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Filed Pursuant to Rule 424(b)(4)
File No. 333-70997
RATINGS:
STANDARD & POOR'S: "AAA"
MOODY'S: "Aaa"
(SEE "RATINGS")
PROSPECTUS
$15,000,000
[PROVIDENCE GAS CO. LOGO]
6.50% SENIOR SECURED INSURED QUARTERLY NOTES
DUE FEBRUARY 1, 2029
(IQ NOTES(SM)*)
The notes bear interest at the rate of 6.50% per year. Interest on the notes is
payable quarterly on February 1, May 1, August 1 and November 1 of each year,
beginning May 1, 1999. The notes will mature on February 1, 2029. We can redeem
the notes on or after February 1, 2004. We will also redeem the notes, subject
to certain conditions, at the option of the representative of any deceased
noteholder.
The notes will be secured by a direct first lien on substantially all of our
real and tangible personal property and franchises and will rank equally with
all of our other first mortgage bonds. The notes will be available for purchase
in denominations of $1,000.
The payment of the regularly scheduled principal and interest on the notes will
be insured by a financial guaranty insurance policy issued by MBIA Insurance
Corporation.
[MBIA Insurance Corp. LOGO]
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-------------------------
Edward D. Jones & Co., L.P. has agreed to purchase the notes at 96.850% of their
principal amount ($14,527,500 aggregate proceeds to The Providence Gas Company,
before deducting our expenses, which we estimate to be $442,000), subject to the
terms of our purchase agreement. Edward D. Jones & Co., L.P. plans to sell the
notes from time to time, in negotiated transactions or otherwise, at prices
based on either the prevailing market or negotiated prices.
We expect that the notes will be ready for delivery in book-entry form only
through The Depository Trust Company ("DTC"), on or about February 8, 1999.
- -------------------------
* IQ Notes is a service mark of Edward D. Jones & Co., L.P.
EDWARD D. JONES & CO., L.P.
-------------------------
The date of this Prospectus is February 3, 1999.
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WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the Securities and
Exchange Commission (the "SEC"). Our SEC filings are also available over the
Internet at the SEC's web site at http://www.sec.gov. You may also read and copy
any document we file at the SEC's public reference rooms at 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549; Seven World Trade Center, 13th Floor,
New York, New York 10048; and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60601. Please call the SEC at 1-800-SEC-0330 for more
information on the public reference rooms and their copy charges.
We have filed a registration statement on Form S-3 with the SEC covering the
notes. For further information on The Providence Gas Company and the notes, you
should refer to our registration statement and its exhibits. This prospectus
summarizes material provisions of contracts and other documents. Since the
prospectus may not contain all the information that you may find important, you
should review the full text of these documents. We have included copies of these
documents as exhibits to our registration statement.
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. These forward-looking statements are subject to risks,
uncertainties, and assumptions about The Providence Gas Company, including,
among other things:
- - our anticipated growth strategies;
- - changes in governmental regulations or regulatory policies; and
- - our ability to continue to control costs and maintain quality.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties, and assumptions, the forward-looking
events discussed in this prospectus might not occur.
You should rely only on the information contained or incorporated by reference
in this prospectus. We have not, and the underwriter has not, authorized any
other person to provide you with different information. If anyone provides you
with different or inconsistent information, you should not rely on it. We are
not, and the underwriter is not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus, as well as information we
previously filed with the SEC and incorporated by reference, is accurate as of
the date on the front cover of this prospectus only. Our business, financial
condition, results of operations and prospects may have changed since that date.
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PROSPECTUS SUMMARY
This summary may not contain all the information that may be important to you.
You should read the entire prospectus, including the financial data and related
notes, before making an investment decision. The terms "ProvGas," "our" and "we"
as used in this prospectus refer to The Providence Gas Company and its
subsidiary and predecessors as a combined entity, except where it is made clear
that such term means only the parent company.
THE COMPANY
ProvGas is a public utility engaged in natural gas distribution, serving
approximately 166,000 customers in Providence, Newport and 23 other cities and
towns in Rhode Island. Our service area encompasses approximately 730 square
miles with a population of approximately 817,000. For the year ended September
30, 1998, residential sales accounted for approximately 57% of total firm
deliveries, with commercial and industrial sales representing approximately 43%.
Our gas distribution system consists of approximately 2,300 miles of gas mains,
166,000 gas meters, and the necessary pressure regulators.
We are subject to regulation by various federal, state and local agencies
including the Rhode Island Public Utilities Commission and the Federal Energy
Regulatory Commission. These agencies regulate various aspects of our business
including the retail utility rates we charge, certain tariffs that affect our
pricing, our accounting practices and our ability to acquire, construct, operate
or dispose of certain assets and facilities.
1998 HIGHLIGHTS
- - In the first year of our Energize RI program, we lowered prices to customers
by four percent, implemented a three-year rate freeze by successfully
outsourcing gas supply, and began infrastructure investments related to
economic development and system reliability.
- - More than 40 percent of the 3,500 eligible business customers are
participating in Business Choice, our deregulation program. This represents
almost 25 percent of ProvGas' firm deliveries. This program has produced
customer savings ranging from 5 to 20 percent.
OPPORTUNITIES FOR GROWTH
In addition to opportunities presented by our Energize RI and Business Choice
programs, we seek to grow our business though implementation of the following
strategies:
- - Improving and expanding infrastructure;
- - Implementing new technology;
- - Managing costs; and
- - Providing superior customer service.
RECENT DEVELOPMENTS
On February 3, 1999, our earnings were announced for the first quarter of our
1999 fiscal year. For the first quarter of fiscal 1999, we generated $51.9
million in operating revenues and $3.6 million in earnings applicable to common
stockholders.
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THE OFFERING
Notes Offered................. First Mortgage Bonds, Series T, also referred
to as the 6.50% Senior Secured Insured
Quarterly Notes due February 1, 2029 (the
"Notes")
Aggregate Principal Amount.... $15,000,000
Interest Rate................. 6.50%
Date of Maturity.............. February 1, 2029
Interest Payment Dates........ February 1, May 1, August 1 and November 1 of
each year, beginning May 1, 1999
Record Date for Interest
Payments.................... The 15th calendar day of the month preceding
the month in which an Interest Payment Date
occurs.
Ranking....................... The Notes will be secured by a direct first
lien on substantially all of ProvGas' real and
tangible personal property and franchises, and
will rank equally with all of our other first
mortgage bonds (except as to any sinking fund
or similar fund provided for first mortgage
bonds of a particular series).
Redemption of the Notes:
Option of ProvGas........... We will have the option to redeem the Notes (in
whole or in part), from time to time on or
after February 1, 2004. If we redeem the Notes,
we will pay 100% of the principal amount plus
the accrued interest through the redemption
date.
Redemption of the Notes:
Option of a Deceased
Noteholder's
Representative.............. We will also redeem the Notes at the option of
the representative of any deceased noteholder.
We will pay 100% of the principal amount, plus
accrued interest, subject to the following
condition: the maximum principal amount we will
redeem is $25,000 per deceased owner and
$375,000 in the aggregate for all deceased
owners during the initial period from the date
of this prospectus until February 1, 2000 and
during each twelve-month period thereafter.
Insurance..................... The payment of the regularly scheduled
principal and interest on the Notes will be
insured by a financial guaranty insurance
policy issued by MBIA Insurance Corporation
that will be issued at the same time the Notes
are delivered.
Form of Note.................. One global security, held in the name of DTC.
Settlement and Payment........ Same-day immediately available funds.
Rating........................ We anticipate that the Notes will be rated
"AAA" by Standard & Poor's Ratings Group and
"Aaa" by Moody's Investors Services, Inc.
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Ratio of Earnings to Fixed
Charges....................... Our ratio of earnings to fixed charges for each
of the years ended September 30, 1998 through
1994 is 2.59; 2.63; 2.75; 2.19 and 2.89.
Use of Proceeds............... We estimate that the net proceeds of the
offering will be approximately $14.1 million.
We intend to use these proceeds from the
offering of the Notes to repay a portion of our
outstanding short-term indebtedness.
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THE PROVIDENCE GAS COMPANY
ProvGas, incorporated in Rhode Island in 1847, is a wholly-owned subsidiary of
Providence Energy Corporation ("Providence Energy"). The outstanding shares of
common stock of Providence Energy are presently listed on the New York Stock
Exchange and trade under the ticker symbol "PVY."
ProvGas is a public utility engaged in natural gas distribution, serving
approximately 166,000 customers in Providence, Newport and 23 other cities and
towns in Rhode Island. Our service area encompasses approximately 730 square
miles and has a population of approximately 817,000.
Our gas distribution system consists of approximately 2,300 miles of gas mains,
166,000 gas meters, and the necessary pressure regulators. ProvGas has
regulating and metering facilities at eight points of delivery from Algonquin
Gas Transmission Company and one from Tennessee Gas Pipeline Company, which we
believe to be adequate for receiving gas into our distribution system.
ProvGas is subject to regulation by various federal, state and local agencies
including the Rhode Island Public Utilities Commission ("RIPUC") and the Federal
Energy Regulatory Commission ("FERC"). The RIPUC regulates public utilities in
Rhode Island with respect to rates and charges, standards of service, accounting
and various other matters. The FERC has jurisdiction over certain aspects of our
business relating, among other things, to the transportation and sale of natural
gas in interstate commerce. We are 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 foregoing information concerning ProvGas does not purport to be
comprehensive. For additional information concerning our business and affairs,
including our capital requirements and external financing plans, pending legal
and regulatory proceedings and descriptions of certain laws and regulations to
which we are subject, prospective purchasers of the Notes should refer to the
Incorporated Documents. See "Incorporation by Reference: Information We File
with the SEC."
GAS SUPPLY
ProvGas has entered into a full requirements contract with Duke Energy Trading
and Marketing, L.L.C. ("DETM") to provide all of our gas supply needs through
September 30, 2000. DETM provides gas at a fixed price to our firm customers and
at market prices to cover our non-firm sales customers' needs. Despite volatile
natural gas prices, we are able to provide a three-year price freeze to our
customers by outsourcing gas supply to DETM.
CUSTOMERS
In our 1998 fiscal year, we experienced modest customer growth in both the
residential and commercial/industrial markets; the average annual number of
customers rose one percent to approximately 166,000. In our 1998 fiscal year,
residential sales accounted for approximately 57% of total firm deliveries, with
commercial and industrial sales representing approximately 43%.
1998 HIGHLIGHTS
We seek to grow our business by improving and expanding infrastructure,
implementing new technology, managing costs and providing superior customer
service. In our 1998 fiscal year, we generated lower operating revenues compared
to the previous year due, in large part, to (1) unseasonably warm temperatures
during the 1997-1998 winter season, and (2) adverse market prices of natural gas
versus alternate fuels which negatively impacted non-firm gas deliveries.
ENERGIZE RI PROGRAM
Energize RI is an innovative three-year regulatory plan implemented by ProvGas
which is designed to provide price stability to customers, improve system
reliability, and enhance economic development while improving earnings
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stability. Under Energize RI, customer rates were lowered four percent in
October 1997 and will remain frozen until September 2000, producing savings for
Rhode Island customers of about $20 million.
BUSINESS CHOICE PROGRAM
In May 1996, the RIPUC approved a ProvGas plan for unbundling natural gas
service in Rhode Island, enabling certain customers to choose their gas
suppliers. In August 1997, the RIPUC approved another plan, called Business
Choice, to further unbundle services to additional commercial and industrial
customers.
Business Choice now has approximately 1,500 firm transportation customers with
annual deliveries of over 5 billion cubic feet per year, representing
approximately 25 percent of our total annual firm deliveries. Surveys indicate
customers are saving as much as 20 percent on their gas bills.
MANAGING COSTS
Over the past year, we took additional steps to cut costs, reduce debt cost and
improve collection. In fiscal 1998, we retired $6.4 million of Series M bonds
with a coupon rate of 10.25 percent using short-term borrowings bearing interest
at a weighted average rate of 5.48% in 1998. We intend to repay the short-term
debt used to retire the Series M bonds with a portion of the net proceeds of
this offering. See "Use of Proceeds."
NATURAL GAS VEHICLE STATIONS
In response to the large increase in both state-owned and private fleet vehicles
powered by natural gas, we invested approximately $300,000 to renovate our
Providence "quick-fill" station for natural gas vehicles -- one of three
stations that we operate in the state. A new Rhode Island law provides
substantial tax incentives which, along with the Federal Department of Energy's
designation of Providence as a "clean city," may increase use and awareness of
the benefits of natural gas vehicles.
RECENT DEVELOPMENTS
On February 3, 1999, our earnings were announced for the first quarter of our
1999 fiscal year. For the first quarter of fiscal 1999, we generated $51.9
million in operating revenues and $3.6 million in earnings applicable to common
stockholders.
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SELECTED CONSOLIDATED FINANCIAL DATA
The following is a summary of certain financial information of ProvGas and its
subsidiary and is qualified in its entirety by, and should be read in
conjunction with, the detailed information and ProvGas consolidated financial
statements and notes thereto included in the Incorporated Documents. See
"Incorporation by Reference: Information We File with the SEC."
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Operating revenue............... $184,026 $210,673 $210,601 $180,043 $219,143
Net income...................... 8,759 8,771 9,310 6,515 8,746
Net income available to common
stockholder................... 8,272 8,145 8,614 5,819 8,050
Total assets.................... 228,614 242,143 237,515 214,727 221,177
Long-term debt, excluding
current maturities............ 76,851 70,700 70,777 72,450 58,915
Capital leases.................. 1,170 1,672 1,678 2,032 1,163
Total preferred stock........... 4,800 6,400 8,000 8,000 8,000
</TABLE>
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for each of the fiscal years ended
September 30, 1994 through 1998 is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges.................. 2.59 2.63 2.75 2.19 2.89
</TABLE>
For the purpose of computing such ratio, (i) earnings have been calculated by
adding to income all income taxes deducted therefrom and all fixed charges; and
(ii) fixed charges consist of net interest charges, estimated interest portion
of lease payments and capitalized interest.
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CAPITALIZATION
The following table sets forth the audited consolidated capitalization of
ProvGas at September 30, 1998 and as adjusted to reflect the sale of the Notes
(also referred to as the First Mortgage Bonds, Series T, due February 1, 2029)
offered hereby and the application of the estimated net proceeds from such sale.
See "Use of Proceeds." The table should be read in conjunction with ProvGas'
consolidated financial statements and notes thereto included in the documents
described under "Incorporation by Reference: Information We File with the SEC"
(the "Incorporated Documents").
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Common stock equity:
Common stock, $1 Par, 2,500,000 shares authorized,
1,243,598 shares outstanding........................... $ 1,244 $ 1,244
Amount paid in excess of par.............................. 37,590 37,590
Retained earnings......................................... 42,807 42,807
-------- --------
81,641 81,641
-------- --------
Cumulative preferred stock:
Redeemable 8.7% series, $100 Par, 80,000 shares
authorized, 48,000 shares outstanding.................. 4,800 4,800
-------- --------
Long-term debt:
First Mortgage Bonds, secured by property --
Series M, 10.25%, due July 31, 2008.................... 2,728 2,728
Series N, 9.63%, due May 30, 2020...................... 10,000 10,000
Series O, 8.46%, due September 30, 2022................ 12,500 12,500
Series P, 8.09%, due September 30, 2022................ 12,500 12,500
Series Q, 5.62%, due November 30, 2003................. 9,600 9,600
Series R, 7.50%, due December 15, 2025................. 15,000 15,000
Series S, 6.82%, due April 20, 2018.................... 15,000 15,000
Series T, 6.50%, due February 1, 2029.................. 0 15,000
Other long-term debt........................................ 2,573 2,573
Capital Leases.............................................. 1,170 1,170
-------- --------
81,071 96,071
Less-current portion........................................ 3,050 3,050
-------- --------
78,021 93,021
-------- --------
Total capitalization........................................ $164,462 $179,462
======== ========
</TABLE>
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USE OF PROCEEDS
We estimate that the net proceeds from the sale of the Notes will be $14.1
million. We intend to use the net proceeds to repay part of our short-term debt
under our bank lines of credit. This short-term debt was used for working
capital and to repurchase $7.8 million of ProvGas' Series M bonds (including
bond premium) in September 1998. The Series M bonds bear interest at a rate of
10.25 percent and mature on July 31, 2008. The cost of the September 1998
repurchase was comprised of $6.4 million in principal and $1.4 million in
premium. We paid interest at a weighted average rate of 5.48% on our bank lines
of credit in 1998.
DESCRIPTION OF THE NOTES
GENERAL
The Notes are to be issued under an Indenture dated as of January 1, 1922,
between ProvGas and State Street Bank and Trust Company, as trustee (the
"Trustee"), as amended and supplemented by various supplemental indentures,
including a Twentieth Supplemental Indenture dated as of February 1, 1999. At
September 30, 1998, seven series of First Mortgage Bonds (as defined below) in
an aggregate principal amount of approximately $77.3 million were outstanding
under the Indenture. The following summaries of certain provisions of the
Indenture do not purport to be complete, make use of defined terms (some but not
all of which are defined herein) and are subject to, and qualified in their
entirety by, all of the provisions of the Indenture and the supplements
referenced herein, which are incorporated herein by this reference and which are
available upon request to the Trustee. Unless otherwise indicated under this
caption, references to "Section" numbers are references to the Section numbers
of the original Indenture, references to "Twentieth Supp. Section" numbers are
references to the Twentieth Supplemental Indenture and references to "Fourth
Supp. Section" numbers are references to the Fourth Supplemental Indenture dated
as of January 1, 1958. In addition, capitalized terms used in this section and
not otherwise defined herein shall have the meaning given to them in the
Indenture.
The Notes are secured, as are all of the bonds issued under the Indenture
(collectively, "First Mortgage Bonds"), by a first mortgage lien on
substantially all of the real and tangible personal property and franchises of
ProvGas. See "Security and Priority." The Indenture provides that, in addition
to the Notes offered hereby, additional First Mortgage Bonds may be issued
thereunder, provided the aggregate principal amount of all First Mortgage Bonds
that may be issued and outstanding cannot exceed 60% of the unfunded, bondable
net property additions of ProvGas. See "Issuance of Additional First Mortgage
Bonds." ProvGas may, in the future, issue debt securities under the Indenture or
under a new indenture.
INTEREST
Each Note shall bear interest at 6.50% (the "Securities Rate") from the date of
original issuance, payable quarterly in arrears on February 1, May 1, August 1
and November 1 of each year and on the date of maturity to the person in whose
name such Note is registered at the close of business on the fifteenth calendar
day of the month preceding the month in which the respective Interest Payment
Date occurs. The initial Interest Payment Date is May 1, 1999. The amount of
interest payable will be computed on the basis of a 360-day year of twelve
30-day months. In the event that any date on which interest is payable on the
Notes is not a Business Day (as defined herein), then payment of the interest
payable on such date will be made on the next succeeding day which is a Business
Day (and without any interest or other payment in respect of any such delay).
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SPECIAL INSURANCE PROVISIONS OF THE INDENTURE
So long as MBIA Insurance Corporation (the "Insurer") is not in default under
the financial guaranty insurance policy that insures the payment of the
principal of and interest on the Notes when due (the "Policy"), the Insurer
shall be entitled to control and direct the enforcement of all rights and
remedies with respect to the Notes upon the occurrence and during the
continuation of an Event of Default (as defined herein). The Trustee shall
within one Business Day notify the Insurer of any Nonpayment (as defined in the
Policy) and such notice shall specify the amount of the Nonpayment. The Trustee
shall make a claim for Nonpayment under the Policy prior to exercising any other
rights under the Indenture; provided, however, if the Insurer defaults under the
Policy, the Trustee may assert any and all rights it has under the Indenture.
(Twentieth Supp. Section 5.06)
OPTIONAL REDEMPTION
ProvGas shall have the right to redeem the Notes, in whole or in part, at par
without premium, from time to time, on or after February 1, 2004, upon not less
than 30 nor more than 60 days' notice, at a redemption price equal to 100% of
the principal amount to be redeemed (the "Redemption Price") plus any accrued
and unpaid interest to the Redemption Date.
If notice of redemption is given as aforesaid, the Notes so to be redeemed
shall, on the Redemption Date, become due and payable at the Redemption Price
together with any accrued interest thereon, and from and after such date (unless
ProvGas shall default in the payment of the Redemption Price and accrued
interest) such Notes shall cease to bear interest. If any Note called for
redemption shall not be paid upon surrender thereof for redemption, the
principal shall, until paid, bear interest from the Redemption Date at the
Securities Rate.
Subject to the foregoing and to applicable law (including, without limitation,
United States federal securities laws), ProvGas or its affiliates may, at any
time and from time to time, purchase outstanding Notes by tender, in the open
market or by private agreement. (Twentieth Supp. Section 4.02)
LIMITED RIGHT OF REDEMPTION UPON DEATH OF BENEFICIAL OWNER
Unless the Notes have been declared due and payable prior to their maturity by
reason of an Event of Default, a person authorized to represent the estate of a
deceased Beneficial Owner (as defined herein) or a surviving joint tenant(s) or
tenants(s) by the entirety (each a "Representative") of a deceased Beneficial
Owner has the right to request redemption at par of all or part of such
interest, expressed in integral multiples of $1,000 principal amount, in the
Notes for payment prior to maturity, and ProvGas will redeem the same subject to
the limitations that ProvGas will not be obligated to redeem during the period
from the original issuance of the Notes through and including February 1, 2000
(the "Initial Period"), and during any twelve-month period which ends on and
includes each February 1 thereafter (each such twelve-month period being
hereinafter referred to as a "Subsequent Period") (i) on behalf of a deceased
Beneficial Owner any interest in the Notes which exceeds an aggregate principal
amount of $25,000 or (ii) interests in the Notes in an aggregate principal
amount exceeding $375,000. A "Beneficial Owner" is a person who has the right to
sell, transfer or otherwise dispose of an interest in a Note and the right to
receive the proceeds therefrom, as well as the principal and interest payable to
the holder thereof. A request for redemption may be initiated by the
Representative of a deceased Beneficial Owner at any time and in any principal
amount in integral multiples of $1,000. Representatives of deceased Beneficial
Owners must make arrangements with the registered owner of the Notes in the
records of DTC (the "Participant"), through whom such interest is owned, to
timely present redemption requests to the Trustee. If ProvGas, although not
obligated to do so, chooses to redeem interests of a deceased Beneficial Owner
in the Notes in the Initial Period or in any Subsequent Period in excess of the
$25,000
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limitation, such redemption, to the extent that it exceeds the $25,000
limitation for any deceased Beneficial Owner, shall not be included in the
computation of the $375,000 aggregate limitation for such Initial Period or such
Subsequent Period, as the case may be, or for any succeeding Subsequent Period.
Any Note (or portion thereof) tendered pursuant to a redemption request may be
withdrawn by a written request by the Representative received by the Trustee at
least 10 days prior to its repayment.
Subject to the $25,000 and the $375,000 limitations, ProvGas will, after the
death of any Beneficial Owner, redeem the interest of the Beneficial Owner in
the Notes on the next Interest Payment Date following receipt by the Trustee of
a redemption request received at least 20 days in advance of the next Interest
Payment Date. If, during the Initial Period or any Subsequent Period, redemption
requests exceed the aggregate principal amount of interests in Notes required to
be redeemed, then such excess redemption requests will be applied to successive
Subsequent Periods, regardless of the number of Subsequent Periods required to
redeem such interests. All redemption requests will be redeemed in the order in
which the Trustee receives the redemption request. To obtain repayment pursuant
to a redemption request, the Representative must provide to the Participant (i)
a written request for repayment signed by the Representative, and such signature
must be medallion guaranteed by a commercial bank, credit union, brokerage firm
or other financial institution that is a member of the Securities Transfer
Association Medallion Program (STAMP), New York Stock Exchange Program (SEMP) or
Stock Exchange Medallion Program (MSP); (ii) appropriate evidence satisfactory
to ProvGas and the Trustee that (A) the Representative has authority to act on
behalf of the deceased Beneficial Owner, (B) the death of such Beneficial Owner
has occurred and (C) the deceased was the owner of a beneficial interest in such
Note at the time of death; (iii) if applicable, a properly executed assignment
or endorsement; and (iv) if the beneficial interest in such Notes is held by a
nominee of the deceased Beneficial Owner, a certificate satisfactory to the
Trustee from such nominee attesting to the deceased's ownership of a beneficial
interest in such Note. The Participant will provide these documents to the
Trustee. All questions as to the eligibility or validity of any exercise of
redemption on behalf of a deceased Beneficial Owner will be determined by
ProvGas, in its sole discretion, which determinations will be final and binding
on all parties.
Interests in the Notes held in tenancy by the entirety, joint tenancy or by
tenants in common will be deemed to be held by a single Beneficial Owner, and
the death of a tenant in common, tenant by the entirety or joint tenant will be
deemed the death of a Beneficial Owner. The death of a person who, during such
person's lifetime, was entitled to substantially all of the rights of a
Beneficial Owner of an interest in the Notes will be deemed the death of the
Beneficial Owner, regardless of the recordation of such interest on the records
of the Participant, if such rights can be established to the satisfaction of the
Participant and ProvGas.
In the case of a redemption request which is presented on behalf of a deceased
Beneficial Owner and which has not been fulfilled at the time ProvGas gives
notice of its election to redeem the Notes, the interests in the Notes which are
the subject of such redemption request shall not be eligible for redemption
pursuant to ProvGas's option to redeem but shall remain subject to redemption
pursuant to such redemption request. Because of the limitations of ProvGas's
requirement to redeem, no Beneficial Owner can have any assurance that its
interest in the Notes will be paid prior to maturity. (Twentieth Supp. Section
4.04)
REGISTRATION, TRANSFER AND EXCHANGE
The Notes will initially be issued in the form of one or more Global Notes, in
registered form, without coupons, in denominations of $1,000 or an integral
multiple thereof as described under "Book-Entry Only Issuance -- The Depository
Trust Company." The Global Notes will be registered in the name of a nominee of
DTC. Except as set forth herein under "Book-Entry Only Issuance -- The
Depository Trust Company," owners of beneficial interests in a
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Global Note will not be entitled to have Notes registered in their names, will
not receive or be entitled to receive physical delivery of any such Note and
will not be considered the registered holder thereof under the Indenture.
The Notes will be exchangeable for other Notes of like aggregate principal
amount in any authorized denominations. (Section 11; Twentieth Supp. Section
2.02)
PAYMENT AND PAYING AGENTS
Payments of principal of and interest on Notes issued in the form of Global
Notes shall be made by wire transfer of immediately available funds to the
account specified by the registered holder of such Global Note, which shall
initially be a nominee of DTC. Interest on Notes (other than interest at
maturity) that are in the form of certificated notes (the "Certificated Notes")
will be paid by check mailed to the person entitled thereto at such person's
address as it appears in the register for the Notes maintained by the Trustee.
The principal of, and interest at maturity, if any, on Notes in the form of
Certificated Notes will be payable in immediately available funds at the office
of the Trustee or at the authorized office of any paying agent. (Twentieth Supp.
Section 7.04)
If and to the extent that ProvGas fails to make timely payment of interest on
any Note, that interest shall cease to be payable to the persons who were the
holders of such Notes at the applicable Regular Record Date, and shall instead
become payable to the holder of such Note at the close of business on a special
record date established by the Trustee, which special record date shall be not
more than 15 or fewer than 10 days prior to the date of the proposed payment.
(Twentieth Supp. Section 2.03)
All monies paid by ProvGas to the Trustee for the payment of principal of, and
interest on, any Note which remain unclaimed at the end of two years after such
principal or interest shall have become due and payable will be repaid to
ProvGas, subject to applicable abandoned property law, and the holder of such
Note will thereafter look only to ProvGas for payment thereof (Twentieth Supp.
Section 6.03)
In any case where the date of maturity of the principal or interest on any Note
or the date fixed for redemption of any Note is not a Business Day, then payment
of such principal or interest need not be made on such date but may be made on
the next succeeding Business Day with the same force and effect as if made on
the date of maturity or the date fixed for redemption, and, in the case of
timely payment thereof, no interest shall accrue for the period from and after
such interest payment date or the date on which the principal of the Note is
stated to be payable to such next succeeding Business Day. (Twentieth Supp.
Section 6.20) "Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday that is not a day on which banks or trust companies in the City of
Boston, Commonwealth of Massachusetts or in any other city where the corporate
trust office of the Trustee may be located, are obligated or authorized by law
or executive order to close.
SECURITY AND PRIORITY
All First Mortgage Bonds (including the Notes) will rank pari passu (except as
to any sinking fund or similar fund provided for bonds of a particular series)
as to security with all First Mortgage Bonds of any series now outstanding or
hereafter issued under the Indenture. The Indenture is a direct first lien on
substantially all of the real and tangible personal property and franchises of
ProvGas (other than certain property expressly excluded from the lien thereof
such as cash, securities, accounts receivable, materials or supplies acquired
for the purpose of sale and/or resale in the usual course of business or
consumable in the operation of any of the properties of ProvGas and motor
vehicles), and subject to excepted encumbrances (and certain other limitations)
as defined and described in the Indenture. (See Granting Clauses of Indenture
and Twentieth Supp.). The Indenture as supplemented permits, with certain
specified limitations, the acquisition of property subject to prior liens and,
under certain conditions, permits the issu-
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ance of additional indebtedness under such prior liens. (See Fourth Supp.
Sections 3.10 and 3.11)
ISSUANCE OF ADDITIONAL FIRST MORTGAGE BONDS
Additional First Mortgage Bonds may be issued under the Indenture to the extent
of 60% of the unfunded, bondable net property additions or against the deposit
of an equal amount of cash, if, for any period of twelve consecutive months
within the fifteen preceding calendar months the net earnings of ProvGas shall
have been at least twice the interest requirement for one year on all First
Mortgage Bonds outstanding and to be issued. Additional First Mortgage Bonds may
also be issued to refund bonds outstanding under the Indenture. Deposited cash
may be applied to the retirement of First Mortgage Bonds or be withdrawn in an
amount equal to the principal amount of First Mortgage Bonds which may be issued
on the basis of unfunded net property additions. (Section 20 and Fourth Supp.
Section 3.03) As of September 30, 1998, unfunded net property additions were
approximately $28 million, and ProvGas could issue approximately $17 million of
additional First Mortgage Bonds on the basis of such property additions. The
Notes are to be issued on the basis of property additions.
RELEASE AND SUBSTITUTION OF PROPERTY
The Indenture provides that, subject to various limitations, property may be
released from the lien thereof when sold or exchanged, or contracted to be sold
or exchanged, upon the basis of cash deposited with the Trustee, bonds or
purchase money obligations delivered to the Trustee, prior lien bonds delivered
to the Trustee or reduced or assumed by the purchaser, property additions
acquired in exchange for the property released, or upon a showing that unfunded
net property additions exist. (Section 40)
LIMITATIONS ON DIVIDENDS
The Indenture and the Twentieth Supplemental Indenture relating to the Notes do
not restrict ProvGas' ability to pay dividends on its Common Stock. However,
limitations on dividends are imposed by supplemental indentures relating to all
outstanding series of First Mortgage Bonds other than the Notes. As of September
30, 1998, approximately $15 million of ProvGas' retained earnings were available
for dividends under the most restrictive terms of its outstanding First Mortgage
Bonds.
MODIFICATION OF INDENTURE
The holders of 80% in aggregate principal amount of First Mortgage Bonds
(including the Notes) outstanding under the Indenture have the ability: (a) to
assent to and authorize the release of any part of the mortgaged property; (b)
to assent to and authorize the alteration or amendment of any lease of property
leased to ProvGas; and (c) to consent to and authorize any modification or
alteration of any of the provisions of the Indenture, provided: (i) that the
obligation of ProvGas to pay the principal of each series of First Mortgage
Bonds at their respective maturities and the interest thereon as the same shall
from time to time become due, shall continue unimpaired; (ii) that no
modification shall give to any First Mortgage Bonds any preference over any
other First Mortgage Bonds, and that no modification of any right which shall
have been specifically provided in respect of any particular series of First
Mortgage Bonds shall be effective unless assented to by the holders of eighty
percent (80%) in aggregate principal amount of First Mortgage Bonds of such
particular series; (iii) that no such modification shall authorize the creation
of any lien prior or equal to the lien of the Indenture upon any of the
mortgaged properties; (iv) that no such modification shall reduce the percentage
of the principal amount of First Mortgage Bonds, the consent of the holders of
which is required to effect a modification or alteration of the provisions of
the Indenture; and (v) no such modification shall in any manner affect any of
the rights or obligations of the Trustee without its written assent thereto.
(Fourth Supp. Section 6.01)
In addition to any supplemental indenture otherwise authorized or permitted by
the Indenture, ProvGas may, subject to the conditions
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<PAGE> 15
and restrictions in the Indenture and without the consent of or notice to the
holders of First Mortgage Bonds, execute a supplemental indenture for certain
limited purposes set forth in the Indenture. (Fourth Supp. Section 6.02)
EVENTS OF DEFAULT; REMEDIES
The following constitute events of default under the Indenture, as modified by
the Twentieth Supplemental Indenture: (a) default in the payment of principal of
any Note when due and payable; (b) default in the payment of interest on any
Note when due which continues for 90 days; (c) default in the performance or
breach of any other covenant or agreement of ProvGas in the First Mortgage Bonds
or in the Indenture and the continuation thereof for 90 days after written
notice to ProvGas from the Trustee or from the holders of at least 10% in
aggregate principal amount of the outstanding First Mortgage Bonds; and (d)
certain events of bankruptcy, insolvency, reorganization, assignment or
receivership of ProvGas. (Sections 46, 47, 48, and 49; Twentieth Supp. Section
7.05)
If an event of default occurs and is continuing, the Trustee may, and upon the
request of the holders of 40% in aggregate principal amount of the outstanding
First Mortgage Bonds, shall declare the principal amount of all First Mortgage
Bonds to be due and payable immediately. (Section 47) At any time after an
acceleration of the First Mortgage Bonds has been declared but before a judgment
or decree for the payment of the principal amount of the First Mortgage Bonds
has been obtained, if ProvGas pays or deposits with the Trustee a sum sufficient
to pay all matured installments of interest and the principal which has become
due otherwise than by acceleration and all defaults shall have been cured or
waived, then the holders of a majority in aggregate principal amount of the
First Mortgage Bonds outstanding may waive such default and its consequences.
(Section 47) The Indenture also provides that the Trustee may, in the event of
default, take possession and carry on the business of ProvGas (Section 46), sell
the assets of ProvGas (Section 48) or seek relief through various legal
proceedings such as receivership, foreclosure or a law suit (Sections 49, 50 and
51).
The Indenture provides that the Trustee generally will be under no obligation to
exercise any of its rights or powers under the Indenture at the request or
direction of any of the holders of First Mortgage Bonds unless such holders have
offered to the Trustee reasonable security or indemnity. (Section 70) Upon the
written request of 40% of the aggregate principal amount of First Mortgage Bonds
outstanding, the Trustee shall exercise its rights to take possession, to
foreclose, to sell or initiate legal proceedings. (Section 60) Subject to such
provisions for indemnity and certain other limitations contained in the
Indenture, the holders of two-thirds in principal amount of the outstanding
First Mortgage Bonds generally will have the right to direct the time, method
and place of conducting any proceeding for any foreclosure, sale or legal
proceeding. (Section 61) After an acceleration of maturity requested by the
holders of 40% of the aggregate principal amount of the First Mortgage Bonds,
the holders of a majority in principal amount of the outstanding First Mortgage
Bonds will have the right to waive any past default or event of default on
behalf of all holders of First Mortgage Bonds. (Section 47) The Indenture
provides that no holder of First Mortgage Bonds may institute any action against
ProvGas under the Indenture unless such holder previously shall have given to
the Trustee written notice of default and continuance thereof and unless the
holders of not less than a 40% in aggregate principal amount of First Mortgage
Bonds then outstanding shall have requested the Trustee to institute such action
and shall have offered the Trustee reasonable indemnity, and the Trustee shall
not have instituted such action after a reasonable opportunity. No holder of
First Mortgage Bonds will be entitled to institute any such action if and to the
extent that such action would disturb or prejudice the rights of other holders
of First Mortgage Bonds. The Indenture provides that the Trustee, within 90 days
after the occurrence of a default with respect to the First Mortgage Bonds, is
required to give the holders of the
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<PAGE> 16
First Mortgage Bonds notice of any such default known to the Trustee, unless
cured or waived, but, except in the case of default in the payment of principal
of, and interest on, any First Mortgage Bonds, the Trustee may withhold such
notice if it determines in good faith that it is in the interest of such holders
to do so. (Twentieth Supp. Section 6.11) ProvGas is required to deliver to the
Trustee each year a certificate as to whether or not, to the knowledge of the
officers signing such certificate, ProvGas is in compliance with the conditions
and covenants under the Indenture. (Fourth Supp. Section 3.13)
DEFEASANCE AND DISCHARGE
The Indenture provides that ProvGas will be discharged from any and all
obligations in respect to the First Mortgage Bonds and the Indenture (except for
certain obligations such as obligations to register the transfer or exchange of
First Mortgage Bonds, replace stolen, lost or mutilated First Mortgage Bonds and
maintain paying agencies) if, among other things, ProvGas irrevocably deposits
with the Trustee, in trust for the benefit of holders of First Mortgage Bonds,
money which through the payment of interest thereon and principal thereof in
accordance with their terms will provide money in an amount sufficient, without
reinvestment, to make all payments of principal of and interest on the First
Mortgage Bonds on the dates such payments are due in accordance with the terms
of the Indenture and the First Mortgage Bonds. Thereafter, the holders of First
Mortgage Bonds must look only to such deposit for payment of the principal of,
and interest on, the First Mortgage Bonds. (Section 66)
CONSOLIDATION, MERGER AND SALE OR
DISPOSITION OF ASSETS
ProvGas will not consolidate with or merge into any other corporation or sell or
otherwise dispose of its properties as or substantially as an entirety unless
(i) the successor or transferee corporation assumes by supplemental indenture
the due and punctual payment of the principal of and interest on all First
Mortgage Bonds and the performance of every covenant of the Indenture to be
performed or observed by ProvGas and (ii) the successor or transferee
corporation could, after giving effect to such transaction, satisfy the
requirements for issuing additional First Mortgage Bonds under the Indenture.
(Article Fourth of Fourth Supp.)
RESIGNATION OR REMOVAL OF TRUSTEE
The Trustee may resign at any time upon written notice to ProvGas specifying the
day upon which the resignation is to take effect and such resignation will take
effect immediately upon the later of the appointment of a successor Trustee and
such specified day. (Twentieth Supp. Section 6.15)
The Trustee may be removed at any time by an instrument or concurrent
instruments in writing filed with the Trustee and signed by the holders, or
their attorneys-in-fact, of at least a majority in principal amount of the then
outstanding First Mortgage Bonds. In addition, so long as no Event of Default or
event which, with the giving of notice or lapse of time or both, would become an
Event of Default has occurred and is continuing, ProvGas may remove the Trustee
upon notice to the holders of the Notes outstanding and the Trustee, and
appointment of a successor Trustee. (Twentieth Supp Section 6.15)
GOVERNING LAW
The Indenture and each Note will be governed by Rhode Island law.
BOOK-ENTRY ONLY ISSUANCE -- THE DEPOSITORY TRUST COMPANY
DTC will act as the initial securities depository for the Notes. The Notes will
be issued only as fully registered securities registered in the name of Cede &
Co. (DTC's partnership nominee). One or more fully registered global Notes
certificates will be issued, representing in the aggregate the total principal
amount of Notes, and will be deposited with DTC (collectively, the "Global
Notes").
DTC is a limited-purpose trust company organized under the New York Banking Law,
a
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<PAGE> 17
"banking organization" within the meaning of the New York Banking Law, a member
of the Federal Reserve System, a "clearing corporation" within the meaning of
the New York Uniform Commercial Code, and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Exchange Act (as defined
herein). DTC holds securities that the Participants deposit with DTC. DTC also
facilitates the settlement among Participants of securities transactions, such
as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participant's accounts, thereby eliminating
the need for physical movement of securities certificates. Direct Participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations ("Direct Participants"). DTC is
owned by a number of its Direct Participants and by the New York Stock Exchange,
Inc. and the National Association of Securities Dealers, Inc. Access to the DTC
system is also available to others such as securities brokers and dealers, banks
and trust companies that clear through or maintain a custodial relationship with
a Direct Participant, either directly or indirectly ("Indirect Participants").
The rules applicable to DTC and its Participants are on file with the SEC.
Purchases of Notes within the DTC system must be made by or through Direct
Participants, which will receive a credit for the Notes on DTC's records. The
ownership interest of each Beneficial Owner is in turn to be recorded on the
Direct and Indirect Participants' records. Beneficial Owners will not receive
written confirmation from DTC of their purchase, but Beneficial Owners are
expected to receive written confirmations providing details of the transactions,
as well as periodic statements of their holdings, from the Direct or Indirect
Participants through which the Beneficial Owners purchased Notes. Transfers of
ownership interests in the Notes are to be accomplished by entries made on the
books of Participants acting on behalf of Beneficial Owners. Beneficial Owners
will not receive certificates representing their ownership interests in the
Notes, except in the event that use of the book-entry system for the Notes is
discontinued, ProvGas determines that Beneficial Owners may exchange their
ownership interests for such certificates or there shall have occurred an Event
of Default.
To facilitate subsequent transfers, all Notes deposited by Participants with DTC
are registered in the name of DTC's partnership nominee, Cede & Co. The deposit
of Notes with DTC and their registration in the name of Cede & Co. effect no
change in beneficial ownership. DTC has no knowledge of the actual Beneficial
Owners of the Notes. DTC's records reflect only the identity of the Direct
Participants to whose accounts such Notes are credited, which may or may not be
the Beneficial Owners. The Participants will remain responsible for keeping
account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct Participants, by
Direct Participants to Indirect Participants, and by Direct Participants and
Indirect Participants to Beneficial Owners will be governed by arrangements
among them, subject to any statutory or regulatory requirements as may be in
effect from time to time.
Redemption notices shall be sent to DTC. DTC's practice is to determine by lot
the amount of the interest of each Direct Participant in the Notes to be
redeemed.
Although voting with respect to the Notes is limited, in those cases where a
vote is required, neither DTC nor Cede & Co. will itself consent or vote with
respect to Notes. Under its usual procedures, DTC will mail an Omnibus Proxy to
ProvGas as soon as possible after the record date. The Omnibus Proxy assigns
Cede & Co.'s consenting or voting rights to those Direct Participants to whose
accounts the Notes are credited on the record date (identified in a listing
attached to the Omnibus Proxy).
Principal and interest payments on the Notes will be made through Cede & Co., as
nominee of DTC. DTC's practice is to credit Direct Participants' accounts, upon
DTC's receipt of funds and corresponding detail information, on the Interest
Payment Date in accordance with
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<PAGE> 18
their respective holdings shown on DTC's records. Payments by Participants to
Beneficial Owners will be governed by standing instructions and customary
practices, as is the case with securities held for the account of customers in
bearer form or registered in "street name," and will be the responsibility of
such Participant and not of DTC or ProvGas, subject to any statutory or
regulatory requirements as may be in effect from time to time. Payment of
principal and interest to Cede & Co. is the responsibility of the Trustee upon
receipt of funds from ProvGas, disbursement of such payments to Direct
Participants is the responsibility of DTC, and disbursement of such payments to
the Beneficial Owners is the responsibility of Direct and Indirect Participants.
Except as provided herein, a Beneficial Owner of an interest in a Global Note
will not be entitled to receive physical delivery of Notes. Accordingly, each
Beneficial Owner must rely on the procedures of DTC to exercise any rights under
the Notes. The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of securities in definitive form. Such laws
may impair the ability to transfer beneficial interests in a Global Note.
DTC may discontinue providing its services as security depository with respect
to the Notes at any time by giving reasonable notice to ProvGas. Under such
circumstances, in the event that a successor securities depository is not
obtained, Notes certificates will be printed and delivered to the holders of
record. Additionally, ProvGas may decide to discontinue use of the system of
book-entry transfers through DTC (or a successor depository) with respect to the
Notes. In that event, certificates for the Notes will be printed and delivered
to the holders of record.
The information in this section concerning DTC and DTC's book-entry system has
been obtained from sources that ProvGas believes to be reliable, but we take no
responsibility for the accuracy thereof. We have no responsibility for the
performance by DTC or its Participants of their respective obligations as
described herein or under the rules and procedures governing their respective
operations.
CONCERNING THE TRUSTEE
As of October 1, 1995, Rhode Island Hospital Trust Company resigned as Trustee
and was replaced by State Street Bank and Trust Company. The Indenture provides
that ProvGas' obligations to compensate the Trustee and reimburse the Trustee
for expenses, disbursements and advances will constitute indebtedness which will
be secured by a lien generally prior to that of the First Mortgage Bonds upon
all property and funds held or collected by the Trustee as such. (Section 77)
MBIA INSURANCE CORPORATION
The following information has been furnished by MBIA Insurance Corporation (the
"Insurer"). No representation is made by ProvGas or the Underwriter as to the
accuracy or completeness of any such information. The Insurer's policy is
included as an exhibit to the Registration Statement of which this Prospectus is
a part.
THE POLICY
The Insurer's policy unconditionally and irrevocably guarantees the full and
complete payment required to be made by or on behalf of ProvGas to the party
authorized by ProvGas to pay the principal of, and interest on, the Notes (the
"Paying Agent") or its successor of an amount equal to (i) the principal of
(either at the stated maturity or by an advancement of maturity pursuant to a
mandatory sinking fund payment, if any) and interest on, the Notes as such
payments shall become due but shall not be so paid (except that in the event of
any acceleration of the due date of such principal by reason of mandatory or
optional redemption or acceleration resulting from default or otherwise, other
than any advancement of maturity pursuant to a mandatory sinking fund payment,
if any, the payments guaranteed by the Insurer's
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<PAGE> 19
policy shall be made in such amounts and at such times as such payments of
principal would have been due had there not been any such acceleration); and
(ii) the reimbursement of any such payment which is subsequently recovered from
any owner of the Notes pursuant to a final judgment by a court of competent
jurisdiction that such payment constitutes an avoidable preference to such owner
within the meaning of any applicable bankruptcy law (a "Preference").
The Insurer's policy does not insure against loss of any prepayment premium, if
any, which may at any time be payable with respect to any Note. The Insurer's
policy does not, under any circumstance, insure against loss relating to: (i)
optional or mandatory redemptions (other than mandatory sinking fund
redemptions, if any); (ii) any payments to be made on an accelerated basis;
(iii) payments of the purchase price of the Notes upon tender by an owner
thereof; or (iv) any Preference relating to (i) through (iii) above. The
Insurer's policy also does not insure against nonpayment of principal of or
interest on the Notes resulting from the insolvency, negligence or any other act
or omission of the Paying Agent or any other paying agent for the Notes.
Upon receipt of telephonic or telegraphic notice, such notice subsequently
confirmed in writing by registered or certified mail, or upon receipt of written
notice by registered or certified mail, by the Insurer from the Paying Agent or
any owner of a Note the payment of an insured amount for which is then due, that
such required payment has not been made, the Insurer on the due date of such
payment or within one Business Day after receipt of notice of such nonpayment,
whichever is later, will make a deposit of funds, in an account with State
Street Bank and Trust Company, N.A., in New York, New York, or its successor,
sufficient for the payment of any such insured amounts which are then due. Upon
presentment and surrender of such Notes or presentment of such other proof of
ownership of the Notes, together with any appropriate instruments of assignment
to evidence the assignment of the insured amounts due on the Notes as are paid
by the Insurer, and appropriate instruments to effect the appointment of the
Insurer as agent for such owners of the Notes in any legal proceeding related to
payment of insured amounts on the Notes, such instruments being in a form
satisfactory to State Street Bank and Trust Company, N.A., State Street Bank and
Trust Company, N.A. shall disburse to such owners or the Paying Agent payment of
the insured amounts due on such Notes, less any amount held by the Paying Agent
for the payment of such insured amounts and legally available therefor.
The Insurer's policy is not covered by the Property/Casualty Insurance Security
Fund specified in Article 76 of the New York Insurance Law.
THE INSURER
The Insurer is the principal operating subsidiary of MBIA Inc., a New York Stock
Exchange listed company. MBIA Inc. is not obligated to pay the debts of or
claims against the Insurer. The Insurer is domiciled in the State of New York
and licensed to do business in and subject to regulation under the laws of all
50 states, the District of Columbia, the Commonwealth of Puerto Rico, the
Commonwealth of the Northern Mariana Islands, the Virgin Islands of the United
States and the Territory of Guam. The Insurer has two European branches, one in
the Republic of France and the other in the Kingdom of Spain. New York has laws
prescribing minimum capital requirements, limiting classes and concentrations of
investments and requiring the approval of policy rates and forms. State laws
also regulate the amount of both the aggregate and individual risks that may be
insured, the payment of dividends by the Insurer, changes in control and
transactions among affiliates. Additionally, the Insurer is required to maintain
contingency reserves on its liabilities in certain amounts and for certain
periods of time.
Effective February 17, 1998, MBIA Inc. acquired all of the outstanding stock of
Capital Markets Assurance Corporation ("CMAC") through a merger with its parent
CapMAC Holdings Inc. Pursuant to a reinsurance agreement, CMAC has ceded all of
its net insured risks (including any amounts due but unpaid
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<PAGE> 20
from third party reinsurers), as well as its unearned premiums and contingency
reserves, to the Insurer. MBIA Inc. is not obligated to pay the debts of or
claims against CMAC.
The consolidated financial statements of the Insurer, a wholly owned subsidiary
of MBIA Inc., and its subsidiaries as of December 31, 1997 and December 31, 1996
and for the three years ended December 31, 1997, prepared in accordance with
generally accepted accounting principles, included in the Annual Report on Form
10-K of MBIA Inc. for the year ended December 31, 1997 and the consolidated
financial statements of the Insurer and its subsidiaries as of September 30,
1998 and for the nine-month periods ending September 30, 1998 and September 30,
1997 included in the Quarterly Report on Form 10-Q of MBIA Inc. for the period
ending September 30, 1998 are hereby incorporated by reference into this
Prospectus and shall be deemed to be a parthereof. Any statement contained in a
document incorporated by reference herein shall be modified or superseded for
purposes of this Prospectus to the extent that a statement contained herein or
in any other subsequently filed document which also is incorporated by reference
herein modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
All financial statements of the Insurer and its subsidiaries included in
documents filed by MBIA Inc. pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934, as amended, subsequent to the date of this
Prospectus and prior to the termination of the offering of the Notes shall be
deemed to be incorporated by reference into this Prospectus and to be a part
hereof from the respective dates of filing such documents.
-------------------------
The tables below present selected financial information of the Insurer
determined in accordance with statutory accounting practices prescribed or
permitted by insurance regulatory authorities ("SAP") and generally accepted
accounting principles ("GAAP"):
<TABLE>
<CAPTION>
SAP
---------------------------------------
DECEMBER 31, 1997 SEPTEMBER 30, 1998
----------------- ------------------
(AUDITED) (UNAUDITED)
(IN MILLIONS)
<S> <C> <C>
Admitted Assets...................... $5,256 $6,318
Liabilities.......................... 3,496 4,114
Capital and Surplus.................. 1,760 2,204
</TABLE>
<TABLE>
<CAPTION>
GAAP
---------------------------------------
DECEMBER 31, 1997 SEPTEMBER 30, 1998
----------------- ------------------
(AUDITED) (UNAUDITED)
(IN MILLIONS)
<S> <C> <C>
Assets............................... $5,988 $7,439
Liabilities.......................... 2,624 3,268
Shareholder's Equity................. 3,364 4,171
</TABLE>
-------------------------
Copies of the financial statements of the Insurer incorporated by reference
herein and copies of the Insurer's 1997 year-end audited financial statements
prepared in accordance with statutory accounting practices are available,
without charge, from the Insurer. The address of the Insurer is 113 King Street,
Armonk, New York 10504. The telephone number of the Insurer is (914) 273-4545.
The Insurer does not accept any responsibility for the accuracy or completeness
of this Prospectus or any information or disclosure contained herein, or omitted
herefrom, other than with respect to the accuracy of the
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<PAGE> 21
information regarding the Insurer's policy and Insurer set forth under the
heading "MBIA Insurance Corporation." Additionally, the Insurer makes no
representation regarding the Notes or the advisability of investing in the
Notes.
Moody's Investors Service, Inc. rates financial strength of the Insurer "Aaa."
Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies,
Inc. rates the financial strength of the Insurer "AAA."
Fitch IBCA, Inc. (formerly known as Fitch Investors Service, L.P.) rates the
financial strength of the Insurer "AAA."
Each rating of the Insurer should be evaluated independently. The ratings
reflect the respective rating agency's current assessment of the
creditworthiness of the Insurer and its ability to pay claims on its policies of
insurance. Any further explanation as to the significance of the above ratings
may be obtained only from the applicable rating agency.
The above ratings are not recommendations to buy, sell or hold the Notes, and
such ratings may be subject to revision or withdrawal at any time by the rating
agencies. Any downward revision or withdrawal of any of the above ratings may
have an adverse effect on the market price of the Notes. The Insurer does not
guaranty the market price of the Notes nor does it guaranty that the ratings on
the Notes will not be revised or withdrawn.
YEAR 2000 READINESS DISCLOSURE
An area of potential risk to the Insurer's financial guarantee business would be
the inability of an issuer or its trustee or paying agent to make payments on an
Insurer insured transaction because of their failure to be Year 2000 ready. To
mitigate this risk, the Insurer has been surveying all trustees, all paying
agents and selected high volume issuers to determine their state of readiness.
While the survey is not complete, the results to-date are that all respondents
are either ready or planning to be ready by late 1999. If the Insurer is asked
to pay in those situations where the issuer's system fails, it will do so and
would expect to recover any such payment in a fairly short time period. It is
not possible at this time to evaluate the extent of such payments. The Insurer
believes that it has adequate sources of liquidity to cover these payments.
RATINGS
It is anticipated that S&P and Moody's will assign the Notes the ratings set
forth on the cover page hereof conditioned upon the issuance and delivery by the
Insurer at the time of delivery of the Notes of the Policy, insuring the timely
payment of the principal of and interest on the Notes. Such ratings reflect only
the views of such rating agencies, and an explanation of the significance of
such ratings may be obtained only from such rating agencies at the following
addresses: Moody's Investors Service, Inc., 99 Church Street, New York, New York
10007; and Standard & Poor's, 25 Broadway, New York, New York 10004. There is no
assurance that such ratings will remain in effect for any period of time or that
they will not be revised downward or withdrawn entirely by the rating agencies
if, in their judgment, circumstances warrant. The Insurer does not guarantee the
market price of the Notes nor does it guarantee that the ratings on the Notes
will not be revised or withdrawn. Neither ProvGas nor the Underwriter has
undertaken any responsibility to oppose any proposed downward revision or
withdrawal of a rating on the Notes. Any such downward revision or withdrawal of
such ratings may have an adverse effect on the market price of the Notes.
At present, each of such rating agencies maintains four categories of investment
grade ratings. They are for S&P -- AAA, AA, A and BBB and for Moody's -- Aaa,
Aa, A and Baa. S&P defines "AAA" as the highest rating assigned to a debt
obligation. Moody's defines "Aaa" as representing the best quality debt
obligation carrying the smallest degree of investment risk.
21
<PAGE> 22
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement relating to
the offering of Notes (the "Underwriting Agreement"), between ProvGas and Edward
D. Jones & Co., L.P. (the "Underwriter"), a form of which is filed as an exhibit
to the Registration Statement of which this Prospectus is a part, ProvGas has
agreed to sell to the Underwriter, and the Underwriter has agreed to purchase
from ProvGas, the entire principal amount of the Notes.
The Underwriter has advised ProvGas that it proposes to offer the Notes from
time to time for sale in one or more negotiated transactions or otherwise, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. The Underwriter may effect
such transactions by selling the Notes to or through dealers, and such dealers
may receive compensation in the form of underwriting discounts, concessions or
commissions from the Underwriter and/or the purchasers of the Notes for whom
they may act as agent. The Underwriter and any dealers that participate with the
Underwriter in the distribution of the Notes may be deemed to be underwriters,
and any discounts or commissions received by them and any profit on the resale
of the Notes by them may be deemed to be underwriting discounts or commissions,
under the Securities Act of 1933, as amended (the "Securities Act").
ProvGas has agreed, during the period of 120 days from the date of this
Prospectus, not to issue, sell, offer to sell, grant any option for the sale of,
or otherwise dispose of any debt securities (except for the Notes) which mature
more than one year after the Underwriter's purchase of the Notes and which are
substantially similar to the Notes without the prior written consent of the
Underwriter.
Prior to this offering, there has been no public market for the Notes. The
Underwriter has advised ProvGas that it intends to make a market in the Notes.
The Underwriter will have no obligation to make a market in the Notes, however,
and may cease market making activities, if commenced, at any time.
ProvGas has agreed to indemnify the Underwriter against certain liabilities,
including liabilities under the Securities Act and to contribute to payments the
Underwriter may be required to make in respect thereof.
LEGAL MATTERS
Certain legal matters relating to the Notes will be passed upon for ProvGas by
Hinckley, Allen & Snyder, Providence, Rhode Island. Certain legal matters
relating to the Notes will be passed upon for the Underwriter by Bryan Cave LLP,
St. Louis, Missouri.
EXPERTS
The consolidated financial statements and schedules of ProvGas as of September
30, 1998 and 1997, and for each of the three years in the period ended September
30, 1998, incorporated by reference in this Prospectus, have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto.
The consolidated balance sheets of MBIA Insurance Corporation and Subsidiaries
as of December 31, 1997 and December 31, 1996 and the related consolidated
statements of income, changes in shareholder's equity and cash flows for each of
the three years in the period ended December 31, 1997 incorporated by reference
in this Prospectus, have been incorporated herein in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
that firm as experts in accounting and auditing.
22
<PAGE> 23
INCORPORATION BY REFERENCE:
INFORMATION WE FILE WITH THE SEC
The SEC allows us to "incorporate by reference" the information we file with
them, which means:
- - incorporated documents are considered part of the prospectus;
- - we can disclose important information to you by referring you to those
documents; and
- - information that we file with the SEC will automatically update and supersede
certain information in this prospectus.
We incorporate by reference the document listed below which was filed with the
SEC under the Securities Exchange Act of 1934, as amended ("Exchange Act"):
- - our Annual Report on Form 10-K for the year ended September 30, 1998.
We also incorporate by reference each of the following documents that we will
file with the SEC after the date of this prospectus but before the end of the
Notes offering:
- - reports filed under Sections 13(a) and (c) of the Exchange Act;
- - definitive proxy or information statements filed under Section 14 of the
Exchange Act in connection with any subsequent stockholders' meeting; and
- - any reports filed under Section 15(d) of the Exchange Act.
You may request a copy of any filings referred to above (including any exhibit
if specifically incorporated by reference therein), at no cost, by contacting
us, orally or in writing, at the following address:
The Providence Gas Company
Attention: Corporate Secretary
100 Weybosset Street
Providence, RI 02903
(401) 272-5040
23
<PAGE> 24
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY PROVGAS OR
BY THE UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, THE NOTES IN ANY JURISDICTION WHERE, OR TO ANY
PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE FACTS
SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF PROVGAS SINCE THE DATE HEREOF.
-------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Where You Can Find More Information.. 2
Forward-Looking Statements........... 2
Prospectus Summary................... 3
The Providence Gas Company........... 6
Selected Consolidated Financial
Data............................... 8
Ratio of Earnings to Fixed Charges... 8
Capitalization....................... 9
Use of Proceeds...................... 10
Description of the Notes............. 10
MBIA Insurance Corporation........... 18
Ratings.............................. 21
Underwriting......................... 22
Legal Matters........................ 22
Experts.............................. 22
Incorporation by Reference:
Information We File the SEC........ 23
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
$15,000,000
[PROVIDENCE GAS CO. LOGO]
6.50% SENIOR SECURED INSURED QUARTERLY NOTES
DUE FEBRUARY 1, 2029
(IQ NOTES(SM))
-------------------------
PROSPECTUS
-------------------------
EDWARD D. JONES & CO., L.P.
FEBRUARY 3, 1999
- ------------------------------------------------------
- ------------------------------------------------------
