration Statement" as defined
-2-
<PAGE>
herein, and any prospectus (including any amendment or supplement thereto
or information which is deemed part thereof) included in such registration
statement shall be deemed to be part of the "Prospectus", as defined
herein, as appropriate. The Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission thereunder are hereinafter
collectively referred to as the "Exchange Act." Any reference herein to
any preliminary prospectus or the Prospectus shall be deemed to refer to
and include the documents incorporated by reference therein pursuant to
Form S-2 under the 1933 Act ("Incorporated Documents"), as of the date of
such preliminary prospectus or Prospectus, as the case may be.
The Incorporated Documents, when they were filed with the Commission,
conformed in all material respects to the requirements of the Exchange Act
and none of such documents contained an untrue statement of a material fact
or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading.
(b) The Commission has not issued any order preventing or suspending
the use of any preliminary prospectus, and each preliminary prospectus has
conformed in all material respects with the requirements of the 1933 Act
and, as of its date, has not included any untrue statement of a material
fact or omitted to state a material fact necessary to make the statements
therein not misleading; and when the Registration Statement became or
becomes effective, and at all times subsequent thereto, up to the First
Closing Date or the Second Closing Date hereinafter defined, as the case
may be, the Registration Statement, including the information deemed to be
part of the Registration Statement at the time of effectiveness pursuant to
Rule 430A(b), if applicable, and the Prospectus and any amendments or
supplements thereto, contained or will contain all statements that are
required to be stated therein in accordance with the 1933 Act and in all
material respects conformed or will in all material respects conform to the
requirements of the 1933 Act, and neither the Registration Statement nor
the Prospectus, nor any amendment or supplement thereto, included or will
include any untrue statement of a material fact or omitted or will omit to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading; provided, however, that the Company
makes no representation or warranty as to information contained in or
omitted from any preliminary prospectus, the Registration Statement, the
Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by or on
behalf of any Underwriter through the Representative specifically for use
in the preparation thereof.
(c) The Company and its subsidiary have been duly incorporated and
are validly existing as corporations in good standing under the laws of
their respective places of incorporation, with corporate power and
authority to own their properties and conduct their business as described
in the Prospectus; the Company and its subsidiary are duly qualified to do
business as foreign corporations under the corporation law of, and are in
good standing as such in, each jurisdiction in which they own or lease
substantial properties, have an office, or in which substantial
-3-
<PAGE>
business is conducted and such qualification is required except in any such
case where the failure to so qualify or be in good standing would not have
a material adverse effect upon the Company and its subsidiary taken as a
whole; and no proceeding of which the Company has knowledge has been
instituted in any such jurisdiction, revoking, limiting or curtailing, or
seeking to revoke, limit or curtail, such power and authority or
qualification.
(d) The Company owns directly 100 percent of the issued and
outstanding capital stock of its subsidiary, free and clear of any claims,
liens, encumbrances or security interests and all of such capital stock has
been duly authorized and validly issued and is fully paid and
nonassessable.
(e) The issued and outstanding shares of capital stock of the Company
as set forth in the Prospectus have been duly authorized and validly
issued, are fully paid and nonassessable, and conform to the description
thereof contained in the Prospectus.
(f) The Shares have been duly authorized and when issued, delivered
and paid for pursuant to this Agreement, will be validly issued, fully paid
and nonassessable, and will conform to the description thereof contained in
the Prospectus.
(g) The making and performance by the Company of this Agreement and
the Pricing Agreement have been duly authorized by all necessary corporate
action and will not violate any provision of the Company's charter or
bylaws and will not result in the breach, or be in contravention, of any
provision of any agreement, franchise, license, indenture, mortgage, deed
of trust, or other instrument to which the Company or any subsidiary is a
party or by which the Company, any subsidiary or the property of any of
them may be bound or affected, or any order, rule or regulation applicable
to the Company or any subsidiary of any court or regulatory body,
administrative agency or other governmental body having jurisdiction over
the Company or any subsidiary or any of their respective properties, or any
order of any court or governmental agency or authority entered in any
proceeding to which the Company or any subsidiary was or is now a party or
by which it is bound. No consent, approval, authorization or other order
of any court, regulatory body, administrative agency or other governmental
body is required for the execution and delivery of this Agreement or the
Pricing Agreement or the consummation of the transactions contemplated
herein or therein, except for compliance with the 1933 Act and blue sky
laws applicable to the public offering of the Shares by the several
Underwriters and clearance of such offering with the National Association
of Securities Dealers, Inc. ("NASD"). This Agreement has been duly
executed and delivered by the Company.
(h) The accountants who have expressed their opinions with respect to
certain of the financial statements included or incorporated by reference
in the Registration Statement are independent accountants as required by
the 1933 Act.
(i) The consolidated financial statements of the Company included or
incorporated by reference in the Registration Statement present fairly the
consolidated
-4-
<PAGE>
financial position of the Company as of the respective dates of such
financial statements, and the consolidated results of operations and cash
flows of the Company for the respective periods covered thereby, all in
conformity with generally accepted accounting principles consistently
applied throughout the periods involved, except as disclosed in the
Prospectus. The financial information set forth in the Prospectus under
"Selected Financial Data" presents fairly on the basis stated in the
Prospectus, the information set forth therein.
(j) Neither the Company nor its subsidiary is in violation of its
charter or in default under any consent decree, or in default with respect
to any material provision of any lease, loan agreement, franchise, license,
permit or other contract obligation to which it is a party; and there does
not exist any state of facts which constitutes an event of default as
defined in such documents or which, with notice or lapse of time or both,
would constitute such an event of default, in each case, except for
defaults which neither singly nor in the aggregate are material to the
Company and its subsidiary taken as a whole.
(k) There are no material legal or governmental proceedings pending,
or to the Company's knowledge, threatened to which the Company or its
subsidiary is or may be a party or of which material property owned or
leased by the Company or its subsidiary is or may be the subject, or
related to environmental or discrimination matters which are not disclosed
in the Prospectus, or which question the validity of this Agreement or the
Pricing Agreement or any action taken or to be taken pursuant hereto or
thereto.
(l) There are no holders of securities of the Company having rights
to registration thereof or preemptive rights to purchase Common Stock.
(m) The Company and its subsidiary have good and marketable title to
all the properties and assets reflected as owned in the financial
statements hereinabove described (or elsewhere in the Prospectus), subject
to no lien, mortgage, pledge, charge or encumbrance of any kind except
those, if any, reflected in such financial statements (or elsewhere in the
Prospectus) or which are not material to the Company and its subsidiary
taken as a whole. The Company and its subsidiary hold their respective
leased properties which are material to the Company and its subsidiary
taken as a whole under valid and binding leases.
(n) The Company has not taken and will not take, directly or
indirectly, any action designed to or which has constituted or which might
reasonably be expected to cause or result, under the Exchange Act or
otherwise, in stabilization or manipulation of the price of any security of
the Company to facilitate the sale or resale of the Shares.
(o) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, and except as
contemplated by the Prospectus, the Company and its subsidiary, taken as a
whole, have not incurred any material
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<PAGE>
liabilities or obligations, direct or contingent, nor entered into any
material transactions not in the ordinary course of business and there has
not been any material adverse change in their condition (financial or
otherwise) or results of operations nor any material change in their
capital stock, short-term debt or long-term debt.
(p) The Company agrees that it will not, without the prior written
consent of the Representative: (1) offer, pledge, sell, contract to sell,
sell any option or contract to sell, sell any right or warrant to purchase,
or otherwise transfer or dispose of, directly or indirectly, any shares of
Common Stock or any securities convertible into or exchangeable for Common
Stock or (2) enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of ownership
of the Common Stock, whether any such transaction is described in clause
(1) or (2) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise, for a period of 180 days after this
Agreement becomes effective without the prior written consent of the
Representative, unless such shares of Common Stock are issued pursuant to
the Company's Share Owner Dividend Reinvestment and Stock Purchase Plan.
The Company has obtained similar agreements from each of its executive
officers, directors and principal stockholders.
(q) There is no material document of a character required to be
described in the Registration Statement or the Prospectus or to be filed as
an exhibit to the Registration Statement which is not described or filed as
required.
(r) The Company together with its subsidiary owns and possesses all
right, title and interest in and to, or has duly licensed from third
parties, all patents, patent rights, trade secrets, inventions, know-how,
trademarks, trade names, copyrights, service marks and other proprietary
rights ("Trade Rights") material to the business of the Company and its
subsidiary taken as a whole. Neither the Company nor its subsidiary has
received any notice of infringement, misappropriation or conflict from any
third party as to such material Trade Rights which has not been resolved or
disposed of and neither the Company nor its subsidiary has infringed,
misappropriated or otherwise conflicted with material Trade Rights of any
third parties, which infringement, misappropriation or conflict would have
a material adverse effect upon the condition (financial or otherwise) or
results of operations of the Company and its subsidiary taken as a whole.
(s) The conduct of the business of the Company and its subsidiary is
in compliance in all respects with applicable federal, state, local and
foreign laws and regulations, except where the failure to be in compliance
would not have a material adverse effect upon the condition (financial or
otherwise) or results of operations of the Company and its subsidiary taken
as a whole.
(t) All offers and sales of the Company's capital stock prior to the
date hereof were at all relevant times exempt from the registration
requirements of the 1933 Act or were duly registered in accordance
therewith, and were duly registered
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<PAGE>
with or the subject of an available exemption from the registration
requirements of the applicable state securities or blue sky laws.
(u) The Company has filed all necessary federal and state income and
franchise tax returns and has paid all taxes shown as due thereon, and
there is no tax deficiency that has been, or to the knowledge of the
Company might be, asserted against the Company or any of its properties or
assets that would or could be expected to have a material adverse affect
upon the condition (financial or otherwise) or results of operations of the
Company and its subsidiary taken as a whole.
(v) A registration statement relating to the Common Stock has been
declared effective by the Commission pursuant to the Exchange Act and the
Common Stock is duly registered thereunder. The Company's Common Stock is
traded in the over-the-counter market on the OTC Bulletin Board. The
Shares have been approved for listing on the American Stock Exchange,
subject to notice of issuance or sale of the Shares, as the case may be.
(w) The Company is not, and does not intend to conduct its business
in a manner in which it would become, an "investment company" as defined in
Section 3(a) of the Investment Company Act of 1940, as amended ("Investment
Company Act").
(x) The Company is not a "holding company" or a "subsidiary company"
of a "public utility company" or of a "holding company" or an "affiliate"
of a "holding company" or of a "subsidiary company" of a "holding company"
within the meaning of the Public Utility Holding Company Act of 1935, as
amended (the "Holding Company Act").
(y) The Company confirms as of the date hereof that it is in
compliance with all provisions of Section 1 of Laws of Florida, Chapter
92-198, An Act Relating to Disclosure of Doing Business with Cuba, and the
Company further agrees that if it commences engaging in business with the
government of Cuba or with any person or affiliate located in Cuba after
the date the Registration Statement becomes or has become effective with
the Commission or with the Florida Department of Banking and Finance (the
"Department"), whichever date is later, or if the information reported in
the Prospectus, if any, concerning the Company's business with Cuba or with
any person or affiliate located in Cuba changes in any material way, the
Company will provide the Department notice of such business or change, as
appropriate, in a form acceptable to the Department.
(z) No statement, representation, warranty or covenant made by the
Company in this Agreement or made in any certificate or document required
by this Agreement to be delivered to the Representative was or will be,
when made, inaccurate, untrue or incorrect.
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<PAGE>
(aa) Neither the Company nor its subsidiary is involved in any
material labor dispute nor, to the knowledge of the Company, is any such
dispute threatened.
(bb) Neither the Company nor its subsidiary nor, to the Company's
knowledge, any employee or agent of the Company or its subsidiary has made
any payment of funds of the Company or its subsidiary or received or
retained any funds in violation of any law, rule or regulation.
(cc) An authorizing order has been issued by the Massachusetts
Department of Public Utilities authorizing the issuance and sale of the
Shares and said order is in full force and effect and final and
non-appealable; and no further authorization, approval, consent or order of
any governmental authority or agency is legally required in connection with
the authorization, issuance and sale of the Shares by the Company pursuant
to this Agreement (other than qualification under state securities laws,
Blue Sky laws or the by-laws and rules of the NASD).
(dd) The Company has valid and sufficient grants, franchises,
miscellaneous permits and easements free from unduly burdensome
restrictions, adequate for the conduct of its business in the territories
in which it is now conducting such business and the ownership of the
properties now owned by it.
Section 3. Representations and Warranties of the Underwriters. The
Representative, on behalf of the several Underwriters, represents and
warrants to the Company that the information set forth (a) on the cover page
of the Prospectus with respect to price, underwriting discounts and
commissions and terms of the offering and (b) under "Underwriting" in the
Prospectus was furnished to the Company by and on behalf of the Underwriters
for use in connection with the preparation of the Registration Statement and
is correct and complete in all material respects.
Section 4. Purchase, Sale and Delivery of Shares. On the basis of
the representations, warranties and agreements herein contained, but subject
to the terms and conditions herein set forth, the Company agrees to sell to
the Underwriters named in Schedule A hereto, and the Underwriters agree,
severally and not jointly, to purchase the Firm Shares from the Company at
the price per share set forth in the Pricing Agreement. The obligation of
each Underwriter to the Company shall be to purchase from the Company that
number of full shares set forth opposite the name of such Underwriter in
Schedule A hereto. The initial public offering price and the purchase price
shall be set forth in the Pricing Agreement.
At 9:00 A.M., [Chicago] Time, on the fourth business day, if permitted
under Rule 15c6-1 under the Exchange Act, (or the third business day if
required under Rule 15c6-1 under the Exchange Act or unless postponed in
accordance with the provisions of Section 12) following the date the
Registration Statement becomes effective (or, if the Company has elected to
rely upon Rule 430A, the fourth business day, if permitted under Rule 15c6-1
under the Exchange Act, (or the third business day if required under Rule
15c6-1 under the Exchange Act) after execution of the Pricing Agreement), or
such other time not later than
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<PAGE>
ten business days after such date as shall be agreed upon by the
Representative and the Company, the Company will deliver to you at the
offices of [counsel for the Underwriters] or through the facilities of The
Depository Trust Company for the accounts of the several Underwriters,
certificates representing the Firm Shares to be sold by it against payment of
the purchase price therefor by delivery of next-day funds, by wire transfer
or otherwise, to the Company. Such time of delivery and payment is herein
referred to as the "First Closing Date." The certificates for the Firm Shares
so to be delivered will be in such denominations and registered in such names
as you request by notice to the Company prior to 10:00 A.M., [Chicago] Time,
on the second full business day preceding the First Closing Date, and will be
made available at the Company's expense for checking and packaging by the
Representative at 10:00 A.M., [Chicago] Time, on the business day preceding
the First Closing Date. Payment for the Firm Shares so to be delivered shall
be made at the time and in the manner described above at the offices of
counsel for the Underwriters.
In addition, on the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions herein
set forth, the Company hereby grants an option to the several Underwriters to
purchase, severally and not jointly, up to an aggregate of 51,000 Option
Shares, at the same purchase price per share to be paid for the Firm Shares,
for use solely in covering any overallotments made by the Underwriters in the
sale and distribution of the Firm Shares. The option granted hereunder may
be exercised at any time (but not more than once) within 30 days after the
date of the initial public offering upon notice by you to the Company setting
forth the aggregate number of Option Shares as to which the Underwriters are
exercising the option, the names and denominations in which the certificates
for such shares are to be registered and the time and place at which such
certificates will be delivered. Such time of delivery (which may not be
earlier than the First Closing Date), being herein referred to as the "Second
Closing Date," shall be determined by you, but if at any time other than the
First Closing Date, shall not be earlier than three nor later than 10 full
business days after delivery of such notice of exercise. The number of
Option Shares to be purchased by each Underwriter shall be determined by
multiplying the number of Option Shares to be sold by a fraction, the
numerator of which is the number of Firm Shares to be purchased by such
Underwriter as set forth opposite its name in Schedule A and the denominator
of which is the total number of Firm Shares (subject to such adjustments to
eliminate any fractional share purchases as you in your absolute discretion
may make). Certificates for the Option Shares will be made available at the
Company's expense for checking and packaging at 10:00 A.M., [Chicago] Time,
on the first full business day preceding the Second Closing Date. The manner
of payment for and delivery of the Option Shares shall be the same as for the
Firm Shares as specified in the preceding paragraph; provided, however, that
as to any Option Shares purchased by the Underwriters to cover
over-allotments, the Company agrees to reimburse the Underwriters in an
amount equal to the $_____ per share dividend declared on the Common Stock
which is payable on November 15, 1997, to the extent such Option Shares are
delivered to the Underwriters subsequent to the record date (November 1,
1997) for such dividend.
You have advised the Company that each Underwriter has authorized you to
accept delivery of its Shares, to make payment and to receipt therefor. You,
individually and not
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<PAGE>
as the Representative of the Underwriters, may make payment for any Shares to
be purchased by any Underwriter whose funds shall not have been received by
you by the First Closing Date or the Second Closing Date, as the case may be,
for the account of such Underwriter, but any such payment shall not relieve
such Underwriter from any obligation hereunder.
Section 5. Covenants of the Company. The Company covenants and
agrees that:
(a) The Company will advise you promptly of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement or of the institution of any proceedings for that
purpose, or of any notification of the suspension of qualification of the
Shares for sale in any jurisdiction or the initiation or threatening of any
proceedings for that purpose, and will also advise you promptly of any
request of the Commission for amendment or supplement of the Registration
Statement, of any preliminary prospectus or of the Prospectus, or for
additional information.
(b) The Company will give you notice of its intention to file or
prepare any amendment to the Registration Statement (including any
post-effective amendment) or any Rule 462(b) Registration Statement or any
amendment or supplement to the Prospectus (including any revised prospectus
which the Company proposes for use by the Underwriters in connection with
the offering of the Shares which differs from the prospectus on file at the
Commission at the time the Registration Statement became or becomes
effective, whether or not such revised prospectus is required to be filed
pursuant to Rule 424(b) and any term sheet as contemplated by Rule 434) and
will furnish you with copies of any such amendment or supplement a
reasonable amount of time prior to such proposed filing or use, as the case
may be, and will not file any such amendment or supplement or use any such
prospectus to which you or counsel for the Underwriters shall reasonably
object.
(c) If the Company elects to rely on Rule 434 of the 1933 Act, the
Company will prepare a term sheet that complies with the requirements of
Rule 434. If the Company elects not to rely on Rule 434, the Company will
provide the Underwriters with copies of the form of prospectus, in such
numbers as the Underwriters may reasonably request, and file with the
Commission such prospectus in accordance with Rule 424(b) of the 1933 Act
by the close of business in New York City on the second business day
immediately succeeding the date of the Pricing Agreement. If the Company
elects to rely on Rule 434, the Company will provide the Underwriters with
copies of the form of Rule 434 Prospectus, in such numbers as the
Underwriters may reasonably request, by the close of business in New York
on the business day immediately succeeding the date of the Pricing
Agreement.
(d) If at any time when a prospectus relating to the Shares is
required to be delivered under the 1933 Act any event occurs as a result of
which the Prospectus, including any amendments or supplements, would
include an untrue statement of a material fact, or omit to state any
material fact required to be stated therein or
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<PAGE>
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, or if it is necessary at any
time to amend the Prospectus, including any amendments or supplements
thereto and including any revised prospectus which the Company proposes for
use by the Underwriters in connection with the offering of the Shares which
differs from the prospectus on file with the Commission at the time of
effectiveness of the Registration Statement, whether or not such revised
prospectus is required to be filed pursuant to Rule 424(b) to comply with
the 1933 Act, the Company promptly will advise you thereof and will
promptly prepare and file with the Commission an amendment or supplement
which will correct such statement or omission or an amendment which will
effect such compliance; and, in case any Underwriter is required to deliver
a prospectus nine months or more after the effective date of the
Registration Statement, the Company upon request, but at the expense of
such Underwriter, will prepare promptly such prospectus or prospectuses as
may be necessary to permit compliance with the requirements of Section
10(a)(3) of the 1933 Act.
(e) Neither the Company nor any of its subsidiaries will, prior to
the earlier of the Second Closing Date or termination or expiration of the
related option, incur any liability or obligation, direct or contingent, or
enter into any material transaction, other than in the ordinary course of
business, except as contemplated by the Prospectus.
(f) Neither the Company nor any of its subsidiaries will acquire any
capital stock of the Company prior to the earlier of the Second Closing
Date or termination or expiration of the related option nor will the
Company declare or pay any dividend or make any other distribution upon the
Common Stock payable to stockholders of record on a date prior to the
earlier of the Second Closing Date or termination or expiration of the
related option, except in either case as contemplated by the Prospectus.
(g) Not later than February 15, 1999 the Company will make generally
available to its security holders an earnings statement (which need not be
audited) covering a period of at least 12 months beginning after the
effective date of the Registration Statement, which will satisfy the
provisions of the last paragraph of Section 11(a) of the 1933 Act.
(h) During such period as a prospectus is required by law to be
delivered in connection with offers and sales of the Shares by an
Underwriter or dealer, the Company will furnish to you at its expense,
subject to the provisions of subsection (d) hereof, copies of the
Registration Statement, the Prospectus, each preliminary prospectus, the
Incorporated Documents and all amendments and supplements to any such
documents in each case as soon as available and in such quantities as you
may reasonably request, for the purposes contemplated by the 1933 Act.
(i) The Company will cooperate with the Underwriters in qualifying or
registering the Shares for sale under the blue sky laws of such
jurisdictions as you
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<PAGE>
designate, and will continue such qualifications in effect so long as
reasonably required for the distribution of the Shares. The Company shall
not be required to qualify as a foreign corporation or to file a general
consent to service of process in any such jurisdiction where it is not
currently qualified or where it would be subject to taxation as a foreign
corporation.
(j) During the period of five years hereafter, the Company will
furnish you and each of the other Underwriters with a copy (i) as soon as
practicable after the filing thereof, of each report filed by the Company
with the Commission, any securities exchange or the NASD; (ii) as soon as
practicable after the release thereof, of each material press release in
respect of the Company; and (iii) as soon as available, of each report of
the Company mailed to stockholders.
(k) The Company will use the net proceeds received by it from the
sale of the Shares being sold by it in the manner specified in the
Prospectus.
(l) If, at the time of effectiveness of the Registration Statement,
any information shall have been omitted therefrom in reliance upon Rule
430A and/or Rule 434, then immediately following the execution of the
Pricing Agreement, the Company will prepare, and file or transmit for
filing with the Commission in accordance with such Rule 430A, Rule 424(b)
and/or Rule 434, copies of an amended Prospectus, or, if required by such
Rule 430A and/or Rule 434, a post-effective amendment to the Registration
Statement (including an amended Prospectus), containing all information so
omitted. If required, the Company will prepare and file, or transmit for
filing, a Rule 462(b) Registration Statement not later than the date of the
execution of the Pricing Agreement. If a Rule 462(b) Registration
Statement is filed, the Company shall make payment of, or arrange for
payment of, the additional registration fee owing to the Commission
required by Rule 111.
(m) The Company will comply with all registration, filing and
reporting requirements of the Exchange Act and the American Stock Exchange.
Section 6. Payment of Expenses. Whether or not the transactions
contemplated hereunder are consummated or this Agreement becomes effective as
to all of its provisions or is terminated, the Company agrees to pay (i) all
costs, fees and expenses (other than legal fees and disbursements of counsel
for the Underwriters and the expenses incurred by the Underwriters, except as
may otherwise be specified herein) incurred in connection with the
performance of the Company's obligations hereunder, including without
limiting the generality of the foregoing, all fees and expenses of legal
counsel for the Company and of the Company's independent accountants, all
costs and expenses incurred in connection with the preparation, printing,
filing and distribution of the Registration Statement, each preliminary
prospectus and the Prospectus (including all Incorporated Documents, exhibits
and financial statements) and all amendments and supplements provided for
herein, this Agreement, the Pricing Agreement and the Blue Sky Memorandum,
(ii) all costs, fees and expenses (including legal fees not to exceed $2,000
and disbursements of counsel for the Underwriters) incurred by the
Underwriters in connection with qualifying or registering all
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<PAGE>
or any part of the Shares for offer and sale under blue sky laws, including
the preparation of a blue sky memorandum relating to the Shares and clearance
of such offering with the NASD; (iii) all fees and expenses of the Company's
transfer agent, printing of the certificates for the Shares and all transfer
taxes, if any, with respect to the sale and delivery of the Shares to the
several Underwriters; and (iv) a non-accountable expense allowance of $50,000
to the Representative.
Section 7. Conditions of the Obligations of the Underwriters. The
obligations of the several Underwriters to purchase and pay for the Firm
Shares on the First Closing Date and the Option Shares on the Second Closing
Date shall be subject to the accuracy of the representations and warranties
on the part of the Company herein set forth as of the date hereof and as of
the First Closing Date or the Second Closing Date, as the case may be, to the
accuracy of the statements of officers of the Company made pursuant to the
provisions hereof, to the performance by the Company of its obligations
hereunder, and to the following additional conditions:
(a) The Registration Statement shall have become effective either
prior to the execution of this Agreement or not later than 1:00 P.M.,
[Chicago] Time, on the first full business day after the date of this
Agreement, or such later time as shall have been consented to by you but in
no event later than 1:00 P.M., [Chicago] Time, on the third full business
day following the date hereof; and prior to the First Closing Date or the
Second Closing Date, as the case may be, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or shall be pending
or, to the knowledge of the Company or you, shall be contemplated by the
Commission. If the Company has elected to rely upon Rule 430A and/or Rule
434, the information concerning the initial public offering price of the
Shares and price-related information shall have been transmitted to the
Commission for filing pursuant to Rule 424(b) within the prescribed period
and the Company will provide evidence satisfactory to the Representative of
such timely filing (or a post-effective amendment providing such
information shall have been filed and declared effective in accordance with
the requirements of Rules 430A and 424(b)). If a Rule 462(b) Registration
Statement is required, such Registration Statement shall have been
transmitted to the Commission for filing and become effective within the
prescribed time period and, prior to the First Closing Date, the Company
shall have provided evidence of such filing and effectiveness in accordance
with Rule 462(b).
(b) The Shares shall have been qualified for sale under the blue sky
laws of such states as shall have been specified by the Representative.
(c) The legality and sufficiency of the authorization, issuance and
sale or transfer and sale of the Shares hereunder, the validity and form of
the certificates representing the Shares, the execution and delivery of
this Agreement and the Pricing Agreement, and all corporate proceedings and
other legal matters incident thereto, and the form of the Registration
Statement and the Prospectus (except financial
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<PAGE>
statements) shall have been approved by counsel for the Underwriters
exercising reasonable judgment.
(d) You shall not have advised the Company that the Registration
Statement or the Prospectus or any amendment or supplement thereto,
contains an untrue statement of fact, which, in the opinion of counsel for
the Underwriters, is material or omits to state a fact which, in the
opinion of such counsel, is material and is required to be stated therein
or necessary to make the statements therein not misleading.
(e) Subsequent to the execution and delivery of this Agreement, there
shall not have occurred any change, or any development involving a
prospective change, in or affecting particularly the business or properties
of the Company or its subsidiary, whether or not arising in the ordinary
course of business, which, in the judgment of the Representative, makes it
impractical or inadvisable to proceed with the public offering or purchase
of the Shares as contemplated hereby.
(f) There shall have been furnished to you, as Representative of the
Underwriters, on the First Closing Date or the Second Closing Date, as the
case may be, except as otherwise expressly provided below:
(i) An opinion of Rich, May, Bilodeau & Flaherty, P.C., counsel
for the Company addressed to the Underwriters and dated the First
Closing Date or the Second Closing Date, as the case may be, to the
effect that:
(1) the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
Commonwealth of Massachusetts with corporate power and authority
to own its properties and conduct its business as described in
the Prospectus; and the Company has been duly qualified to do
business as a foreign corporation under the corporation law of,
and is in good standing as such in, every jurisdiction where the
ownership or leasing of property, or the conduct of its business
requires such qualification except where the failure so to
qualify would not have a material adverse effect upon the
condition (financial or otherwise) or results of operations of
the Company and its subsidiary taken as a whole;
(2) an opinion to the same general effect as clause (1) of
this subparagraph (i) in respect of the subsidiary of the
Company;
(3) all of the issued and outstanding capital stock of the
subsidiary of the Company has been duly authorized, validly
issued and is fully paid and nonassessable, and, except as
disclosed in the Registration Statement, the Company owns
directly 100 percent of the outstanding capital stock of its
subsidiary, and to the best knowledge of such counsel, such stock
is owned free and clear of any claims, liens, encumbrances or
security interests;
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<PAGE>
(4) the authorized capital stock of the Company, of which
there is outstanding the amount set forth in the Registration
Statement and Prospectus (except for subsequent issuances, if
any, pursuant to stock options or other rights referred to in the
Prospectus), conforms as to legal matters in all material
respects to the description thereof in the Registration Statement
and Prospectus;
(5) the issued and outstanding capital stock of the Company
has been duly authorized and validly issued and is fully paid and
nonassessable;
(6) the certificates for the Shares to be delivered
hereunder are in due and proper form, and when duly countersigned
by the Company's transfer agent and delivered to you or upon your
order against payment of the agreed consideration therefor in
accordance with the provisions of this Agreement and the Pricing
Agreement, the Shares represented thereby will be duly authorized
and validly issued, fully paid and nonassessable;
(7) the Registration Statement has become effective under
the 1933 Act, and, to the best knowledge of such counsel, no stop
order suspending the effectiveness of the Registration Statement
has been issued and no proceedings for that purpose have been
instituted or are pending or contemplated under the 1933 Act, and
the Registration Statement (including the information deemed to
be part of the Registration Statement at the time of
effectiveness pursuant to Rule 430A(b) and/or Rule 434, if
applicable), the Prospectus and each amendment or supplement
thereto (except for the financial statements and other
statistical or financial data included therein as to which such
counsel need express no opinion) comply as to form in all
material respects with the requirements of the 1933 Act; such
counsel have no reason to believe that either the Registration
Statement (including the information deemed to be part of the
Registration Statement at the time of effectiveness pursuant to
Rule 430A(b) and/or Rule 434, if applicable) or the Prospectus,
or the Registration Statement or the Prospectus as amended or
supplemented (except as aforesaid), as of their respective
effective or issue dates, contained any untrue statement of a
material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading or that the Prospectus as amended or supplemented, if
applicable, as of the First Closing Date or the Second Closing
Date, as the case may be, contained any untrue statement of a
material fact or omitted to state any material fact necessary to
make the statements therein not misleading in light of the
circumstances under which they were made; the statements in the
Registration Statement and the Prospectus summarizing statutes,
rules and regulations are accurate and fairly and correctly
present the information required to be presented
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<PAGE>
by the 1933 Act or the rules and regulations thereunder, in all
material respects and such counsel does not know of any statutes,
rules and regulations required to be described or referred to in
the Registration Statement or the Prospectus that are not
described or referred to therein as required; and such counsel
does not know of any legal or governmental proceedings pending or
threatened required to be described in the Prospectus which are
not described as required, nor of any contracts or documents of a
character required to be described in the Registration Statement
or Prospectus or to be filed as exhibits to the Registration
Statement which are not described or filed, as required;
(8) the statements under the caption "Description of
Capital Stock" in the Prospectus, insofar as such statements
constitute a summary of documents referred to therein or matters
of law, are accurate summaries and fairly and correctly present,
in all material respects, the information called for with respect
to such documents and matters;
(9) this Agreement and the Pricing Agreement and the
performance of the Company's obligations hereunder have been duly
authorized by all necessary corporate action and this Agreement
and the Pricing Agreement have been duly executed and delivered
by and on behalf of the Company, and are legal, valid, and
binding agreements of the Company, enforceable in accordance with
their respective terms, except as enforceability of the same may
be limited by bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting creditors' rights and by the
exercise of judicial discretion in accordance with general
principles applicable to equitable and similar remedies and
except as to those provisions relating to indemnities for
liabilities arising under the 1933 Act as to which no opinion
need be expressed; and, except for the approval of the
Massachusetts Department of Public Utilities, no approval,
authorization or consent of any public board, agency, or
instrumentality of the United States or of any state or other
jurisdiction is necessary in connection with the issue or sale of
the Shares pursuant to this Agreement (other than under the 1933
Act, applicable blue sky laws and the rules of the NASD) or the
consummation by the Company of any other transactions
contemplated hereby;
(10) the execution and performance of this Agreement will
not contravene any of the provisions of, or result in a default
under, any agreement, franchise, license, indenture, mortgage,
deed of trust, or other instrument known to such counsel, of the
Company or its subsidiary or by which the property of any of them
is bound and which contravention or default would be material to
the Company and its subsidiary taken as a whole; or violate any
of the provisions of the charter or bylaws of the Company or any
of its subsidiaries or, so far as is known to such counsel,
violate any statute, order, rule or regulation of
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any regulatory or governmental body having jurisdiction over the
Company or any of its subsidiary;
(11) all documents incorporated by reference in the
Prospectus, when they were filed with the Commission, complied as
to form in all material respects with the requirements of the
Exchange Act; and such counsel have no reason to believe that any
of such documents, when they were so filed, contained an untrue
statement of a material fact or omitted to state a material fact
necessary in order to make the statements therein, in the light
of the circumstances under which they were made when such
documents were so filed, not misleading; such counsel need
express no opinion as to the financial statements or other
financial or statistical data contained in any such document;
(12) to such counsel's knowledge, all offers and sales of
the Company's capital stock since September 30, 1992 were at all
relevant times exempt from the registration requirements of the
1933 Act or were duly registered in accordance therewith and were
duly registered or the subject of an available exemption from the
registration requirements of the applicable state securities or
blue sky laws;
(13) The Company is not an "investment company" or a person
"controlled by" an "investment company" within the meaning of the
Investment Company Act.
(14) The Company is not a "holding company" or a "subsidiary
company" of a "public utility company" or of a "holding company"
or an "affiliate" of a "holding company" or of a "subsidiary
company" of a "holding company" as such terms are defined in the
Holding Company Act.
(15) An authorizing order has been issued by the
Massachusetts Department of Public Utilities authorizing the
issuance and sale of the Shares, and to the best of such
counsel's knowledge, said order is in full force and effect and
final and non-appealable; and no further authorization, approval,
consent or order of any governmental authority or agency is
legally required in connection with the authorization, issuance
and sale of the Shares by the Company pursuant to this Agreement
(other than qualification under state securities laws, Blue Sky
laws or the by-laws and rules of the NASD).
(16) The Company has valid and sufficient grants,
franchises, miscellaneous permits and easements free from unduly
burdensome restrictions, adequate for the conduct of its business
in the territories in which it is now conducting such business
and the ownership of the properties now owned by it.
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<PAGE>
In rendering such opinion, such counsel may state that they are
relying upon the certificate of State Street Bank and Trust Company,
the transfer agent for the Common Stock, as to the number of shares of
Common Stock at any time or times outstanding, and that insofar as
their opinion under clause (7) above relates to the accuracy and
completeness of the Prospectus and Registration Statement, it is based
upon a general review with the Company's Representative and
independent accountants of the information contained therein, without
independent verification by such counsel of the accuracy or
completeness of such information. Such counsel may also rely upon the
opinions of other competent counsel and, as to factual matters, on
certificates of officers of the Company and of state officials, in
which case their opinion is to state that they are so doing and copies
of said opinions or certificates are to be attached to the opinion
unless said opinions or certificates (or, in the case of certificates,
the information therein) have been furnished to the Representative in
other form.
(ii) Such opinion or opinions of Chapman and Cutler, counsel for
the Underwriters, dated the First Closing Date or the Second Closing
Date, as the case may be, with respect to the incorporation of the
Company, the validity of the Shares, the Registration Statement and
the Prospectus and other related matters as you may reasonably
require, and the Company shall have furnished to such counsel such
documents and shall have exhibited to them such papers and records as
they request for the purpose of enabling them to pass upon such
matters.
(iii) A certificate of the chief executive officer and the
principal financial officer of the Company, dated the First Closing
Date or the Second Closing Date, as the case may be, to the effect
that:
(1) the representations and warranties of the Company set
forth in Section 2 of this Agreement are true and correct as of
the date of this Agreement and as of the First Closing Date or
the Second Closing Date, as the case may be, and the Company has
complied with all the agreements and satisfied all the conditions
on its part to be performed or satisfied at or prior to such
Closing Date; and
(2) the Commission has not issued an order preventing or
suspending the use of the Prospectus or any preliminary
prospectus filed as a part of the Registration Statement or any
amendment thereto; no stop order suspending the effectiveness of
the Registration Statement has been issued; and to the best
knowledge of the respective signers, no proceedings for that
purpose have been instituted or are pending or contemplated under
the 1933 Act.
The delivery of the certificate provided for in this subparagraph
shall be and constitute a representation and warranty of the Company
as to the facts
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<PAGE>
required in the immediately foregoing clauses (1) and (2) of this
subparagraph to be set forth in said certificate.
(iv) At the time the Pricing Agreement is executed and also
on the First Closing Date or the Second Closing Date, as the case
may be, there shall be delivered to you a letter addressed to
you, as Representative of the Underwriters, from Arthur Andersen
LLP, independent accountants, the first one to be dated the date
of the Pricing Agreement, the second one to be dated the First
Closing Date and the third one (in the event of a second closing)
to be dated the Second Closing Date, to the effect set forth in
Schedule B. There shall not have been any change or decrease
specified in the letters referred to in this subparagraph which
makes it impractical or inadvisable in the judgment of the
Representative to proceed with the public offering or purchase of
the Shares as contemplated hereby.
(v) On or prior to the First Closing Date, the
Representative shall have received the executed agreements
referred to in Section 2(p).
(vi) Such further certificates and documents as you may
reasonably request.
All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are satisfactory to you
and to Chapman and Cutler, counsel for the Underwriters, which approval shall
not be unreasonably withheld. The Company shall furnish you with such
manually signed or conformed copies of such opinions, certificates, letters
and documents as you request.
If any condition to the Underwriters' obligations hereunder to be
satisfied prior to or at the First Closing Date is not so satisfied, this
Agreement at your election will terminate upon notification to the Company
without liability on the part of any Underwriter or the Company, except for
the expenses to be paid or reimbursed by the Company pursuant to Sections 6
and 8 hereof and except to the extent provided in Section 10 hereof.
Section 8. Reimbursement of Underwriters' Expenses. If the sale to
the Underwriters of the Shares on the First Closing Date is not consummated
because any condition of the Underwriters' obligations hereunder is not
satisfied or because of any refusal, inability or failure on the part of the
Company to perform any agreement herein or to comply with any provision
hereof, unless such failure to satisfy such condition or to comply with any
provision hereof is due to the default or omission of any Underwriter, the
Company agrees to reimburse you and the other Underwriters upon demand for
all out-of-pocket expenses (including reasonable fees and disbursements of
counsel) that shall have been reasonably incurred by you and them in
connection with the proposed purchase and the sale of the Shares. Any such
termination shall be without liability of any party to any other party except
that the provisions of this Section, Section 6 and Section 10 shall at all
times be effective and shall apply.
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<PAGE>
Section 9. Effectiveness of Registration Statement. You and the
Company will use your and its best efforts to cause the Registration
Statement to become effective, if it has not yet become effective, and to
prevent the issuance of any stop order suspending the effectiveness of the
Registration Statement and, if such stop order be issued, to obtain as soon
as possible the lifting thereof.
Section 10. Indemnification. (a) The Company agrees to indemnify and
hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of the 1933 Act or the Exchange Act against
any losses, claims, damages or liabilities, joint or several, to which such
Underwriter or such controlling person may become subject under the 1933 Act,
the Exchange Act or other federal or state statutory law or regulation, at
common law or otherwise (including in settlement of any litigation if such
settlement is effected with the written consent of the Company, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement,
including the information deemed to be part of the Registration Statement at
the time of effectiveness pursuant to Rule 430A and/or Rule 434, if
applicable, any preliminary prospectus, the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; and will reimburse
each Underwriter and each such controlling person for any legal or other
expenses reasonably incurred by such Underwriter or such controlling person
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will not be liable
in any such case to the extent that (i) any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in the Registration
Statement, any preliminary prospectus, the Prospectus or any amendment or
supplement thereto in reliance upon and in conformity with written
information furnished to the Company by or on behalf of any Underwriter
through the Representative, specifically for use therein; or (ii) if such
statement or omission was contained or made in any preliminary prospectus and
corrected in the Prospectus and (1) any such loss, claim, damage or liability
suffered or incurred by any Underwriter (or any person who controls any
Underwriter) resulted from an action, claim or suit by any person who
purchased Shares which are the subject thereof from such Underwriter in the
offering and (2) such Underwriter failed to deliver or provide a copy of the
Prospectus to such person at or prior to the confirmation of the sale of such
Shares in any case where such delivery is required by the 1933 Act. In
addition to its other obligations under this Section 10(a), the Company
agrees that, as an interim measure during the pendency of any claim, action,
investigation, inquiry or other proceeding arising out of or based upon any
statement or omission, or any alleged statement or omission, described in
this Section 10(a), it will reimburse the Underwriters on a monthly basis for
all reasonable legal and other expenses incurred in connection with
investigating or defending any such claim, action, investigation, inquiry or
other proceeding, notwithstanding the absence of a judicial determination as
to the propriety and enforceability of the Company's obligation to reimburse
the Underwriters for such expenses and the possibility that such payments
might later be held to have been improper by
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<PAGE>
a court of competent jurisdiction. This indemnity agreement will be in
addition to any liability which the Company may otherwise have.
(b) Each Underwriter will severally indemnify and hold harmless the
Company, each of its directors, each of its officers who signed the
Registration Statement and each person, if any, who controls the Company
within the meaning of the 1933 Act or the Exchange Act, against any losses,
claims, damages or liabilities to which the Company, or any such director,
officer or controlling person may become subject under the 1933 Act, the
Exchange Act or other federal or state statutory law or regulation, at common
law or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of such Underwriter), insofar
as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue or alleged untrue
statement of any material fact contained in the Registration Statement, any
preliminary prospectus, the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission
to state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, in each case to the extent,
but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Registration
Statement, any preliminary prospectus, the Prospectus, or any amendment or
supplement thereto in reliance upon and in conformity with Section 3 of this
Agreement or any other written information furnished to the Company by such
Underwriter through the Representative specifically for use in the
preparation thereof; and will reimburse any legal or other expenses
reasonably incurred by the Company, or any such director, officer or
controlling person in connection with investigating or defending any such
loss, claim, damage, liability or action. In addition to their other
obligations under this Section 10(b), the Underwriters agree that, as an
interim measure during the pendency of any claim, action, investigation,
inquiry or other proceeding arising out of or based upon any statement or
omission, or any alleged statement or omission, described in this Section
10(b), they will reimburse the Company on a monthly basis for all reasonable
legal and other expenses incurred in connection with investigating or
defending any such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety
and enforceability of the Underwriters' obligation to reimburse the Company
for such expenses and the possibility that such payments might later be held
to have been improper by a court of competent jurisdiction. This indemnity
agreement will be in addition to any liability which such Underwriter may
otherwise have.
(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party under
this Section, notify the indemnifying party of the commencement thereof; but
the omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party except to the extent
that the indemnifying party was prejudiced by such failure to notify. In
case any such action is brought against any indemnified party, and it
notifies an indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate in, and, to the extent that it may
wish, jointly with all other indemnifying parties similarly notified, to
assume the defense thereof, with counsel satisfactory to such indemnified
party; provided,
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<PAGE>
however, if the defendants in any such action include both the indemnified
party and the indemnifying party and the indemnified party shall have
reasonably concluded that there may be legal defenses available to it and/or
other indemnified parties which are different from or additional to those
available to the indemnifying party, or the indemnified and indemnifying
parties may have conflicting interests which would make it inappropriate for
the same counsel to represent both of them, the indemnified party or parties
shall have the right to select separate counsel to assume such legal defense
and otherwise to participate in the defense of such action on behalf of such
indemnified party or parties. Upon receipt of notice from the indemnifying
party to such indemnified party of its election so to assume the defense of
such action and approval by the indemnified party of counsel, the
indemnifying party will not be liable to such indemnified party under this
Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed such counsel in connection with the
assumption of legal defense in accordance with the proviso to the next
preceding sentence (it being understood, however, that the indemnifying party
shall not be liable for the expenses of more than one separate counsel,
approved by the Representative in the case of paragraph (a) representing all
indemnified parties not having different or additional defenses or potential
conflicting interest among themselves who are parties to such action), (ii)
the indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable time
after notice of commencement of the action or (iii) the indemnifying party
has authorized the employment of counsel for the indemnified party at the
expense of the indemnifying party. No indemnifying party shall, without the
prior written consent of the indemnified party, effect any settlement of any
pending or threatened proceeding in respect of which any indemnified party is
or could have been a party and indemnity could have been sought hereunder by
such indemnified party, unless such settlement includes an unconditional
release of such indemnified party from all liability arising out of such
proceeding.
(d) If the indemnification provided for in this Section is unavailable
to an indemnified party under paragraphs (a) or (b) hereof in respect of any
losses, claims, damages or liabilities referred to therein, then each
applicable indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages or liabilities (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Underwriters from the offering of the Shares or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of the
Company and the Underwriters in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities, as well as any
other relevant equitable considerations. The respective relative benefits
received by the Company and the Underwriters
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<PAGE>
shall be deemed to be in the same proportion in the case of the Company as
the total price paid to the Company for the Shares by the Underwriters (net
of underwriting discount but before deducting expenses), and in the case of
the Underwriters as the underwriting discount received by them bears to the
total of such amounts paid to the Company and received by the Underwriters as
underwriting discount in each case as contemplated by the Prospectus. The
relative fault of the Company and the Underwriters shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact relates
to information supplied by the Company or by the Underwriters and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The amount paid or payable by
a party as a result of the losses, claims, damages and liabilities referred
to above shall be deemed to include any legal or other fees or expenses
reasonably incurred by such party in connection with investigating or
defending any action or claim.
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section were determined by pro
rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately
preceding paragraph. Notwithstanding the provisions of this Section, no
Underwriter shall be required to contribute any amount in excess of the
amount by which the total price at which the Shares underwritten by it and
distributed to the public were offered to the public exceeds the amount of
any damages which such Underwriter has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations to contribute pursuant to this Section are several
in proportion to their respective underwriting commitments and not joint.
(e) The provisions of this Section shall survive any termination of this
Agreement.
Section 11. Default of Underwriters. It shall be a condition to the
agreement and obligation of the Company to sell and deliver the Shares
hereunder, and of each Underwriter to purchase the Shares hereunder, that,
except as hereinafter in this paragraph provided, each of the Underwriters
shall purchase and pay for all Shares agreed to be purchased by such
Underwriter hereunder upon tender to the Representative of all such Shares in
accordance with the terms hereof. If any Underwriter or Underwriters default
in their obligations to purchase Shares hereunder on the First Closing Date
and the aggregate number of Shares which such defaulting Underwriter or
Underwriters agreed but failed to purchase does not exceed 10 percent of the
total number of Shares which the Underwriters are obligated to purchase on
the First Closing Date, the Representative may make arrangements satisfactory
to the Company for the purchase of such Shares by other persons, including
any of the Underwriters, but if no such arrangements are made by such date
the nondefaulting Underwriters shall be obligated severally, in proportion to
their respective commitments hereunder, to purchase the Shares which such
defaulting Underwriters agreed but failed to purchase on such date. If any
Underwriter or Underwriters so default and the aggregate number of Shares
with respect to which such default or defaults occur is more than the above
percentage and arrangements satisfactory to the Representative and the
Company for the purchase of such Shares by other persons are not made within
36 hours after such default, this Agreement will terminate without liability
on the part of any nondefaulting Underwriter or the Company, except for the
expenses to be paid by the
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<PAGE>
Company pursuant to Section 6 hereof and except to the extent provided in
Section 10 hereof.
In the event that Shares to which a default relates are to be purchased
by the nondefaulting Underwriters or by another party or parties, the
Representative or the Company shall have the right to postpone the First
Closing Date for not more than seven business days in order that the
necessary changes in the Registration Statement, Prospectus and any other
documents, as well as any other arrangements, may be effected. As used in
this Agreement, the term "Underwriter" includes any person substituted for an
Underwriter under this Section. Nothing herein will relieve a defaulting
Underwriter from liability for its default.
Section 12. Effective Date. This Agreement shall become effective
immediately as to Sections 6, 8, 10 and 13 and as to all other provisions at
10:00 A.M., [Chicago] Time, on the day following the date upon which the
Pricing Agreement is executed and delivered, unless such a day is a Saturday,
Sunday or holiday (and in that event this Agreement shall become effective at
such hour on the business day next succeeding such Saturday, Sunday or
holiday); but this Agreement shall nevertheless become effective at such
earlier time after the Pricing Agreement is executed and delivered as you may
determine on and by notice to the Company or by release of any Shares for
sale to the public. For the purposes of this Section, the Shares shall be
deemed to have been so released upon the release for publication of any
newspaper advertisement relating to the Shares or upon the release by you of
telegrams (i) advising Underwriters that the Shares are released for public
offering, or (ii) offering the Shares for sale to securities dealers,
whichever may occur first.
Section 13. Termination. Without limiting the right to terminate this
Agreement pursuant to any other provision hereof:
(a) This Agreement may be terminated by the Company by notice to you
or by you by notice to the Company at any time prior to the time this
Agreement shall become effective as to all its provisions, and any such
termination shall be without liability on the part of the Company to any
Underwriter (except for the expenses to be paid or reimbursed pursuant to
Section 6 hereof and except to the extent provided in Section 10 hereof) or
of any Underwriter to the Company.
(b) This Agreement may also be terminated by you prior to the First
Closing Date, and the option referred to in Section 4, if exercised, may be
cancelled at any time prior to the Second Closing Date, if (i) trading in
securities on the New York Stock Exchange or American Stock Exchange shall
have been suspended or minimum prices shall have been established on either
such exchange, or (ii) a banking moratorium shall have been declared by
Massachusetts, New York, or United States authorities, or (iii) there shall
have been any change in financial markets or in political, economic or
financial conditions which, in the opinion of the Representative, either
renders it impracticable or inadvisable to proceed with the offering and
sale of the Shares on the terms set forth in the Prospectus or materially
and adversely affects the market for the Shares, or (iv) there shall have
been an outbreak of major armed
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<PAGE>
hostilities between the United States and any foreign power which in the
opinion of the Representative makes it impractical or inadvisable to offer
or sell the Shares. Any termination pursuant to this paragraph (b) shall
be without liability on the part of any Underwriter to the Company or on
the part of the Company to any Underwriter (except for expenses to be paid
or reimbursed pursuant to Section 6 hereof and except to the extent
provided in Section 10 hereof).
Section 14. Representations and Indemnities to Survive Delivery. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers and of the several Underwriters
set forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of any
Underwriter or the Company or any of its or their partners, principals,
members, officers or directors or any controlling person, as the case may be,
and will survive delivery of and payment for the Shares sold hereunder.
Section 15. Notices. All communications hereunder will be in writing
and, if sent to the Underwriters will be mailed, delivered or telegraphed and
confirmed to you c/o First Albany Corporation, 53 State Street, Boston,
Massachusetts 02109, Attn: Corporate Finance Department, with a copy to
Jonathan A. Koff, Chapman and Cutler, 111 West Monroe, Chicago, Illinois
60603; and if sent to the Company will be mailed, delivered or telegraphed
and confirmed to the Company at its corporate headquarters with a copy to
Eric J. Krathwohl, Rich, May, Bilodeau & Flaherty, P.C., 294 Washington
Street, Boston, Massachusetts 02108.
Section 16. Successors. This Agreement and the Pricing Agreement will
inure to the benefit of and be binding upon the parties hereto and their
respective successors, personal Representative and assigns, and to the
benefit of the officers and directors and controlling persons referred to in
Section 10, and no other person will have any right or obligation hereunder.
The term "successors" shall not include any purchaser of the Shares as such
from any of the Underwriters merely by reason of such purchase.
Section 17. Representation of Underwriters. You will act as
Representative for the several Underwriters in connection with this
financing, and any action under or in respect of this Agreement taken by you
will be binding upon all the Underwriters.
Section 18. Partial Unenforceability. If any section, paragraph or
provision of this Agreement is for any reason determined to be invalid or
unenforceable, such determination shall not affect the validity or
enforceability of any other section, paragraph or provision hereof.
Section 19. Applicable Law. This Agreement and the Pricing Agreement
shall be governed by and construed in accordance with the laws of the
Commonwealth of Massachusetts.
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding
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<PAGE>
agreement among the Company and the several Underwriters including you, all
in accordance with its terms.
Very truly yours,
Fall River Gas Company
By
-------------------------------------
President and Chief Executive Officer
The foregoing Agreement is hereby
confirmed and accepted as of the date first
above written.
First Albany Corporation
Acting as Representative of the several
Underwriters named in Schedule A.
By First Albany Corporation
By
------------------------------------------
Principal
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<PAGE>
Schedule A
Number of Firm
Shares to be
Underwriter Purchased
- ----------- ---------
First Albany Corporation...................................
-------------
Total........................................ 340,000
<PAGE>
Schedule B
Comfort Letter of Arthur Andersen LLP
(1) They are independent public accountants with respect to the Company
and its subsidiary within the meaning of the 1933 Act.
(2) In their opinion the consolidated financial statements of the
Company and its subsidiary included or incorporated by reference in the
Registration Statement and the consolidated financial statements of the
Company from which the information presented under the caption "Selected
Financial Data" has been derived which are stated therein to have been
examined by them comply as to form in all material respects with the
applicable accounting requirements of the 1933 Act and the Exchange Act.
(3) On the basis of specified procedures (but not an examination in
accordance with generally accepted auditing standards), including inquiries
of certain officers of the Company and its subsidiary responsible for
financial and accounting matters as to transactions and events subsequent to
September 30, 1996, a reading of minutes of meetings of the stockholders and
directors of the Company and its subsidiary since September 30, 1996, a
reading of the latest available interim unaudited consolidated financial
statements of the Company and its subsidiaries (with an indication of the
date thereof) and other procedures as specified in such letter, nothing came
to their attention which caused them to believe that (i) the unaudited
consolidated financial statements of the Company and its subsidiary included
or incorporated by reference in the Registration Statement do not comply as
to form in all material respects with the applicable accounting requirements
of the 1933 Act and the Exchange Act or that such unaudited financial
statements are not fairly presented in accordance with generally accepted
accounting principles applied on a basis substantially consistent with that
of the audited financial statements included in the Registration Statement,
and (ii) at a specified date not more than five days prior to the date
thereof in the case of the first letter and not more than two business days
prior to the date thereof in the case of the second and third letters, there
was any change in the capital stock or long-term debt or short-term debt
(other than normal payments) of the Company and its subsidiary on a
consolidated basis or any decrease in consolidated net current assets or
consolidated stockholders' equity as compared with amounts shown on the
latest unaudited balance sheet of the Company included in the Registration
Statement or for the period from the date of such balance sheet to a date not
more than five days prior to the date thereof in the case of the first letter
and not more than two business days prior to the date thereof in the case of
the second and third letters, there were any decreases, as compared with the
corresponding period of the prior year, in consolidated gas operating
revenues, consolidated income before income taxes or in the total or per
share amounts of consolidated net income except, in all instances, for
changes or decreases which the Prospectus discloses have occurred or may
occur or which are set forth in such letter.
<PAGE>
(4) They have carried out specified procedures, which have been agreed
to by the Representative, with respect to certain information in the
Prospectus specified by the Representative, and on the basis of such
procedures, they have found such information to be in agreement with the
general accounting records of the Company and its subsidiaries.
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<PAGE>
Exhibit A
FALL RIVER GAS COMPANY
340,000 Shares Common Stock (*)
PRICING AGREEMENT
, 1997
-----------
First Albany Corporation
As Representative of the Several
Underwriters Named in Schedule A
c/o First Albany Corporation
Corporate Finance Department
53 State Street
Boston, Massachusetts 02109
Ladies and Gentlemen:
Reference is made to the Underwriting Agreement dated ____________, 1997
(the "Underwriting Agreement") relating to the sale by the Company and the
purchase by the several Underwriters for whom First Albany Corporation is
acting as representative (the "Representative"), of the above Shares. All
terms herein shall have the definitions contained in the Underwriting
Agreement except as otherwise defined herein.
Pursuant to Section 4 of the Underwriting Agreement, the Company agrees
with the Representative as follows:
1. The initial public offering price per share for the Shares shall be
$__________.
2. The purchase price per share for the Shares to be paid by the
several Underwriters shall be $__________, being an amount equal to the
initial public offering price set forth above less $__________ per share.
- ----------------------
(*)Plus an option to acquire up to 51,000 additional shares to cover
overallotments.
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Schedule A is amended as follows:
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company and the
several Underwriters, including you, all in accordance with its terms.
Very truly yours,
Fall River Gas Company
By
-------------------------------------
President and Chief Executive Officer
The foregoing Agreement is hereby
confirmed and accepted as of the date first
above written.
First Albany Corporation
Acting as Representative of the several
Underwriters.
By First Albany Corporation
By
--------------------------------
Principal
-2-
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Exhibit 5
September 12, 1997
Fall River Gas Company
155 North Main Street
Fall River, MA 02722
Gentlemen:
You are seeking to register an aggregate of 391,000 shares of Common stock,
$0.83 1/3 par value, of Fall River Gas Company (the "Company") under the
Securities Act of 1933, as amended. You have requested that we furnish to you
an opinion which is to be filed as Exhibit 5 to the registration Statement on
Form S-2 relating to such securities.
We have examined the Company's charter documents, as amended, the Company's
By-Laws, copies of the votes of the Board of Directors of the Company, the Form
S-2 Registration Statement which you propose to file with the Securities and
Exchange Commission relative to the offering described above, and such other
documents as we deemed pertinent. We have made such examination of law as we
have felt necessary in order to render this opinion.
It is our understanding that the purpose of the above described offering is
to provide the Company with funds to permanently finance additions to the
Company's property, plant and equipment which had been temporarily financed by
means of short-term bank borrowings and the use of internally generated funds.
On the basis of the foregoing, we are of the opinion that:
1. The Company has been duly organized and is validly existing under the
laws of the Commonwealth of Massachusetts.
2. Subject to (i) approval and authorization by the Massachusetts
Department of Public Utilities to issue and sell the shares of Common
Stock described above and subject to (ii) the absence of a timely
appeal of such approval and authorization, the stock being registered
will be legally issued, fully paid and non-assessable when issued and
delivered for the consideration described in the Registration
Statement.
This opinion does not pass on the application of the "Blue Sky" or
securities laws of
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various states.
We hereby consent that this opinion may be filed as an exhibit to the
Registration Statement to be filed by you with the Securities and Exchange
Commission. We further consent to the use of our name and to all references to
us under the caption "Legal Opinions" in the Prospectus forming a part of said
Registration Statement included in or made a part of the Registration Statement.
Very truly yours,
Rich, May, Bilodeau & Flaherty, P.C.
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ATTENTION:
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CONTAINS
PROTECTED MATERIALS
GAS SALES AGREEMENT
between
CNG GAS SERVICES CORPORATION
and
FALL RIVER GAS COMPANY
<PAGE>
TABLE OF CONTENTS
ARTICLE 1
GENERAL REPRESENTATIONS AND WARRANTIES.................................... 1
1.1 Seller's General Representations and Warranties.................. 1
1.2 Buyer's General Representations and Warranties................... 2
ARTICLE 2
DEFINITIONS............................................................... 3
2.1 Definitions...................................................... 3
ARTICLE 3
CHARACTER OF SERVICE...................................................... 9
3.1 Character........................................................ 9
ARTICLE 4
GOVERNMENTAL ACTIONS...................................................... 9
4.1 Applicable Laws, Orders and Regulatons........................... 9
4.2 Prohibition of Performance....................................... 10
4.3 Duties........................................................... 10
4.4 Approval by Massachusetts Department of Public Utilities......... 10
4.5 Disallowance of Passthrough...................................... 11
ARTICLE 5
DELIVERIES AND RECEIPTS................................................... 12
5.1 Deliveries by Seller............................................. 12
5.2 Receipts by Buyer................................................ 12
ARTICLE 6
TITLE TRANSFER POINTS..................................................... 13
6.1 Identification................................................... 13
6.2 Risk of Loss; Indemnification.................................... 13
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ARTICLE 7
TERM...................................................................... 13
7.1 Commencement Date................................................ 13
7.2 Term of Agreement................................................ 14
7.3 Limitation of Seller's Delivery Obligations after Commencement
Date............................................................. 14
ARTICLE 8
PRICING, CREDITING AND REIMBURSEMENTS..................................... 14
8.1 Amounts Payable by Buyer......................................... 14
8.2 Credit by Seller to Buyer's Account.............................. 15
8.3 Taxes............................................................ 16
8.4 Unavailability of Information.................................... 16
8.5 Alternative Commodity Unit Prices................................ 16
ARTICLE 9
QUANTITIES................................................................ 17
9.1 Nominated Quantity and Requested Deliveries...................... 17
9.2 Storage Account.................................................. 18
9.3 Required Notifications........................................... 19
9.4 Annual Adjustment to RQ.......................................... 19
9.5 Other Adjustments................................................ 19
ARTICLE 10
LIMITED DELIVERIES BY TRANSPORTING
PIPELINES AND SELLER SUPPLY ALLOCATION.................................... 20
10.1 Limited Deliveries by Transporting Pipelines..................... 20
10.2 Supply Allocation................................................ 20
10.3 Priority for Certain Quantities.................................. 22
10.4 Buyer Certification; Sanctions................................... 22
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ARTICLE 11
BILLING AND PAYMENT....................................................... 23
11.1 Basis of Billings............................................... 23
11.2 Seller's Statement.............................................. 25
11.3 Buyer's Payment................................................. 25
11.4 Payment Default................................................. 25
11.5 Disputed Charges................................................ 26
11.6 Adjustments..................................................... 27
11.7 Audits.......................................................... 27
11.8 Other Information............................................... 27
ARTICLE 12
PROCESSING AND MEASUREMENT................................................ 27
12.1 Processing...................................................... 27
12.2 Measurements.................................................... 27
ARTICLE 13
TRANSPORTATION............................................................ 28
13.1 Responsibility for Transportation............................... 28
ARTICLE 14
REPRESENTATIONS AND WARRANTIES............................................ 28
14.1 Jurisdictional Status........................................... 28
14.2 Quality and Pressure............................................ 28
14.3 Title........................................................... 29
14.4 Supply.......................................................... 29
ARTICLE 15
FORCE MAJEURE............................................................. 29
15.1 Suspension...................................................... 29
15.2 Definition of Force Majeure.................................... 30
15.3 Exclusion....................................................... 30
15.4 Other Effects................................................... 30
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ARTICLE 16
DAMAGES AND TERMINATION RIGHTS............................................ 31
16.1 Obtaining Alternate Supplies or Markets......................... 31
16.2 Buyer's Damages................................................. 32
16.3 Seller's Damages................................................ 33
16.4 Termination in Event of a Delivery Shortfall by Seller.......... 33
16.5 Effect of Article 16............................................ 34
ARTICLE 17
FINANCIAL RESPONSIBILITY.................................................. 34
17.1 Maintaining Buyer's Financial Responsibility.................... 34
17.2 Bankruptcy of Party............................................. 35
ARTICLE 18
ASSIGNMENT................................................................ 35
18.1 Assignment of the Agreement..................................... 35
ARTICLE 19
COLLATERAL DOCUMENTS...................................................... 36
19.1 Capacity Managment Agreement.................................... 36
19.2 Support Letter.................................................. 36
19.3 Guarantee....................................................... 36
19.4 Buyer's Agreements with Transporters............................. 36
19.5 Seller's Agreements with Transporters............................ 37
ARTICLE 20
TRANSPORTER PENALTIES..................................................... 37
20.1 Responsibility for Penalties.................................... 37
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ARTICLE 21
MISCELLANEOUS..............................................................37
21.1 Choice of Law...................................................37
21.2 Entire Agreement................................................38
21.3 Notices.........................................................38
21.4 Exclusion of Third Party Rights.................................38
21.5 Waiver..........................................................38
21.6 Confidentiality.................................................39
21.7 Refunds and Retroactive Price Adjustments.......................39
21.8 Severability....................................................39
21.9 Amendments and Other Modifications..............................40
21.10 Headings........................................................40
21.11 Arbitration.....................................................40
21.12 Further Assurances..............................................40
21.13 Reserve Auditor's Report........................................40
21.14 Additional Credit by Seller to Buyer's Account..................41
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GAS SALES AGREEMENT
--------------------
THIS AGREEMENT, dated this 1st day of June, 1993, by and between CNG GAS
SERVICES CORPORATION, a Delaware Corporation, hereinafter referred to as
"Seller," and FALL RIVER GAS COMPANY, a Massachusetts Corporation,
hereinafter referred to as "Buyer," each hereinafter referred to sometimes as
"Party" or collectively as "Parties."
WITNESSETH:
WHEREAS, Seller desires to sell natural gas on a firm basis to Buyer
under and as provided by the terms and conditions of this Agreement; and
WHEREAS, Buyer desires to purchase natural gas on a firm basis from
Seller under and provided by the terms and conditions of this Agreement;
WHEREAS, Buyer, as a local distribution company with a public utility
service obligation to provide reliable and affordable Gas service to its
customers, requires a reliable, reasonably priced, firm source of Gas supply;
WHEREAS, Seller, as a merchant acquiring Gas supply for resale, requires
a firm market for such supply;
WHEREAS, Seller has furnished Buyer with a signed Letter from Seller's
parent corporation, Consolidated Natural Gas Company, describing the
organization and ownership of itself, and its subsidiaries, CNG Gas Services
Corporation and CNG Producing Company, as of the date hereof.
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, Seller and Buyer mutually agree and covenant as follows:
ARTICLES 1
GENERAL REPRESENTATIONS AND WARRANTIES
1.1 Seller's General Representations and Warranties:
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Seller makes the following general representations and warranties:
1
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(a) Seller has or will acquire a supply of Gas which Seller desires
to sell and deliver to Buyer on a firm basis;
(b) Seller desires to enter into an agreement for the sale of Gas, as
set forth herein;
(c) Seller (i) holds all necessary corporate authorizations and
(ii) by the execution and delivery of this Agreement will not
violate its Articles of Incorporation or any applicable law or
regulation;
(d) Seller has duly appointed an officer or other agent to act as its
attorney-in-fact to execute this Agreement; and
(e) Seller possesses all required Governmental Authorizations,
and all such Governmental Authorizations are in full force and
effect.
1.2 Buyer's General Representations and Warranties
----------------------------------------------
Buyer makes the following general representations and warranties:
(a) Buyer desires to acquire a firm supply of Gas and to purchase
and receive such supply from Seller on a firm basis;
(b) Buyer desires to enter into an agreement for the purchase of
Gas, as set forth herein;
(c) Buyer (i) holds all necessary corporate authorizations and
(ii) by the execution and delivery of this Agreement will not
violate its Articles of Incorporation or any applicable law or
regulation;
(d) Buyer has duly appointed an officer or other agent to act as
its attorney-in-fact to execute this Agreement; and
(e) Buyer possesses all required Governmental Authorizations,
except for the authorizations identified in Section 4.4, and
all such Governmental Authorizations are in full force and
effect.
2
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ARTICLES 2
DEFINITIONS
2.1 Definitions. The following terms, as used in this Contract, shall have
the meanings set forth below (whether or not such terms are capitalized
herein):
(a) "ABC Group" means the group of local distribution systems in
New England informally organized for the purpose of engaging in joint
negotiations for the purchase of Gas from Seller, and including Colonial
Gas Company, Fall River Gas Company, Town of Middleborough, Massachusetts,
Municipal Gas & Electric Department, and City of Norwich Department of
Public Utilities; provided the existence of such group shall not confer
any legal obligation on Buyer or Seller extending beyond the express
language of this Agreement or restrict the ability of Buyer or Seller to
separately negotiate and enter into mutually agreeable amendments to this
Agreement.
(b) "Alogonquin" means Algonquin Gas Transmission Company, or any
successor entity that may hereafter own or operate its gas transmission
facilities.
(c) "Back-Up Gas" means that supply of gas to be tendered by
Seller into CNG Transmission for redelivery into Texas Eastern under the
conditions specified in Sections 10.1 and 10.2.
(d) "Base Segment Capacity Entitlement" means the quantification
of Buyer's firm right to use Texas Eastern pipeline segments in Zones STX,
ETX, WLA, and ELA respectively, as such quantification may be stated from
time to time as a "Base Segment Capacity Entitlement" in Texas Eastern's
FERC Gas Tariff.
(e) "Billing Quantity" means the monthly quantity of Gas employed
for billing purposes hereunder, as further described in Section 11.1
hereof.
(f) "Btu" means the quantity of heat contained in one British
Thermal Unit, as defined in accordance with tariff and operating procedures
of Transporter. Where appropriate, "Btu's" shall mean the plural of the
aforementioned definition. The term "MMBtu" means one million (1,000,000)
Btu's.
(g) "Capacity Management Agreement" means that certain Capacity
Management Agreement dated as of the date hereof, which agreement further
defines Seller's rights and obligations with respect to Individually-
Certificated Capacity Rights and Unbundled Capacity Rights.
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(h) "City Gate" means that point on the Algonquin system that
interconnects with Buyer's local distribution facilities and at which
Algonquin delivers and transfers custody of Gas to Buyer.
(i) "CNG Transmission" means CNG Transmission Corporate or any
successor person or entity that may hereafter own or operate its gas
transmission facilities.
(j) "Commodity Unit Price" means the amount in U.S. dollars payable
by Buyer for each MMBtu (as defined herein) of Gas included in the
Billing Quantity. Such price shall be computed on the "as delivered",
unsaturated (dry) condition of such gas.
(k) "Contract Year" means a period of twelve (12) consecutive
months, except as specified below. The first Contract Year shall begin on
the Commencement Date and shall end on May 31, 1994. The second and
subsequent Contract Years shall begin on June 1 and end on May 31 of the
following calendar year.
(l) "Day" means the 24-hour period as defined in the FERC Gas
Tariffs of Texas Eastern and Algonquin, respectively.
(m) "Entitlement Quantity" or "EQ" means (i) up to 29,799 MMBtu's
per Day of Gas, representing the sum of the MTQ and MSQ (as the MTQ
and MSQ may change, as provided in the definitions thereof below), to be
delivered into Algonquin for transportation to the City Gate minus
(ii) Transportation Shrinkage on Algonquin.
(n) "Extraneous Gas" means supplies available to Buyer under
existing contracts to cover periods of peak demand on Buyer's
distribution system, which supplies originate from such sources as
propane injection facilities, exchange or transportation arrangements
with other distribution companies in New England, or liquified natural
gas facilities located in the vicinity of Boston, Massachusetts. On or
before October 1, 1993, the parties shall prepare and complete a Schedule
of Extraneous Gas in substantially the form of Appendix IV hereto.
(o) "FERC" means the Federal Energy Regulatory Commission, or any
successor federal agency that may regulate the interstate transportation
of natural gas by pipeline.
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(p) "Filed Rate" means the rate Transporter files with the FERC for
transportation (including storage) services and which Transporter is entitled
to collect, as reflected from time to time in the rate sheets contained in
Transporter's FERC Gas Tariff, notwithstanding that such rate may be subject
to refund. If two or more rates are stated for the same service, the highest
rate shall be deemed the Filed Rate.
(q) "Force Majeure Event(s)" shall be those event(s) described in Section
15.2.
(r) "Gas" means pipeline quality natural gas.
(s) "Governmental Authorization" means any material governmental license,
permit, franchise and other authorization of any federal, state, or local
governmental authority which is necessary for a Party to obtain before such
Party may lawfully execute this Agreement or commence the purchase or sale of
Gas hereunder.
(t) "Individually-Certificated Rights" mean the rights to use the capacity
of Transporter (i) conferred on Buyer through the execution of a service
agreement with Transporter and (ii) qualifying as transportation (including
storage) services individually certificated under Section 7(c) of the Natural
Gas Act, as amended from time to time. Individually-Certificated Capacity
Rights are documented in rate schedule(s) appearing in Transporter's FERC Gas
Tariff. Such Individually-Certificated Capacity Rights are further identified
in Exhibit "A" hereto.
(u) "Kosciusko Input Quantity" means the quantity of gas that Texas
Eastern from time to time may direct Buyer or Seller (as capacity manager of
Buyer's Unbundled Capacity Rights under the Capacity Management Agreement) to
tender at point(s) of interconnection with United Gas Pipeline Company and/or
Southern Natural Gas Company in the vicinity of Kosciusko, Mississippi in
order to maintain or increase the effective capacity of Texas Eastern's
pipeline system.
(v) "Maximum Storage Quantity" or "MSQ" means the maximum MMBtu's of
Storage Gas per day that can be withdrawn from storage and delivered into
Algonquin for transportation to the City Gate using Buyer's portfolio of
Individually-Certificated Capacity Rights and Unbundled Capacity Rights (as
reduced by Transportation Shrinkage on Algonquin). The MSQ is additional to
the MTQ. It is recognized that the MSQ is a changing quantity which is a
function, inter alia, of the balance of working gas credited by Transporter
to each storage customer's account, the month in which withdrawals are
scheduled, the pipeline capacity of
5
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Transporter available from the storage facility to the City Gate, and, for
each Transporter, Transportation Shrinkage and the specific terms and
conditions of each storage rate schedule and associated transportation rate
schedule and general terms and conditions of Transporter applicable to
storage customers. Any such change in the MSQ shall not operate to increase
or decrease the MTQ or RQ hereunder and Seller shall have no obligation to
cover any change in deliveries caused thereby with increased or decreased
quantities of Reserved Gas.
(w) "Maximum Transportation Quantity" or "MTQ" means 17,814 MMBtu's per
day of Gas to be delivered to the City Gate using Buyer's portfolio of (i)
Individually-Certificated Capacity Rights and (ii) Unbundled Capacity Rights.
To the extent such Unbundled Capacity Rights and Individually-Certificated
Capacity Rights are subject to reduction due to annual contract quantity,
seasonal and other limitations stated in Transporter's FERC Gas Tariff, the
MTQ shall be correspondingly reduced. The MTQ is stated net of Transportation
Shrinkage on Texas Eastern and is additional to the MSQ.
(x) "Mcf" means one thousand (1,000) cubic feet.
(y) "Month" means the period beginning on the first day of the calendar
month and ending on the first day of the following calendar month, as further
defined in the FERC Gas Tariffs of Texas Eastern and Algonquin, respectively.
(z) "National Fuel Gas" means National Fuel Gas Supply Corporation or any
successor person or entity that may hereafter own or operate its gas
transmission facilities.
(aa) "Nominated Quantity" means that quantity of Gas per day that Buyer
notifies Seller pursuant to Section 9.1 that Buyer desires be delivered by
Algonquin to the City Gate, not to exceed the EQ.
(ab) "Party" means either Buyer or Seller, as the context requires.
(ac) "Resale Customer" means a residential, commercial, or industrial
customer who purchases Gas on a firm basis from Buyer.
(ad) "Resale Load" means the aggregate Gas consumption by Resale Customers,
to the extent such consumption is attributable to firm purchases of Gas from
Buyer.
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(ae) "Reservation Fee" means the amount payable by Buyer each month during
the term hereof to obtain an available supply of Reserved Gas from Seller, as
specified in Section 8.1(a). Except as provided in Sections 15.4(a) and
16.2(c), the Reservation Fee shall not be refundable to or otherwise
recoupable by Buyer and shall not operate as a credit against any other
charge payable by Buyer hereunder, including any amount payable by Buyer as a
Commodity Charge.
(af) "Reservation Quantity" or "RQ" means 18,560 MMBtu's per day of
Reserved Gas to be made available by Seller for delivery into Texas Eastern,
plus adjustments necessary to track changes in Transportation Shrinkage, as
reflected in the rate or tariff sheet filings of Texas Eastern and/or
Algonquin with the FERC made effective after June 1, 1993, in the manner
specified in Appendix II hereto. Except as provided in Section 9.4 and 9.5
and Appendix II, the RQ shall be fixed for the term of this Agreement.
(ag) "Reserve Auditor" means Ralph E. Davis Associates, Inc., or any other
successor firm selected by CNG Producing Company to prepare a report
concerning CNG Producing Company's reserves for filing with the Securities
and Exchange Commission.
(ah) "Reserved Gas" means the Gas held or acquired by Seller for delivery
under the terms and conditions hereof, excluding Supplemental Gas and Back-Up
Gas; provided that in no event shall the use of such term or any other
provision of this Agreement be construed to create a dedication, commitment
or other charge against specific leases, properties or gas purchase contracts
owned or controlled by Seller, CNG Producing Company or any other entity
under common ownership and control with Seller. Further, this Agreement shall
not preclude Seller from selling to others Reserved Gas that Seller
determines is surplus to that required to satisfy Seller's delivery
obligations hereunder.
(ai) "Storage Account" means the account maintained by Seller for each
Contract Year reflecting the net balance from time to time of Storage Input
Quantities and Storage Output Quantities.
(aj) "Storage Gas" means Reserved Gas or other Gas which is stored at the
various underground storage fields pursuant to Individually-Certificated
Capacity Rights and Unbundled Capacity Rights.
7
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(ak) "Storage Input Quantity" means the monthly quantity of Gas referred
to in Section 9.2 and Appendix III.
(al) "Storage Output Quantity" means the monthly quantity of Gas referred
to in Section 9.2 and Appendix III.
(am) "Texas Eastern" means Texas Eastern Transmission Corp. or any
successor entity that may hereafter own or operate its gas transmission
facilities.
(an) "Texas Eastern Supply Allocation Pool" means Gas produced and
available from wells or production platforms physically attached to or
normally delivered into the gathering or transmission facilities of Texas
Eastern.
(ao) "Title Transfer Point" shall be as described in Section 6.1 hereof.
(ap) "Transco" means Transcontinental Gas Pipe Line Corporation or any
successor person or entity that may hereafter own or operate its gas
transmission facilities.
(aq) "Transporter Costs" mean all amounts that would be payable to a
Transporter for the transportation (including storage) of the Billing Quantity
using the billing paths described in Section 11.1 hereof were Buyer (instead
of Seller) acting as shipper under the specific Rate Schedules listed in
Exhibit "A" hereto, including all amounts that would be payable as
reservation fees, demand charges, usage fees, volumetric fees, commodity
charges and storage injection and storage withdrawal charges. Transporter
Costs shall also include all additional charges that would be associated with
such transportation, including, but not limited to GRI charges, ACA charges,
take-or-pay charges, taxes imposed on the transportation or use of Gas,
transition costs and any other charges that any Transporter would be
authorized to collect under such circumstances pursuant to FERC Order Nos.
500, 528, 636, successor orders or otherwise as the result of governmental
action.
(ar) "Transportation Shrinkage" means fuel, line losses, storage losses
and other in-kind deductions of Gas that Transporter would be entitled to make
in accordance with Transporter's FERC Gas Tariff.
(as) "Transportation Shrinkage Quantity" means the positive difference
between Gas receipts by Transporter and Gas deliveries by Algonquin at the
City Gate using the billing paths described in Section 11.1 for the Billing
Quantity, reflecting Transportation Shrinkage. The Transportation Shrinkage
Quantity shall
8
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be determined consistent with Section 11.1 and the example set
forth in Appendix II hereto.
(at) "Transporter" means each of Texas Eastern, Algonquin, CNG
Transmission, National Fuel Gas and Transco; to the extent such pipeline
renders service in connection with Buyer's Unbundled Capacity Rights and
Individually-Certificated Capacity Rights. Buyer expects to acquire on each
such pipeline the Unbundled Capacity Rights and/or Individually-Certificated
Capacity Rights identified in Exhibit "A" hereto.
(au) "Unbundled Capacity Rights" mean the firm rights to use the capacity
of Transporter (i) conferred on Buyer through the execution of a service
agreement with Transporter and (ii) qualifying as blanket certificate
transportation (including storage) services for purposes of 18 C.F.R. Part
284 or successor regulations. Unbundled Capacity Rights are documented in
rate schedule(s) appearing in Transporter's FERC Gas Tariff. Such Unbundled
Capacity Rights are further identified in Exhibit "A" hereto.
ARTICLE 3
CHARACTER OF SERVICE
3.1 Character
(a) Seller represents that it is not an entity subject to direct sales
regulation by the FERC, any state public utility commission, or any
other governmental agency; and
(b) Seller's obligation to sell and deliver and Buyer's obligation to
purchase and receive Gas are exclusively contractual and arise solely
under the provisions of this Agreement.
ARTICLE 4
GOVERNMENTAL ACTIONS
4.1 Applicable Laws, Orders and Regulations. This Agreement is subject to all
valid laws, orders, rules, and regulations of duly constituted federal,
local, and state governmental authorities having jurisdiction.
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4.2 Prohibition of Performance. In the event that any federal, local, or
state governmental authority having jurisdiction over a Party at any time
prohibits performance of this Agreement in whole or in part in any material
respect, then the Party so affected may by giving notice thereof suspend
performance of this Agreement to the extent so prohibited, in which event the
other Party shall likewise be entitled to suspend its performance hereunder
to the extent its performance corresponds to the performance so prohibited.
The affected Party shall give prompt notice to the other Party of any such
governmental action. Any such suspension shall cause an extension of the
term of this Agreement coterminous with the period of suspension. During any
such period of suspension, the Parties shall negotiate in good faith the
substitution of feasible, nonprohibited alternative means of performance.
If, notwithstanding such good faith negotiations, the Parties are unable to
agree upon substitution of performance, as provided above, on or before 45
days after performance is first suspended pursuant to this Section 4.2, then
either Party may terminate this Agreement by giving notice to the other Party.
4.3 Duties. In all filings, discussions and other contacts with governmental
authorities relation to this Agreement (excluding such filings, discussions
or other contacts as may be made in connection with the litigation or
arbitration of disputes among the Parties hereunder) or any Governmental
Authorization sought in connection therewith, each Party shall be subject to
the following continuing duties:
(a) To fully inform the other Party of material developments;
(b) To vigorously advocate and defend the prudence and commercial
reasonableness of this Agreement;
(c) To refrain from seeking and to reasonably defend against any
governmental action that would materially and adversely modify the
right and obligations of either Party hereunder or trigger the
termination or suspension provisions of this Agreement;
(d) To otherwise exercise good faith in dealings with the other Party;
and
(e) Not to misrepresent any material fact relating to this Agreement to
any governmental authority.
4.4 Approval by Massachusetts Department of Public Utilities.
---------------------------------------------------------
(a) The Parties recognize that, to the extent it has a term that exceeds
one (1) year, this Agreement is subject to the approval of the
Massachusetts
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Department of Public Utilities ("MDPU"). Accordingly, upon
execution of this Agreement, Buyer shall proceed with due diligence
and use its best efforts to obtain from the MDPU all requisite
authorizations and approvals to purchase and receive Gas in accordance
with the terms off this Agreement. Buyer shall furnish to Seller
copies of any and all petitions, testimony, exhibits, supporting
documentation and other evidence which are filed in support of Buyer's
request for approval of this Agreement from the MDPU (excluding
materials relating to Buyer's purchase agreements with other suppliers
and other commercially sensitive materials that Buyer treats as
confidential and proprietary).
(b) Buyer shall notify Seller of any ruling, order or
decision by the MDPU regarding the authorizations applied for above
("Authorization Order") and provide Seller with a copy of such
Authorization Order. If the Authorization Order approves this
Agreement without any condition, material change, or other
modification, then Buyer shall accept the authorizations contained
therein and/or otherwise required by law to enable Buyer to perform
its obligations under this Agreement. If the Authorization Order
denies approval of this Agreement or conditions approval on the
making of any material change or other modification, including
deletion or amendment of any term or provision of this Agreement,
then, promptly after the issuance of such Authorization Order, the
Parties shall then commence negotiations in good faith to attempt
to agree upon modifications of this Agreement which would be
responsive to the Authorization Order; provided, however, that
nothing contained herein shall obligate either Party to agree to
any modification which would, in the view of that Party, materially
and adversely affect the profitability or other benefits of this
transaction or render the performance or administration of this
Agreement commercially unfeasible. If the Parties fail to agree
upon such responsive modifications, then this Agreement shall
continue in full force and effect, in the form in which MDPU
approval was originally sought, but shall expire at the end of the
preliminary term identified in Section 7.2 (a). If the Parties
agree upon such responsive modifications, then Buyer shall accept
the authorizations contained in the Authorization Order and/or
otherwise required by law to enable Buyer to perform its
obligations under this Agreement, and this Agreement shall continue
in full force and effect, in the form so modified, until the end of
the term identified in Section 7.2 (b).
4.2 Disallowance of Passthrough. Unless otherwise mutually agreed to in
writing, upon providing ninety (90) days prior written notice, Buyer may
terminate this Agreement in the event the MDPU or other federal, state or
local regulatory authority having jurisdiction over
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Buyer issues a ruling, order or decision (with respect to which an appeal, in
the good faith judgment of Buyer, is not practicable) disallowing passthrough
by Buyer to its customers of any portion of the costs paid or payable to
Seller under this Agreement for any past or future period. During such ninety
(90) day notice period, the price of Gas shall not be changed from the price
as specified herein, regardless of any disallowance by such governmental
authority, except as mutually agreed by the Parties. Buyer shall immediately
provide a written copy to Seller of the ruling, order or decision setting
forth the disallowance. The parties shall then negotiate in good faith to
attempt to agree upon modifications of this Agreement that would eliminate
the grounds for such disallowance; provided however that nothing contained
herein shall obligate either Party to agree to any modification which would,
in the view of that Party, materially and adversely affect the profitability
or other benefits of the transaction or render the performance or
administration of this Agreement commercially unfeasible. Seller shall also
have the option to credit Buyer for the full amount of the disallowance in
which event the termination notice of Buyer shall be deemed withdrawn and
this Agreement shall continue in full force and effect with an appropriate
amendment to reflect Seller's continuing obligation to fully credit Buyer for
the disallowance for the remaining term of this Agreement. Buyer agrees not
to make a unilateral application to the MDPU or any other authority seeking a
disallowance, nor shall it take any affirmative action that has the intended
effect of enhancing or supporting any application to or action by the MDPU or
such other regulatory authority to effect such disallowance.
ARTICLE 5
DELIVERIES AND RECEIPTS
5.1 Deliveries by Seller. Seller shall tender to Transporter a sufficient
quantity of Gas, up to the sum of (a) the RQ, (b) the MSQ, and (c)
Transportation Shrinkage associated with (a) and (b), such that Transporter
may, in accordance with its FERC Gas Tariff, transport and deliver to
Algonquin and Algonquin may, in accordance with its FERC Gas Tariff,
transport and schedule for delivery at the City Gate a quantity of Gas
equivalent to the Nominated Quantity on each day throughout the term of this
Agreement. Notwithstanding the foregoing sentence, Seller shall not be
obligated to tender to Transporter such quantities of Gas that Seller may be
excused pursuant to Section 15.1 from tendering and/or Seller may be
obligated to tender to other Supply Allocation Customers (as defined below)
pursuant to Article 10; provided nothing in this Section 5.1 shall operate to
expand or limit Buyer's rights under Articles 15 and 16.
5.2 Receipts by Buyer. Except to the extent Buyer's obligations may be
suspended in accordance with Section 15.1, Buyer shall use its best efforts
to operate its distribution
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facilities to accept Gas from Algonquin at rates consistent with Algonquin's
FERC Gas Tariff and in a manner intended to permit delivery by Algonquin to
Buyer on each day throughout the term of this Agreement of a quantity of Gas
corresponding to the Nominated Quantity.
ARTICLE 6
TITLE TRANSFER POINTS
6.1 Identification. The Title Transfer Point(s) for Gas sold and purchased
hereunder shall be at the City Gate; provided that if the FERC Gas Tariff of
any Transporter requires that Buyer, rather than Seller, have title to the
Gas in order for Gas to be stored or transported, the Parties shall establish
upstream Title Transfer Point(s) for the Gas subject thereto. Any such
upstream Title Transfer Point(s) shall be set forth in Exhibit "A" to this
Agreement. The Parties shall revise Exhibit "A" from time to time as
necessary to identify such upstream Title Transfer Points as are currently
operative. Regardless of whether title to Gas injected into storage is
transferred upstream as provided above. Buyer shall be entitled to receive
delivery at the City Gate of an equivalent quantity of Gas in the manner
specified in Section 5.1
6.2 Risk of Loss; Indemnification. Seller shall own and be deemed to be in
actual or constructive control and possession of the Gas until such Gas shall
have been delivered at the Title Transfer Point(s) identified in Section 6.1
hereof. Buyer shall own and be deemed to be in actual or constructive control
and possession of the Gas after delivery of such Gas to the Title Transfer
Point(s) identified in Section 6.1 hereof. As between the parties, each Party
shall bear the risk of loss for such Gas and for any injury or damage caused
thereby while such Gas is in its actual or constructive control or
possession; provided that Seller shall be and remain liable for any and all
damages attributable to processing and/or quality deficiencies occurring
after such Gas has been delivered to the Title Transfer Point(s) pursuant to
the exercise of Seller's rights under Section 12.1, notwithstanding Buyer's
control over and possession of such Gas.
ARTICLE 7
TERM
7.1 Commencement Date. This Agreement shall be deemed to have commenced on
June 1, 1993 ("Commencement Date"):
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7.2 Term of Agreement.
(a) This Agreement shall be in effect for a preliminary term
beginning on the Commencement Date and ending on the earlier of the
date (i) Buyer may accept authorizations identified in and as
provided in Section 4.4 (b), or (ii) one year from Commencement
Date.
(b) In the event such acceptance occurs on or prior to the
date one year from the Commencement Date, this Agreement shall
continue until May 31, 1999, and shall further continue for
successive terms of one (1) year thereafter until and unless
terminated by either Party upon at least eleven (11) months written
notice to the other Party prior to the end of the then-current term.
7.3 Limitation of Seller's Delivery Obligations after Commencement Date. It
is recognized that Buyer may be conferred Unbundled Capacity Rights and/or
Individually-Certificated Capacity Rights on Transporters other than Texas
Eastern and Algonquin and that the absence of such Capacity Rights after the
Commencement Date may limit Seller's ability to deliver the quantity of gas
otherwise contemplated hereby. Accordingly, during the period after the
Commencement Date but prior to the date that all such Capacity Rights have
been conferred on Buyer and Seller becomes fully authorized under FERC
regulations to use such Capacity Rights for the service of Buyer hereunder,
Seller's delivery obligations in effect hereunder shall be limited to the
extent necessary to correspond with Capacity Rights that Seller may actually
use for the service of Buyer hereunder; provided that Seller shall at all
times during such period make commercially reasonable efforts to maximize
Seller's use of the effective capacity of such Capacity Rights that are then
conferred on Buyer and are usable by Seller. During such period and with
Buyer's approval, Seller may contract for interruptible transportation with
the affected Transporter or an alternative transporting pipeline as necessary
to mitigate the limits on Seller's ability to deliver the quantity of gas
otherwise contemplated hereby. If Buyer approves such contracting by Seller,
Buyer shall pay all transportation charges associated therewith.
ARTICLE 8
PRICING, CREDITING AND REIMBURSEMENTS
8.1 Amounts Payable by Buyer. The following amounts shall be payable to
Seller by Buyer hereunder:
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(a) Reservation Fee. Each month during the term of this Agreement, Buyer
shall pay a Reservation Fee of $2.43 times the RQ;
(b) Reserved Gas Commodity charge. Each month during the term hereof,
Buyer shall pay a Reserved Gas Commodity Charge equal to the
product of (i) the portion of the Billing Quantity comprising
Reserved Gas and the Transportation Shrinkage Quantity and
(ii) the Reserved Gas Commodity Unit Price computed in
accordance with Appendix I hereto;
(c) Back-Up Gas Commodity Charge. Each month during the
term hereof, as limited by Section 11.1(b), when Back-Up Gas
is delivered by Seller pursuant to Section 10.1 or Section
10.2, Buyer shall pay a Back-Up Gas Commodity Charge equal to
the product of (i) the portion of the Billing Quantity
comprising Back-Up Gas and (ii) the Back-Up Gas Commodity Unit
Price computed in accordance with Appendix I hereto;
(d) Transporter Costs. Buyer shall pay the Transporter
Costs applicable during the term of this Agreement; and
(e) Costs Relating to Back-Up Gas. If Seller delivers
Back-Up Gas during the month, then, as limited by Section
11.1(b), Buyer shall reimburse Seller for all costs of the
type included within the definition of Transporter Costs and
that are payable to Seller, as provided in Section 10.1 or 10.2.
8.2 Credit by Seller to Buyer's Account. If a Transporter issues a refund
that pertains to a rate schedule and service comprising an Unbundled Capacity
Right and/or an Individually-Certificated Capacity Right and such refund
relates to charges of the type previously billed to and paid by Buyer as
"Transporter Costs", Seller shall recompute such Transporter Costs using the
reduced rates and charges forming the basis of such refund and, as soon as
reasonably practicable, shall credit Buyer's account with the positive
difference, if any, between the Transporter Costs, as paid by Buyer, and the
Transporter Costs, as so recomputed. In addition, Seller shall credit Buyer's
account with an amount equal to the time value of the cash flow realized by
Seller from such prior collections of Transporter Costs reflecting the higher
rates and charges. Such time value shall be computed using the interest rate
and procedures identified in 18 C.F.R. Section154.67(c)(2) or successor FERC
regulations. The obligation of Seller to make such adjustment(s) in favor of
Buyer shall survive the termination or expiration of this Agreement and shall
be paid in cash to the extent such adjustment(s) may exceed the amount
payable by Buyer to Seller hereunder.
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8.3 Taxes. In the event any sales, use, excise, or transfer tax is imposed on
the transfer of natural gas under the terms of this Agreement, or if any tax
is imposed in any other manner so as to constitute directly or indirectly a
charge upon the privilege of transferring ownership of the natural gas
delivered to Buyer, such tax shall be the sole liability of Buyer. In
addition, if Buyer and/or Seller by reason of this Agreement becomes subject
to a public utilities gross receipts tax or any other gross receipts tax,
which tax is attributable to deliveries of Gas made by Seller hereunder, the
tax shall be the sole liability of Buyer and shall in no manner constitute an
obligation of Seller. It is agreed that in the event of the enactment of a
broad based energy tax, whether measured by carbon content, Btu content,
Mcf's, monetary value, or any other measure, the prices designated herein
exclude this tax, and that this tax will be an addition to the stated price
hereunder and constitute the liability of Buyer hereunder. In the event
Seller pays or remits any tax which by action of this Section is the
liability of Buyer, such amounts will be added to the payments due Seller
from Buyer under this Agreement. Buyer agrees to furnish to Seller required
documentation in support of any claimed exemptions from any tax considered
herein, including exemption certificates, registration numbers, and any other
documentation required for administration of this Section 8.3. As of the date
of this Agreement, no legislation has been enacted by any governmental
authority which would require tax reimbursements to be paid by Buyer to
Seller hereunder; provided that the Parties are aware, as of the date hereof,
that federal tax legislation may be enacted calling for a Btu-based tax on
gas. If Buyer makes tax reimbursements to Seller hereunder, and Seller
thereafter receives a refund of the taxes so reimbursed, Seller shall
promptly pay over such refund to Buyer.
8.4 Unavailability of Information. If published information required for the
pricing computation under Section 8.1 hereof and Appendix I hereto ceases to
be available for any reason, the Parties shall mutually agree on an alternate
index or price methodology yielding substantially similar results to those
produced by the previously employed index or price methodology. During
negotiations, the applicable index prices which continue to be available
shall be utilized. In the event the Parties fail to reach agreement on an
alternate index or price methodology within thirty (30) days after such
information ceases to be available, then the matter shall be determined by
arbitration pursuant to Section 21.11.
8.5 Alternative Commodity Unit Prices. Within 60 days after the Commencement
Date, the Parties shall enter into good faith negotiations concerning a
mechanism tracking postings for natural gas futures on the New York
Mercantile Exchange ("NYMEX") that would establish an alternative Commodity
Unit Price for Reserved Gas to be sold hereunder. It is contemplated that
Buyer could irrevocably select with reasonable advance notice to Seller such
alternative Commodity Unit Price for a period corresponding with the delivery
months for which futures prices are then posted by NYMEX. It is also
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contemplated that such mechanism would (a) permit such alternative Commodity
Unit Price to track over time the differences in the market price for natural
gas delivered into Henry Hub and/or other NYMEX bench mark locations and that
for natural gas delivered into Texas Eastern and (b) provide Seller with
reasonable compensation for the transaction costs Seller may incur in
purchasing futures, options or other contracts necessary to hedge Buyer's
selected NYMEX-based price. Any mutual agreement concerning such alternative
Commodity Unit Price shall be set forth in a written amendment to this
Agreement and shall have prospective effect only.
ARTICLE 9
QUANTITIES
9.1 Nominated Quantity and Requested Deliveries.
(a) On or before 12:00 noon Eastern Time of the second day preceding the
Commencement Date and on each day thereafter during the term of
this Agreement, Buyer shall notify Seller of the Nominated Quantity
to be in effect on the second day following the day of
notification; provided that in no event shall Buyer notify Seller
of a Nominated Quantity that exceeds the EQ. In lieu of making
daily notifications as provided above, Buyer may notify Seller of
the Nominated Quantity that will apply (unless modified as provided
below) during each day of a specified period of up to one month.
(b) Based on Buyer's good faith projection of changes in its
City Gate receipts from that forming the basis for Buyer's previous
notification of the Nominated Quantity in effect for the day in
question, Buyer may notify Seller of Buyer's request that Seller
deliver a quantity of Gas that differs (more or less) from such
Nominated Quantity. Subject to any limitations in the FERC Gas
Tariff of the applicable Transporter(s), Seller shall accommodate
such request by Buyer; provided that Seller shall have the right to
utilize the no notice service embedded in any Transporter rate
schedules applicable to Buyer's Unbundled Capacity Rights, as
Seller determines is necessary to accommodate such request.
(c) At all times, the Nominated Quantity, Buyer's requests
under Section 9.1 (b) for quantities that differ therefrom, and
Buyer's actual receipts from Algonquin shall reflect that:
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(i) With respect to Gas other than Extraneous Gas, Buyer is
receiving Gas to serve Buyer's Resale Customers in preference
to gas available from any other supplier; and
(ii) With respect to Extraneous Gas, Buyer is receiving not more than
the maximum quantity specified in the then-current Schedule of
Extraneous Gas; provided that (A) such maximum quantity shall
not apply during any period when the provisions of Sections
10.1, 10.2, or 15.1 apply and (B) nothing herein shall operate
to prevent the Parties from agreeing to waive such restriction
if the Parties agree that the delivery of additional volumes
of Extraneous Gas in lieu of City Gate deliveries hereunder
by Seller would be mutually beneficial.
The provisions of this Section 9.1(c) shall cease to apply for an
individual month once Buyer has nominated and Algonquin has
confirmed for transportation to the City Gate a total monthly
quantity equal to the EQ times the number of days in such month.
9.2 Storage Account. On or before the tenth (10th) day of each month, Seller
shall furnish Buyer an updated Storage Account Schedule in the form attached
hereto as Appendix III to apply during the following month. Such schedule
will take into account the cumulative Storage Input/Output Quantities to date
for the current (April through March) storage injection/withdrawal season.
Because the FERC Gas Tariffs of the applicable Transporters provide that a
firm customer's injection and withdrawal rights are a function of such
customer's storage account inventories, as of a specific calendar date, the
Parties recognize that no definitive or absolute minimum and maximum Storage
Input Quantities and Storage Output Quantities can be identified for the
entire season on Appendix III. Nevertheless, Seller will track Buyer's
requested injections/withdrawals made during the current injection/withdrawal
season and project on a monthly basis, for the remainder of that season, a
default nomination of Storage Input/Output Quantities based on the assumption
that Buyer desires pro rata injections/withdrawals during each of the
remaining months of that season, subject to the constraints of Transporter's
FERC Gas Tariff and the key determinants set forth in Appendix III (e.g.
"turn targets", etc.). the default quantity shown therein will serve as
Buyer's binding nomination of the Storage Input/Output Quantity for the
following month, unless Buyer notifies Seller prior to the 10th business day
prior to the end of the current month of a different Storage Input/Output
Quantity falling within the range of the maximum and minimum quantities set
forth on the current Storage Account Schedule. In addition, Seller will
project, given the above mentioned constraints and assumptions, a minimum and
maximum Storage Input/Output quantity for the upcoming month and will include
this quantity under the appropriate column on Appendix III. If Buyer wishes
to select a Storage Input/Output
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Quantity between the minimum and maximum range so specified, it may do so by
notifying Seller as above in lieu of the defaulting quantity. all Storage
Input/Output Quantities, including any default quantity, shall become binding
on Buyer and Seller, unless otherwise mutually agreed, on the 10th business
day prior to the upcoming month.
9.3 Required Notifications. Each Party shall notify the other Party verbally
and, as soon thereafter as reasonably practicable, in writing of any known
event which might reasonably be expected to materially affect the delivery or
receipt of the Nominated quantity or the differing quantity requested by
Buyer pursuant to Section 9.1 (b).
9.4 Annual Adjustment to RQ. By giving at least 180 days prior notice, Buyer
may increase, because of a corresponding increase in Buyer's Resale Load, the
RQ effective at the beginning of each Contract Year; provided that (a) such
increased RQ shall not cause a corresponding increase in the MSQ or in
Seller's obligation to deliver Back-Up Gas and (b) Seller shall not be
obligated to accommodate an increase greater than ten percent (10%) of the RQ
previously in effect if Seller determines in its sole judgment reasonably
exercised that Seller has insufficient firm supplies available to it at
reasonable cost to satisfy such requested increase. At Buyer's request,
Seller will assist Buyer in procuring for Buyer's account and at Buyer's sole
expense the transportation arrangement desired by Buyer to effectuate
delivery of Reserved Gas attributable to the RQ increase pursuant to this
Section, including, but not limited to interruptible transportation
agreements, firm transportation agreements and capacity release agreements
with firm shippers on Texas Eastern, Algonquin, and other Transporters;
provided that Seller shall not be liable to Buyer in the event transportation
arrangements satisfactory to Buyer cannot be procured. If Buyer is successful
in procuring such transportation arrangements, the MTQ and EQ shall be
increased correspondingly.
9.5 Other Adjustments. If Buyer experiences what it reasonably believes to be
a permanent reduction in Resale Load during a Contract Year, Buyer may give
notice of its desire to reduce the RQ, the EQ and the MTQ to the extent of the
reduction in such load. If Buyer gives such notice, Buyer shall continue to
pay the Reservation Fee specified in Section 8.1(a) until the end of the then
current Contract Year. Thereafter, the Reservation Fee shall be computed
using the RQ set forth in Buyer's reduction notice. Upon receipt of any such
notice, Seller shall use reasonable efforts to sell Reserved Gas previously
earmarked for delivery to Buyer hereunder to others at the highest
Reservation Fee reasonably available. Reservation Fees collected from such
sales by Seller during the remainder of the then current Contract Year shall
be credited to Buyer's account up to the amount of the Reservation Fees that
would have been otherwise collected from Buyer. At Seller's request, Buyer
shall provide full and complete information regarding the plant closing or
similar occurrence affecting a Resale customer which caused the permanent
reduction in Resale Load.
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ARTICLE 10
LIMITED DELIVERIES BY TRANSPORTING
PIPELINES AND SELLER SUPPLY ALLOCATION
10.1 Limited Deliveries by Transporting Pipelines. To the extent an
insufficient delivery of Gas to Buyer is attributable to a Transporter or
other transporting pipeline invoking its capacity curtailment plan or
otherwise limiting its deliveries, Seller will dispatch to Buyer only such
quantities of Gas as may then be transported consistent with the tariff and
procedures of the Transporter or other transporting pipeline. Seller shall
notify Buyer of such situation immediately upon obtaining actual notice
thereof, and shall identify in such notice the anticipated duration of such
limited deliveries by Transporter. To the extent permitted by such procedures
and tariff, Seller will, during periods when the ambient temperature in
Pittsburgh, Pennsylvania, as forecasted by Air Science Consultants or such
other independent meteorological weather consultant as may be retained by
Seller or by a firm affiliated with Seller, equals or exceeds 0 degrees
Fahrenheit during any 24-hour period, tender to CNG Transmission a quantity
of Back-Up Gas (in addition to such quantities of Reserved Gas and Storage
Gas as can then be transported to Buyer's City Gate) equal to the lesser of
(a) seventy percent (70%) of the RQ or (b) an amount which when combined with
the amount of Reserved Gas and Storage Gas (to the extent such Gas can then
be withdrawn and transported) delivered by Seller equals the Nominated
Quantity. In the event the forecasted ambient temperature described above is
less than 0 degrees Fahrenheit, Seller will tender to CNG Transmission such
quantity of Back-Up Gas, if any, that can be procured on the spot market from
suppliers with Gas that is then contractually uncommitted to other purchasers
or that has been released from prior contractual commitments. Whenever Seller
learns that the forecasted ambient temperature as described above is less
than 0 degrees Fahrenheit, Seller will promptly notify Buyer of this fact.
10.2 Supply Allocation. If Seller has, for any reason, an insufficient
supply of Gas to fully satisfy the total delivery nominations of (a) Buyer
under this Agreement, (b) other ABC Group customers of Seller under other
firm purchase contracts with Seller and (c) other similarly-situated firm
sales customers of Seller to whom Seller has heretofore or may hereafter
extend contractual supply allocation rights (each of such persons or entities
are referred to herein individually as "Supply Allocation Customer" and
collectively as "Supply Allocation Customers") and when the provisions of
Section 10.1 do not apply, Seller shall notify Buyer of such situation
immediately upon obtaining actual knowledge thereof, and shall identify in
such notice the anticipated duration of such supply insufficiency. During any
such period of supply insufficiency, Seller shall use the following
procedures to dispatch and allocate Gas:
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(a) Seller shall discontinue deliveries to customers of Seller that
are served by interruptible or "at will" sales agreements;
(b) Remaining available gas will be dispatched from the Texas Eastern
Supply Allocation Pool to all Supply Allocation Customers in
proportion to the respective Nominated Quantity or other quantity
requested by each Supply Allocation Customer under the applicable
firm gas sales agreement;
(c) Seller will, during periods when the ambient temperature in
Pittsburgh, Pennsylvania, as forecasted by Air Science Consultants
or such other independent meteorological weather consultant as may
be retained by Seller or by a firm affiliated with Seller, equals
or exceeds 0 degrees Fahrenheit during any 24-hour period, tender
to CNG Transmission for the account of each Supply Allocation
Customer a quantity of Back-Up Gas (in addition to such quantities
of Reserved Gas and Storage Gas as can then be transported to the
city-gate or other point of transfer under the applicable gas
sales agreement) equal to the lesser of (a) seventy percent (70%)
of the RQ or other maximum daily delivery entitlement in effect
under the applicable gas sales agreement or (b) an amount which
when combined with the amount of Reserved Gas and Storage Gas (to
the extent such Gas can then be withdrawn and transported)
delivered by Seller equals the Nominated Quantity or other
quantity requested by the Supply Allocation Customer. In the event
the forecasted ambient temperature described above is less than 0
degrees Fahrenheit, Seller will tender to CNG Transmission such
quantity of Back-Up Gas, if any, that can be procured on the spot
market from suppliers with Gas that is then contractually
uncommitted to other purchasers or that has been released from
prior contractual commitments. Whenever Seller learns that the
forecasted anticipated ambient temperature as described above is
less than 0 degrees Fahrenheit, Seller will promptly notify Buyer
of this fact.
If Buyer receives the foregoing notice from Seller of a supply insufficiency,
Buyer may notify Seller within 2 days after receipt of such notice that it
does not desire to receive any Back-Up Gas during the anticipated period of
supply insufficiency. If Buyer gives such notice, Seller and Buyer shall be
released prospectively for this time period from their respective obligations
under this Agreement regarding the receipt and delivery of Back-Up Gas. Such
release of obligations shall continue until the first day of the month
following the month in which Seller gives notice that its supplies are no
longer insufficient and that supply allocation is no longer required;
provided that nothing in this Section 10.2 shall operate to expand or limit
Buyer's rights under Articles 15 and 16; and further provided
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that during such period of release, Buyer shall continue to pay the entire
Reservation Fee hereunder, except to the extent otherwise provided in Section
16.2.
10.3 Priority for Certain Quantities. If during periods when Section 10.2
applies, Seller is notified by a Supply Allocation Customer that such Supply
Allocation Customer will be unable to render service to the priority-use
requirements specified in Sections 401 and 402 of the Natural Gas Policy Act
of 1978 (NGPA) and 18 C.F.R. Section 281.201. ET SEQ. of the FERC Regulations
("high-priority use requirements") or that adjustment of the dispatch
quantity is necessary to avoid irreparable injury to life or property
(including environmental emergencies) or to provide for minimum plant
protection ("emergency situation") unless such Supply Allocation Customer is
dispatched a certain quantity of Gas by Seller, such Supply Allocation
Customer will be afforded priority over all other quantities to be dispatched
to Supply Allocation Customers pursuant to Section 10.2 with respect to the
certain quantity so specified in such Supply Allocation Customer's notice to
Seller, but not to exceed the RQ or other maximum daily delivery entitlement
under the applicable gas sales agreement.
10.4 Buyer Certification; Sanctions. If Buyer gives notice to Seller
pursuant to Section 10.3, Buyer shall provide Seller, within 24 hours after
such notification, a sworn statement attesting:
(a) that all sources of gas supply available to Buyer outside its firm
purchase contract with Seller, including peak-shaving Gas and Gas
owned, leased or contract storage, were and are being utilized to
the maximum extent possible during the time period for which this
priority is in effect;
(b) that all interruptible services provided by Buyer on its system
were and are being interrupted during the time period for which
this priority is in effect; and
(c) that no alternate fuel could be utilized or is available to be
utilized to prevent the necessity for priority treatment.
In the event Buyer fails to provide such sworn statement within such 24-hour
period, all quantities given priority status by Seller pursuant to Section
10.3 shall be billed to Buyer, as Seller's liquidated damages, at a rate of
$25.00 per MMBtu; it being understood that such action by Buyer would cause
Seller damages in amounts that are difficult to quantify.
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ARTICLE 11
BILLING AND PAYMENT
11.1 Basis of Billings.
(a) All billings for amounts due hereunder shall be based on the
Billing Quantity; provided that during any period when Seller's
or Buyer's performance is suspended pursuant to Section 15.1
or Seller's deliveries are reduced in accordance with Section
10.1 or 10.2, Buyer's payment obligation shall apply only to
such quantities as are actually delivered for Buyer's account.
The Billing Quantity shall be equal (for the applicable
month of delivery) to the sum of (i) the Nominated Quantities
(as modified pursuant to Section 9.1(b) and confirmed and
scheduled for transportation to the City Gate by Algonquin),
(ii) the Storage Input Quantity (if applicable), and (iii) the
Transportation Shrinkage Quantity minus the Storage Output
Quantity (if applicable); provided, however, that to the extent
possible, all such quantities shall be adjusted to reflect actual
deliveries prior to the rendering of the bill. To the extent such
adjustment cannot be made at such time, it shall be reflected in
the next bill.
(b) For billing and other transactional purposes hereunder, the
following rules shall apply, regardless of whether such methodology
corresponds with the actual physical flow of Gas to the City Gate
or into or out of storage:
(i) In determining the Billing Quantity for pricing hereunder,
Buyer shall be deemed to purchase Reserved Gas before
Back-Up Gas is purchased;
(ii) Buyer shall be deemed to purchase Back-Up Gas only when
Section 10.1 or Section 10.2(c) applies, and Buyer has
not given notice to Seller of Buyer's desire not to receive
Back-Up Gas, and Seller's delivery obligations respecting
Reserved Gas and Storage Gas are suspended pursuant to
Section 15.1. If such suspension provision does not apply,
the Gas, regardless of its physical source, shall be
considered Reserved Gas in accordance with the procedure
set forth in Section 11.1(b)(i) above;
(iii) In determining the Billing Quantity for pricing hereunder,
Buyer shall be deemed to have purchased Gas in proportion
to Buyer's Base Segment Capacity Entitlement and the
Kosciusko Input Quantity in effect from time to time;
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(iv) In determining Transporter Costs, Seller shall be deemed to
have used the following billing paths to deliver Gas to
Buyer or for Buyer's account:
(A) General Billing Path. Unless otherwise provided herein,
Transporter Costs shall be determined as if the Billing
Quantity were (1) delivered into Texas Eastern at Zones
ELA, WLA, STX and ETX and Kosciusko, Mississippi in
proportion to Buyer's respective Base Segment Capacity
Entitlement for such zones and the Kosciusko Input
Quantity, (2) transported by Texas Eastern for
redelivery to Algonquin at the Filed Rate applicable
To Texas Eastern Rate Schedule CDS and (3) transported
by Algonquin to the City Gate at the Filed Rate in
effect from time to time under the appropriate rate
schedule(s);
(B) Storage Input Quantity Billing Path. Transporter Costs
shall be determined on the same basis as provided in
Section 11.1(b)(iv)(A) above. The Storage Input Quantity
shall be deemed to have been injected into storage at
the Filed Rate in effect from time to time under the
applicable Transporter rate schedules identified in
Exhibit "A" hereto and in proportion to the annual
maximum storage entitlement and at the points specified
in Buyer's service agreements under such rate
schedules;
(C) Storage Output Quantity Billing Path. Transporter
Costs shall be determined as if the Storage Output
Quantity were (1) withdrawn from storage and
transported to Algonquin at the Filed Rate in effect
from time to time under the applicable Transporter
rate schedules identified in Exhibit "A" hereto, in
proportion to the respective maximum transportation
quantities and at the points specified in Buyer's
service agreements with the applicable Transporters,
and (2) transported by Algonquin to the City Gate at
the Filed Rate in effect from time to time under the
appropriate rate schedule(s); and
(D) Back-Up Gas Billing Path. Transporter Costs shall be
determined by reference to the points within Texas
Eastern's
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Market Area at which the Back-Up Gas is actually
redelivered by CNG Transmission to Texas Eastern.
(v) With respect to Back-Up Gas and the transportation charges
associated therewith, Buyer shall be deemed to have purchased
the quantities measured at the applicable receipt points into
CNG Transmission.
(c) The Parties understand that from time to time imbalances may arise
between the Billing Quantity, which is based on the quantity
nominated by Buyer pursuant to Section 9.1, and the quantity
physically delivered to Buyer by Algonquin at the City Gate.
Accordingly, the Parties recognize a continuing and mutual obligation
that survives the term of this Agreement to reconcile nominated
quantities with physical quantities and to settle positive or
negative imbalances through commercially reasonable means, including
but not limited to: (i) delivery by Seller of quantities designated
by Buyer pursuant to Section 9.1 but not received by Buyer and (ii)
with respect to quantities not nominated by Buyer pursuant to
Section 9.1 but received by Buyer, return by Buyer at no cost to
Seller of equivalent quantities at mutually agreeable locations and
times or payment by Buyer of an amount equal to the price under this
Agreement for Gas in effect at the time payment for the imbalance is
rendered.
11.2 Sellers Statement. Seller shall render a billing statement on or before
the tenth day of each month setting forth the amounts due from Buyer in
accordance with Article 8 for the preceding month based on the Billing
Quantity. Seller shall identify all Transporter Costs in such billing
statement or in a separate statement.
11.3 Buyer's Payment. Payment by Buyer shall be due ten (10) days after
receipt by Buyer of Seller's invoice. All the foregoing payments to Seller
shall be made by wire transfer in immediately available funds to the
following bank account, or to such other bank account as Seller may designate
from time to time:
CNG Gas Services Corporation
c/o Chase Manhattan Bank, New York
ABA #021000021
For deposit to Account No. 9102565117.
11.4 Payment Default. Except for any amount that Buyer disputes in
accordance with Section 11.5, should Seller fail to receive full payment of
any portion of any bill for when such amount is due, interest
on the unpaid portion of the bill shall accrue at the then
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effective prime interest rate (Chase Manhattan Bank) plus two percent (2%) or
the then maximum lawful interest rate, whichever is lower, from the due date
until payment is received. Seller shall notify Buyer if Seller has failed to
receive Buyer's payment on or before five (5) days after the due date. If
such failure to pay continues for fifteen (15) days after the due date,
Seller, in addition to any other remedy it may have hereunder, may, upon
giving Buyer three (3) days prior notice, suspend further delivery of Gas
until such amount is paid.
11.5 Disputed Charges. If Buyer in good faith shall dispute the amount of
any such bill, Buyer shall timely pay to Seller such amounts as Buyer agrees
are correct. With respect to the portion of the bill that Buyer may determine
in good faith to be incorrect, Buyer shall follow either of the following
procedures:
(a) Within 15 days after the payment due date, Buyer shall furnish to
Seller a good and sufficient bond from a reputable and solvent surety
to secure payment to Seller of the amount ultimately found due upon
such bills after a final determination, then Seller shall not be
entitled to suspend delivery of Gas on account of such disputed claim
while such bond is in effect (unless other grounds for suspension by
Seller apply hereunder), and the dispute shall be resolved by
arbitration, as provided in Section 21.11. If it is determined that
Buyer does not owe the disputed amount, Seller shall reimburse Buyer
for the cost of the surety bond plus the amount of interest that has
accrued on the cost of the surety bond from the time the surety bond
was purchased by Buyer until such time as Buyer is determined not to
owe the disputed amounts, at the prime interest rate (Chase Manhattan
Bank) in effect at the time of Seller's original bill or the then
maximum lawful interest rate, whichever is lower; or
(b) Buyer shall pay the entire amount billed and shall identify in
writing the portion that Buyer determines in good faith to be
incorrect. In such event, Seller shall not be entitled to suspend
delivery of Gas on account of such dispute by Buyer (unless other
grounds for suspension by Seller apply hereunder), and the dispute
shall be resolved by arbitration, as provided in Section 21.11. If it
is determined that Buyer does not owe the disputed portion, Seller
shall refund the overpayment made by Buyer plus the amount of
interest that has accrued on such overpayment since the date it was
made at the prime interest rate (Chase Manhattan Bank) in effect at
the time of Seller's original bill or the then maximum lawful
interest rate, whichever is lower.
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11.6 Adjustments. Subsequent to any bill having been paid, if any overcharge
or undercharge in any form whatsoever shall be found, Seller shall refund the
amount of any overcharge received by Seller, and Buyer shall pay the amount
of any undercharge due Seller within thirty (30) days after final
determination thereof, provided, however, no retroactive adjustment will be
made for any overcharge or undercharge identified or objected to for the
first time after a period of twenty-four (24) months from the last day of the
calendar year in which the invoice reflecting the overcharge or undercharge
was issued.
11.7 Audits. Each Party shall have the right, at its sole expense, to audit
the books and records of the other Party during the other Party's business
hours to determine the accuracy of any such billing statement or billing
rendered by the other Party; provided that neither Party shall exercise such
audit right more frequently than once per year. In conducting such audits,
Buyer and other members of the ABC Group shall reasonably coordinate the
timing of any such audit and to endeavor to retain the same auditing firm.
11.8 Other Information. Upon Seller's request, Buyer shall provide Seller
with a copy of all transportation requests and nominations made by Buyer to
Transporter for all Gas purchased hereunder.
ARTICLE 12
PROCESSING AND MEASUREMENT
12.1 Processing. Subject to the requirements of the FERC tariff of
Transporter transporting gas for Buyer's account, Seller reserves the
continuing right, without notice to Buyer, to cause all Gas delivered and
sold hereunder to be processed for the extraction of natural gas liquid
products; provided that the processing right of Seller in no way relieves
Seller of its obligations hereunder. When Seller exercises this right, Seller
shall indemnify and hold Buyer harmless from (a) all processing fees and
charges, (b) all Btu shrinkage resulting from such processing, (c) all
transportation charges applicable to Gas to be processed that are additional
to those that would otherwise be incurred by Buyer absent such processing,
and (d) all liabilities, losses or damages to persons or property resulting
from or relating to the processing, extraction or transportation of such
natural gas liquid products. Seller shall retain and have title to all such
natural gas liquid products.
12.2 Measurements. The measurement of the quantity and quality of all Gas
delivered at the Title Transfer Point(s) hereunder shall be conducted
consistent with the practice of Transporter and in accordance with the
provisions of its approved FERC tariff; provided
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that if Transporter computes Btu's on other than an "as delivered" or
unsaturated basis, proper adjustments shall be made to convert measured
quantities to reflect the "as delivered" or unsaturated condition of the Gas
at the Title Transfer Point. Such tariff shall govern the procedures to be
followed and adjustments to be made, if any, in the event errors in
measurement are discovered.
ARTICLE 13
TRANSPORTATION
13.1 Responsibility for Transportation. Seller shall arrange transportation
of the Gas covered hereby to Buyer's City Gate using Buyer's Unbundled
Capacity Rights and Individually Certificated Capacity Rights or such other
transportation arrangements that Seller deems appropriate.
ARTICLE 14
REPRESENTATIONS AND WARRANTIES
14.1 Jurisdictional Status. With respect to all Gas sold under this
Agreement, Seller warrants in the alternative that (i) all such Gas shall not
be subject to the jurisdiction of FERC under Section 7 of the Natural Gas Act
of 1938 ("NGA") or (ii) if such Gas is subject to such jurisdiction, all
authorizations from the FERC necessary to sell such Gas to Buyer have been
obtained.
14.2 Quality and Pressure. Seller warrants that all Gas delivered to Buyer
shall be of merchantable quality and warrants that all Gas when delivered to
the custody of Transporter or of an upstream pipeline(s) delivering Gas to
Transporter (a) shall meet or exceed the minimum specifications of
Transporter and any such upstream pipeline concerning quality and minimum Btu
value and (b) shall be so delivered in compliance with the pressure
requirements as set forth in the effective tariff of Transporter and any such
upstream pipeline (anywhere within the applicable pipeline's allowable
pressure range up to the maximum). Buyer's remedy for the breach of the
foregoing warranty shall be damages as calculated under Section 16.2
hereunder, or at the Buyer's option, replacement by the Seller at no
additional expense to Buyer of the quantity of non-conforming Gas with an
equivalent quantity of conforming Gas, and in either event, Seller shall
indemnify and hold Buyer harmless for any damages caused by such
non-conforming Gas. If Seller is required to make such replacement, upon
Seller's request,
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Buyer shall assign to Seller, Buyer's rights, if any, as shipper, to the
quantity of non-conforming Gas, if any, retained by Transporter.
14.3 Title. Seller warrants that it has title to or the right to sell all
Gas delivered hereunder and that such Gas shall be free and clear from liens
and adverse claims by third parties upon delivery to Buyer or for Buyer's
account hereunder. Seller shall indemnify Buyer and hold it harmless from any
and all suits, actions, debts, accounts, damages, costs, losses, and expenses
arising from or out of adverse claims of any person or entity to said Gas.
14.4 Supply. Seller covenants that it will maintain under contract(s)
throughout the term of this Agreement a supply of Gas, which supply will not be
committed by Seller on a firm basis to any other purchaser or to any other
contract and will be sufficient to satisfy Seller's delivery obligations
under this Agreement; it being understood that such delivery obligations are
subject to the suspension provisions of Section 15.1 and the provisions of
Article 10 conditioning Seller's obligation to maintain and tender supplies
of Back-Up Gas.
ARTICLE 15
FORCE MAJEURE
15.1 Suspension. In the event either Party is prevented from performing its
respective obligation to deliver or to receive any quantity of Gas by force
majeure, as defined below, the obligation of that Party to deliver or to
receive Gas under this Agreement shall be suspended for the duration of such
event and to the extent of the quantity so affected by force majeure and such
Party shall not be considered to have breached its obligations hereunder. A
Party claiming force majeure hereunder shall, in good faith, take all
measures reasonably required to relieve itself of the cause of the force
majeure and shall promptly notify the other Party when such cause or causes
are removed. It is understood and agreed that the settlement of strikes or
lockouts shall be entirely within the discretion of the Party having the
difficulty; provided that such settlement is pursued with reasonable
dispatch. The above reasonable dispatch shall not require the settlement of
strikes or lockouts by acceding to the demands of opposing entities when such
course is or is deemed to be inadvisable or inappropriate in the discretion
of the Party having the difficulty. A Party shall give prompt notice and
reasonably full particulars to the other Party of the occurrence and duration
of any claimed force majeure event. During any period in which force majeure
prevents performance hereunder, Seller or Buyer shall continue to deliver or
receive that quantity of Gas which it may prudently deliver or receive in
light of the magnitude of the force majeure and in accordance with Article 10
hereof.
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15.2 Definition of Force Majeure. Force majeure means acts of God; strikes,
lockouts or other industrial disturbances; acts of the public enemy, wars,
blockades, insurrections, civil disturbances and riots, and epidemics;
landslides, lightning, earthquakes, fires, storms, hurricanes, floods,
washouts, extreme weather conditions impairing the operation of production,
transportation, or distribution facilities; orders, directives, restraints
and requirements of the government and governmental agencies, either federal
or state, civil, and military; failure of transportation because of an event
constituting force majeure or other excuse for interruption, curtailment or
discontinuation by Transporter of transportation or other services;
explosions, breakage, freezing, or accident to facilities or lines of pipe;
and any other cause not enumerated herein not within the control of the Party
claiming excuse, which prevents a party from performing under this Agreement
in the manner provided for herein (including the use by Seller or by Buyer of
Texas Eastern, Algonquin, and other Transporters); provided, however, that
such cause affecting performance by either Party shall not relieve it of
liability to the extent that the cause resulted from that Party's negligence
or willful misconduct. For purposes of this Section 15.2, an event of the
type described above that physically limits deliveries by United Gas Pipeline
Company of the Kosciusko Input Quantity into Texas Eastern, that causes a
physical reduction of transportation service by Texas Eastern, and that
applies to Buyer's Unbundled Capacity Rights and/or Individually-Certificated
Capacity Rights shall be considered an event of force majeure, but only if
Seller has made every reasonable effort to deliver this quantity of Gas to
Buyer utilizing receipt points and capacity into Texas Eastern other than at
Kosciusko.
15.3 Exclusion. Force majeure shall not include particularly the failure of
Seller to have available sufficient Gas supply on hand to permit Seller to
perform its obligations to deliver the RQ hereunder, unless such failure is
caused by an event of force majeure as described in Section 15.2 hereof.
15.4 Other Effects. In the event a Party suspends performance pursuant to
Section 15.1, the other Party shall have the following rights:
(a) If Seller is the Party suspending performance, and if the Force
Majeure Event does not relate to a pipeline, storage or other
facility under the dominion of Transporter or any other
transporting pipeline, Buyer shall receive a credit against the
Reservation Fee payable by Buyer ("Reservation Fee Credit") equal
to $.08 times (i) the sum of the Nominated Quantities for each
day of suspension during the applicable Month minus (ii) the sum
of Seller's actual City-Gate deliveries for each day of suspension
during that Month.
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(b) If Buyer is the Party suspending performance, Buyer shall be
obligated to continue to pay all amounts payable hereunder,
including, but not limited to the Reservation Fee.
ARTICLE 16
DAMAGES AND TERMINATION RIGHTS
16.1 Obtaining Alternate Supplies or Markets. If (a) either Party fails, in
whole or in part, to perform its obligations under this Agreement, (b) such
failure results in a shortfall in deliveries by Seller or receipts by Buyer
from the quantity nominated by Buyer pursuant to Section 9.1 (a) (as modified
to reflect changes accommodated by Seller pursuant to Section 9.1(b)), and
(c) the obligations that a Party so fails to perform are not subject to the
suspension provisions of Article 15 (the foregoing three conditions are
hereafter referred to collectively in this Article 16 as "Damage Triggering
Conditions"), the other Party shall use its reasonable efforts to mitigate
the effect of such failure in accordance with the following procedures:
(a) If Seller fails to perform its obligation to deliver Gas to Buyer,
Buyer shall, without prejudice to its rights to collect damages
from Seller in accordance with Section 16.2, make commercially
reasonable efforts to secure a replacement source of supply on
either a firm or interruptible basis. If Buyer has secured a
replacement source of firm supply, once Seller regains its ability
to deliver Gas to Buyer, Seller shall have the option to (i) allow
Buyer to purchase from the replacement source; provided that Seller
shall resume deliveries of Gas under this Agreement as soon as
Buyer's obligation to purchase Gas from the replacement source has
expired, or (ii) require that Buyer discontinue receiving Gas from
the replacement source, provided that Seller shall pay to Buyer
an amount equal to that which is required to reimburse such
replacement supplier for any reservation fee, penalties, and other
charges for Gas contracted for but not taken by Buyer from such
replacement supplier. Buyer shall make commercially reasonable
efforts to obtain a least cost replacement source of Gas that can
be interrupted when Seller is once again able to perform, taking
into account Buyer's need for a reliable replacement source.
(b) If Buyer fails to perform its obligation to receive Gas from
Seller, Seller shall, without prejudice to its rights to collect
damages from Buyer in accordance with Sections 16.3 hereunder,
make commercially reasonable efforts to secure a replacement
interruptible market for the Gas which Buyer is
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entitled to receive under this Agreement, provided that once Buyer
regains its ability to receive Gas from Seller, Seller shall
resume delivery to Buyer of that quantity of Gas that Seller is
obligated to deliver hereunder.
16.2 Buyer's Damages. During any period when the requirements of the Damage
Triggering Conditions applicable to Seller are fully satisfied, Buyer shall
be entitled to collect the following damages from Seller:
(a) An amount equal to the difference between (i) the actual amount
expended by Buyer to secure a quantity of replacement supplies
(such supplies not to exceed in any month a quantity of
replacement supplies equal to the number of days in the month
times the EQ) and (ii) the amount which would have been payable
as Commodity Charges pursuant to Section 8.1 if Seller had
delivered such supplies during the month. In addition, Seller
shall reimburse Buyer for any extra expense not included in the
foregoing amount that Buyer incurs in procuring such supplies
from the replacement source, including, but not limited to,
supplier reservation charges, transportation charges and overrun,
imbalance and other penalties assessed by Transporters or other
transporting pipeline. For purposes of the immediately preceding
sentence the term "extra expense" shall mean any such expense of
Buyer to the extent it exceeds that which would have been incurred
by Buyer if Seller had delivered Gas in the manner provided
herein;
(b) To the extent Buyer cannot obtain replacement supplies through
Algonquin or any other means and, as a result, is forced to
curtail Resale Customers or is unable to inject Gas into
storage, an amount equal to (i) (A) the Reservation Quantity times
the number of days in the month minus (B) the quantity of
replacement supplies included in the damage computation of Section
16.2(a) above minus (C) the quantity actually delivered by Seller
during the month times (ii) 2 times the Back-Up Gas Commodity Unit
Price in effect for that month; and
(c) A credit equal to the entire Reservation Fee otherwise payable by
Buyer for the month in which Seller's delivery shortfall occurs,
if the quantity that Seller fails to deliver on any Day during
that month exceeds 2% of the EQ and Buyer is on that Day ready,
willing and able to receive the entire quantity of Gas nominated
under Section 9.1(a), as modified to reflect changes accommodated
by Seller pursuant to Section 9.1(b).
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Seller shall pay Buyer any damages to which Buyer is entitled under this
Section on or before the fifteenth (15th) day after Seller receives a written
calculation of the amount of such damages from Buyer.
16.3 Seller's Damages. During any period when the requirements of the
Damage Triggering Conditions applicable to Buyer are fully satisfied, Seller
shall be entitled to collect the following damages from Buyer (in addition to
such sums as may continue to be due and payable by Buyer under Article 8
hereof):
(a) An amount equal to the difference between (i) the actual revenues
realized by Seller from the sale of Gas in the replacement
markets with respect to the quantity of Gas equal to that
received by Buyer during such period from other sources, not
including Extraneous Gas, not to exceed for any Day the EQ and
(ii) the amount which would have been payable as Commodity
Charges pursuant to Section 8.1(b) if Buyer had received such
quantity of Gas during the month. In addition, Buyer shall
reimburse Seller for any extra expense not included in the
foregoing amount that Seller incurs in disposing of such Gas in
the replacement markets, including, but not limited to
transportation charges. For purposes of the immediately preceding
sentence the term "extra expense" shall mean any such expense of
Seller to the extent it exceeds that which would have been
incurred by Seller if Buyer had received Gas in the manner
provided herein; and
(b) To the extent Seller cannot obtain replacement markets, an amount
equal to (i) (A) the Reservation Quantity times the number of days
in the month minus (B) the quantity of replacement market
supplies included in the damage computation of Section 16.3(a)
above minus (C) the quantity actually received by Buyer during
the month times (ii) the Reserved Gas Commodity Unit Price in
effect for that month.
Buyer shall pay Seller any damages to which Seller is entitled in hereunder
on or before the fifteenth (15th) day after Buyer receives a written
calculation of the amount of such damages from Seller.
16.4 Termination in Event of a Delivery Shortfall by Seller.
(a) If a delivery shortfall by Seller (i) occurs for any reason, other
than a Force Majeure Event, (ii) exceeds 2% of the EQ times the
number of Days in which such delivery shortfall occurs, and (iii)
occurs during a cumulative period of seven (7) individual Days
during any March through November period or during a cumulative
period of four (4) individual Days during any
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December through February period, Buyer may terminate this
Agreement; provided (i) such notice is given no later than
30 days after any such delivery shortfall occurs and (ii)
such termination shall be effective on the first Day of the
second month after such notice is received by Seller.
(b) If a delivery shortfall by Seller (i) occurs on account
of a Force Majeure Event not relating to a pipeline transporting
Seller's gas supplies for sale to Buyer hereunder, (ii) exceeds
2% of the EQ times the number of Days in which such delivery
shortfall occurs, and (iii) continues for a period in excess
of 60 Days, Buyer may terminate this Agreement; provided
(i) such notice is given no later than 30 Days after any
such delivery shortfall occurs and (ii) such termination shall
be effective on the first Day of the second month after such
notice is received by Seller.
(c) If a delivery shortfall by Seller (i) occurs on account of a
Force Majeure Event relating to a pipeline transporting Seller's
gas supplies for sale to Buyer hereunder, (ii) exceeds 2% of the
EQ times the number of Days in which such delivery shortfall
occurs, and (iii) continues for a period in excess of 180 Days,
Buyer may terminate this Agreement; provided (i) such notice
is given no later than 30 Days after any such failure occurs
and (ii) such termination shall be effective on the first Day
of the second month after such notice is received by Seller.
16.5 Effect of Article 16. Except as provided in Sections 6.2, 12.1, 14.2 and
14.3, the damages specified in this Article 16 constitute the sole and
exclusive damage remedies available to a Party in the event of a breach of
any obligation specified herein (excepting the obligation to pay sums then
continuing to be due and payable hereunder) and shall be payable in the event
of such breach in lieu of any other damages available at law, including, but
not limited to, consequential or punitive damages; provided that nothing in
this Article 16 shall be construed to impair the right of either Party to
exercise a right to terminate this Agreement, as expressly provided for in
this Article 16 or elsewhere in this Agreement, or to put an end to this
Agreement by cancellation, as provided by law.
ARTICLE 17
FINANCIAL RESPONSIBILITY
17.1 Maintaining Buyer's Financial Responsibility. If Seller in its sole
judgment, reasonably exercised, determines that the financial responsibility
of Buyer has materially deteriorated from its condition on the Commencement
Date such that reasonable doubts
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exist concerning Buyer's ability to make timely payments hereunder, Seller
shall give notice of such determination. During the four (4) days following
the giving of such notice, Buyer and Seller shall discuss and review Buyer's
financial information and whether such information adequately resolves such
doubts. If Seller determines that the financial information provided by Buyer
fails to adequately resolve such doubts or is incomplete or deficient, Seller
may, on the fifth (5) day following the giving of Seller's notice, initiate
advance cash payment (i.e., prepayment) procedures, or request other security
satisfactory to Seller. If requested by Seller, Buyer shall provide
satisfactory security on demand, and Seller may suspend deliveries hereunder
until such security is received by Seller. If Seller initiates advance cash
payment procedures or requests other security and such security is furnished
by Buyer, and if Buyer thereafter establishes that the grounds for Seller's
determination that Buyer's financial security is impaired or unsatisfactory
are no longer applicable, Seller shall discontinue advance cash payment
procedures and/or release the security previously furnished by Buyer and the
billing procedure hereunder shall revert prospectively to that set forth in
Article 11. Each Party shall have the right to set off any amounts due to the
other Party under this Agreement against any amounts due from the other Party
under this Agreement or any other agreement. The exercise of any right under
this section shall be without prejudice to any claims for damages or any
other right under this Agreement or applicable law.
17.2 Bankruptcy of Party. The filing of a petition in bankruptcy by either
Party, or the initiation by such Party of proceedings for reorganization
under the Bankruptcy Code, or the appointment of a receiver for such Party
(or for any property of such Party required for the performance of this
Agreement), or the filing of any insolvency proceeding against such Party, or
the execution by such Party of an assignment for the benefit of its creditors
shall constitute a breach by such Party of its warranties under this
Agreement. In addition Seller shall be deemed in breach of its warranties
under this Agreement if any of the foregoing acts or actions are taken by or
against Seller's affiliated corporation, CNG Producing Company, or Seller's
parent corporation, Consolidated Natural Gas Company. This Agreement may be
terminated by the other Party, upon fifteen (15) days written notice to the
Party breaching this Section 17.2. Such termination shall not be to the
exclusion of any other remedies available to the terminating Party under this
Agreement or applicable law.
ARTICLE 18
ASSIGNMENT
18.1 Assignment of the Agreement. This Agreement shall not be assigned in
whole or in part by either Party without the prior written consent of the
other Party, which consent
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shall not be unreasonably delayed or withheld; provided, however, that
without the consent of the other Party, either Buyer or Seller, without
relieving itself of its obligations under this Agreement may assign this
Agreement to its parent corporation or to an entity with which it is under
common ownership and control. Any entity which shall succeed by purchase,
merger, or consolidation of the properties, substantially as an entity, of
Seller or of Buyer, as the case may be, shall be entitled to the rights and
shall be subject to the obligations of its predecessor in title under this
Agreement. This Agreement shall be binding on each Party's successors and
assigns.
ARTICLE 19
COLLATERAL DOCUMENTS
19.1 Capacity Management Agreement. Contemporaneously with the execution of
this document, the Parties are executing the Capacity Management Agreement.
19.2 Support Letter. Seller is furnishing contemporaneously with the
execution hereof, an executed support letter from Seller's parent,
Consolidated Natural Gas Company. A form of such letter is attached as
Exhibit "B" hereto.
19.3 Guarantee. Seller is furnishing contemporaneously with the execution
hereof, an executed written guarantee from Seller's affiliate, CNG Producing
Company, in the form and substance set out in Exhibit "C" hereto. If the
total common stockholders' equity of CNG Producing Company, as reflected in
the consolidating balance sheet contained in the most recent Form USS of
Consolidated Natural Gas Company filed with the Securities and Exchange
commission pursuant to the Public Utility Holding company Act of 1935, falls
below the sum of $150,000,000.00, Seller shall so notify Buyer. Upon receipt
of such notification, Buyer may request Seller to provide an additional
guarantee, conforming to the substance of Exhibit "C", from an affiliated or
non-affiliated entity having sufficient total common stockholders' equity
such that the combined total common stockholders' equity of CNG Producing
Company and such additional guarantor, as of the date of the foregoing
balance sheet and the date of the most recent audited balance sheet of the
additional guarantor, equals or exceeds the sum of $150,000,000.00. If Seller
fails to provide such additional guarantee on or before 60 days after Buyer's
request ("cut-off date"), Buyer may terminate this Agreement; provided (i)
such termination notice is given no later than 10 days after the cut-off date
and (ii) such termination shall be effective on the first day of the second
month after such notice is received by Seller.
19.4 Buyer's Agreements with Transporters. Buyer agrees to execute promptly
and in proper form any and all transportation (including storage) service
agreements with
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Transporters (including amendments thereto) that may be required to perfect
Buyer's Unbundled Capacity Rights and Individually-Certificated Capacity
Rights and to maintain agreements to receive the same level of service in
full force and effect during the term hereof; provided nothing in this
Section 19.4 shall impair Buyer's right to convert or otherwise modify its
Unbundled Capacity Rights and Individually-Certificated Capacity Rights to
the extent permitted by FERC regulations and orders. Buyer also agrees to
execute an Operational Balancing Agreement or other service agreement with
Algonquin (covering gas flowing to the City Gate) and to maintain such
agreement in full force and effect during the term hereof. Buyer shall be
solely responsible for any balancing, payback or other obligations arising
under such service agreement.
19.5 Seller's Agreements with Transporters. Seller agrees to execute promptly
and in proper form the agreements with Transporters identified in the
Capacity Management Agreement. Seller also agrees to execute or to cause
Seller's affiliate, CNG Producing Company, to execute a service agreement with
Texas Eastern for TABS-1 service and to maintain such agreement in full force
and effect during the term hereof. Seller and/or CNG Producing Company shall
be solely responsible for any balancing, payback or other obligations arising
under such service agreement.
ARTICLE 20
TRANSPORTER PENALTIES
20.1 Responsibility for Penalties. Should any penalty be levied by
Transporter, Seller shall pay such penalty under protest. Thereafter, the
Parties shall investigate and determine whether such penalty was wrongfully
assessed by Transporter, and if not wrongfully assessed, whether Buyer was at
fault for causing the penalty to be incurred. If Buyer is determined to be at
fault, Buyer shall be liable for payment of such penalty and will reimburse
Seller in the event such penalty was earlier paid by Seller.
ARTICLE 21
MISCELLANEOUS
21.1 Choice of Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the state of Massachusetts, excluding the
conflict of laws principles applied in that state.
37
<PAGE>
21.2 Entire Agreement. This Agreement (which includes attached hereto
Exhibits "A", "B", "C", and "D" and Appendices I, II, III, and IV), together
with the Capacity Management Agreement, constitutes the entire agreement
between the Parties covering the subject matter hereof and supersedes any and
all prior agreements, understandings, correspondence and other
communications, written or oral, regarding the subject matter covered by this
agreement and the Capacity Management Agreement.
21.3 Notices. Unless otherwise specified herein, any notice required or
permitted hereunder shall be in writing. Any such notice shall be deemed
given (i) when sent by Federal Express or other overnight delivery service to
the street address of the Parties shown below, or (ii) when transmitted by
facsimile transmission (FAX) to the Parties' respective numbers shown below:
(a) CNG Gas Services Corporation
One Park Ridge Center
Pittsburgh, PA 15244-0746
Attn: Director, Supply and Transportation
FAX NO. (412) 787-4260
(b) Fall River Gas Company
155 N. Main Street
Fall River, MA 02720
Attn: Jack Fanning
FAX NO. (508) 673-4290
Any FAX communication shall be promptly confirmed by mail. Either Party may
change such address or telephone number by giving prior notice to the other
Party.
21.4 Exclusion of Third Party Rights. This Agreement is for the sole and
exclusive benefit of the Parties hereto. Nothing expressed or implied herein
is intended to benefit any other person or entity not a Party hereto. None of
such persons or entities shall have any legal or equitable right, remedy, or
claim under this Agreement or any provision herein.
21.5 Waiver. Any waiver by either Party of performance due by the other Party
hereunder shall be without prejudice to the right of that waiving Party to
demand future performance which is in strict compliance with the terms hereof
by that other Party.
38
<PAGE>
21.6 Confidentiality. This Agreement and all notices, statements,
correspondence, and other communications relating to the negotiation or
administration of this Agreement ("Agreement Information") are non-public,
confidential, and proprietary. Each Party shall keep such Agreement
Information strictly confidential for a period ending two (2) years after the
expiration or termination of this Agreement. Subject to any disclosure
obligations imposed upon Buyer as a governmental entity or as a private
entity subject to state public utility commission jurisdiction, to the
provisions of Section 11.7 permitting a coordinated audit by members of the
ABC Group and to the provisions of 21.11 permitting joint arbitration of
common issues, the Parties agree that they shall not disclose, reveal or
divulge the Agreement Information to any person other than a director,
officer, employee (including an employee of any affiliate of that Party),
auditor, or advisor of that Party who needs to know such Agreement
Information and is obligated to keep the Agreement Information strictly
confidential, without the prior written consent of the other Party or except
as may be required to comply with any statute, ordinance or order of a court
or governmental agency having subject matter jurisdiction. Each Party hereby
gives its consent in advance to disclosure of this Agreement in connection
with pricing arbitration proceedings involving such other Party; provided
such other Party takes steps to ensure to the extent permitted by law that
the record of such arbitration proceeding does not become public information.
In the event disclosure of Agreement Information is required to any
governmental agency, the Party making such disclosure shall seek confidential
treatment thereof by the governmental agency, including but not limited to,
exemption of Agreement Information (to the extent permitted by law) from
public access under any applicable freedom of information statute and the
redacting of any Agreement Information included in the public record to
delete pricing and other commercially sensitive data.
21.7 Refunds and Retroactive Price Adjustments. Except as provided in Section
8.2 and in the Capacity Management Agreement, neither Party shall be
obligated by this Agreement to flow through to the other Party or any other
person via refund, retroactive price adjustment, or other means any rate
refund or other payment received by that Party from any pipeline or other
entity that may transport the Gas delivered or received hereunder for the
account of that Party.
21.8 Severability. If any provision of this Agreement is held invalid,
illegal, or unenforceable to any extent, and for any reason, by a court of
competent jurisdiction, the remainder of this Agreement shall not be affected
thereby and shall continue in full force and effect to the full extent
permitted by law; provided, however, that if Article 10 or Section 14.3,
14.4, 19.2, 19.3 or 21.13 is held invalid, illegal, or unenforceable to any
extent, Buyer shall have the right to terminate this Agreement immediately.
In the event any provision is held invalid, illegal, or unenforceable, the
Parties shall meet promptly to work together in good faith to replace the
provision or term so as to effectuate the intent of the Parties regarding this
Agreement.
39
<PAGE>
21.9 Amendments and Other Modifications. Amendments and other modifications
of this Agreement shall be or become effective only upon mutual execution of
written documents hereto by the duly authorized representatives of the
respective Parties.
21.10 Headings. The Article and Section headings in this Agreement are for
purposes of reference only and shall not affect the meaning of any provision
of this Agreement.
21.11 Arbitration. All claims, disputes and other matters in question arising
out of, or relating to this Agreement or the breach thereof shall be decided
by arbitration using a single arbitrator who (a) is acceptable to both
Parties, (b) has professional experience in and knowledge of the natural gas
industry, and (c) is not now and has not been an employee of or a consultant
for either Party within the past 5 years in accordance with the Commercial
Arbitration Rules of the American Arbitration Association then in force,
unless the parties agree otherwise. If there are common issues in
controversy involving two or more members of the ABC Group, such issues shall
be resolved in a joint arbitration proceeding: If the Parties fail to agree
on such single arbitrator, either Party may petition the United States
District Court for the District of Massachusetts for the appointment of such
arbitrator. This arbitration clause shall be specifically enforceable under
the prevailing arbitration law. The award rendered by the arbitrator shall be
final, and judgment may be entered upon it in accordance with the applicable
law in any court having jurisdiction thereof. Notice of a demand for
arbitration shall be filed in writing with the other party to this Agreement
and with the American Arbitration Association. The arbitration shall be
conducted in Boston, Massachusetts, or such other place as the parties may
agree. The parties shall continue to perform under this Agreement during any
arbitration proceedings, unless otherwise agreed in writing.
21.12 Further Assurances. Buyer and Seller agree that, from time to time,
each of them will take such actions as may be necessary to carry out the
purposes of this Agreement, including such temporary adjustments to the
nominating, dispatching and billing procedures stated herein as may be
reasonably required if the Commencement Date occurs other than on the first
day of the month.
21.13 Reserve Auditor's Report. At Buyer's request, Seller agrees to cause
CNG Producing Company to furnish a report from the Reserve Auditor concerning
the gas reserves of CNG Producing Company as of January 1 of the year in which
such request is made. A form of such report is attached hereto as Exhibit
"D". Such report shall constitute Agreement Information for purposes of
Section 21.6. If such report shows that the Proved Working Interest Gas
Reserves are less than 150 billion cubic feet, Buyer may terminate this
Agreement; provided (i) such termination notice is given no later than 10
days after such report is furnished by Seller and (ii) such termination shall
be effective on the first day of the second month after such notice is
received by Seller.
40
<PAGE>
21.14 Additional Credit by Seller to Buyer's Account. Each month during the
term hereof, Seller shall credit Buyer's account with an amount equal to
one-twelfth (1/12) of the Reservation Fee payable to Texas Eastern pursuant
to Buyer's service agreement under Texas Eastern Rate Schedule CDS.
IN WITNESS WHEREOF, the Parties have duly executed this Agreement to be
effective on the day and year first written above.
CNG GAS SERVICES CORPORATION, SELLER
By: Carter T. Funk
----------------------------
Title: V.P. & Gen Mgr
----------------------------
FALL RIVER GAS COMPANY, BUYER
By: xxx
---------------------------
Title: President
---------------------------
41
<PAGE>
EXHIBIT "A"
To Gas Sales Agreement
Dated June 1, 1993 Between
CNG Gas Services Corporation and
Fall River Gas Company
<TABLE>
<CAPTION>
Type of
Rate Contract Capacity Special Title
Transporter Schedule Number Right Transfer Point
----------- -------- -------- -------- --------------
<S> <C> <C> <C> <C>
TE(1) CDS 800297 Unbundled No
TE CDS 800109 Unbundled No
TE SS-1 400154 Unbundled No
TE SS-1 400155 Unbundled No
TE SS-1 400156 Unbundled No
TE FTS-7 331702 Ind. Cert(2) Oakford/
Lambertville
AL(3) AFT-E 93007E Unbundled No
AL AFT-E 9W006E Unbundled No
AL AFT-1 93405 Unbundled No
AL AFT-1 9B104 Unbundled No
AL AIT-1 931006B Unbundled No
AL AIT-1 9310075 Unbundled No
AL PTP 934003 Ind. Cert. Lambertville
TE IT-1 331053 Unbundled CNGT/
Lambertville
TE IT-1 331052 Unbundled Oakford/
Lambertville
CNGT(4) - GS2M TBD(5) TBD
CNGT - GS3M TBD TBD
</TABLE>
_______________________
(1) Texas Eastern
(2) Individually certificated
(3) Algonquin
(4) CNG Transmission
(5) To be determined
i
<PAGE>
EXHIBIT "B"
To Gas Sales Agreement
Dated June 1, 1993 Between
CNG Gas Services Corporation and
Fall River Gas Company
(Form of Support Letter)
----------------------
Date
Fall River Gas Company
155 N. Main Street
Fall River, MA 02720
Attn: Jack Fanning
Gentlemen:
Consolidated Natural Gas Company ("CNG") is aware that its CNG Gas
Services Corporation subsidiary ("GSC") has entered into a Gas Sales
Agreement dated June 1, 1993 with Fall River Gas Company. CNG owns 100% of
the capital stock of GSC and has established GSC as its principal marketing
arm of the CNG system.
CNG, since its inception in 1943, has always supported its subsidiaries
so that they fulfilled their obligations. In connection with the Gas Sales
Agreement, CNG confirms that it is its firm policy to (i) support GSC so that
it will be able to fulfill its obligations under agreements, such as the Gas
Sales Agreement with Fall River Gas Company, and (ii) take any and all
actions to assure that GSC will have sufficient resources to allow it to
fulfill its obligations under the Gas Sales Agreement.
Sincerely,
i
<PAGE>
GUARANTEE
----------
THIS GUARANTEE is made this 1st day of August, 1993, by CNG Producing
Company, a Delaware Corporation, (hereinafter referred to as the "Guarantor")
in favor of Fall River Gas Company (hereinafter referred to as "Creditor").
WHEREAS, Creditor and CNG Gas Services Corporation (hereinafter referred
to as "Debtor") will enter into that certain Gas Sales Agreement dated as of
June 1, 1993, pursuant to which Creditor will purchase natural gas
(hereinafter referred to as the "Gas Sales Agreement"); and
WHEREAS, Guarantor, as the affiliated corporation of Debtor, has assets
of $1,265,815,000.00 as of March 31, 1993;
WHEREAS, as an inducement to Creditor to enter into the Gas Sales
Agreement, Guarantor has agreed to provide this Guarantee, as provided herein;
NOW, THEREFORE, for and in consideration of the premises, Guarantor
hereby agrees as follows:
1. GUARANTEE. Subject to the provisions hereof, Guarantor, including any
of Guarantor's successors, hereby irrevocably, absolutely and unconditionally
guarantees the timely performance of the obligations of Debtor to Creditor as
set forth in the Gas Sales Agreement ("Debtor's Obligations"). To the extent
that Debtor shall fail to perform any of Debtor's Obligations, Guarantor
shall perform or cause to be performed Debtor's Obligations. The liability of
Guarantor under this Guarantee shall be subject to the following:
(a) Any amendment, waiver, or modification of or addition or supplement
to or deletion from any of the terms of the Gas Sales Agreement shall
require Guarantor's consent;
(b) If Guarantor fails to perform any of Debtor's Obligations, Guarantor
shall be responsible to Debtor for only those damages for which
Debtor may be responsible, as set forth in Sections 6.2, 12.1, 14.2
and 14.3 and in Article 16 of the Gas Sales Agreement; and
(c) To the extent the Gas Sales Agreement permits alternative methods of
performance by Debtor, performance by Guarantor of any of such
methods of performance shall fulfill Guarantor's obligation under
this Guarantee, and Guarantor shall not be held to any different or
greater obligation than that of Debtor under the Gas Sales Agreement.
2. DEMANDS AND NOTICE. If Debtor fails or refuses to perform any of Debtor's
Obligations, Creditor shall notify Guarantor in writing of the manner in which
<PAGE>
Debtor has failed to perform and demand performance by Guarantor. If Debtor's
failure or refusal to perform continues for a period of fifteen (15) days
after the date of Creditor's notice to Guarantor, and Creditor has elected to
exercise its rights under this Guarantee, Creditor shall make a demand upon
Guarantor (hereinafter referred to as a "Performance Demand"). A Performance
Demand shall be in writing and shall reasonably and briefly specify in what
manner Debtor has failed to perform the Debtor's Obligations, with a specific
statement that Creditor is calling upon Guarantor to perform under this
Guarantee. A Performance Demand in the foregoing form shall be deemed
sufficient notice to Guarantor that it must perform or cause to be performed
the Debtor's Obligation. A single written Performance Demand shall be
effective as to any specific default during the continuance of such default,
until Debtor or Guarantor has cured such default, and additional written
demands concerning such default shall not be required until such default is
cured.
3. REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants
that:
(a) it is a corporation duly organized and validly existing under the
laws of the State of Delaware and has the corporate power and
authority to execute, deliver and carry out the terms and provisions
of the Guarantee;
(b) no authorization, approval, consent, or order of, or registration
or filing with, any court or other governmental body having
jurisdiction over Guarantor is required on the part of Guarantor for
the execution and delivery of this Guarantee; and
(c) assuming due authorization, execution and delivery hereof by
Creditor, this Guarantee constitutes a valid and legally binding
agreement of Guarantor.
4. SETOFFS AND COUNTERCLAIMS. Guarantor reserves to itself all rights,
setoffs, counterclaims and other defenses which Debtor is or may
be entitled to arising from or out of the Gas Sales Agreement,
except for defenses arising out of the bankruptcy, insolvency,
dissolution or liquidation of Debtor.
5. AMENDMENT OF GUARANTEE. No term or provision of this Guarantee shall
be amended, modified, altered, waived, supplemented or terminated
except in a writing signed by the parties hereto.
6. WAIVERS. Guarantor hereby waives (a) notice of acceptance of this
Guarantee; (b) presentment and demand concerning the liabilities of
Guarantor, except as expressly hereinabove set forth; and (c) any
right to require that any action or proceeding be brought against
Debtor or any other person, or except as expressly hereinabove set
forth, to require that Creditor seek enforcement of any performance
against Debtor or any other person, prior to any action against
Guarantor under the terms hereof.
Page 2 of 4
<PAGE>
No delay of Creditor in the exercise of, or failure to exercise, any
rights hereunder shall operate as a waiver of such rights, a waiver of any
other rights or a release of Guarantor from any obligations hereunder.
7. NOTICE. Any Performance Demand, notice, request, instruction,
correspondence or other document to be given hereunder by any party to
another (herein collectively called "Notice") shall be in writing and shall
be deemed given when sent by Federal Express or other overnight delivery
service, or transmitted by facsimile transmission (FAX), as follows:
To Creditor:
Fall River Gas Company
155 N. Main Street
Fall River, MA 02720
Attn: Jack Fanning
FAX: (508) 673-4290
To Guarantor:
CNG Producing Company
CNG Tower
1450 Poydras Street
New Orleans, LA 70115-6000
Attention: General Counsel
FAX: (504) 593-7346
Any FAX communication shall be promptly confirmed by mail. Either party
may change such address or telephone number by giving prior notice to the
other party.
8. TERM. This Guarantee shall be effective for a term concurrent with
the term of the Gas Sales Agreement.
9. MISCELLANEOUS. This Guarantee shall be governed by and interpreted
in accordance with the laws of Massachusetts, excluding the conflicts of laws
principles applied in that state. This Guarantee shall be binding upon and
inure to the benefit of and be enforceable by the respective successors and
assigns of Creditor. This Guarantee Agreement shall not be pledged,
mortgaged, assigned or otherwise transferred to any person or entity;
provided that if the Gas Sales Agreement is pledged, mortgaged, or assigned
to any financier as permitted under the Gas Sales Agreement, pursuant to any
mortgage, indenture or similar agreement now in effect, or hereafter entered
into by Creditor, this
Page 3 of 4
<PAGE>
Guarantee Agreement may be similarly pledged, mortgaged, or assigned; and
further provided, with Creditor's prior consent (which consent shall not be
unreasonably withheld), this Guarantee Agreement may be assigned to a person
or entity under common ownership and control with Guarantor in connection
with a business reorganization affecting Guarantor. The Guarantee embodies
the entire agreement and understanding between Guarantor and Creditor and
supersedes all prior agreements and understandings relating to the subject
matter hereof. The headings in this Guarantee may be executed in any number
of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
IN WITNESS WHEREOF, Guarantor and Creditor have caused this Guarantee to
be executed as of the day and year first above written.
CNG PRODUCING COMPANY
By: /s/ Paul P. [illegible]
---------------------------------
Title: Senior Vice President and CFO
---------------------------------
FALL RIVER GAS COMPANY
By: /s/ Jack [illegible]
---------------------------------
Title: Vice President - Gas Supply
---------------------------------
Page 4 of 4
<PAGE>
EXHIBIT "D"
To Gas Sales Agreement
Dated June 1, 1993 Between
CNG Gas Services Corporation and
Fall River Gas Company
FORM OF RESERVE AUDITOR'S REPORT
--------------------------------
[Reserve Auditor's Letterhead]
Fall River Gas Company
155 N. Main Street
Fall River, MA 02720
Attn: Jack Fanning
Gentlemen:
[Reserve Auditor] has audited the Proved Reserves of gas attributable to
the interest of CNG Producing Company as of January 1, 199 . The quantity of
Proved Working Interest Gas Reserves (as defined by the Securities and
Exchange Commission) at that date is billion cubic feet,
measured at a pressure base of 14.73 psia and 60 degrees Fahrenheit. Based on
gas contract data reviewed by [Reserve Auditor] as of January 1, 199 , at
least billion cubic feet of that quantity are not subject to
restrictions due to firm gas sales contracts having a term of one year or
longer having been entered into as of that date by CNG Producing Company with
affiliated and non-affiliated purchasers.
The above estimate is intended to confirm CNG Producing Company's supply
position as of January 1, 199 .
Sincerely yours,
[RESERVE AUDITOR]
By:
---------------------------
Authorized Representative
i
<PAGE>
APPENDIX I
To Gas Sales Agreement
Dated June 1, 1993 Between
CNG Gas Services Corporation and
Fall River Gas Company
COMMODITY UNIT PRICE COMPUTATION PROCEDURE
A. RESERVED GAS COMMODITY UNIT PRICE:
The Reserved Gas Commodity Unit Price for each month shall be equal to the
average of the "Index Prices" effective as of the first day of that month
(as listed on the table entitled "Prices of Spot Gas Delivered to
Pipeline), as published in INSIDE FERC'S GAS MARKET REPORT for that month,
for deliveries into Texas Eastern at Zones ELA, WLA, ETX, and STX and at
pipeline interconnection points with Texas Eastern at Kosciusko,
Mississippi ("Kosciusko"), as weighted in proportion to Buyer's
respective Base Segment Capacity Entitlement on Texas Eastern for each
such zone or point.
B. BACK-UP GAS COMMODITY UNIT PRICE:
The Back-Up Gas Commodity Unit Price for each month shall be equal to
product of (i) 2.0 and (ii) the "Index Price" effective as of the first
day of that month (as listed on the table entitled "Prices of Spot Gas
Delivered to Pipelines"), as published in INSIDE FERC'S GAS MARKET REPORT
for that month, for CNG Transmission Corp. (Appalachia); provided that
the Back-Up Gas Commodity Charge shall not exceed $3.85 per MMBtu into
CNG Transmission for deliveries made during the first Contract Year.
Until such time as INSIDE FERC'S GAS MARKET REPORT reports the Index Prices
for gas delivered into Texas Eastern, as specified above, the following
substitute indices shall be used:
1. LA Zone for WLA and ELA Zones:
2. TX Zone for STX and ETX Zones; and
3. The arithmetic average of prices listed for Texas Eastern at
Kosciusko, Mississippi under the column entitled "This Week" in the
table entitled
i
<PAGE>
"Spot Prices on Interstate Pipeline Systems", as such table appears in the
each weekly edition of Natural Gas Week, as published during the applicable
month for Kosciusko.
ii
<PAGE>
APPENDIX II
To Gas Sales Agreement
Dated June 1, 1993 Between
CNG Gas Services Corporation and
Fall River Gas Company
EXAMPLE ILLUSTRATING PROCEDURE
TO DETERMINE TRANSPORTATION SHRINKAGE QUANTITY
Key Principle:
RQ changes each month based on MTQ plus fuel related to transportation AND
fuel related to storage, on each Tansporter in chain. RQ is contingent upon
Nominated Quantities.
Therefore, if Pipelines X, Y, and Z are used to effect deliveries:
Reservation Quantity (RQ) = Maximum Transportation Quantity (MTG) +
Transportation Shrinkage Quantity (TSQ)
where the TSQ includes fuel on such quantities as are injected into
storage
TSQ(z)(Per Transporter) = MTQ(z)/(1-Fuel %(z)) - MTQ(z)
where (z) is the last pipeline in the chain and the one that effects
delivery at the City Gate.
TSQ(y)(Per Transporter) = MTQ(y)/(1-Fuel %(y)) - MTQ(y)
where (y) is the next to last pipeline in the chain and the one that
effects delivery to the last pipeline (z) in the chain, and where
MTQ(y) = MTQ(z) + TSQ(z).
TSQ(x)(Per Transporter) = MTQ(x)/(1-Fuel %(x)) - MTQ(x)
where (x) is the first pipeline in the chain and the one that effects
delivery to the next to last pipeline (y) in the chain, and where
MTQ(x) = MTQ(y) + TSQ(y).
Then:
TSQ = (MTQ/((1-Fuel Z)*(1-Fuel Y)*(1-Fuel X))) - MTQ
Sample Calculation:
<TABLE>
<CAPTION>
Fuel Shrinkage Reciprocal MMBtu's Required
<S> <C> <C>
3.00% = Fuel Z 0.97 1,031
2.00% = Fuel Y 0.98 1,052
5.00% = Fuel X 0.95 1,107
</TABLE>
RQ = 1,107 MMBtu's
MTQ = 1,000 MMBtu's
TSQ = 107 MMBtu's
i
<PAGE>
APPENDIX III
To Gas Sales Agreement
Dated June 1, 1993 Between
CNG Gas Services Corporation and
Fall River Gas Company
STORAGE ACCOUNT SCHEDULE
APRIL 199 THROUGH MARCH, 199 SEASON
REVISED AS OF ______________
1) Activity to Date:
Cumulative Storage Input Quantities: ___ MMBtu's
Cumulative Storage Output Quantities: ___ MMBtu's
2) Target percentage fill (input) [e.g. 100%]; turn (output)
[e.g. 80%]
3) November inputs? yes/no; April outputs? yes/no
I. STORAGE INPUT QUANTITY
<TABLE>
<CAPTION>
MONTH Minimum Maximum Default Actual*
<S> <C> <C> <C> <C>
April, 1993
May, 1993
June, 1993
July, 1993
August, 1993
September, 1993
October, 1993
November, 1993
- --------------
TOTAL
</TABLE>
II. STORAGE OUTPUT QUANTITY
<TABLE>
<CAPTION>
MONTH Minimum Maximum Default Actual*
<S> <C> <C> <C> <C>
October, 1993
November, 1993
December, 1993
January, 1994
February, 1994
March, 1994
April 1994
- --------------
TOTAL
</TABLE>
*Column for informational purpose only, but used to calculate figures in
preceding columns.
i
<PAGE>
APPENDIX IV
To Gas Sales Agreement
Dated June 1, 1993 Between
CNG Gas Services Corporation and
Fall River Gas Company
SCHEDULE OF EXTRANEOUS GAS
I. SOURCES OF EXTRANEOUS GAS:
A. Peak-shaving Gas available to Buyer's local distribution facilities
from the following propane injection and/or other facilities:
[TO COME]
B. Gas available to Buyer's local distribution facilities under the
following exchange or transportation agreements;
[TO COME]
C. Gas resulting from the evaporation of liquified natural gas
("LNG") and available from Distrigas of Massachusetts Corporation
or other suppliers located in the vicinity of Boston,
Massachusetts and available by pipeline, truck or other
means to Buyer's local distribution facilities.
II. MAXIMUM QUANTITIES OF EXTRANEOUS GAS:
<TABLE>
<CAPTION>
Month MMBtu's Per Day
----- ---------------
<S> <C>
April ____________
May ____________
June ____________
July ____________
August ____________
September ____________
October ____________
November ____________
December ____________
January ____________
February ____________
March ____________
</TABLE>
i
<PAGE>
INDEPENDENT AUDITOR'S CONSENT
As independent public accountants, we hereby consent to the
incorporation by reference in this Registration Statement on Form S-2 of our
reports dated November 19, 1996 included (or incorporated by reference) in
Fall River Gas Company's Form 10-K for the year ended September 30, 1996 and
to all references to our Firm included in this Registration Statement.
Arthur Andersen LLP
Boston, Massachusetts
September 18, 1997 (1)
- -------------------------
(1) Date of the amended S-2
